Q4 2022 Copa Holdings SA Earnings Call
Well, ladies and gentlemen, thank you for standing by welcome to Copa Holdings fourth quarter earnings call. During the presentation, all participants will be on a listen only mode.
Afterwards, we will conduct a question and answer session.
That time, if you have a question you will have to press Star then the one one on your Touchtone phone.
As a reminder, this call is being webcast and recorded on February 16th 2023 now.
Now I will turn the conference over to Daniel Tapia Director of Investor Relations, Sir you may begin.
Thank you Latif.
And welcome everyone to our fourth quarter earnings call.
Joining us today are Ron <unk> CEO of Copa Holdings, and Jose Montero our CFO .
First Pedro will start by going over our fourth quarter and full year highlights followed by Jose who.
Who will discuss our financial results.
Lately 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.
Reconciliation of the non <unk> financial measures can be found in our earnings release, which has been posted on the company's website Copa are dot com.
Our discussion today will also contain forward looking statements.
Limited to historical facts 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 <unk>.
Thank you Danielle.
Good morning to all and thanks for participating in our fourth quarter earnings call.
Before we begin I.
I would like to extend my sincere gratitude to all of our coworkers for their commitment to the company.
There are continuous efforts and dedication has kept co pack at the forefront of Latin American aviation to them as always my highest regard kind of duration.
We're proud to report solid fourth quarter and full year results. Despite the pressure higher jet fuel prices have added to our operating cost and other headwinds common core business.
Among the main highlights for the quarter.
In terms of capacity, although we had a similar number of daily departures compared to 2019, we achieved 6% more of your firm to that in Q4 2019.
Higher average gauge.
Revenue passenger miles increased by seven five.
Which led to an 86, 6% load factor a one four percentage point increase when compared to the same period in 2019.
Passenger yields came in at $15.01 or 20% higher than in the fourth quarter of 2019.
Cargo revenue, including the contribution from the operation of our Boeing 737, 800 freighter was 69% higher.
The resulting in unit revenues or RASM.
13, 7%.
A 23% increase compared to the fourth quarter of 2019.
Adjusted ex fuel CASM decreased by 7% compared to Q4 2019 from six <unk> to $6 one.
And our operating margin came in at 24, 7%.
Now turning to our main highlights for the full year 2022.
<unk> revenues increased 12, 6% year over year to 12.1.
Mainly driven by a 10, 8% increase in yields.
CASM ex fuel came in at $5 98.
Almost 5% lower than 2019.
On the operating margin for the year came in at 15, 2%.
During the year, we started to flight to Barcelona, Venezuela America, Colombia and to have Philippe <unk> Airport in Mexico City.
Ending the year operating to 77 destinations in 32 countries in North Central South America, and the Caribbean strengthening our position as the most complete and convenient hub in Latin America.
We navigated our new Copa club into comments New terminal two.
This new and modern facility provides our business class and preferred members.
A world class experience, while earning through our Panama hub of the Americas.
We also reactivated our panamax stop over program, which promotes our home country as a tourist destination and we're seeing good results.
In September we launched our new distribution strategy, including the new Copa connect option for travel agencies to access Copa first another content via via you add a new distribution capability or NBC.
At the same time.
Copa introduce a cost recovery surcharge for bookings made through the legacy GBS technology known as <unk>.
During Q4, we were pleased with both the adoption of Copa connect among our agency partners and increasing direct sales via Copa Dot com.
We're still at an early stage, but these changes are helping us gain more control over our distribution strategy and offset and eventually lower our distribution costs.
Yes.
On the operational front Copa delivered an on time performance of 87, 4% and was recently recognized by the official airline guide at the most on primarily in Latin America in 2022 in fact, according to OAG Copa on time performance was again the high.
Yes of any carrier in the Americas.
Additionally, last year Copa Airlines was recognized by Skytrax for the seventh consecutive year as the best airline in the best airline staff in Central America and the Caribbean.
I would like to once again express my recognition to our more than 7000 coworkers, who day in and day out deliver a world class travel experience for our customers and their contributions are key to our success.
With regards to wingo.
Lingo received one additional 737 800 from copper.
We ended the year with a total of nine aircrafts.
Additionally, we have continued regional expansion and ended 2020 operating 31.
With services 2000 cities in 10 countries.
Turning now to our expectations for 2023.
During our last call in November we shared preliminary guidance for the year, plus 15% compared to 2022.
