Q3 2021 Copa Holdings SA Earnings Call
Ladies and gentleman. Thank you for standing by welcome to Copa Holdings third quarter earnings call. During the presentation, all participants will be on a listen only mode.
Or why we will conduct a question and answer session.
That time, if you have a question you will need to press Star then one on your Touchtone phone.
As a reminder, this call is being webcast and recorded on 18th of November 2021.
Now I will turn the conference call over to Danielle tap Yeah director of Investor Relations, Sir you may begin.
Thank you Laurie.
And welcome everyone to our third quarter earnings call.
Joining us today are Pedro.
CEO of Copa Holdings, and Jose Montero, our CFO.
First Pedro will start by going over our third quarter highlights followed by Jose who will discuss our financial results.
Immediately after we will open the call for questions from analysts.
Copa Holdings' financial reports have been prepared in accordance with international financial reporting standards.
In today's call, we will discuss non <unk> financial measures.
A reconciliation of the non <unk> financial measures can be found in our earnings release, which has been posted on the company's website Copa Dot com.
Our discussion today will also contain forward looking statements.
<unk> to historical facts that reflect that reflect the company's current beliefs expectations and our intentions regarding future events and results.
These forward looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions subject to change.
Many of these are discussed in our annual report filed with the SEC.
Now I'd like to turn the call over to our CEO Mr. Pedro here.
Thank you Danielle.
Good morning to all and thanks for participating in our third quarter earnings call.
Before we begin I'd like to thank Golar co workers for their commitment to the company and recognize their continuous efforts and dedication.
To keep <unk> at the forefront of Latin American aviation to them as always.
Most respect and admiration.
You may have seen in our earnings release published yesterday.
Glad to report improved financial results for the third quarter.
The increasing vaccination rates and reduced travel restrictions in Latin America are positively affecting air travel demand in the region.
Enabling us to grow capacity quarter over quarter, while improving load factors.
Since restarting operations in Q3 2020.
We have increased flight from almost zero for nearly 70% of our pre pandemic capacity in Q3 dollars 21.
Going forward.
We expect further relaxation of travel restrictions and it continued demand recovery, which should allow us to deploy additional capacity in the fourth quarter in 2022.
But of course.
<unk> has not gone away.
We.
We've seen in other parts of the world additional waste from the virus could affect demand in the future. So we will remain focused and flexible in terms of capacity.
<unk> our plans as needed.
Now I'll highlight some of our third quarter results.
In terms of capacity, we reached almost 70% of third quarter 2019, as Tim Com.
Compared to 48% of 2019 capacity in the second quarter.
Load factor came in at 79% and.
An improvement of two percentage points compared to the second quarter on an almost 50% quarter over quarter ASM growth.
Revenues increased by 46% over the previous quarter to $445 million.
Our ex fuel CASM.
A decrease from seven 6% in Q2 262 cents in Q3, reaching 2019 unit cost levels at 70% of 2019 capacity.
We reported an operating profit of $59 million.
On an operating margin of 13, 3% in the quarter excluding.
Excluding a $10 4 million passenger revenue adjustments. The company would have reported an operating profit of $48 $6 million and an operating margin of 11, 2%.
We had a cash buildups of $54 million and ended the quarter with a cash balance.
One 3 billion and a total liquidity of over one 6 billion.
On the operational front.
The company delivered an on time performance of 89, 4%.
Our completion factor of 99, 8%.
Once again amongst the best in the industry.
These results are a true testament to our employees' continued commitment to delivering a world class products to our passengers.
With regard to store network, we're excited to start our first new destinations as the beginning of the pandemic.
Beginning in December we will offer service to three new cities are mean yen Cuckoopint Columbia in Atlanta in the U S.
By the end of the year Copa will provide service to 72 destinations in North Central South America and the Caribbean.
And we expect to recover service to the rest of our pre pandemic network during 2022 strengthening our position as the most complete and convenient hub in Latin America.
During the quarter, we agreed with Boeing to accelerate the delivery of 12 737, Max nine that were originally intended to be delivered starting in 2025.
We will receive two of these aircraft in 2022 for a total of seven Max nine deliveries next year.
And the other 10 aircrafts will be added to Copa deliveries from 2023 through 2025.
As to Winkle during the fourth quarter, we would expect to receive two aircraft from the Copa fleet to end the year with a total of eight 737 800.
In closing.
I'd like to reaffirm that we have a proven and strong business model, which is based on operating the best and most convenient network for intra Latin America travel from our hub of the America.
Deleveraging panamax advantageous geographic position with the region's lowest unit cost for a full service carrier best on time performance and strongest balance sheet.
Going forward the <unk>.
We expect that a top of the Americas will be an even more valuable source of strategic advantage now I'll turn it over to Jose who will go over our financial results in more detail.
Thank you Pedro good morning, everyone. Thanks for being with US today will be a dual well.
I'd like to join Pedro in acknowledging our great Copa team for all their efforts and great spirit. During these many months of the pandemic.
I will start by going over our third quarter results.
Capacity came in at $4 4 billion available seat miles, which amounts to 69% of the capacity operated third quarter of 2019.
Load factor came in at an average of 17, 9% for the quarter, an increase compared to Q2, while operating 49% more <unk>.
We reported a net profit of $8 2 million or <unk> 19 per share.
Excluding special items, we would've reported a net profit of $29 9 million or <unk> <unk> per share.
Special items for the quarter are comprised mainly of an unrealized mark to market loss of $32 $1 million related to the company's convertible notes issued in 2020 and $10 4 million in revenues related to unredeemed tickets, which were not included in our underlying results as they correspond to sales made during 2019 and early in 2020.
We reported a quarterly operating profit, which came in at $59 million.
Excluding the $10 $4 million in unredeemed ticket revenues, we had an adjusted operating profit of $48 $6 million for the quarter.
Our operating margin was 13, 3% exclude.
Excluding the passenger revenue adjustment would have reported an operating margin of 11, 2%.
Unit costs, excluding fuel were better than in the second quarter at $6.02 per ASM.
Driven by a quarter over quarter capacity growth of 49%.
Continue with our cost savings initiatives and we are now targeting to achieve unit cost below six once we reach about 90% of our pre COVID-19 capacity.
Are used for the quarter came in at 12, a decrease of three 4% compared to the second quarter, while operating more ASM.
During the third quarter, we had a cash buildup of approximately $54 million driven mainly by increased sales during the period.
As a reminder, for our cash buildup measure we exclude all extraordinary proceeds from asset sales, but increased capex and the payment of our leases and other financial obligations.
We want to spend some time now discussing our balance sheet and liquidity as of the end of the third quarter, we had assets of close to $4 $2 billion and our cash short and long term investments ended at $1 3 billion.
We also ended the quarter with an aggregate amount of $345 million and Unutilized committed credit facilities.
Added to our cash brought our total liquidity to more than $1 6 billion.
