Q1 2022 Azul SA Earnings Call
[music].
Hello, everyone and welcome to <unk> first quarter 2022 year results Conference call. My name is Dana and I will be your operator for today.
Is being recorded and all participants will be in a listen only mode until we conduct a question and answer session. Following the company's presentation.
Should any participant need assistance during this call. Please press star zero to reach the operator.
Like to turn the presentation over to tight Javier Li Investor Relations manager. Please proceed.
Thank you Hannah and welcome all to the fourth quarter.
There was no special also this morning, the whole job this call and the slides that we reference are available on our IR website.
Today will be David did need them as founder and chairman and John Rodgerson CEO , Alex <unk>, our CFO and <unk> Shah our Chief revenue Officer are also here for the Q&A session before I turn the call over to David I'd like to caution you regarding our affordable.
Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans objectives and expected performance constitute forward looking statements did the statements are based on a range of assumptions that the company believes are reasonable, but hasn't executives or something.
With that I got that in our C. V. M. M. Satisfied also during the course somebody call. We will discuss non I FRS performance measures, which should not be considered in isolation with that I will turn the call over to David David.
Thanks, guys.
Welcome everyone and thanks for joining us for our first quarter 2022 earnings call as always I would like to start by expressing my gratitude.
And to recognize our passionate crew members, who continue to take care of each other and to provide our customers with the best travel experience in the industry. For example, we were once again elected the best airline in Brazil. According to index customer satisfaction rankings. In addition, Syrian reported as well as the most on time mainland carrier in the World I've spent.
The last week in Brazil, flying Us all and we have a fantastic operation.
Yeah.
We are seeing we are currently seeing the highest customer satisfaction scores in the past two years.
As you can see on slide three we continue to serve our connect Brazil like never before have our unique network and diversified fleet, reaching a 151 destinations and impressive addition of more than 35 destinations compared to 2019.
Excuse me.
1990.
There was commercial service to 218 cities in Brazil. So as you can see we sell a lot more to add in the future.
Overtime. These.
These and other new destinations will add considerable demand to our network further supporting our growth trajectory.
One of the competitive advantages.
Others or is this breadth of network, while we may have lost some time during the pandemic. Our belief has never been stronger that Brazil is and continues to be a growth market and it's all brings a unique ingredients to enable that growth.
I know a lot of you are concerned about the sustainability of the revenue environment. Let me remind you that Brazil is an enormous a hot commodity economy.
And many of these commodities have record prices, Brazil, as the bread basket for the world and a big producer of iron ore and oil and many other things.
<unk> has a significant presence in all of these commodity areas of Brazil, where producers are expanding rapidly to meet world demand and record high prices.
Serving 151 destinations is not only key to our future, but it is also critical to the economic and social.
Development of the regions, we serve we are especially proud of our social contributions.
Hum.
Our business in Brazil.
It is by our network, where we deliver lifesaving medicine, Oregon's vaccines connecting Brazil like no. Other airlines are in fact, or the fact that we have almost 3000 zokora members registered as volunteers doing good all around the country I want to personally thank each one of them for representing the best of it.
So.
As I've previously as I've said previously our <unk>.
<unk> advantages are out limited to our fleet or networks or business units.
Cargo.
<unk> and <unk> are key contributors as well leveraging our network and operation to further expand our margins as you can see on slide four our logistics business continued its outstanding performance cargo revenue tripled compared to the first quarter of 2019 with revenues, reaching almost $300 million in the quarter.
Our mission to transform logistics in Brazil remains our focus.
Which what these rising provided prices even gives us more advantages in this business as we utilize our scheduled network together with our fleet of dedicated aircrafts we.
We want to be the logistics.
Platforms every business in Brazil.
And we believe we have the end to end logistics capabilities. We can do that so very exciting part of our business on slide five.
I want to again.
Talking again about one of my favorite projects, our vacations business as well as the Asics is lumpy as you can see you should do very well with strong leisure demand combined with all of the amazing natural beauty in Brazil has to offer we are seeing record domestic sales operating.
