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This column was originally published on RealMoney on Nov. 2 at 2:02 p.m. EDT. It's being republished as a bonus for readers.


Mad Money

last week,

Jim Cramer highlighted -- energetically, as always --

Lan Airlines


, a South American regional carrier.

Cramer expected his television audience to be surprised that he would have something nice to say about an airline -- after all, the U.S. airline business has been dreadful. Warren Buffett concurs, having been quoted as saying, "I have an 800 number now that I call if I get the urge to buy an airline stock. I call at 2 in the morning and I say: 'My name is Warren and I'm an airoholic.' And then they talk me down."

However, the South American airline industry is an exception. I'm seeing some of the same alluring trends that Cramer mentioned, but I have a different way to play it:

Gol Linhas Aereas Inteligentes

(GOL) - Get Free Report


Brazilians on the Move

Even today, in the 21st century, most of Brazil's 186 million citizens lack any meaningful interstate passenger rail service and travel by bus rather than air. In 2003, interstate bus companies transported more than 132 million passengers, while the domestic airlines carried less than 30 million passengers, according to the Brazilian Department of Highways.

For many years, air transportation has been affordable only to the well-to-do in Brazil.

Enter Brazil's only no-frills airline, Gol. Founded in 2001, Gol has a low-cost, low-fare business model that has played a major role in significantly increasing air travel in Brazil, which is up nearly 20% from year-earlier levels. Brazil's market now ranks second, only behind China, in terms of projected air-travel growth.

Gol's secret to success is simple: Keep costs down.

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By maintaining a simplified, single-class aircraft fleet that is one of the industry's newest, Gol has been able to reduce maintenance costs and limit its planes' down time. It also relies heavily on low-cost distribution channels and sales: About 80% of the company's ticket sales are online. And unlike the U.S. air market, where labor costs can amount to 40% of overall costs, in Brazil that figure is closer to 10%.

The end result is that Gol's cost per available seat kilometer, at less than 6 cents, is one of the lowest in the airline industry worldwide, and 30% lower than that of its primary competitors.

It's certainly doing something right.

In less than five years, Gol has captured 28.8% of the domestic Brazilian market, measured by revenue passenger kilometers, and it now stands as the country's No. 2 airline behind

TAM Linhas Aereas

. It also boasts industry-leading margins and load factors -- the percentage of aircraft-seating capacity that is actually utilized.

While Gol's business model clearly deserves most of the credit for its impressive market-share gains, one company's loss is another company's gain.

The country's oldest airline,


, filed for bankruptcy in June, struggling under the weight of its $3.4 billion debt load. As recently as 2004, Varig dominated the Brazilian air travel market, carrying 56% of travelers on domestic and international flights. As Varig focuses on working out its reorganization plans, it has seen its market share cut in half by TAM and Gol.

Going International

Now, Gol is taking the same formula that has served it so well domestically and applying it to international markets.

The company started out in January 2001 with six single-class Boeing aircraft serving five cities in Brazil. Today, with its fleet of 39 Boeing 737 planes, Gol offers 400 daily flights to 44 major business and tourist destinations in Brazil and Argentina.

While this is impressive, the company's growth spurt is still under way.

Gol plans to double its fleet in the next five years, increasing the opportunities to serve new markets in Brazil and the rest of South America.

The company commenced service to Buenos Aires, its first destination outside of Brazil, last December. Next week, Gol will make its inaugural flight to Santa Cruz de la Sierra, Bolivia, its second international destination. About 150,000 passengers flew between Brazil and Bolivia in 2003, making it the fourth-biggest international air destination for Brazilians.

Next up are flights to Montevideo, Uruguay, and Asunción, Paraguay.

Then there's Mexico. Gol is teaming up with Mexican businessman Fernando Chico Pardo to launch a low-fare airline in Latin America's biggest economy, where there's growing demand for affordable air travel. While only about 5% of the country's 106 million residents currently fly the friendly skies, research shows more consumers would like to but simply can't afford full-priced airfare.

Gol's low-fare entry in Mexico will be an attractive value proposition to millions of people, and the company is likely to rapidly gain share -- just like it has conquered Brazil in five short years. In the meantime, Gol boasts first-class fundamentals.

The Proof of the Pudding

Earlier this week, Gol reported strong sales and earnings growth, increasing passengers even while ticket prices were jacked up to offset higher fuel costs.

The company also seems to have caught the attention of several distinguished institutional investors. The Boston-based hedge fund Vinik Asset Management, run by Jeffrey Vinik, the former manager of Fidelity's Magellan mutual fund, is the fifth-largest holder, with a 2.7% stake. Stanley Druckenmiller's Duquesne Capital and Nicholas Applegate Capital Management have taken positions in Gol as well, according to



Yet despite Gol's strong fundamentals and bright growth prospects, the stock still appears reasonably valued. It's currently trading at 11 times forward earnings, significantly lower than its long-term growth rate and the industry average, which is closer to 25 times. Technically, the stock broke out of a year-long base yesterday on heavy volume, providing what could prove to be great entry.

In short, it looks like there's nothing but clear skies ahead for Gol. Now's the time to get on board and prepare for takeoff.

P.S. from Editor-in-Chief, Dave Morrow:

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Charles L. Norton, CFA, is a principal of GNI Capital, Inc., an SEC-registered investment advisor that provides investment management expertise for separately-managed equity, fixed income and ETF portfolios and a hedge fund, and is co-portfolio manager of the Vice Fund (VICEX) and the Generation Wave Growth Fund (GWGFX). In addition, Mr. Norton authors a twice-monthly newsletter, Supernova Stocks, which focuses on investments in market-leading stocks with unique and extraordinary growth potential. Mr. Norton had been a vice president in the equity research department of a New York-based hedge fund, where he also managed separate accounts for high net worth clients. Prior to his experience on the buy side, Mr. Norton worked in the investment banking division of Salomon Smith Barney, where he was an analyst in the health care group, reporting directly to the head of the group. While Mr. Norton cannot provide investment advice or recommendations, he appreciates your feedback;

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