In terms of debt, we ended the quarter with $1 6 billion in debt and lease liabilities at similar levels to the ones reported for the end of the second quarter.
Turning now to our fleet in July we finalized the sale and delivery of our last embraer $190 and during the quarter. We delivered two Boeing 777, hundreds to their new owner.
We ended the third quarter with 87 aircraft 68, 737, and 813, 70% of the Max Nines and six 737 seven hundreds.
These figures include aircraft currently in temporary storage that we plan to reactivate in the upcoming months.
During the fourth quarter, we expect to receive two more sort of interesting and Max nines to end the year with a total of 89 aircrafts.
As for the remainder of the year based on the current state of the demand environment and air travel restrictions can provide the following outlook for the fourth quarter of 2021.
We expect capacity to be approximately 83% of Q4 2019 levels at about five 1 billion ASM.
And we expect our operating margin to be approximately 12%.
Our Q4 2021 outlook is based on the following assumptions revenues of approximately 80% of Q4 2019 levels at about $545 million.
CASM ex fuel of approximately six one.
And it all in price of $2 50 per gallon, an increment of approximately 17% quarter over quarter.
Given the uncertainty it is still premature to give you a full year of 2022 guidance.
However for the first secondly, a year.
We preliminarily expect our capacity measured in <unk> sounds to be approximately 92% of the capacity operated during the first half of 2019.
Thank you and with that we'll open the call to some questions.
Thank you Sir reminder, to ask a question you will need to press star one on your I'd tell the following Covid draw your question Ross.
<unk>.
Please stand by while we compile the Q&A roster.
And our first question is from Hunter Keay of Wolfe Research. Your line is open.
Good morning, everybody.
Hey, Joe what is your level of involvement around capacity on growth decisions just as every new market that you add.
Or remove or add to knee jerk approval.
Yes.
Definitely we are.
Relatively small team and we are all very involved in those kind of decisions.
Okay, and what about spending money.
What's your level of involvement in the budget process, not only setting, but also monitoring spend and that's not a COVID-19 question is really how have you done things before COVID-19. How are you planning on doing things after COVID-19.
I think if you ask the team.
And they will tell you that I'm too involved.
And now it's been very involved maybe through the points of obsession and that really hasnt changed and we haven't had to adjust because we've always had that culture of being very involved looking after the details looking at served.
The item in the budget.
Same would route planning on the whole thing again, we are a small team and we're all very involved and everything but but hunter.
During the pandemic the focus has been stronger on these items.
So we have been even more.
Sway.
Strict and careful in the way that we spend our money and how we track that and so there's quite a bit of a involvement from.
From all involved and our steady relationships on personal time on this.
Can you give me an example of maybe a lesson learned from a cost perspective that youre going to keep in place going forward, even when things get better.
Well I would say.
I think a good example.
As the fleet.
Some of them are great.
Movements that we've made in fleet over the last several months.
In terms of just going to an older fleet.
It's been a very very good move and and that creates a lot of the gauge benefit that you get you also get a lot of simplicity in terms of the execution of cost throughout many areas with <unk>.
Flight operations airports maintenance et cetera. So that's that's one that I think it's been very very positive for us.
Thank you very much.
Alright, Thank you and our next question is from Tavy. Thank you.
Of Raymond James Your line is open.
Hey, Thank you good morning, everyone.
I'm just.
<unk> execution has been pretty remarkable and Jose I missed if you said you would get to six or sub 6% then you got to 90% of 2019 capacity.
If you can clarify that and then just along those lines I was wondering.
If we can start thinking about maybe sub $5 you get to 2019 capacity.
What some of the tailwind and headwinds that you might see over the next two years for example, I'm guessing performance bonuses will start up again next year.
It trends Jose just kind of curious if you can give a little bit more color on how you're thinking about the unit cost.
Yes, Savi, yes, our expectation as of now is that when we reach that 90% of 2019 capacity that we will be below the 6% Mark so so yeah and and.
In terms of what are some of the tailwind that we have I mean, we have a lot of projects ongoing.
I'll go back to the fleet itself.
In terms of the.
Uniformity in the fleet and as we put in additional Maxim.
V a.
A good improvement.
I think that there is there is.
Always.
Correct renegotiations and savings.
A form.
I think we will.
I think we shared a lot quite a bit over the last several months in terms of.
The overall cost and.
So yes, we will.
There's more there.
There are certainly we are working on this every day and there's an opportunity I think.
As we grow to bring it probably even further downward at this stage, we'll reserve that.
To 2022, when we get closer to that figure as well.
But I think we're in good track to bring it down below six cents below there.
And Savi, you're right there will be.
<unk> that maybe we haven't had to the same level during the pandemic like performance bonuses, but those are always based on surpassing our targets.
And much better performance and results.
They pay for themselves.
Is there a level that you think is too.
And that you can't reach like mode.
What's the problem.
Thomas Land I guess, the Nintendo what you can hit.
I would say for now we'll keep it at sub six had somewhere in the in the high 5% range is that something where that's very doable.
Okay I appreciate it thank you thank.
Thank you Savi.
Thank you and as a reminder, we would like you to limit your questions to one and one follow up at a time.
And our next question is from Michael Lindenberg of Deutsche Bank. Your line is open.
Yeah, Hey.
Good morning, everyone.
Maybe maybe we could just start on on the cost side.
Jose you were guiding to six six he came in at six two congratulations on being flat to 2019 on slightly less than 70% capacity, which obviously underscores the operating leverage tailwind of your story where.
Where did you make up like what were the positive surprises on the cost side and are these timing benefits that maybe dissipate.
Over the next couple of quarters or are these things more permanent can you can you just wanted to because it was pretty sizeable cosby.
Absolutely, Mike and I have to start by saying that.
And this company wide effort to keep our costs down.
That was that's always been part of our corporate DNA, but we.
Proved on that over the past year and a half I would say specifically for Q3, there were a set of restart related expenses that actually came in lower than what we thought. It was you could argue that it was a little bit of timing and we thought that there was some some expenses that we're going to be somewhat higher than that.
And what we thought initially.
Looking forward we do.
The guidance now for Q4 of $6 one.
So I think that will be sort of at that level at least.
For Q4.
Okay, Great and then just my second question and this is probably Jose or Pedro now that you have 13, 737, Max Nines and the fact that like Youre going to get two more and then another seven so it is going to become a much bigger part of your fleet. It does have a product that historically that is very unique to <unk>.
But from a historical perspective, and I am getting at the fact that you have a lie flat seat, which when you think about all of the service that has been withdrawn in the region, even connecting over Panama. If you can say fly from San Fran to Sao Paulo, and lie flat to a lie flat.
I haven't asked this question in previous quarters, because I didn't think you had enough shells to really give a good answer but when we think about the uptake in the premium cabin.
Are you seeing are you getting better pricing or you add or levels similar to maybe some of the U S competitors or is the pricing.