We mentioned that we were expecting to receive 13, 7%.
The aircrafts during the year.
You saw in our earnings release.
Due to our capacity growth guidance to a range.
14%.
We'll be able to maintain these are really scheduled delivery dates we now expect to receive tour aircraft during the year in 13.
Additionally, after.
The case for the English worldwide.
Great.
Maintenance cost related related to arranging funding reshape their turnaround times.
We expect that issue to add pressure.
Sure.
For the year.
Bill will provide more detail about it.
This year, we expect to continue growing our house.
Terms of frequency and new destinations.
So far we have announced new service to a series of Mac.
And Baltimore and offering in the U S.
Sure.
Was this additions we will be serving 80 destinations in north Central South America, and the Caribbean by July of this year.
To summarize we.
We delivered strong results in Q4 and for the full year 2022.
Our team continues to deliver world, leading operational results, including again, the best on time performance in the America.
We're reducing our capacity assumptions for the year, given the current delays and the aircraft delivery stream.
And as always we will continue looking for efficiencies and savings to further reduce our unit costs and strengthen our competitiveness going forward.
Lastly, we're confident as ever in our business model in.
In 2022, we delivered competitive unit costs and solid margins while.
While continuing to offer a great product toward passengers, making us the best proficient airline in our region to consistently deliver industry leading resource.
Now I'll turn it over to Jose who will go over our financial results in more detail.
Thank you Pedro and good morning, everyone. Thanks for being with us today.
I'd like to join Pedro in acknowledging our great team for all their efforts to deliver a world class service to our passengers.
I will start by going over the main highlights for our full year 2022.
Our load factor came in basically flat versus 2019 at 85, 1%.
Driven by a 10, 8% increase in yields unit revenues improved by 12, 6% versus 2019 to $12 one.
Our unit cost came in at $5 90, 846% lower than in 2019.
Due to an increase of 67% in jet fuel prices, our operating margin was <unk> nine percentage points lower than in 2019 at 15, 2%.
Reported net income for full year 2022 came in at $348 $1 million, which tranche.
Translates to earnings per share of $8 58.
Excluding special items, mainly in unrealized mark to market net gain of $12 $7 million related to the company's convertible notes as well as changes in the value of financial investments.
Adjusted net income came in at $335 4 million or adjusted earnings per share of $8 26.
Now turning to our fourth quarter results net profits for the quarter came in at $88 $3 million or $2 23 per share.
Excluding special items net profit came in at $177 7 million or $4 49 per share.
Fourth quarter special items are comprised of unrealized mark to market loss of $91 $3 million related to the company's convertible notes.
One 9 million unrealized mark to market gain related to changes in the value of financial investments.
We reported a quarterly operating profit of $219 $7 million and an operating margin of 24, 7%.
Capacity came in at $6 5 billion available seat miles or approximately 6% higher than in Q4 2019.
Load factor came in at 86, 6% for the quarter, a one four percentage point increase compared to the same period in 2019.
Passenger yields increased 24% to 15 one.
As a result unit revenues came in at $13 seven or.
Our 23, 4% higher than in the fourth quarter of 2019.
Driven by higher jet fuel prices unit cost or CASM increased 10, three or 10% more than the adjusted CASM in Q4 2019.
And finally, our CASM, excluding fuel came in at $6 one.
A 7% decrease versus the adjusted CASM, excluding fuel for Q4 2019.
I'm going to spend some time now discussing our balance sheet and liquidity.
So at the end of the year, we had assets of close to $4 7 billion.
And in terms of cash short and long term investments we ended the year with $1 1 billion.
Which represents 38% of last 12 months' revenues.
As to our debt we ended the year with $1 7 billion in debt and lease liabilities.
<unk> adjusted net debt to EBITDA ratio of 0.8 times.
Turning now to our fleet during the fourth quarter, we received two Boeing 739, Max Nines to end the year with a total of 97 aircraft compared to 102 aircraft in our fleet at year end 2019.
In January of 2023, we received an additional science, we sent a Max nine to bring our total fleet to 98 aircraft.
With this addition, our total fleet is now comprised of 68 737 eight hundreds.
One, 7% Max Nines, and nine 737 seven hundreds.
These figures include $173 seven 800 freighter and the 90 737 eight hundreds operated by Windows.
Two thirds of our fleet continued to be comprised of owned aircraft and one third of our aircraft are under operating leases.
