Q2 2022 Gol Linhas Aereas Inteligentes SA Earnings Call
Dynamic time for the airline industry is new demand trends are emerging in the post pandemic post pandemic recover.
And with the help of our chemo vehicles, I am confident and leading the go to even greater heights.
Turning now to the results for the quarter, we recognized two very important achievements, especially considering the seasonality of the period historically the weakest of the year.
We grew our revenues and improve our operating results notably.
We recorded one of the highest levels of quarterly revenues in the <unk> history. The second quarter represents a milestone in the recover of the demand for air travel, we had resumption of corporate travel stimulated by new forms of hybrid working in company and instability in the leisure market.
The combination of the high percentage of the Brazilian population vaccinated.
And our future booking curves make us believe that demand will continue to increase in the coming months.
And in a sustainable way once again <unk> ability to efficient management.
This increasing traffic derives from the company's main differentiable strong in this planet capacity management with our continuous focus on preserving profitability and liquidity I want to draw particular attention to the 66% increase in yields and 51 increase in kras.
<unk>.
<unk> was 35% higher than pre pandemic numbers and second quarter.
2019, and our yields are growing faster than our competitors.
Our capacity measured in <unk> more than doubled and we surpassed said not only second Q21 sales, but also those of <unk> 2019.
These numbers are significant to us as it implies that our growth is now returning to the track that is that it was prior to the pandemic our unit cost ex fuel decreased by around 45% an important metric that demonstrates how go increases productivity and efficiency during pandemic.
We had an average of 500 daily flights in the quarter, reaching more than 200 market and carrying approximately 6 million passengers more than that number the number of passengers carried in second quarter 'twenty one.
The gold network is evolving to account for a rebound of the corporate <unk>, which provides the best margins for our company.
Accordingly to Evercore go continues to maintain its an EBIT leadership in this segment.
We expanded our presence our presence in regional markets with four new basis on pretzels and sanctions that are impressive in the states of Sunpower and <unk>, Hulu and Uruguay, Anna and the state of your branded as soon the connectivity of these routes in <unk> Airport places us in a privileged position.
To serve these passengers and improve our customer services.
In the international market, we resumed flights to Miami, Orlando and Buenos items, using the efficiency of our Boeing 737, Max aircraft for a longer flight.
And greater savings. In addition, we also resumed our operations to Paraguay, and Bolivia departing from Guadalupe.
The year over year comparison, we double our capacity our demand and our daily average flights as a result, our unit revenue grew by 41% leading us to achieve one of the highest parker's for the revenue and the growth history.
Time after time, our business model and the lowest cost structure in the region proven to be highly efficient and challenge operating environment and that put us in an advantageous position to capture the demand rebound on the Brazilian market.
We are keeping the pace of our fleet modernization plan due to the combination of cost advantages and greater sustainability from a reduction in carbon emissions.
This quarter, we took delivery of three new 737, Max aircraft and returned one 737 LNG by the end of 2022, we expect to have 44 737, Max aircrafts representing around one third of.
The total fleet our target is to have 50% of our fleet comprised by.
737, Max in 2025.
The aircraft returns planes for the following quarters will preserve liquidity using the maintenance supports deposits accumulated to offset the aircraft's return costs.
Pre aircrafts previously scheduled to be returned will be converted to data data freighter models for the partnership with <unk>.
Which will generate approximately 100 million highs of potential incremental revenue will go look the first aircraft is beginning operation next month.
Turning now.
Our lowest program with miles customers basis, surpassing 20 million market.
And the level of sales achieved 1 billion reais in the quarter synergies, we're generating from tax and seat inventory management important levers that optimize gross working capital and liquidity the acquisition of the minority interest in Myers had a payback period of one year and we will do.
You expect at least 3 billion highs in additional synergies in the following years.
Now I would like to make a couple of comments about our 2022 guidance detailed in our earnings release.
Adjustments in our capacity for the rest of the year reflect the industry dynamic due to a more challenging scenario in terms of Q.
And exchange rate variations, partially compensated by a strong revenue environment first we expect lower margins and leverage to remain at around eight times adjusted net debt over requirements of each of them.
I would like to conclude by thank you again, our team of vehicles. In addition to our customers investors and suppliers, who continually demonstrate confidence in the company's business model and management now.
We will comment on our financial highlights rich.
Both <unk> and art became more than doubled.
Kohl's, SK and art became more than doubled compared to.
For the second quarter of 'twenty, one achieving approximately 80% of 2019 levels with <unk>. Thank you.
Those yields and RASK presented an increase of 66% and 41% respectively. In the same period, hitting 43 and 36 cents in Reais.
As a result, <unk> had a record in terms of revenue for our second quarter of $3 2 billion, Reais, which was around 3% superior to the second quarter of 2019 revenue.