On par with some of the non stop service. Because this is this is your flagship product and I feel like you can really roll this out and take advantage of those who are willing to pay up for it. So any any color that you can provide on that on that product because I think it's a fantastic product. Thank you.
Thank you Michael a few a few comments.
So we need to have enough shelves, because you will said to guarantee the service.
In a given market. So for example, a.
Francisco.
Im a sao Paolo will have a guaranteed dreams as we call it our product.
<unk>.
Dream service for once it's guaranteed we can price it better consistently.
And so far we've been getting a premium for the dreams product.
Also I should say that our costs are better than auctions through all their hubs or non stop options. When they are they are usually not that many.
So we can do well even pricing at below what was available before for a similar product.
Great Thanks, everyone great quarter.
Thank you.
Thank you and our next question is from Alejandro Demichelis of Credit Suisse. Your line is open.
Thank you hi, pivotal clinical study.
Thank you for taking my questions just a quick question on the yields.
What can we expect for 2022 I mean.
Considering that on one side, you're expecting a further.
Significant progress on capacity this could pushes yields lower.
But also the business traffic it.
Doesn't recover and this could still to come.
Better yields environment, so any thoughts or color around these.
Useful thank you.
Yes.
Yeah, and I'd add.
So.
Yeah.
It's too early we haven't provided full year guidance for 2022, but I would say that system wide.
The yield environment has been improving and you know as we put in capacity.
But I would say that at least initially for the first part of the year it could be off versus the 2019 base.
In.
Kind of mid single digit range.
So so that's that's kind of.
First kind of look into the early part of 2022 in terms of the yield compared to 2019. So it will still be offered at a lower rate than where we were.
Throughout most of 2021.
Okay. Thank you.
Thank you and our next question is from Duane <unk> Evercore ISI. Your line is open.
Hey, good morning, it's nice to see that.
Sandbaggers don't die they just take a little break.
Okay.
Okay.
Thanks for your question, Brian Okay sure.
So just just on on.
On restart right.
Can you can you give us some examples of like what's ahead of you.
Kind of what you are considering.
<unk> are there any pockets, where labor availability as you know more strained or.
And maybe you could just kind of qualitatively talk about pilots for example.
Yeah, Okay. So so.
Your first comment I have to like Paulson.
And think about it.
And I should say that.
We're not trying to sandbag.
Honestly this pandemic has been very difficult to predict.
And even three months ahead, it's light.
Two years in normal times, so so demand came back.
At least in this quarter and what we're seeing in the next few quarters.
Much faster and stronger than what we would've expected.
Some months ago.
So I think that's important to keep in mind.
Times are very different in the old days, we could predict things but.
We grew capacity quarter over quarter, 50% and it was hard to tell them. How was demand how demand was going to react back in November of 2020, which seems like 10 years ago.
We grew capacity quite a bit from Q4 2020 to Q1, 2021 and demand did not been nuts for work.
Not materially so we had to pull back. So so that's kind of the things we're dealing with this pandemic.
It's always good for demand to remain strong and Thats kind of what we're hoping on what we're seeing.
Right now in terms of labor, we think we're okay.
We are about the next maybe Montana half or two months.
We would have brought back from furlough all of our pilots we have already brought back all of our flight attendants and we're even.
Hiring.
Fred Opinionated voluntary leave programs and that's.
Through that Google started hiring new trade attendance when certain partners. We will soon bring back everyone that that was confirmed.
We have pilots that took voluntary relief we've contacted them in a high percent of them is willing to come back and we're also.
Strengthening our own in house pilot Academy.
So we're growing that also so right now.
We feel we're fine in that respect, but again you know, we're always cautious and always alert because this pandemic is always full of surprises and flexibility is key and in all aspects.
This is the way that we've been managing it for the last 12 months.
Yeah.
That's all very fair and if I could just ask maybe a little follow up on.
On the folks that are coming back from voluntary leave.
When you reach out when you when you call them when you email them and say hey, let's get back demand is recovering.
Is the rate at which they are productive consistent with your expectations.
Yes, totally and we have a very very strong.
Training Center, and we have <unk>.
Very good and struck first in your dedicated and committed and if someone is not up to par.
And then that person won't pass the filters so that people that joined the company always had the highest levels.
Okay. Thanks, very much for the thoughts.
Okay.
Right.
Thank you and our next question is from Bruno Amorim of Goldman Sachs. Your line is open.
Thank you very much and congratulations on the performance required for so I just have a very quick follow up on the cost performance.
We saw wages salaries down by four 2% versus the third quarter of 2019, reaching.
Which implies that on a per ASM basis, there's a number of years is around 13% below pre crisis levels. So.
Considering everything that was discussed the potential increase in bonuses and everything going forward to use to expect for.
For this cost line on a per ASM basis should be below pre crisis levels on a sustainable basis.
Or not thank you very much.
And yes, our expectation is that it would remain below pre pandemic levels.
It's mostly will mostly come from overhead adjustments.
And operational efficiencies.
We grow ASN in flight.
We will increase overhead.
But we hope that we will increase capacity by a higher percentage. So we can keep that relation we have right now and again, even if it changes somewhat.
We will probably change with the performance bonuses.
And some of the people we need to bring back it will still be below pre pandemic levels.
Yes, Thank you and if I if I may just.
A follow up.
On the on the competitive environment, what can you comment on what you're seeing from your competitors, who may be new initiatives from.
From players who were maybe not direct competitors in the past I know you don't comment on a specific case, but if you can comment broadly you know what are you seeing from a competitive landscape perspective that would be great. Thank you very much.
Okay.
Quite a bit of action I would say.
We try not to advertise our competitors, but there is action in the region.
From especially from either new entrants or not new entered with new entrants to the region some of the markets.
So there's quite a bit of activity.
No. It's a reason why we've always been so focused on our unit cost.
We always bet that having our unit cost as low as possible and below any full service carrier and very close to low cost carriers is the key to future success.
And that combined with our strong network, which we're keeping strong and growing.
Everything else, we do in terms of having world, leading on time performance and a strong product.
That's the key to our success and we have a very strong pop in the best geographic position and if we do all the other things.
Continue to do everything else correctly.
We should be able to succeed in the future even under new competition, which is something that we've always had to deal with.
Thank you and congratulations again.
Thank you Benoit.
Thank you and our next question is from Pablo <unk> of Barclays. Your line is open.
Hi.
Thanks for taking my question.
Kind of a follow up question on the revenue side.
I am very curious to learn.
What type of Boston, you're sort of on demand segment.
It is driving such strong performance. It is dual nature, driven it's perhaps vaccine tourism or corporate is coming back.
Weaker than expected.
What is.
What is driving this result, and also going forward do you seeing it for example.
We're thinking about leisure.
Alicia would look like when we return to normal perhaps.
For the first half of next year. Thank you.
I will say here.
I would say that the big drivers are our leisure and VFR traffic more so than business.
Before the pandemic and you could argue that.
The breakdown of traffic for US was about a third each segment and that's just now.