Operating margins within this business with bookings increasing more than 70% compared to 2019 to give you an idea of how this business is growing in July just in July we will have over 900 dedicated flights first of all <unk> more than doubled compared to 2019 <unk> team are now taking a more serious.
And when I say over and over again I told you so with that I'll pass the word over to John to give you more details on our record first quarter results. Thanks, David We really appreciate your humility.
I also want to thank our crew members for all their hard work during the past quarter. We started the year with the short term operational challenges for monochrome, which during its peak resulted in almost one third of our crew members unavailable to fly for a period of time as a result, we had to sharply adjust our operation in January and February to recover as of March the wave was clearly.
Behind us as you can see on slide six even with these exceptional challenges we reported an all time first quarter record revenue of $3 2 billion Reais and increase of 75% compared to first quarter 2021, and almost 26% up compared to the same period. In 2019. This was the second consecutive quarter with net revenues above pre.
Pandemic levels.
The results were driven by the strong domestic demand environment and as those markets, which allowed us to raise fares to offset the rising fuel prices. Thanks to our margin expansion strategy, our ability to recapture revenue and reduce cost our EBITDA reached $593 million.
<unk>, representing a margin of 18, 6% in the quarter.
If we exclude the impact of omicron as I described we estimate the EBITDA would have been $900 million in the quarter. This gives you a clear indication as to the earnings strength of our airline and why we're so confident moving forward David already mentioned to you about our leisure demand and I want to show you more on slide seven we ended March with nine consecutive months of leisure demand.
Above 2019 levels and it continues to improve.
Clearly shows that this was not just pent up demand. This is the Brazilian market's ability to grow this as more customers, finding new and convenient schedules connections and more destinations within his old network, all of which giving them more reasons to travel whether it's pure leisure or work from anywhere, we're seeing a new and greater sustained pattern of demand and certainly.
Bringing in 35, new cities helped sustain this growth.
In Brazil, we always said that the country only begins to work after carnival. This year it turned out to really be true on slide eight slide eight shows you how corporate demand really improved in March and beyond compared to 2019 corporate revenue recovered to more than 120% of 2019 levels, while corporate volumes are still 29% below.
So pre pandemic levels, so that means theres still more corporate revenue recovery to come and it will come at 76% higher fares in 2019, let me repeat that 76% higher fares than 2019 in the corporate segment strong bookings led to the strong phone revenue. We saw this clearly late last year and with the <unk>.
And as I described to you know the same will happen. This year, we can already see hockey stick.
<unk> flown RASK just between the months on slide nine you can see how the strong booking trends result in a massive unit revenue improvement from February to April since the start of the war in Ukraine absorbed in the industry reacted quickly to adjust fares and capacity for the new reality. The proof is clearly seen on slide nine.
While David talked about cargo and vacations I wanted to show you how loyalty is doing because we believe it will be an important driver in sustaining the strong demand environment on slide 10, you can see that <unk> maintained its strong growth pace and reached 14 million members at the end of this quarter as more and more customers experienced the value of our broad network.
Mostly though we have been positively surprised by the customer engagement there are more active than ever in the quarter active customers doubled compared to 2019. This engagement combined with the ability for customers to use points or a combination of <unk> plus money are additional tools and channels via which demand continued to be strong great bookings.
<unk> revenue and that is exactly what we are seeing going forward give you more details on what that means for the second quarter, Let me turn the time over to Avi.
John the record booked revenue and record average fares were seeing means continued RASK expansion compared to 2019.
While the average <unk> RASK expansion was 15% our exit rate in March was much higher.
As you can see on slide 11, second quarter consolidate that trend with significantly higher RASK compared to 2019.
In fact, what is amazing is that even in what is usually the weakest quarter seasonally we are expecting an all time record unit revenue, an all time record flow in revenue.
This is a direct result of the competitive advantages of our business as well as the overall industry discipline in the market today.
We also want to show you on slide 12, how we stack up against some global benchmarks.
Our capacity recoveries healthy and our unit revenue recovery is industry leading.
Indiana that really is our main focus we know that with the macro challenges such as fuel currency and inflation, we need to be laser focused on what is important metrics such as market share. Our load factor are less important our objective is to deploy our capacity in a disciplined manner that supports and extends our competitive advantages.