And more than three times <unk> 'twenty one revenue.
Ancillary revenues represented approximately 8% of total net revenue, mostly driven by smiles and go along.
<unk> recurring EBIT and EBITDA margins were one, 6% and 13, 5%, respectively being the third consecutive quarter of positive recurring results.
We will have the fifth consecutive quarter of increase in the companys sales more than doubling the level of sales registered in the second quarter of 2001, and approximately 20% higher than pre pandemic second quarter 2019 sales numbers.
Those already at a higher level of average daily sales compared to the pre pandemic level with more potential for further growth.
When asked case increase to match a higher demand expected for the second half of this year.
Further <unk> realized a substantial improvement in the Companys average tickets sold which demonstrates our considerable experience in managing oil price and exchange rate volatility.
We had a decrease of approximately 14% and our recurring cask measured in dollars.
Compared to the second quarter of 'twenty, one and in Brazilian Reais, we achieved a 20% reduction in the recurring cask because of our capacity rebound and lower levels of fleet idleness.
Like all airlines, we were impacted by the surge in oil prices, which have increased 64% compared to the second quarter of 2001.
Brazilian jet fuel prices increased 81% over the same period in our fuel unit costs increased by 72%. Consequently.
And you'll note the difference there the increase in fuel costs was partially offset by an increase in our fleet efficiency.
Which presented a reduction of 8% in fuel consumption per flight hour.
As mentioned.
We're continuing with our fleet renewal, which brings considerable fuel cost savings from the introduction of more 737 Max into the fleet.
Nonetheless, the recurring net result for this quarter was negative by a half a billion reais driven by the increase in the jet fuel price and lower impact of exchange rate variations compared to the second quarter of 2001, partially offset by $2 2 billion Reais of additional operating income.
Regarding cash flow, we had $4 3 billion reais in operating revenues that although impacted by the increase in the fuel cost generated a positive operating cash flow of $1 6 billion Reais.
As part of our investment in capitalized maintenance spare parts in inventory, we had an investment cash flow of a half a billion Ross.
Financial cash flow was a positive 0.4 billion reais, including <unk> 7 billion Reais in aircraft lease payments.
As a result, we obtained an increase of approximately 0.7 day raising liquidity at the end of the second quarter of 2022.
Mainly due to the increase of 14% and accounts receivable when compared to the last quarter.
We maintained continuous discipline in the management of the company's liabilities.
We paid more than $5 5 billion reais in amortization and $1 6 billion Reais in interest and other financial expenses since the beginning of 2020.
Funds raised during the pandemic period, we're cautiously used to reduce the company's cost of capital and to invest in assets, which off with a high return such as the acquisition of the minority interest of smiles.
We have significantly lower future commitments than our competitors, which benefits our focus on productivity.
Company's successful liability management throughout the pandemic period has put us in a leading position with the lowest levels of short term debt. Among our competitors. In addition, the recovery of our adjusted EBITDA margin will gradually reduce leverage towards pre pandemic levels.
I want to conclude our remarks today by emphasizing that we are committed to increase productivity and aircraft utilization, which will improve our competitive advantage during the high season in the second half of the year also I want to invite you to consult our annual.
Sustainability report with a comprehensive ESG data and initiatives available and the goals IR website.
Furthermore, I would like to thank each one of our more than 14000 employees in our team of vehicles and acknowledged that everyone's commitment to improving our results. In addition to build a closer relationship with our customer.
Through their dedication I am convinced that we are prepared to overcome the current market challenges and size of the opportunity to lead the airline industry in the next phase of growth.
Operator, you may initiate the Q&A session.
Thank you.
The conference call is now open for questions. If you have a question. Please press star one on your Touchtone phone at this time or anytime if at any point. Your question is answered you may remove yourself from the queue by pressing star two.
When you ask your questions speak closer to the receiver of the device. So that everyone can hear you clearly.
Participants can also same questions via the webcast platform.
You need to click on the question Mark in the upper left corner and typing. Your question. Please hold while we poll for questions.
The first question comes from Dan Mckenzie from Seaport Global. Please go ahead.
Hey, Thanks, good morning, guys.
Rich I'd like to put a finer point on this mornings outlook. So the one thing that stands out to me. We've got an improved revenue outlook and an unchanged guide for flat full year pretax margin. Despite the first half losses. So that implies you've got line of sight on meaningful profitability in the back half of the year.
And I'm just wondering if you can flush that out a little bit more for us.
Behind that that just given.
Increased corporate travel spend we should see a better <unk>.
Apply demand dynamic as we move forward.
Yeah.
Yes. Thanks for the question a couple of things one is.
At the industry level, the second half of.