During the remainder of 2023, we expect to receive 11 additional aircrafts all Boeing 737, Max Nines.
We have been informed by Boeing of additional delivery delays and our 2023 delivery streams. So we now expect all 11 aircraft pending to be delivered during the year to have between two to four months of delays versus the original delivery date.
As to our outlook based on the current demand environment and the expected delivery dates for our incoming aircrafts can provide the following guidance for full year 2023.
We expect to increase our capacity and ASN versus 2022 within a range of 12% to 14%.
We expect an operating margin within the range of 17% to 19%.
We're basing our outlook on the following assumptions load factor of approximately 85%.
Unit revenues within a range of $12 one.
CASM ex fuel to be in the range of <unk>.
Mainly due to the additional costs associated with our engines and the longer maintenance shop and turnaround times that we expect for this year.
And finally, we expect an all in fuel price of $3 15 per gallon.
Thank you and with that we'll open the call to some questions.
Okay.
Thank you as a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask a question. Please standby, while we compile the Q&A roster.
Yeah.
Our first question.
Comes from the line of Michael Lindenberg of Deutsche Bank. Your question. Please Michael.
Oh, Yeah, Hey, good morning, and congrats on the great results that team.
Two questions here I guess first.
Youre welcome.
Two questions here just the first Pedro can you actually update us on some of the shareholder initiatives the share repurchase and where things stand with respect to dividend reinstatement.
Yes, Okay. So answer the second part and then I'll let.
Jose address the repurchase part and so the board met last week and decided to discuss the dividend.
Palin decision.
Upcoming board meeting towards the second half of March. So this coming month, where we're going to present, our budget, our capex need our cash flow et cetera. So they decided to make the decision then so that would be in like.
I'm on for like a month or so okay.
Yeah, Mike in terms of the share repurchase program. We were active last year in the program. We have and are currently approved $200 million program base essentially halfway completed.
And of course, they objected to it programs to maximize shareholder value.
The other component of the strategy behind the program is to have liability management vis vis the convert as well. So that's that's kind of a strategy that we have.
With the share repurchase program.
Okay, Great and then just my second when we look at the 12% to 14% capacity growth.
You've already announced three new cities right, Paul Tomorrow, Austin, Atlanta should we anticipate more cities and as we think about the 12 to 14 is it mostly.
Connecting the dots are I'm really not even connected is it mostly at a frequency or depth to the schedule is it 50 50, new cities and I'm, just curious about the type of growth.
Low rise as high risk type crowds.
Correct.
Answer in a way, it's all of the above.
50%, 50% of the capacity growth in 2023 comes from the full year effect of the additions in 2022, both frequency and a new destination to added in 2020.
Then the other 50% you're 50% is mostly additional frequencies in current markets.
And then a smaller part of that 50% is going to be new destinations.
We've announced three chip.
And we are hoping to announce an additional at least to tour. So before the end of the year.
Pedro the tour so that Youre looking to announce are they some of them are they some of the destinations that you served prior to Covid that you have yet to restart or are they completely new destinations.
No I mean I.
I meant to say new destinations, we still have about eight destinations we haven't restarted from from pre Covid and we hope to also restate some of those.
During the year.
Okay Eric.
Good okay. Thanks, Thank you very much thank you.
Thank you.
Our next question comes from the line of Duane <unk> of Evercore ISI. Your question. Please Duane.
Okay.
Hi, Thanks, good morning.
Just on the.
Just on the traditional pattern of margins.
<unk> you know typically we actually see some tick up sequentially.
From <unk> and if you think about the kind of roughly 25% margin.
That you posted here, how do you think about that into <unk> into <unk>.
I guess, what we're trying to get a feel for is how much conservatism.
You've baked into the second half of the year because it just feels like a lot.
Right. So so duane.
Of course, it's only February so so we're going to be cautious in how we try to forecast.
911 months, we have ahead of us.
But I should also say that that Q4.
It was not necessarily a typical Q4, but I'll, let jose maybe get into more detail. Yeah. Duane you know Q4 was particularly strong for a couple of reasons one.
A strong demand environment in the region number two.
Most of the sales that we performed for Q4 were made during a period, where fuel was still high and then fuel came down during the quarter as well vis versus where it was.
In Q3, so that created a very very strong result for the quarter.
Your item I think you know I think there was kind of getting into this.
We decided to go back to our yearly guidance. So we're providing a full year guidance.