Directly resulting in high quality revenue.
With that I'll turn it back over to John talk further about our results. Thanks, Avi and yes fuel remains challenging but in the past two years. We are focused on our long term cost structure rebuilding of xul into an even more efficient airline on the cost side.
As you can see on slide 13 cask in the quarter was 34 up 30% compared to first quarter 2019, mainly due to a 75% increase in fuel prices and a 39% depreciation of the reality of the dollar and three years of inflation on real denominated costs, if we adjust our cask for fuel FX and cargo, which by their nature do not.
Generate a S case, or our cask compared to 2019 was essentially flat and impressive achievement given the more than 20% accumulated inflation over that same time period, we are truly emerging as a more efficient airline.
As you can see on slide 14, our operations generated 500 million reais and cash flow during the quarter. During the quarter. We also continue paying our leases that deferrals in capex. It is important to highlight that we ended the quarter with immediate liquidity of $3 3 billion Reais well above first quarter 2019, we also raised 200 million reais reinforcing our ability to access Craig.
Lines as needed as a reminder, we have no significant debt repayments over the next two years and no restricted cash.
Moving to slide 15, gross debt decreased 13% or almost 3 billion reais compared to December 31, mainly due to a 15% appreciation of the Rio which reduced our gross debt by $3 2 billion in the quarter, we paid down $1 1 billion in debt and leases.
Looking to the future. We are so excited about the potential of our business Slide 16 shows how we expect to grow our earnings this year or next.
Proud to say that even with all the challenges we expect to generate $4 billion of EBITDA This year and $5 5 billion in 2023.
When we went public back in 2017, we told the market, we would grow and grow profitably with this 2023 forecast, we will actually triple our EBITDA compared to our pre IPO levels.
On Slide 17, you can see how our leverages improving as our earnings grow our forecast now shows consistent and significant reduction in leverage this year 2023, and beyond all powered by strong and growing earnings generation.
To wrap up on slide 18, I couldnt be prouder of the entire as all teams during the pandemic, we focused on our liquidity and on our cost reduction now with our unique competitive advantage as we turn our attention to earnings we remain confident about the future of the Brazilian aviation market and our ability to continue to grow this business profitably.
All while creating the best experience for our crew members and our customers.
With that David Alex I mean, I will answer your questions and I'll turn the call over to the operator.
Yeah.
Ladies and gentlemen, thank you both.
We will now begin the question and answer session.
You have a question lease breath Starkey followed by the one key on your Touchtone phone App.
If at any time, you would like to remove yourself from the questioning queue, perhaps start Q4.
Those following the call via webcast you may pose your questions on the platform and they will be either answered during this call or at the <unk> Investor Relations team. After the conference finished.
Please hold while we gathered requests.
Yes.
Our first question comes from Savi <unk> with Raymond James. Please go ahead.
Hey, good morning, good afternoon.
Can I ask on the corporate demand recovery.
Components have not yet recovered and what's the latest trend there.
We look forward here.
And could we see some of the other components recovery.
Hey, Savi I'll be here, yes. So.
We have a really positive components, such as oil and gas.
Is has recovered very well services, obviously agro that David talked about.
It covered well over the average what hasnt recovered fully yet is finance.
Not to 100% compared 2019, but.
But accelerating.
If I compare finance declined 21 is doing better than the average versus 2019 is worse than the average which means that it had a later start and now it's catching up.
Government actually the federal government is not flying as much as it used to and it's actually a large provider of travel demand to our Brazilian airlines and I think that's going to change this year, especially with the elections and all of the activity around that.
So I would say financing government on the pillar two sectors that are still recovering, but they are accelerating because compared to 2021 they are above average.
That's helpful. Thank you and if I might on the on the projections provided for 'twenty to 'twenty and 2023, just curious what from the depreciation fuel price FX standpoint, youre, assuming there are any other kind of important considerations that you've kind of baked into the 2022 and 2023 outlets.
Yes, so savvy, we basically have the forward curve, both for fuel and FX and so.