For the year.
Is more significant in terms of results from our business.
With Q3 generally being the.
Our strongest quarter and Q4 also being strong in terms of the beginning of the holiday travel season number one number two.
As you know since the end of February .
We've made some significant adjustments in our fare structure, which we do expect to maintain.
Going forward number three.
The Q3.
I would say kind of.
Q2, but into Q3, we're kind of mark the end of the full transition back of corporate travel and R. R.
Is this here in Brazil, which is significant in terms of.
Our ability to <unk>.
Increased fares continue.
Continuing to improve average ticket and increased yield and at the same time as you know.
Being very disciplined on capacity.
Given what's going on with cost and particularly fuel cost.
And so that does tend to crowd out a bit VFR and leisure in our mix.
And so the combination of those factors as we go into the high season part of the year.
We will give us some good.
<unk> as we as we go into the back half of the year this year against that.
As you saw is some slight increases in our ex fuel unit cost because our.
Our initial target.
We started this year was to get back to.
Full peak gold productivity, which is roughly 12 hours a day per aircraft across the entire fleet by the Q4 of this year.
Given what's going on in capacity.
We're being being and this applies to the market as a whole.
Rationally.
Cutting capacity to help compensate the increase in <unk>.
And fuel costs for us for goal at peak productivity will.
We will be pushed to the Q1 of next year and so all of those are kind of what youre seeing going on there, but obviously a big driver is the increase in revenues.
And we're managing.
Managing the cost side of the equation through a combination of affairs, but also through the capacity.
Dynamic.
And so let me just pause there see if I.
Respond to your question there.
Yes, understood and I appreciate that.
And I guess my second question here and ill, let others sort of dig in as well but.
To put a finer point on plans for reducing leverage and strengthening the balance sheet from here.
The Powerpoint presentation this morning, and the earnings release.
It seems pretty clear that that's the direction goal is going to go. So I just had to put another finer point on this.
It looks like goal should see yet another cash build in the third quarter and then again in the fourth quarter and I'm. Just wondering if that's a fair conclusion, just given the positive movements, we're seeing in air traffic liability lease returns that are financed.
Maturities that seem pretty de Minimis from here.
Yes, when you put in the context of leverage I mean, obviously our.
<unk>.
Target from our wax optimization.
Policy.
Our perspective as you know.
Three times leverage.
The process is going to take.
24 months to achieve.
The yields today, which are over.
Over 50% higher than 2019 levels.
Resulting in these higher.
Revenues.
Is where it needs to be.
The fleet efficiency component needs to catch up and Thats and Thats what were dealing with there as you know we through the pandemic, we were able to manage our.
Our relationships with the aircraft suppliers.
So that we kept the aircraft we're going to need on the other side of this pandemic.
And that has meant inefficiencies during.
During the majority of the pandemic, including up until now, but when fleet efficiency goes back to.
Our 2019 U S dollar.
Cost levels.
On a pro forma basis EBITDA.
Would surpass surpassed the 2019 EBITDA of $4 1 billion Reais. The question is when that's going to happen as I was saying previously originally we thought on a run rate basis, we would be hitting that in the Q4 of this year. It's looking more like its going to be in the Q1 is taking longer on the cost side.
We also have further room to improve in terms of cost dilution.
Given the scenario and.
We're we're still in relatively better performance.
For Q3 and Q4 this year.
Still carrying idleness, which we're going to be carrying until probably until January February of next year and so sweet efficiency is corrected in cask is normalized with a normal run rate capacity.
We'll be we'll be hitting those numbers and so that's really more just to complement what you said I mean those those.
Projections that you're.
Talking about for Q3, and Q4 is how we're managing the business. The other component that hopefully everybody appreciates is.
We're still not back to margin management at this company, we're still doing cash flow management, and so even though we're providing guidance on margins and you have the margins in our financial statements those are accounting conventions.
They come out of how we're managing the business, which is not yet back to be focused on margin management, we're still focused on matching assets and liabilities matching inflows with outflows such as how we are managing it.
It's probably not going to be until we hit the Q4 this year that we're going to be back.
Two to that component that was positive I think that I think it's also wanted to complement our appointment.
On your point then.
Your first question I just wanted to raise.
Some some points here about how we are doing the yield management.
And.
We have.
Yes.
A very strong increase in oil prices concentrated in the second quarter this year.
Once you are dead.
Sure.
You are already sold.
Partially your inventory by lower feel by lower fares, and then you'll need to somehow to compensate that we keep that curve, which keeps the pricing curve. So much.
Industry follow because now it's really time to be rationale, but what we expect is that <unk> management will come back in the sense that we will of course to have a parallel core Kurt on the pricing side instead of a steep curve like we had in the second quarter that will drive inventory.