For Q1, I would say from a top line sort of RASM perspective.
You could argue that in Q1, there is a maybe a slight.
A reduction in the guidance assumes a slight reduction in the RASM versus Q. The Q4, RASM that was very very strong.
That's just a function of you know, there's a little bit more capacity in the network and the other item there is always a little bit lower as well so.
There's some some of that dynamic going on there, but we expect Q1 to have a good.
Good development in terms of its profitability from what we're seeing so far.
Okay, I mean fuel is lower sequentially, but obviously fuel has been all over the place, but it is lower sequentially at least our view today for you to want to you.
And then maybe just for the follow up on.
The pilot contract announcement can you speak to.
The magnitude of that assumed in your full year cost guidance you know how how.
How should we think about that.
Right so.
This is a process. We go through every four years with all of our unions, including our pilot Union.
You, usually don't even find out because there isn't a lot of noise out there about it it's usually a very professional.
And I don't know I don't want to say friendly, but professional respectful negotiation. It wasn't any different this year only that it got out in the news so a little bit more noise was made out of this.
The agreement was signed last week.
We usually get signed in the last in the due date.
And it was not much different to what we have signed in previous negotiations four years ago or eight years ago, not not very different.
And it should not have.
And the impact that that.
We cannot cover with other efficiencies and growth.
And things like that.
Is that just to be clear. It is included in our guide for 2023 in terms of ex fuel CASM.
Again, it's in line with what we have signed in the past with that group and it was signing and I think the conclusion to the negotiations with Don and I have a very good spirit and its in line with inflation in Panama also inflation in Panama, and the 2% to 3% range.
So it's also in line with that and again very similar to what we have signed in the past.
The guidance of course.
Okay very clear thanks for the time.
Good morning, Thank you.
Thank you.
Our next question.
Pardon me. Our next question comes from the line of Virgilio Arroyo.
Bank of America. Your line is open Enbridge area.
Thank you very much.
Hey, gentlemen, thanks, so much per day are there opportunities I had one follow up.
May.
Maybe supply demand.
So there.
There is a red flag.
Slide into guidance that is about 12% of 93 level and <unk> fuel was 20, 21% above 19 levels. So.
I would like you guys to comment what is driving that so you've already mentioned that some of the fourth Q tickets have been sold when oil price was at a higher level.
Can you break it down maybe three segments here one is the.
The higher frequencies from copper.
It should impact.
<unk> yields.
The higher the expected capacity expansion from competitors.
And also demand do you expect on demand weakening is there.
I don't know, maybe I think that the demand environment.
Environment currently that is expected to be normalized so how are thinking about corpus supply competitive supply and demand. Thank you.
Thank you everyone here for your question I will start by saying that this is early in the year. So the visibility towards the latter part of the year is still limited, but from what we're seeing at least in Q1 demand the demand environment continues being relatively strong versus what we saw in Q4.
I think that.
For both.
And the unit revenue side.
The load factor side.
It looks it looks relatively small maybe a tad down versus again in Q4, but in general terms still very very strong system wide.
All regions seem to have that sort of thing.
From in terms of what we're seeing when you compare let's say.
The unit revenues for the second half of 2022 and the.
Full year 2023 guidance that we've issued.
I'd say that the majority of the <unk>.
Component in terms of the.
The change in RASM is related to the fuel curve assumption that we have or their fuel curve that we have.
Our unit revenues in I will say about two thirds of the movement is related to that and then the other part is related to the capacity that we brought in.
Increasing capacity for the full year by AAV the range of 12% to 14%. So it is.
An important double digit movement in capacity. So I would say those are the two movement, but it's again fuel and capacity on our own capacities is what's driving the guidance for 'twenty three.
Yes.
Very clear thanks, so much congratulations on the very strong results.
Thank you Rajiv.
Thank you. Our next question comes from the line of Savi <unk> of Raymond James Your line is open Savi.
Thank you good morning, everyone.
If I might on the on the capacity front could you talk a little bit about.
Just from a Max delivery standpoint, how you expect that to kind of come throughout the year and kind of the capacity cadence there.
Related to that is also kind of the fuel efficiency do you expect that to improve.
As we go through the year or is it just based on kind of the routes that you're adding do we maybe short haul routes or anything around that that maybe caused this fuel efficiency two maybe not improve despite the max delivery.
Yes, I would say savi that.
The cadence throughout the year I would say that most of the growth will probably occur during the second half. So it will be more anything back loaded into the second half of the year.