Which is roughly slightly above five.
In that range and fuel coming down slightly as we get into 2023, but still kind of above historical levels and Tom just to add.
Obviously.
I think thats, an important assumption right now fuel and FX.
But.
It's important to note that they are both very correlated and also correlated with fares right.
I think we demonstrated our we had this exhibit we showed at <unk> today, we have it on our institutional deck. If you take our 2019 EBITDA and you just adjusted for current fuel and FX, our $3 6 billion EBITDA would go down to zero right and we are very confident in our four bill.
And EBITDA. This year that shows that you know some of it is on the cost side, but the majority of it is on the fare side right is the ability of this business to operate under any kind of conditions, where fuel and FX. So you may have.
Different assumption for fuel and FX, we run sensitivities here all the time because obviously.
Variables are very volatile, but it's important to also have an assumption for fare levels and they are very highly correlated obviously does a tremendous job but.
We don't know we can't necessarily affirmed at fares would be at this level if the Rio wasn't as five in oil wasn't there at $100 a barrel.
The good point and just on that Alex system.
Could you remind us again, what depreciation should be doing in 2022 and 2023.
The depreciation of aircraft.
Yes.
The depreciation.
Given their reentry paint line.
Yes, I think Q1 is probably more.
In line with.
With what youre going to see for the rest of the year. So.
Full year.
So this is I think you can consider Q1 is sort of a regular quarter in terms of depreciation both because of the.
The increase in the fleet and also because of the new.
Accounting policy for engine.
Re deliveries.
Perfect. Thank you.
Thank you. Our next question comes from Michael Lindenberg with Deutsche Bank.
Oh, Hey, it's actually Shannon Doherty on for Mike. Thank you for taking my questions. Maybe Alex. This is for you can you guys can you provide us with more detail on your deleveraging strategy I know you've stated that you will begin to pay down some portion of deferred rents next year is that still the plan and I mean, if you could just give us an update on our numbers that'd be great as well thanks.
Sure. It's important to talk about what is our debt drive the vast majority of our debt is capitalized leases because of Ifr 16, we don't have a lot of kind of.
Bank debt or capital markets debt.
After operating leases our biggest.
That are our two bonds that we issued the first one matures in October of 2020 for the second one in June of 2026. So they are a ways away in terms of maturing and we have been able to access the capital markets under much more difficult situations than what we currently have so.
We're confident that we can continue accessing those sources of capital. So the majority of the deleveraging will come from us getting back to our natural trend of EBITDA. If you look at that slide where we have you know.
Our 2018 2019 EBITDA then you have the two years for the pandemic and then you have our expectations for 'twenty three 'twenty four you can see that we're essentially just getting back on track with what we promised.
In our IPO.
As we get back to that.
<unk>, which is sort of our natural delivery.
We will be able to.
Deliver on those.
Leverage ratios that we provided to you I just want to highlight a couple of things. If you take a 4 billion of EBITDA versus our current debt. That's a four right in terms of just average and we clearly feel confident even in the macro scenario to reaffirm the $4 billion to talk about $5 5 billion next year and as you talk about kind of a repayment of.
At least that we're constantly negotiating with our partners right. That's just part of doing business and so we constantly negotiate with the operating less doors. Some of them have some trouble with aircraft that were supposed to go to Russia, Russia. So we're constantly looking at opportunities and so we stand by our commitments, but that is just it's just normal course of doing business.
But the deleveraging comes as the profitability comes back to the airline as we do $4 billion. This year and $5 5 billion next year.
Well that's great. Thank you and I know you mentioned that you know a majority of the EBITDA and the 4 million Reais.
It come from.
With higher fares and increase revenue, but you know given your updated full year capacity outlook with total is up 10% versus 19, how should we be thinking about the efficiency of that and thinking about cask ex fuel for the rest of this year and possibly next thanks again for my questions.
Yes, I wanted to start and then I'll pass it over to Alex but.
We took aircrafts through the pandemic right and so the ability for us I mean, we're looking at the numbers, we utilized our aircraft only eight hours a day in the first quarter and so the operating leverage that we get by pushing the utilization back up to 910 hours a day.