Our management and create more value for the company.
Terrific. Thanks for the time you guys.
Thank you Dan.
The next question comes from Mike Lindbergh from Deutsche Bank. Please go ahead.
Okay.
Good morning, everyone can you guys hear me.
Yes, it's a little it's a little fuzzy, but we can hear you.
Let me pick up my speaker. So a couple of questions here I guess number one.
Congratulations on your new role well deserved.
Yes.
Obviously, you've been in the C suite for for some time and you've had.
A lot of opportunities to watch the company develop.
And CRO normally with a change of leadership.
Bringing in.
Maybe a slightly different perspective, and I'm just curious as you think about goal over the next five years.
You sort of think of Golar historically.
Low cost carrier with a very strong Brazilian.
And yet.
Today.
News out I guess recently with coal looking to fly all cargo 730 Sevens and then maybe you can touch on that now you own 100% of of your smiles business.
There is this opportunity with abra.
I think stepping stones to kind of take it to the next level.
The propitious is timing.
Timing is propitious with you moving into the leadership position with all of these things on the Horizon can you talk about.
Maybe go moving to that next level and maybe things that you may do differently than your predecessors, or maybe maybe it may be the same if you could give us some perspective on how you're thinking about leaving the company and do you think some of these opportunities I just mentioned.
Okay. Thank you. Thank you. Thank you for your kind words and.
We are gaining from the worst.
Two years that the airline space.
So it.
We need to change I mean, we need to change we had at the beginning of the pandemic. We set down here I was with ducky richer and everybody here and we decided we don't need to change our business model led to treat the pandemic as a transition.
Transition to a new market.
In this new market will deserve will require a company like <unk>.
Simplicity adaptability and a strong business model. So we don't expect to change the business model of the company.
Quite the contrary I want to really focus on cost and productivity.
I mean, the main pillar right now.
Gaming back through the pandemic the business model is.
There, but like Richard just mentioned, we need to recover and we need to bring back.
<unk> to fly more than 12 hours per day, we need to.
Currently.
That's the way that we.
Of course, we increased turnaround times during the pandemic and now it's time to bring it back to what we should be and we want to really transform the digital platform of the company we change our our PSS system from architecture Sabre last year, we faced.
Some problems with our customer, but now so now it's time to really leverage this to the digital transformation, where it's going to be really might focus going forward to reduce the cost.
Cost and.
Also.
Have more productivity.
Airport and also in <unk>.
All of the customer base.
Environments in the company.
Just mentioned there is a priority.
We're generating a lot of senior just together we have now all the customer.
Areas that grow.
And the same structure as the smiles, so what we really want us to.
Customer will look for smiles, Angola, as one company and we want to leverage that.
So this is one of my first focus and.
We remain so.
E Commerce and also.
New revenue that we can we can access through fluids miles.
Perform we're also estimation and looking for new revenue opportunities on the cargo business. This partnership with mainly we are facing this is a new airline that we are going to launch.
And to the employees here.
We are saying that we go with six aircraft and we are starting the cargo go log operation with Mercado Livre also with six aircraft. This is the way we are facing this.
Tremendous opportunity for us also.
Also to have more synergies on the <unk>.
The activity side, it's the same pilots that will fly same aircraft same maintenance we will convert.
We're going to start to convert cargo for the cargo planes in our facility here in another aerotech so many things.
To grow in the cargo.
The site as well.
And then you mentioned <unk> and <unk>.
Thank you.
The way, we see the market now.
As a tough market.
It's a tough scenario.
And that we have in front of us steel costs.
At the highest level FX is super high in Brazil, the combination of the two excluding those.
Barry.
This position at this point, so consolidation new forms of alliances joint ventures, and also Alberta, which is a new kind of.
Airline Alliance organization, the new no new way of thinking is where we are putting a lot of our efforts now to make sure we are going to leverage.
The synergies.
On the cost side and also developed by strong network to cover Latin America. So these are the.
The key items in my agenda right now.
So that's a great rundown just kicked on Abra a finer point on that.
I had hoped that we would be hearing something maybe by now maybe there may be some regulatory hurdles that can you just update us on.
When are we going to here because it sounds like Theres, a rollout coming you go to the website and it seems like it's the only one or two pages deep.
Presumably there's going to be a lot more behind that went out when you have something to announce is that.
And of our summer.
When should we expect to hear something that goes into a lot more detail on that structure.
Yes in the near term I mean, obviously we've.
Planned it very carefully.
It has to go through.
The proper regulatory approvals.
Before.
We can all sit down at that table.
But yes, it's definitely inside of the.
Third quarter here Mike.
Or perhaps sooner.
But it's basically just then the our expected regulatory.