A more of a 40%.
Leisure, 40% VFR and above 20%.
Business so their business is off.
Where it was before.
What it is it isn't a vaccine tourism anymore as I've seen tourism leasing our region occurred I want to say back in the second quarter today.
Today, it's more a few more just real leisure of people wanting to go on a vacation after being locked up for a long period of time. So that's kind of what we're seeing in terms of the.
Patterns.
Uh huh.
And for example, do you think about that leisure market driving demand.
If we take into consideration a higher inflation in the region and weaker currencies should we expect that the demand from leisure market is sustainable for 2022.
It is what we're seeing right now.
We are seeing no signs of demand.
Slowing down slowing down and we're seeing we're going to have to stay on this path at least how we're seeing it right now when we look at future bookings.
Perfect Super clear, Thank you very much guys.
Thank you Bob.
Thank you and our next question is from Josh Milberg of Morgan Stanley. Your line is open.
Great. Good day, everyone and thanks for the call I have a follow up on the issue of competition and wanted to ask if you could comment on how much your yields have been helped by either use kilometers.
Bringing capacity back at a slower pace.
When you guys on overlapping routes and then a related one is also.
I believe that Avianca, new CEO made comments in the press recently.
That their alignment shifting to a point to point strategy strategy I just wanted to hear your views on the relevance of that announcement for Copa.
Yes.
We have announced I mean U S carriers have brought it up.
Brooks back capacity.
Due to a higher.
Level.
Then pre pandemic.
Most if not all U S carriers are offering more of Centinela, what they offered in 2019 I'm talking in Latin America.
Some of the major hub and spoke carriers that wins or are going through chapter 11 procedure. So they are below.
When everyone else is above 2019, so it's a mixture there yes.
Because you will mentioned.
Made victor ration, sending things even.
Kind of coverage, they're captured 11 exit plan or something and it's going to be more of a low cost strategy with densify claimed.
Point to point service and lower yields so so so we've heard that.
We're confident that we will be able to maintain our cost advantage.
And be able to compete under any scenario.
We're prepared for that.
Preparing further for that kind of competitive environment.
Thank you very much Pedro.
Thank you Josh.
Thank you and our next question is from Stephen Trent of Citi. Your line is now open.
Thanks, very much guys.
I appreciate you taking my question.
The first one is actually kind of a follow up to Pablos question why do we think about the stickiness on the fare side, especially let's say on some of your low density routes.
Uh huh.
Is there is it fair to say that there is.
Still so much pent up demand that you.
You are seeing.
Very good fair pass through even on <unk>.
Non business travelers.
What we're seeing right now I'm not sure I would call it pent up demand.
What we're seeing is that people.
People want to fly and travel like they did before the pandemic.
In a way its been for pricing.
The degree that this is going on because we are not seeing the fear of traveling that we expected, maybe a year ago or nine months ago.
And I think it's just regular demand. It's just people are going about their business going about their lives.
And just getting out and traveling.
Much as they can afford or the one two or so I would not call. It pent up demand right now.
Okay very helpful Pedro and as my follow up just very quickly I. Appreciate the color on 2022 any high level view for next year.
How many flight.
You guys might be running out of document or it's still too early to say.
Well, we run six flight bank and I don't think that's going to change we've been doing it for me.
For a while.
We're still not all the way back to the number of flights we had pre pandemic, we still have to restart a number of destinations.
That will happen throughout the year 2022, So I think 2022 is a year, where we need to get it back to what we were in 202019 in terms of the size of the hubs the connectivity connectivity the number of flights. So that's kind of what we'll be doing most of the year.
Looking for new opportunities from the hub as well as we mentioned in this quarter. That's what we are adding.
Frequently cities into a network that are that are interesting and unique.
Yes.
Okay, Let me leave it there thanks very much guys.
Thank you Steven.
Thank you and our last question is from Dan Mckenzie of Seaport Global Your line is open.
Oh, Hey, Thanks for squeezing me in here just following up on that last question.
Pent up demand I think the rule of thumb historically in Latin America has been two times GDP and you know are you thinking that once things normalize it might still be two times or could pent up demand drive at something higher to like say three times or even higher than three times.
So it's I think.
It's early to say, where you can wind up but.
What I gave you look at the macroeconomic factors the economies are in a particular level, where yes, I think their travel demand will grow eventually in two to three times GDP growth I think that's that.
The level of where the Latin American economies are still maintains itself.
After COVID-19.
So yes in the longer term I think it's that.
I believe that thats going to be the case.
But it's still COVID-19 is not over yet and that's the only thing you have to be mindful that it's.
It's still a an environment that might have some some more.
Movement or volatility over the next several months.
That actually gets to my next question here and it just sort of ties to operations for the current quarter and and how you've been managing.
Operations over the pandemic with respect to the current quarter I'm just wondering how the network plans have evolved so I'm looking at Brazil, I've seen some some.
Some cuts to Brazil for example, so it looks like you're managing flights based on demand trimming when you need to adding where you can.
So again, you know it doesn't look like it's new to the quarter, but where I'm going with this is.
Do the changes weigh on profitability or do they actually help with profitability.
I would say that we're looking at it very carefully.
Almost constantly.
But I.
I think we were always.
Looking for the opportunities to improve on our profitability also let's talk about <unk>.
Building back the network I think that the key factor here is ensuring that we build the network as quickly and as effectively as we can.
To get to a point where were we.
Or is it sort of.
Capacity of that network.
It's close to where it was prior to the pandemic. That's I think the driving factor that we're looking at.
And then what Youre seeing is what you're saying, which is true. It's also a result of what I was saying earlier about the difficulty in predicting what's ahead.
During this time, so we've had to make more changes and adjustments along the way that we're used to.
<unk> fully in the next few quarters, we'll be able to have a more predictable and stable.
Operation and just stick to it.
Yep understood if I could just squeeze one last one in here, Mike and I actually had the same question on dream seats here and so I guess, if I could just elaborate on that question I'm. Just wondering if today you are selling it as an actual lie flat first class seat or just simply as a generic business class seat at this point and I guess.
You're not really selling it as a flagship product what is the timeframe for when you might feel like you are ready to go live with that.
We do sell it we do.
Sell it for a premium.
When we can guarantee it.
In every flight in a given market. So there's a few markets, where we can already do that and it all depends on the number of shelves. We're operating so as we get more Max nine we added a number of markets right now is probably somewhere around five markets I think it's like four or five.
Markets, where we guarantee the dreams product and in those cases, there is a premium we charge for the product.
I see okay. Thanks for the time you guys.
Thank you thank you Dan.
Operator.
Okay.
Go ahead.
Yes, there are no further questions do you have any closing remarks.
Okay. Thank you operator, and thank you all this concludes our earnings call. Thank you for being with US. Thank you for your continued support.
Have a great have a great day, and we'll see you in the next one thank you all.
Thank you ladies and gentleman. Thank you for participation that concludes the presentation. You may now disconnect and have a wonderful day.