Significant as we as we move forward and so this airline has the ability to produce much more isk's than we're currently producing in that and thats, where its coming from.
Yeah and for you to kind of forecast what cask is going to do the rest of the year and next year.
It's important to note that there is a lot going on in cask right. So on one hand, there is a lot of.
Cost reductions that we've implemented over the last three years, we were able to get to a higher productivity.
And then we had in 2019.
By up gauging.
By using more automation and technology the fuel burn.
Coming down significantly as we transform our fleet right. That's why we don't like to talk about cask ex fuel the fuel burn reduction is a significant driver of.
Of cost reduction.
But at the same time, there's a lot of noise to ride you have the real devaluation since 2019.
Fuel prices in dollars are up 75%.
And also you have when we compare to 2019 you are talking about three years of inflation.
Plus.
Our cargo business, which has grown a lot obviously it generates a lot of.
Cash contribution it's much more profitable than the group average margin for the group, but it does help raskin hurt cask right. So we provided you with some.
Visibility now as to how much an art.
Ladies and gentlemen, please hold.
No different aluminum be copying that.
So my question.
Alright.
Amit Verma.
Thanks Tobey.
Hi, Rajeev.
No no.
Ladies and gentlemen, you may now proceed.
Hello.
Ladies and gentlemen, you may now proceed.
To improve utilization.
Right.
Okay.
Ladies and gentlemen, please hold while we reconnect the speakers.
Ladies and gentlemen, please hold.
Hey, guys its Alex again, I'm, sorry about that.
Sure.
So I don't know when you'll ask me, but one thing that's also worth noting on the cask modeling as.
As we increase <unk>, you will see our operational leverage kicking in and our cask continuing to drop.
All else equal, Brian so controlling for fuel FX inflation on cargo.
But it's worth noting that the growth in <unk> for this year is much higher than the first half than in the second half.
That can be asks.
The operators tell us.
Okay.
Thank you our next question.
Our next question comes from Alejandro <unk> with credit Suisse.
Yeah.
Thank you. Thank you for taking my question.
For the second quarter, Youre expecting molten tied to live and work.
So I'm just wondering what's behind it.
Or what's the drag which would be the guidance from <unk>.
What can we expect for Pwc.
Second question.
Paul.
Hello, Andrew.
On the rack side it is the disciplined capacity environment and the discipline fare environment.
For example, our fares from February to April alone are up over 40%. So we are seeing very very strong bookings right now that is going to lead to a very strong flow in revenue.
In second quarter, we had a record booking days a all time record booking day in March and another all time record booking day in April last week was a record booking weeks and so the combination of very strong bookings with very high average fares the highest for us in our history and I am sure the industry as well.
Yes.
Combined with the capacity discipline. So our capacity from March to June is flat, it's going to be flat again from July to October . So I think the industry has done a very good job as John said in responding to the war the fuel prices and things like that and we are taking advantage of.
Strong leisure environment and.
Rapidly accelerating corporate recovery and so the record bookings that we are seeing.
Will result in record unit RASK unit revenue in the second quarter.
Yeah and in terms of profitability normally you have seasonality that drives profitability down from Q1 into Q2, but this Q2, we have a couple of.
Very good sources of.
Payoffs tailwind for us. So one is as Avi said, the RASK right that having record RASK historical record risk. He is not talking about record dressed for the second quarter as historical record record record for any quarter in <unk> history, which should help us to have a more profitable Q2 than normal and also we're not.
Have the omicron impact right that as we said omicron, we estimate was about 300 million reais of bad Guy.
In terms of EBITDA for us in the.
In the first quarter right. So.
So you can expect maybe something.
Higher than Q1.
But most of our profitability for seasonal reasons is in the second half of the year, particularly in the fourth quarter right on a normal year, our best quarter is the fourth quarter.
Okay. Thank you John Thank you and then my second question if I may.
Do you have any update on the booking shelf.
Tom.
Yes.
Yes, really Alejandro will not really talking about Latam I think that that's something that's not on our radar right now I think theyre going through their process.