Regulatory approval process.
<unk> happening in the various domicile.
Rick if I can just squeeze in one more.
You May have said this and I apologize if you said it back on.
Your waterfall on your cash flow I'm Super helpful.
I know you were guiding to $3 6 billion Reais at at quarter end you came in at or you have a lot of different buckets here on page 13.
Now where does that where does that additional where does the $400 million. If that's what it looks like it looks like it came in 400 million better maybe maybe my math is wrong, but it sounded like it looks like you came in and what you are guiding killing Eric.
From your last guidance.
It's basically better better than higher than expected sales, which produced higher than expected accounts receivable.
But as you know.
Full access to those receivables.
Counts receivable or in the.
Liquidity.
Calculations and then also.
There was also a slight increase in the.
The value of our deposits of about 100 million reais due to FX changes.
Okay.
It is those deposits to cost out.
Aircraft related activities.
<unk>.
Maintenance or engine maintenance overhauls or aircraft deliveries and so those are those deposits. We include in our liquidity because we use them too.
Offset cash outflows that we estimate.
That's great.
Increase in the receivables that was very supportive of your pretty meaningful.
Upward revision in revenue for the year, so that that makes sense. Thanks. Thanks good.
I appreciate it.
Thank you Mark.
The next question comes from Stephen Trent from Citi. Please go ahead.
Good morning, gentlemen.
Thanks, very much for taking my questions.
I'd just add.
Two quick ones.
And first off your <unk>.
Your comments were very helpful on focusing on cash flow management versus margin management, but when we think about 2023, so any high level view.
To what extent will still be dealing with a fleet idleness expenses when we think about.
EBITDA versus adjusted EBITDA.
Yes.
Yes the effects.
Thanks for asking the question about 2023.
The as I was saying when we began this year our operating plan our network plan our fleet plan.
Were all calibrated to get back to what we call normalized operation into Q4.
As you know we've been carrying.
Aircraft that we need to serve them and on the inside of the pandemic.
Because of what's been going on since the end of February with fuel into Q2, we recalibrated.
Our capacity plan for lower capacity.
Through roughly December of this year and that's reflected in what you guys see in terms of the schedules and that's also what the overall industry is growing as well.
Okay.
At the same time, we are trying to accelerate our.
The fleet modernization from the masses.
But the short of it is that getting back to that.
<unk>.
Operating efficiency is 12 hours a day per aircraft across the entire fleet. We no longer are planning on doing that in the Q4, that's going to get pushed out.
To the.
And so the Q1 of next year and so we do expect to have.
Full normalized.
Operating efficiency by the Q1 of 'twenty three and the difference in the question that you're asking.
The results.
<unk>.
Going forward are not including idleness anymore.
There's either no adjustment or very low adjustment and the difference is not idleness, it's the transformation costs related to.
The transition from <unk> to Max aircraft that is in that non recurring number going forward. We will continue to separate that out those will.
Those will continue throughout the rest of this year, but.
The Q1 of next year that should also for the most part.
<unk> behind us because it will be with that.
We'd be approaching.
In the first half of next year, we will be approaching around 50 matches in the fleet.
And really kind of be on the other side of this acceleration of the fleet transformation that started in Q4 of last year.
This acceleration component will and probably into Q4 this year.
Back to a more normalized fleet.
Fleet replacement.
Sure I think something is going on at once the complement of point on that yes, and we also expect our healthy environment on the revenue side.
Next year.
Not only the.
Customers that will now and understand better what price level the market should be running and this year. It has been.
A big transformation for the customer perspective, and they see their fares. We're practicing right now I think next year is going to be are naturally the way, they're not faced affairs, we're going to also plan.
We're going to have the results of these miles and also the carnival.
Activity in our in our topline revenues as well so we expect a strong year in 2000 century.
I'm going to just we then.
To the comments from the questions from sell side of some of the questions we have.
From the buy side on the on the webcast platform and so the question here is from.
<unk> asset management.
Can you provide.
More information on how much leases youre expecting to pay during 2022.
Are you working on any types of deferrals for this year.
According to our guidance.
Yes.
We have the $3 2 billion.
$1 of adjusted lease debt that implies $2 4 billion Reais of annual lease payments. So you have that in our.
In our guidance some quarters can have a different cutoff on payments that can shift from one quarter to the other.
As we have.
Negotiated.
Terms across.
Our lease portfolio, which includes almost 30.
Individual operating lease or lessors, so theres different agreements in place across that portfolio and we manage our payments that we can do in the current month.
Based on the concept of matching assets and liabilities inflows and outflows.
The $2 4 billion Reais is approximately $40 million of.
Monthly lease payments, which is very similar to our pre pandemic levels.
We've been refinancing some of our deferrals by.