We are seeing for Q1 again, a growth on a sequential basis.
Low single digits versus Q4, and remember that in but also there is the impact of I mean again near year, we're comparing against.
<unk> 22 in total so there is also the impact of reforming krone at the beginning of the year a little bit slow.
Noise in the base of 22 to 'twenty, three but say, it's mostly back loaded into the second half of the year and yes. There are benefits in terms of fuel consumption for the Max.
Is there.
<unk>.
The double digit range versus low double digit range versus the <unk>. So we're seeing that and recognized an assumption to make at the.
And the fuel consumption part of the of the model, which is of course in our guidance, yes of course.
Got it.
If I might on the Wingo increased one more aircraft that I don't know if that was connect expected or not could you just talk about.
Yes.
Yeah, how youre thinking about window, and how or how that's evolving based on what youre seeing in the environment today.
Sure So to Wingo did go from eight aircraft at the beginning of 2020 229.
Something we had planned.
Planned for.
However.
The Columbia market.
Very competitive right now I would say to have overcapacity.
So we think that wingo for 2023 is going to remain at nine aircrafts. So we don't see wingo growing in March this year, except for better utilization of its fleet and we will do a few things, though add some market shift capacity around.
But there will remain with nine aircraft during the year.
That's helpful color. Thank you.
Thank you sorry.
Thank you.
Our next question comes from the line of Bruno Omeara of Goldman Sachs. Your question. Please Bruno.
Hi can you hear me.
Yes.
Thank you. So the question is actually a follow up on the outlook for 'twenty three.
Just wanted to make sure that we got the right message is it fair to say that.
Youre, taking advantage of the fact that margins are running at both trend to stimulate some demand and bring margins back through.
What was the historical levels because.
Fourth quarter was particularly strong, but even if you look at third quarter margin was 18% already with much higher fuel prices right. So it does seem that.
All else held constant there was room for margins to be better in 2023. Thank you.
Yes, so we I'll start and then let Jose.
Finish the question, but.
In Q3, we were able to cover our our fuel expense would higher yields and of course when fuel is up most every airline is affected in the same way.
A lot easier to get fair.
Actions matched by everyone, which is what happened in the second half of the year.
In Q4, we had a very strong month of October where load factor was about 90% that's way above our.
Hi average.
Even above our high average.
And then fuels chart started coming down in the latter part of the of the quarter, while yields remain remained higher Roe.
Higher than before so.
We don't think that's sustainable and we are seeing that experience from the past also that when fuel comes down or lengths are a little bit more aggressive vendor pricing and we've seen a lot of that or some of that I should say and so the expectation is for Q1 that that demand.
<unk> will be slightly lower but still very healthy still very healthy, but we won't have in October . So the rest will be very similar and yields will be also slightly lower due to the fuel reduction home everyone add something.
The point is that we're also growing by between 12, and 14%, which is a significant level of growth.
And I think that that's also a driver of.
Of our strategy for the year is just simply to continue sort of rebuilding the hub to where it was pre pandemic and.
The the margin guidance that we're providing.
The high end of what we have delivered on a yearly basis over the last several years. So it is.
With the added growth as precisely as you mentioned a portion of the strategy that we're pursuing in terms of capturing new market or re.
Capturing our markets.
Thank you very much.
Thank you Bruce.
Thank you our next question.
It comes from the line of Stephen Trent of Citi. Your line is open Steven.
Hey, good morning, gentlemen.
And thank you very much for taking the time.
I just had one.
One or two quick follow ups on the competitive environment. So it seems for example, like.
Spirit Airlines has exited.
Florida Panama.
You may have had some trouble competing there.
And then in Colombia, I know you also just mentioned it but it looks like Viva Colombia is.
Maybe looking a little wobbly.
From a competitive perspective, when do you think about sort of.
Broader capacity in the region.
Do you see kind of medium to longer term upside for <unk>.
Passenger capillarity through talking then thank you.
Yes actually.
The two examples you have alluded to are not really that don't have a significant impact.
In our network, we don't compete much against either one and we have very very little overlap. So those those exiting certain markets don't really have an impact.
What what we have seen is a tilt towards more you OCC competition in our network versus what would have been eight years ago or even four years ago.
So that's I think the big change, which is kind of.
Two sides.
One side is of course.
We need to to remain very focused on our LOE on our cost and our efficiencies.