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Ladies and gentleman. Thank you for standing by welcome to Copa Holdings.
Third quarter earnings call.
During the presentation, all participants will be on a listen only mode. After what we will conduct a question and answer session.
At that time, if you have a question you will need to press Star then one on your Touchtone phone.
A reminder, this call is being webcast and recorded on 18th of November 2021 now.
Now I will turn the conference call over to Danielle tap Yeah director of Investor Relations, Sir you may begin.
Thank you Laurie.
And welcome everyone to our third quarter earnings call.
Joining us today are Pedro here.
T O of Copa Holdings, and Jose Montero, our CFO.
First Pedro will start by going over our third quarter highlights.
Followed by Jose, who will discuss our financial results.
Immediately after we will open the call for questions from analysts.
Copa Holdings' financial reports have been prepared in accordance with international financial reporting standards in <unk>.
Today's call, we will discuss non <unk> financial measures.
A reconciliation of the non ifr as to <unk> financial measures can be found in our earnings release, which has been posted on the company's website Copa com.
Our discussion today will also contain forward looking statements.
Limited to historical facts that reflect the risk.
The company's current beliefs expectations, and our intentions regarding future events and results.
These forward looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions subject to change.
Many of these are discussed in our annual report filed with the SEC.
Now I'd like to turn the call over to our CEO Mr. Pedro here.
Thank you Danielle.
Good morning to all and thanks for participating in our third quarter earnings call.
Before we begin I'd like to thank all of our coworkers for their commitment to the company and recognize their continuous efforts and dedication.
To keep Copa at the forefront of Latin American aviation to the MSR My utmost respect and admiration.
As you may have seen in our earnings release published yesterday.
Led to report improved financial results for the third quarter.
The increasing vaccination rates and reduced travel restrictions in Latin America are positively affecting air travel demand in the region.
Enabling us to grow capacity quarter over quarter, while improving load factors.
Since restarting operations in Q3 2020.
We have increased flight from almost zero to nearly 70% of our pre pandemic capacity in Q3 dollars 21.
Going forward.
We expect further relaxation of travel restrictions and it continued demand recovery, which should allow us to deploy additional capacity in the fourth quarter and 2022.
But of course.
Colby has not gone away.
And that we've seen in other parts of the world additional waves of the virus could affect demand in the future. So we will remain focused and flexible in terms of capacity adjusting our plans as needed.
Now I'll highlight some of our third quarter results.
In terms of capacity, we reached almost 70% of third quarter 2019 ASM.
Compared to 48% of 2019 capacity in the second quarter.
Load factor came in at 79% and.
An improvement of two percentage points compared to the second quarter on an almost 50% quarter over quarter ASM growth.
Revenues increased by 46% over the previous quarter to $445 million.
Our ex fuel CASM.
A decrease from seven 6% in Q2 262 cents in Q3, reaching 2019 unit cost levels at 70% of 2019 capacity.
We reported an operating profit of $59 million.
On an operating margin of 13, 3% in the quarter.
Excluding a $10 4 million passenger revenue adjustment the company would have reported an operating profit of $48 $6 million and an operating margin of 11, 2%.
We had a cash buildup of $54 million.
<unk> ended the quarter with a cash balance.
Of one 3 billion and a total liquidity of over one 6 billion.
On the operational front.
The company delivered an on time performance of 89, 4%.
And a completion factor of 99, 8%.
Once again, among the best in the industry.
These results are a true testament to our employees continuous commitment to delivering a world class products to our passengers.
With regards to our network, we're excited to start our first new destination since the beginning of the pandemic.
Beginning in December we will offer service to three new cities are media and Coker tie in Columbia in Atlanta in the U S by.
By the end of the year Copa will provide service to 72 destinations in North Central South America and the Caribbean.
And we expect to recover service to the rest of our pre pandemic network during 2022 strengthening our position as the most complete and convenient hub in Latin America.
During the quarter, we agreed with Boeing to accelerated delivery of 12 737, Max nine that were originally intended to be delivered starting in 2025.
We will receive two of these aircraft in 2022 for a total of seven Max nine deliveries next year.
And the other 10 aircrafts will be added to Copa deliveries from 2023 through 2025.
As to Winkle during the fourth quarter it expects to receive two aircrafts from the Copa fleet to end the year with a total of eight 737 800.
In closing I'd like to reaffirm that we have a proven and strong business model, which is based on operating the best and most convenient network for intra Latin America travel from our hub of the America.
Leveraging panamax advantageous geographic position with the region's lowest unit cost for a full service carrier best on time performance and strongest balance sheet going forward. The company expects that its top of the Americas will be an even more valuable source of strategic advantage now I'll turn it over to Jose.
I'll go over our financial results in more detail.
Thank you Pedro good morning, everyone. Thanks for being with US today will be your dual well.
Like to join Pedro in acknowledging our great corporate team for all their efforts and great spirit. During these many months of the pandemic.
I will start by going over our third quarter results.
Our capacity came in at $4 4 billion available seat miles, which amounts to 69% of the capacity operated this third quarter of 2019.
Load factor came in at an average of 79% for the quarter, an increase compared to Q2, while operating 49% more ASM.
We reported a net profit of $8 $2 million or <unk> 19 per share.
Excluding special items, we would've reported a net profit of $29 9 million or <unk> 17 per share.
Special items for the quarter are comprised mainly of unrealized mark to market loss of $32 1 million.
Related to the company's convertible notes issued in 2020 and $10 4 million in revenues related to unredeemed tickets, which were not included in our underlying results as they correspond to sales made during 2019 in early in 2020.
We reported a quarterly operating profit, which came in at $59 million.
Excluding the $10 $4 million in unredeemed ticket revenues, we had an adjusted operating profit of $48 $6 million for the quarter.
Our operating margin was 13, 3% excluding the passenger revenue adjustment, we would have reported an operating margin of 11, 2%.
Unit costs, excluding fuel were better than in the second quarter at $6 <unk> per ASM driven.
Driven by our quarter over quarter capacity growth of 49%.
We continue with our cost savings initiatives and we are now targeting to achieve unit cost below six.
Once we reach about 90% of our pre COVID-19 capacity.
Our yields for the quarter came in at 12, a decrease of three 4% compared to the second quarter, while operating more ASM.
During the third quarter, we had a cash buildup of approximately $54 million driven mainly by increased sales during the period.
As a reminder, for our cash buildup measure we exclude all extraordinary proceeds from asset sales, but increased capex and the payment of our leases and other financial obligations.
We want to spend some time now discussing our balance sheet and liquidity as at the end of the third quarter, we had assets of close to $4 2 billion.
Our cash short and long term investments ended at $1 3 billion.
We also ended the quarter with an aggregate amount of $345 million in Unutilized committed credit facilities, which added to our cash brought our total liquidity to more than one 6 billion.