We're very confident in the Standalone as all business as you can see from what <unk> been able to do on the revenue side and so we'll respect their process I think they they have.
To deal with the creditors and get out, but we're very confident with what we're doing here in Brazil, and focusing on our core business.
Yes, and its also good it's a good reminder, that all of the numbers that we provided the $4 billion in 'twenty, two and $5 523, those are for US all stand alone with no upside from.
Any kind of.
Codeshare joint venture many kind of consolidation.
If any of that happens there will be upside to our.
Forecast.
Okay. Thank you very much.
Thank you.
Thank you.
Next question comes from Bob <unk> multi device with Barclays.
Hi, good morning, and thanks for taking my question.
Very curious too to pick your brain on what has changed structurally in the in the Brazilian market in terms of.
The demand going into leisure markets.
Going forward, what do you think it has changed on the on the clients why they are either taking more vacations working from anywhere and <unk>.
Especially <unk>.
<unk> seen that I don't know in one year or two years from now that leisure demand will.
We will be with us that will be my first question and my second question would be on the price sensitivity I mean do you have.
Have done an excellent job on increasing first but.
Is there still more upside.
No thinking in a 12 month basis or do you think that the consumers, reaching two to a certain peak. Thank you.
Hi, Hey, Pablo I'll be here. So you know one thing Thats really changed and it is very interesting is seasonality.
Let me give you an example.
One way to measure the level of leisure demand.
If you look at the bookings on weekends thread because bookings you don't have travel agencies, you don't have corporate guys booking on weekends and when we first got to 100% leisure recovery last year and.
And we said you know what it is coming back very very strong.
Is it pent up demand is it not pent up demand is it just looking for the summer peak, so if I compare our weekend bookings bookings on Saturdays and Sundays versus what we had last year in September October and November .
The revenue we are seeing this last weekend for example is the same.
And there is no peak summer ahead of US there is no sort of.
And show a pent up demand right. It is a new level of sustained demand.
One thing that has changed is actually seasonality is gotten more flat, which for someone like us is actually pretty good because we tend to be less seasonal.
Because of the nature of our network and the fact that we have so many destinations.
Tend to be more corporate.
And so seasonality has changed.
It's almost like in the U S. If you tell an airline your bookings in September will be the same as your bookings in may right, David they've never experienced that and so I think seasonality is something that has changed and the leisure demand to work from anywhere demand.
Now flatter than it used to be at a higher level and so that's very very encouraging for us to see and on the pricing side, we continued to see strength.
Going forward, we look at our booking curves out to June July even August and frankly, we are seeing more opportunities to increase prices and then we are seeing for the need to have volume in our booking curve.
And so we're not seeing any resistance at this point from the customer.
The overall industry is disciplined as I said, our capacity is going to be.
Upland has well July to the end of the year ahead of the peak summer season, and so youre not going to have any short term medium term shocks in terms of capacity.
It's pretty visible to all of the players involved.
And from what we can see in the booking curve.
It looks pretty solid as far as we can see.
Just to add we also went broader Theres 35, new cities, there's 35, new cities with pockets of demand that are coming in and David mentioned, the AG business in Brazil, the bread basket of the World is Brazil.
With commodity prices, where they are today there is a lot more people that are traveling all around Brazil, because they're making more money than they've ever made before and so I think that's really important to understand Azores network is very broad we fly all throughout Brazil, the Midwest of Brazil, Azores country, right and that is where we do really really well.
That's where we've dedicated our assets and I've talked a lot about kind of being out of the triangle real San Paulo, Brasilia, and that's really what we've done and what we've built our network over the last decade.
Understood. Thank you very much.
Thank you. Our next question comes from Bruno Amorim with Goldman Sachs.
Hello, everybody. Thank you for taking my questions I have two actually the first one just wanted to validate my interpretation of your guidance. So you're saying they use case will be 10% above 2019 does here in the first quarter, you were close to that 9% or so meeting throughout the year, you should be 10% above the.
Respective quarter in 2019, meaning in the fourth quarter.
The Libra <unk>, 15% to 20% above the fourth quarter. So just wanted to validate the rationale and the second question.