Including supplemental rents for new upcoming Max.
Deliveries and before going to the next.
Question from the sell side.
One other.
A question that.
Ill squeeze in here from the.
On the platform from Lucas.
Barca.
Sure.
How is demand responding to.
Fair increases in your view is there is still room for further expansion in the second half of this year, how do you expect the competition to behave regarding <unk>.
Capacity answers.
Yes, I will take that Richard.
We see we grew.
A lot of our revenues during this quarter and like I said before we.
The curve was pretty deeply at this point, because we need to somehow compensate the revenue.
And make the.
The results that we were expecting for the network.
At certain point that certain segments, we may achieve.
Probably.
On this but.
We're going to we're going to pass through the fuel costs, and we will adjust capacity accordingly, so we like.
You can see in our guidance right now we are reducing.
Architecture going forward.
Sure.
Doing this inside the quarter as well.
From August and September .
By more than 10% right now.
The other competitors also follow.
And we think there's going to be even more rationality going forward.
The other thing that is important is that the air traffic liability.
Sure.
Next.
Next half of the year grew by more than 50%. So the good news on the second half of the years that we have been prepared to face higher acuity.
Low cost so we started to.
Work in the loan advances or chase customers.
Prior to the quarter. So we are entering in this quarter with 50% more revenue on this segment and we are going to continue that's drilled a few on the remaining passengers, but they will they will be responding accordingly.
Because they already are in the second quarter right now.
So corporate demand and frequent flyer, we expect also a faster catch up.
We saw at the beginning of the year, 70% of the customers.
Corporate customers back then we had a peak in April of almost 90%.
Then it's now flat between 60 65 during the May of May and June and June and we also had.
So the increase of Covid cases that hit a little bit of a load factor in June . So we don't expect the need to be hitting us in the third and the fourth bucket going forward.
Yeah.
The next question operator, yes.
The next question comes from Savi <unk> from Raymond James. Please go ahead.
Hey, good morning, just can I ask on the Max and capacity side.
Both.
Southwest and Ryanair have talked about delivery delays I just kind of wondering what you are seeing in terms of kind of Boeing being able to deliver the masses.
And.
Taking that into account.
In 2023 capacity can be economic kind of the low end and the high end.
Yeah, Hi, Savi.
We are not facing significant delays and any delay has impacted our plans so far.
We have received in the first quarter of this year eight new Boeing 737, Max eight and now three in the second quarter.
We are facing a 2025 days delay, but we have been able to accommodate those delays.
And most of the planes we book.
Delivered in the last 12 months there were claims that were already built and they were legacy set now in Seattle and they are just doing all the pre delivery package and all the activities to deliver the aircraft for us we're going to start to take deliveries of the production line.
By beginning of 2023 and seller.
Configuration, our own order.
But we don't have a red flag on those.
We expect to continue into <unk>.
Delivered.
Blend that we have a 44 this year and growing.
Growing the fleet accordingly to our fleet plan.
Just any color on that 2023 capacity like what we could.
Especially it sounds like you think you have returning to <unk>.
Full utilization by the first quarter. So it should be kind of full fleet flying but kind of curious what the.
Likely capacity growth to be in 2023.
Yes.
The way we are seeing the lead.
Less last quarter of this year.
We're going to achieve the 2019 levels and then we.
We are planning 2023, accordingly into the <unk>.
So our view of 2023, right now which is.
Likely growth.
For the domestic market.
Actually.
If we compare the first half of this year, where we face.
On the CRO and the beginning of the year and now the spike in fuel prices the war and everything and all the global.
Concerns about interest rates. So we expect the first half of next year to be represented significant growth compared to the first half of this year in the second half of next year is where we think that we can we can sustain this level of.
Productivity and our fleet plan.
<unk>, what we think.
Our view of 2023, so we are in.
And in the fleet next year of this model is the same size. So we are now with total aircraft. This year for US is 136 and next year 139 aircrafts. So it's a small growth in terms of aircraft we need to return the mgs.
<unk>.
No.
Remember how many <unk> we have returned during the pandemic 18, and we are keeping that pace going forward.
So we're going to have.
The fleet is likely.
Bigger, but we are going.
We're going to have the productivity of this fleet back in terms of the utilization growing.
At least 10%.
Comparing to what we have.
This year.
Okay.
Also helpful and if I might just get a clarification on a comment on kind of the corporate.
Back here in the second half I, just kind of curious if that.
Demand back in terms of volume or revenue I'm, just wondering if that might be kind of more upside here as well as we get into 2023.
Yes.
Like I said, it's 70% in the first quarter than we had in April may and June more like kind of a plateau July was also a plateau.
In terms of business travelers and what do we expect from.
August and September .