In terms of debt, we ended the quarter with $1 6 billion in debt and lease liabilities at similar levels to the ones reported for the end of the second quarter.
Yes.
Turning now to our fleet in July we finalized the sale and delivery of our last embraer $190 and during the quarter. We delivered two Boeing 777, hundreds to their new owner.
We ended the third quarter with 87 aircraft 68, 37, 813 cemetery, selling Max Nines, and six 737 seven hundreds.
These figures include aircraft currently in temporary storage that we plan to reactivate in the upcoming months.
During the fourth quarter, we expect to receive two more so I understand and Max nines to end the year with a total of 89 aircrafts.
As to the remainder of the year based on the current state of the demand environment and air travel restrictions can provide the following outlook for the fourth quarter of 2021.
We expect capacity to be approximately 83% of Q4 2019 levels at about five 1 billion ASM and.
And we expect our operating margin to be approximately 12%.
Q4, 2021 outlook is based on the following assumptions revenues of approximately 80% of Q4 2019 levels at about $545 million.
CASM ex fuel of approximately six one.
And an all in price of $2 50 per gallon, an increment of approximately 17% quarter over quarter.
Given the uncertainty it is still premature to give you a full year of 2022 guidance. However for the first secondly, a year.
We preliminarily expect our capacity measuring ASM to be approximately 92% of the capacity operated during the first half of 2019.
Thank you and with that we'll open the call to some questions.
As a reminder to ask a question you will need to press star one on your telephone you may draw your question Ross.
Please stand by while we compile the Q&A roster.
And our first question is from Hunter Keay of Wolfe Research. Your line is now open.
Good morning, everybody.
Hey, Joe what is your level of involvement around capacity growth decisions just as every new market that you add or remove or add to knee jerk approval.
Yes, definitely we are.
Relatively small team and we're all very involved in those kind of decisions.
Okay, and what about spending money and so Joe I mean whats.
What's your level of involvement in the budget process, not only setting, but also monitor and spend and that's not a COVID-19 question is really how have you done things before Covid. How are you planning on doing things after COVID-19.
I think if you ask the team.
I will tell you that I'm too involved.
And now it's been very involved maybe to the point of obsession and that really hasn't changed we haven't had to adjust because we've.
<unk> always had that culture of being very involved looking after the details looking after every every item in the budget and the.
Same with route planning on the whole thing again, we are a small team and we are all very involved in everything but the hunter.
During the pandemic the focus has even been stronger on these items.
So we have been even more.
Sway.
Strict and careful in the way that we spend our money and how we track that and so there's quite a bit of involvement from.
From all involved in steady relationships on personal time on this as.
So can you give me an example of maybe a lesson learned from a cost perspective that youre going to keep in place going forward, even when things get better.
Well I would say.
I think a good example.
The fleet.
Similarly, a great move.
That we've made in fleet over the last several months.
In terms of just going to an older fleet.
It's been a very very good move and and that creates a lot of besides the gauge benefit that you get you also get a lot of simplicity in terms of the execution of costs throughout many areas with <unk>.
Flight operations airports maintenance etcetera. So that's one that I think has been very very positive for us.
Thank you very much.
Alright, Thank you and our next question is from David <unk>.
Of Raymond James Your line is open.
Hey, Thank you good morning, everyone.
I'm just.
<unk> execution has been pretty remarkable and Jose I missed if you said you would get to six or sub six sense when you get to 90% of our 2019 capacity.
If you can clarify that and then just along those lines I was wondering if.
If we can start thinking about maybe sub five eight then you get to 2019 capacity.
What some of the tailwind and headwinds that you might see over the next two years for example, I'm guessing performance bonuses will start up again next year.
At San Jose just kind of curious if you can give a little bit more color on how you're thinking about the unit cost.
Yes, Savi, yes, our expectation as of now is that when we reach that 90% of 2019 capacity that we will be below the <unk> mark So so yeah and and.
In terms of what are some of the tailwind that we have I mean, we have a lot of projects ongoing.
I'll go back to the fleet itself.
In terms of the uniformity in the fleet and as we put in additional Maxim.
A good improvement.
I think that there is.
Always.
As the contract renegotiations and savings that we've performed.
I think we will.
<unk>.
We have been we shed a lot quite a bit over the last several months in terms of.
While the overall cost and.
So yes, we will.
There is more there.
There are certainly we are working on this every day and there is an opportunity I think for as.
As we grow to bring it probably even further downward.
We will reserve that too.
To 2022, when we get closer to the finger anymore.
But I think we're in a good track to bring it down below <unk> below there as you mentioned.
Saturday Youre right there will be.
Expenses that maybe we haven't had to the same level during the pandemic like performance bonuses the door.
So always a space.
Surpassing our targets.
And much better performance and results.
They pay for themselves.
Is there a level that you think is too.
But you can't rule looks like.
What's the.
Thomas Land I guess, the Nintendo what you go ahead.
I would say for now we'll keep it at sub six had somewhere in the in the high five range is something that is very doable.
I.
Great. Thank you thank.
Thank you Sally.
Thank you and as a reminder, we would like you to limit your questions to one and one follow up at a time.
And our next question is from Mike Lindenberg of Deutsche Bank. Your line is open.
Yeah, Hey.
Good morning, everyone.
Maybe maybe we could just start on on the cost side.
Jose you were guiding to six six you came in at six two congratulations on being flat to 2019 on slightly less than 70% capacity, which obviously underscores the operating leverage tailwind of your story where.
Where did you make up like what were the positive surprises on the cost side and are these timing benefits that maybe dissipate.
Over the next couple of quarters or are these things more permanent can you can you just wanted to because it was pretty stable cost base.
Absolutely, Mike and I have to start by by saying that.
We've been in this company wide effort to keep our costs down.
That was that's always been part of our corporate DNA, but we.
Improved on that over the past year and a half I will say specifically for Q3, there were a set of restart related expenses that actually came in lower than what we thought the total windows you could argue that it was a little bit of timing and we thought that there were some some expenses advert and we're gonna be somewhat higher than.
And then what we thought initially and looking forward, we gave the guidance now for Q4 of $6 <unk>.
So I think that will be sort of at that level at least.
For Q4.
Okay, Great and then just my second question and this is probably a jose or Pedro now that you have 13 <unk>.
737, Max Nines, and the fact that like Youre going to get two more and then another seven so it's going to become a much bigger part of your fleet. It does have a product that historically that is very unique to Copa from a historical perspective, and I am getting at the fact that you have a lie flat seat, which when you think about all of the service.
That has been withdrawn in the region, even connecting over Panama. If you can say fly from San Fran to Sao Paulo.
Lie flat to a lie flat.
I haven't asked this question in previous quarters, because I didn't think you had enough shells to really give a good answer but when we think about the uptake in the premium cabin. What are you seeing are you getting better pricing or you add or levels similar to maybe some of the U S competitors or is the pricing.