He is around.
You know your fleet size or flexibility. So how should we think about it how much flexibility do you have and how do you think about GSK growth vis vis where jet fuel prices are I guess that the higher jet fuel prices.
The lower the propensity to grow in the short term, even though of course long term all the cost pressures tend to be passed onto two first just wanted to understand how do you.
Think about and manage capacity visa visa evolution of jet fuel costs. Thank you very much.
Hey, Bruno so regarding the sort of quarter by quarter evolution remember in 2019.
Bianca, Brazil, which stopped flying.
April May June .
And so we picked up some of their aircraft towards the end of 2019. We also had some of the first E. Two deliveries so.
Regards to the average Tokyo will be above average and then <unk> and <unk> and <unk> will come down much closer to the average only because the our comparison of 2019.
A lot more growth towards the end of that year because of aircraft deliveries in <unk> and the E twos as well so.
Our the.
The absolute capacity from July to the end of the year will be actually pretty steady, but it is the comparison of 2019.
The average for <unk>.
And then a much closer to the average in <unk> and <unk>.
In regards to capacity like I said, we're taking it very slow and so I'll give you an example.
And actually for example, we are not even flying daily to the U S. Right now and many of our competitors are.
We will only be daily adjusting July for example.
And even domestically March to June we were very steady in our capacity in July .
You will be as well so.
Obviously it depends on demand demand continues to be strong, but it's important to make sure that we keep it that way and we keep the rationalized a discipline in the market. So.
We have no major changes until the end of the year.
In terms of deliveries or anything like that and so it's going to be a slow disciplined rollout very much tied to revenue performance and.
And overall discipline in the market Hey, Brian just to kind of respond on the flexibility that the fleet has I mean, we converted six E ones into cargo aircraft right and shows you the flexibility that we have and working with our partners with the leasing community and the Oems and so I think the fact that we can deploy atr's each at $323 21, but our <unk> hundred.
<unk> flying domestically are flying internationally, just with cargo we have tools in our toolkit that others don't have and I think that our fleet has been our greatest strength over the last two years to bring things back online. We have 900 flights a day and our next closest competitors about 550 flights a day, because we can do things that they can't.
And I think that's a huge strategic advantage for us.
Thank you very much very clear.
Thank you. Our next question comes from Stephen Trent with Citi.
Okay.
Hey, good afternoon, everybody and thanks very much for taking my questions.
Just one or two for me.
I was wondering if you could give us a little color what are your thoughts with.
Your agreement with United Airlines, I believe expiring next month.
And could you remind me as well and I apologize if I missed it how much fuel youre actually hedging for the second quarter itself. Thank you.
Yes, our agreement with United Expires June 26th they've been a great partner of ours and we.
We're talking to them about about the potential for an extension in kind of keeping it open right is as one would in this market and so we really don't have any details to share.
Further to that Steve.
Yeah, and Steve on the hedging you know like we said we have about 17% for the next 12 months. It is front loaded right because we try to tie the.
The hedging into sort of the percentage of seats that have actually been sold driving Brazilians tend to book fairly close in so what we talked about in terms of the ability to pass through cost increases to fares.
Normally Brazilian airlines have lower lower need to hedge.
Oil exposure because the booking curve is so much shorter and so if I had sold 100% of my inventory for next year than I, probably would need to hedge 100% of my oil exposure for next year, but because of the booking curve is fairly short in Brazil, we don't have to hedge a lot but.
In general you can.
Assume that the second quarter hedge is a little bit higher than the 17 in and Thats kind of trails off as we get.
No farther into the 12 months.
Okay Super helpful. Thanks, John Allison in regards to everybody.
Alright.
Yes.
Ladies and gentlemen, thank you please hold.
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If there's no further questions we'd like to thank everybody for participating the call I apologize for the telephone issues will get that will get that fix next time. We appreciate I. Appreciate your time feel free to reach out to <unk> salary savvy myself and we look forward to seeing you at conferences and we look forward to delivering.
Further results. Thank you.
Ladies and gentlemen that does conclude the <unk> audio conference for today. Thank you very much for your participation and have a good day.
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