Is ah.
Literally increasing number of tickets comparing to what we had in June and July but upon October on when we have more clarity also on the elections and everything we expect.
Maher.
More and more business travelers to come what we have is.
Year recovery plan for the for the corporate segment is around 65 in terms of passengers and more than 100 in terms of revenue. So we are we also see an upside if more than 65 years.
Come through our system.
Super helpful. Thank you.
I'm just going to before we go to the next sell side analyst question I'm going to answer.
The question for the platform.
From.
One on the buy side from that.
As Steve noted in his question is what is the remaining cost of fleet transformation this year and how will that be.
Funded.
There's about 100 million reais.
Per quarter of prorated costs.
Which goes according to the number of hours and cycles as it incurred every quarter because remember.
The accounting rules require us to always have fully provisioned.
The expected return cost of the entire fleet.
And we will adjust goes up or down based on revisions to the.
Either the lease return conditions or the re delivery plan.
And.
Deposits will be utilized.
And self financed by new.
Credit lines related to <unk>.
Max deliveries right now most of the provisions are noncash.
In the course of the triangle fleet are fully provisioned.
And how is that financed through a combination of.
Credit mechanisms that we use on.
New Max deliveries combined with you so far deposits, which we include in our.
Liquidity.
You can take the next question.
The next question comes from Pablo months' device from Barclays. Please go ahead.
Hi, Thanks for taking my question.
I know you already talked a lot about yields and capacity.
I can just.
Ask a little bit more on the.
Competitive environment.
How are you seeing your competitors following your efforts on raising fares in the word capacity.
Hum.
You've seen competitors moving with you or.
They are not following.
These efforts thank you.
Hi, Pablo.
Yes.
I mean, we had a spike.
The fuel price so the industry the entire industry was forced to be rationale and.
Especially at the beginning of second quarter and what we're seeing in the market is really a rational behavior in terms of fares.
During the second quarter and also now in July .
What do we see is that we are leading the capacity adjustments actually we if you look at our view when we started the year we start this year not loading.
All of the capacity, we can we can fly we have been carefully.
Introducing step by step increase.
Now risk capitals, when we're loading the system, while we saw the competition loading much more like Dennis at the beginning of the year.
Is changing to a more rational.
Scenario right now also on the capacity side, what we saw for September and October was occurred.
And I can say that the industry could because we also cut 10%. We saw also competition cutting 10% to sustain.
All of the parent.
Activity that we are required to do in this very high cost environment.
So we we have been more comfortably since the beginning but now we see competition also being culturally and trying to preserve as much as we can the pricing power that we need to deal with this circumstances.
Perfect. Thank you very much.
The next question comes from Alejandro semi Kona from Credit Suisse. Please go ahead.
Thank you.
So thank you for taking my questions.
Yields in Q2.
How much of the higher coupons.
It is already.
In other words what.
Thanks.
You have been.
Pass through.
Providing our customers.
So let me just connections will do better as your question is.
How we're managing the increase in.
Fuel prices does that was that the question.
Yes.
How much of the higher fuel prices each already.
Yes.
Okay.
Just a follow up question since February 24th.
This new scenario began.
Up until now we've been able to recapture or around 100% of the.
In fact.
Sean.
On our costs from increased fuel prices remember in Brazil, you also have the exchange rate effect.
In addition to the oil price effects.
You wanted was we had much less of an increase in our local fuel price than let's say U S Airlines, which is kind of.
Predominantly carry the tumor of.
The market in Q2, those a little bit different.
<unk>.
And the numbers, we're providing you for our view on how we're going to be managing the business for the second half of this year.
In our planning we assume.
Roughly a 70%.
Recapture that's generally how we've managed our our business.
Normally roughly a 70%.
Recapture up or down, meaning if fuel prices go down.
It will only retain 70% of the benefit.
If fuel prices go up we will be able to recapture.
70% of the.
Of the increment on to fares, that's just generally how we did the planning.
Q1 and Q2.
Was abnormal in terms of being able to get the.
Roughly 100%.
Recapture which was combined in our case here in Brazil, and obviously in different markets. There is different effects you have to be careful about like comparing the U S market, our European market with Brazil, but in Brazil.
Starting in the last week of February up until now we have the accelerated return of the corporate travel and so that was the main element it allowed us to.
To achieve that here.
Here in our business at goal.
Specifically, having said that <unk> seen that same phenomena.
Emily in majority of markets at least that we follow in the Western hemisphere.
Very similar.
Phenomena.
Which probably most likely it just has to do with the return of demand as Covid.
Restrictions travel restrictions, both domestic and internationally have fallen off.
If you want to talk about them.
Ed.