On par with some of the non stop service. Because this is this is your flagship product and I feel like you can really roll this out and take advantage of those who are willing to pay up for it. So any any color that you can provide on that on that product because I think it's a fantastic product. Thank you.
Yes, Thank you Michael.
A few comments.
We need to have enough shelf as you will spread to guarantee the service on.
On a given market. So for example, a San Francisco.
Hello, Paolo will have a guaranteed dreams as we call it our product.
Darren.
Dream service or once it's guaranteed we can price it better consistently.
And so far we've been getting a premium for the dreams product.
And also I should say that our costs are.
Our better than auctions through all their hubs or non stop options. When they are they're usually not that many.
So so we can do well even pricing at below what was available before for a similar product.
Great Thanks, everyone great quarter.
Thank you.
Thank you and our next question is from Alejandro <unk> of Credit Suisse. Your line is open.
Thank you hi, pivotal clinical say it again.
Thank you for taking my questions, maybe just a quick question on loan yields.
What can we expect for 2022.
Considering that on one side or you are expecting a further.
Significant progress on capacity and this could be.
Bush's yields lower.
Also the business traffic southbound recover and this could fail to have.
A better yields environment, so any thoughts or color around these.
It may be useful thank you.
Yeah.
And it also.
It's too early we haven't provided full year guidance for 2022, but I would say that system wide.
The yield environment has been improving and you know and as we put in capacity.
I'd say that yes at least initially for the first part of the year it could be off versus the 2019 base.
In the kind of mid single digit range.
So so that's that's kind of the first kind of look into the early part of 2022 in terms of the yield compared to 2019. So it will still be awkward, but at a lower rate than where we were throughout most of 2021.
Okay. Thank you.
Thank you and our next question is from Duane <unk> with Evercore ISI. Your line is open.
Hey, good morning, it's nice to see that.
Sandbaggers don't die they just take a little break.
Yes.
Okay.
Thanks, Ken.
For your question right, Okay sure.
So just just on.
On restart right.
Can you can you give us some examples of like what's ahead of you.
Kind of what Youre, considering are there any pockets, where labor availability is more strained or.
And maybe you could just kind of qualitatively talk about pilots for example.
Yeah, Okay. So so.
Your first comment.
Like pulse and think about it.
And I should say that.
We're not trying to sandbag.
Honestly this pandemic has been very difficult to predict.
Even three months ahead is like two years in normal times. So so demand came back at least in this quarter and what we're seeing in the next few quarters.
Much faster and stronger than what we would've expected.
Months ago.
So I think that's important to keep in mind that.
Times are very different in the old days, we could predict things but.
We grew capacity quarter over quarter, 50% and it was hard to tell them how was demand how the amendment is going to react back in November of 2020, which seems like 10 years ago.
We grew capacity quite a bit from from Q4 2020 to Q1, 2021 and demand did not did not show up.
Not materialize, so we had to pull back so so thats kind of the things we're dealing with this pandemic.
It's always good for demand to remain strong and Thats kind of what we're hoping on what we're seeing.
Right now in terms of labor, we're seeing we're okay.
We.
We are about the next may be Montana half for two months.
And we would have brought back from furlough all of our pilots.
We have already brought back all of our flight attendants and we're even.
Rehiring.
Hey, Fred opinions took voluntary leave programs.
And after that group.
Started hiring new trade attendance. So in progress we will soon bring back everyone that that was confirmed.
We have pilots that took voluntary leave we've contacted them.
A high percentage of them is willing to come back and we're also.
Strengthening our own in house pilot Academy.
So we're growing that also so right now we feel we're fine.
In that respect, but again, we're always cautious and always alert because this pandemic is always full of surprises and flexibility is key and in all aspects and this is the way that we've been managing it for the last several months.
Yes.
That's all very fair and if I could just ask maybe a little follow up on.
On the folks that are coming back from voluntary leave.
When you reach out when you when you call them when you email them and say hey, let's get back demand is recovering.
Is the rate at which they are productive.
With your expectations.
Juliet totally and we have a very very strong.
A training center and we have very good instructors and there are dedicated and committed and if someone is not up to par.
Then that person one pass of the filters. So the people that joined the company always had the highest levels.
Okay. Thanks, very much for the thoughts.
Okay.
Right.
Thank you and our next question is from Bruno Amorim of Goldman Sachs. Your line is open.
Thank you very much and congratulations on the performance required for so I just have a very quick follow up on the cost performance.
We saw wages salaries down by four 2% versus the third quarter of 2019.
Which implies that on a per ASM basis. This number here is around 13% below pre crisis levels. So.
Considering everything that was discussed the potential increase in bonuses and everything going forward do you have to expect for.
For this cost line on a per ASM basis should be below pre crisis levels on a sustainable basis.
Or not thank you very much.
Yeah.
And yes, our expectation is that it would remain below pre pandemic levels.
Mostly we will mostly come from overhead adjustment.
On operational efficiencies.
We grow ASM in flight.
We will increase overhead.
But we hope that we will increase capacity by a higher percentage. So we can keep that relation we have right now and again, even if it changes somewhat.
We'll probably change with the performance bonuses.
Some of the people we need to bring back.
It will still be below pre pandemic levels.
Yes, Thank you and if I if I may just.
A follow up.
On the on the competitive environment, what can you comment on what you're seeing from your competitors, who may be new initiatives from.
From players who were maybe not direct competitors in the past I know you don't comment on a specific case, but if you can comment broadly you know what are you seeing from a competitive landscape perspective that would be great. Thank you very much.
Okay.
Quite a bit of extra and I would say.
We try not to advertise our competitors, but the rate action in the region.
From especially from either new end trends or not new entrants with new entrants to the region. Some of the markets you OCC. So there is quite a bit of activity.
No. It's a reason why we've always been so focused on our unit costs.
We are having our unit cost as low as possible and below any full service carrier and very close to low cost carriers is the key to future success.
And that combined with our strong network.
Which we're keeping strong and growing.
Everything else, we do in terms of having world, leading on time performance and a strong product and we think thats. The key to our success and we have a very strong part in the best geographic position and if we do all the other things we can.
Continue to do everything else correctly.
And we should be able to succeed in the future even under new competition, which is something that we've always had to deal with.
Thank you and congratulations again.
Thank you.
Thank you and our next question is from Pablo <unk> of Barclays. Your line is open.
Hi.
Thanks for taking my question.
Kind of a follow up question on the revenue side.
I am very curious to know why.
What type of passengers sort of on demand segment.
Is driving such strong performance. It is pure leisure driven it's perhaps vaccine tourism or corporate east is coming back.
Quicker than we expected.
What is.
What is driving this result, and also going forward do you seeing it for example.
Are you thinking about leisure how leisure would look like when we return to normalcy, perhaps.
For the first half of next year. Thank you Pablo.
Let's say here.
<unk>.
I would say that the big drivers are our leisure and VFR traffic more so than business.
Before the pandemic you could argue that.
The breakdown of traffic for US was about a third each segment.