And the dollar is exactly what Richard mentioned I mean, we are going to we need to deal with this we are adjusting the whole pricing structure to be able to capture as.
As much as we can.
And we expect also the competitive.
Competitive environment too to support.
The pass through rates that we need going forward.
Okay.
Thank you.
I'm sorry go ahead go ahead Alan.
Yes.
Another question.
Yeah. So just another question in terms of the Abbott.
Matt.
Also according to report more on launching announcement.
Overall our.
Our commitment.
Okay.
Nominal.
How much of this sourcing.
Should we expect it will continue.
<unk>.
Thank you Alejandro.
The announcement was made in May has all the information.
Provided at this point.
Once we get to the.
Closing of that transaction after the appropriate approvals.
We'll have more information on that.
Okay perfect. Thank you.
Okay, and just to finish we have.
One other question.
From the.
The platform that I'll answer.
I didn't forget you quoted from <unk> what are the main sources of liquidity available at present.
Well as you've seen how we've been managing the business and it's also prepay that there's nothing new that's been more of a focus on this during this pandemic the main source.
Working capital management.
In terms of how we match assets liabilities and manage that.
Hopefully there is no doubt on how we do that in terms of information in it.
Transparency, we've provided on how we do it.
That is generated.
More than.
1 billion Reais.
Two our cash flow.
We continue to count on that on a relative basis to the overall size of the business and as you saw in Q2.
The receivables increase.
It is going to be the main source.
<unk>.
Working capital.
As we normalize.
From now to Q4, and then through Q1, we're still missing.
A piece of current assets through accounts receivable, but.
But we do expect that accounts receivable balance relative to the size of the business.
To be normalized by the end of this year and so you can kind of make those comparisons in terms of how the balance sheet was at the end of 2019.
From a current asset current liability perspective, matching that's where we expect to be Q4 Q1 of this year.
We continue to do.
Sales.
<unk>.
Smiles.
Sure.
Tickets endpoints.
Thanks.
And partners with smiles, we continue to do that.
Consistently.
Does that I think is something also that.
Many of kind of glossed over perhaps.
Not included in how they look at our business is <unk>.
Also mentioned.
We.
We acquired the minority interest.
A little over a year ago.
Those have been paid that transaction in June of last year.
The cash component of that including the recycle dividend dividend was about $1 3 billion Reais, we've already achieved a one year payback on that cash payback on that and then the loyalty program is increasing its volumes.
It's value also increases.
The customer so that continues to be a very solid and consistent and growing source of liquidity.
Which is.
Fully incorporated in how we do our working capital.
Management.
Here.
So overall the main sources all of those are kind of in our working capital management and those are highly liquid.
Sources obviously.
Requires management.
Very precise.
And agile.
Management in addition to that which are outside of working capital you have the data on our how we use our deposits both aircraft deposits and maintenance deposits as it relates to.
The fleet renewal process, where we're able to.
Offset a large portion of those cash outflows with those.
With those assets.
And then finally.
As you know we have a significant amount of unencumbered assets.
Can be levered, either through our existing programs that are already.
Created.
Has generated financing on our unencumbered assets as well as.
Other assets, which are under cover such as such as related to the.
Is it related to the.
The loyalty program.
And I guess, just finally, we just got.
Question here, which I'll slip in it because we do have another.
Five minutes here.
The question is just.
Can you talk about your fuel hedging programs and activities.
We continue to execute.
The same set of programs across oil FX.
We've.
Sure.
Had always built into goals management since 2003.
In terms of.
Fuel hedging, which is specifically the question.
Our hedge position is roughly 25%.
For the second half of this year and 25%.
For 2023.
Instruments that do not have any.
Downside risk but provide.
Protection in the mid to high <unk>.
Brands.
And that's important as you as you do comparative.
Analysis of how different companies are doing hedging we adopted.
Since Q2 of two.
2020.
To allocate budget.
Basically through paying premiums for call options Russell.
Not using costless collars or swap strategies, which can.
Or do some significant downside risk in margin.
<unk> requirements.
So thats.
And that's on the oil side of the equation, so roughly 25%.
Second half of this year and 2023 on the FX side of the equation. We're also around 25%.
<unk> for the second half of this year and zero percent for.
For next year.
I think that.
Run through majority of the questions and.
Our time is almost up so I'll flip back over to you operator.
Alright.
This concludes today's question and answer session I would like to invite Mr. <unk> to proceed with his closing remarks. Please go ahead Sir.
We appreciate your time and interest in our company I Hope you found our presentation and Q&A session helpful. In our Investor relation team is available to speak with you as needed. Thank you very much.
This concludes school Airlines conference call for today.
Thank you very much for your participation and have a nice day.
Yeah.
[music].
Okay.
[music].
Yes.
[music].
Sure.