And that's up now.
Probably more of a 40%.
Leisure, 40% VFR and above 20%.
Business so their business is off.
Where it was before.
What it is it isn't a vaccine tourism anymore vaccine tourism at least in our region occurred I want to say back in the second quarter.
It's more a few more just real leisure of people wanting to go on a vacation after being locked up for a long period of time. So that's kind of what we're seeing in terms of.
Patterns.
Uh huh.
And for example, do you think about that leisure market driving demand.
If we take into consideration a higher inflation in the region and weaker currencies should we expect that this demand from leisure market is sustainable for 2022.
It is what we're seeing right now.
We are seeing no signs of demand.
Slowing down slowing down and we're seeing we're going to stay on this path at least how we're seeing it right now when we look at future bookings.
Perfect Super clear, Thank you very much guys.
Thank you Bob.
Thank you and our next question is from Josh Milberg of Morgan Stanley. Your line is open.
Great. Good day, everyone and thanks for the call I had a follow up on the issue of competition and wanted to ask if you could comment on how much your yields have been helped by either U S carriers.
Bringing capacity back at a slower pace.
When you guys on overlapping routes and then a related one is also.
I believe that Avianca, new CEO made comments in the press recently.
Their line is shifting to a point to point strategy strategy I just wanted to hear your views on the relevance of that announcement for Copa.
Yes.
Have announced I mean U S carriers have brought up.
Brooks back capacity.
Towards higher.
Level.
Then pre pandemic.
So most if not all U S carriers are offering morry assumes none of them would be offered in 2019 I'm talking to in Latin America.
Some of the major hub and spoke carriers that wins or are going through chapter 11 procedure. So they are below.
But when everyone else is above 2019, so it's a mixture there yes.
And because you will mentioned.
Made Victor a ration spending things even.
Kind of coverage, they're captured 11 exit plan or something and it's going to be more of a low cost strategy with densify claimed.
Support and service.
Lower yields so so so yes, we've heard that.
And we're confident that we will be able to maintain our cost advantage.
And be able to compete under any scenario.
We're prepared for that and we are.
Preparing further for that kind of competitive environment.
Thank you very much Pedro.
Thank you Josh.
Thank you and our next question is from Stephen Trent of Citi. Your line is open.
Thanks, very much guys I appreciate you taking my question.
The first one is actually kind of a follow up to Pablos question why do we think about the stickiness on the fare side, especially let's say on some of your low density routes.
Is there is it fair to say that there is.
Still so much pent up demand that.
You are seeing.
Very good fair pass through even on <unk>.
Non business travelers.
What we're seeing right now I'm not sure I would call it pent up demand.
What we're seeing is that people.
People want to fly and travel like they did before the pandemic.
And in a way it has been sort of pricing.
To the degree that this is going on because we are not seeing the fear of traveling that we expected, maybe a year ago or nine months ago.
And I think it's just regular demand. It's just people are going about their business going about their lives.
And.
And just getting out and traveling.
As much as they can afford or the one two or so I would not call. It pent up demand right now.
Okay very helpful Pedro.
My follow up just very quickly I appreciate the color on 2022 any high level view for next year.
How many flight thanks you.
You guys might be running out of <unk>, it's still too early to say.
Well, we run six flight bank and I don't think that's going to change we've been doing it.
For a while.
We're still not all the way back to the number of flights we had pre pandemic, we still have to restart a number of destinations.
And that will happen throughout the year 2022. So I think 2022 is a year, where we need to get it back to what we were in 202019 in terms of the size of the hubs the connectivity connectivity the number of flight. So that's kind of what we'll be doing most of the year.
Always looking for new opportunities from the hub as well as we mentioned in this quarter. That's why we are adding.
Frequently our cities into a network that are that are interesting and unique.
Okay, Let me leave it there thanks very much guys.
Thank you Steven.
Thank you and our last question is from Dan Mckenzie of Seaport Global Your line is open.
Oh, Hey, Thanks for squeezing me in here just following up on that last question.
Pent up demand I think the rule of thumb historically in Latin America has been two times GDP and how are you thinking that once things normalize it might still be two times or could pent up demand drive, it's something higher to like say three times or even higher than three times.
I think Dan.
It's early to say, where the wind up but.
But I gave you look at the macroeconomic factors. The economies are in a particular level, where yes, I think their travel demand will grow eventually two to three times GDP growth I think that's that.
Level of where the Latin American economies are still maintains itself.
After COVID-19.
So yes in the longer term I think as that.
I believe that thats going to be the case.
But it's still probably is not over yet that's the only thing you have to be mindful that it is.
It's still a an environment that might have some some more.
Movement or volatility over the next several months.
That actually gets to my next question here and it just sort of ties to operations for the current quarter and and how have you been managing.
Operations over the pandemic with respect to the current quarter I'm just wondering how the network plans have evolved so I'm looking at Brazil, I've seen some some some cuts to Brazil. For example, so it looks like Youre managing flights based on demand training when you need to adding where you can.
So again, you know it doesn't look like it's new to the quarter, but where I'm going with this is.
Do the changes weigh on profitability or do they actually help with profitability.
I would say that we're looking at it very carefully.
I almost constantly.
But.
I think that we were always.
Looking for the opportunities to improve on our profitability also lets hold that.
Building back the network I think that the key factor here is ensuring that we build the network as quickly and as effectively as we can.
To get to a point where we're.
Or is it sort of.
Capacity of that network is close to where it was prior to the pandemic. That's I think the drive et cetera, We're looking at and then what Youre seeing what youre, saying, which is true.
Also we sold what I was saying earlier about the difficulty in predicting what's ahead.
During this time, so we've had to make more changes and adjustments along the way that we're used to.
Hopefully in the next few quarters, we'll be able to have a more predictable and stable.
Operation and just stick to it.
Understood if I could just squeeze one last one in here, Mike and I actually had the same question on dream seats here and so I guess, if I could just elaborate on that question I'm. Just wondering if today you are selling it as an actual live flat first class seat or just simply as a generic business class seat at this point and I guess, if you're not really selling it.
As a flagship product what is the timeframe for when you might feel like you are ready to go live with that.
We do sell it we do.
Sell it for a premium.
When we can guarantee it.
In every flight in a given market. So there's a few markets, where we can already do that and it all depends on the number of shelves. We're operating so as we get more Max nine we added a number of markets right now, it's probably somewhere around five markets I think like four or five markets, where we guarantee the dreams.
Product and in those cases.
There is a premium we charge for the product.
I see okay. Thanks for the time you guys.
Thank you thanks, Dan.
Operator.
Right.
Yes, there are no further questions do you have any closing remarks.
Thank you operator.
Thank you all this concludes our earnings call. Thank you for being with us.
For your continuous support.
Great have a great day, and we'll see you in the next one thank you all.
Thank you ladies and gentleman. Thank you Paul participation that concludes the presentation. You may now disconnect and have a wonderful day.