But secondly, we are like in most markets. The only full service carrier and so that gives us gives us certain uniqueness, but in general terms as I mentioned.
Competition right now in our network, it's mostly you OCC and I would say that most airlines have brought back most of their capacity.
Through pre pandemic levels or very close to it.
Very helpful Pedro.
And as my follow up just really quickly I know you.
You guys gave a very helpful guidance on the full year.
I was wondering if you might have.
A high level view is that how we might think about a sort of one Q jet fuel kerosene and sort of.
Relatively where you could see it settling in.
Yeah.
Kevin.
If you want on a quarter over quarter basis versus Q4 fuel is down by about 4%.
So thats kind of how we're seeing it again in Q4 versus Q1.
Sure.
Super Jose Thank you and let me leave it there thanks guys.
Thank you.
Thank you our next question.
Comes from the line of Helane Becker of Cowen Your line is open Helane.
Thanks, very much operator, hi, everybody and thank you very much for the time.
So Joe.
Two questions here. The first question is with respect to <unk>.
To cargo.
Can you just talked a little bit about what youre seeing right now.
Are you seeing similar decline to what others are seeing in the market. How are you thinking about utilizing.
The freighter aircraft that you have.
Right. So the first thing I should say is that cargo, it's only about 3% of our revenues.
So it's not that significant I mean, it used to be two and a half. So so so it's above what used to be but but.
But not by a huge.
Yes.
The margin, but we are operating our 737 800 freighter.
Operating great.
Good.
Load factors and yields it's actually operating over 10 hours per day.
So we're getting the most out of it.
And yields have come down a little bit but in our network most of our cargo still most in the belly of passenger narrow body fleet and the freighter is doing well. So so we're not a big cargo carrier.
And we should continue to see an improvement in our in our in our numbers and our cargo revenue numbers and it's contributing processes.
With those figures to the business.
Okay. That's really helpful. Thanks, guys and then my follow up question is.
How are you thinking about the convert I think you can.
I think you can start buying it back in April .
So what are you thinking about with respect to that.
Yes Aileen.
I would not necessarily getting to details of particulars of the strategy, but yes. There is a call option that is available in April this year.
Convert has.
The due date of the convert is actually April 2025.
But what we have been doing in the past several months as we've discussed has been very active in our buyback program.
Which also.
And it gives us optionality for the settlement of the convert as well so it is.
It is kind of a strategy and we're pursuing and we have different options available to us on the table to be able to.
Many Mike effectively liability for us.
Okay. That's very helpful. Thank you.
Okay.
Thank you our last question.
Comes from the line of Josh Milberg Morgan Stanley .
Weston Please Josh.
Yes, hi, everyone. Thank you very much for the call and congrats on the results I just wanted to.
To ask if you could touch on your CASM X outlook.
And what factors could eventually enable you to beat the 6% level.
And what I have in mind is eventually greater seat Densification and I know that in the past you've said you wouldn't be complacent about that level.
And I also wanted to understand what's incorporated in your CASM X guidance on in terms of pilot crew salary adjustments I joined the call little bit late so I'm, sorry, if you already addressed that.
Yes, Josh Thank you for the question.
I'll answer the last portion first and yes in our 2023 guidance of <unk> <unk>.
We have included all of the impact associated with <unk>.
All our salary wages and benefits contracts et cetera, and so it's.
All in there.
In terms of the guide for 2023. It does include an increasing.
Maintenance costs associated with engine shop visits.
And lease engine.
Rentals that we have so that's basically that.
Driver that is offsetting some of the improvements that we have due to the.
Capacity impact on due to the distribution benefits that we've achieved in the last quarter with our new distribution strategy. So that's kind of why the chasm is remaining flat for 2023, but as you well mentioned we have still.
Optionality related to the fleet Densification program, we expect to conclude to conclude this portion of our fleet Densification program during the middle part of the year, but there is another portion of that is coming in subsequent years and theres further opportunities in distribution.
And.
The other component wholesale we're seeing growing a little bit in terms of unit cost. This year that we're offsetting with some of the improvements that we are making is or flight fees are growing up in a couple of countries in Colombia, and Brazil. This year that is driving some cost pressures upward, but again, we've been able to mitigate that with some of the other improvements that we've made.
And our interest in the business. So again to summarize we are keeping a CASM ex expectation for this year flat.
Versus 2022, again, driven by by some incremental maintenance expenses drop offs.
And <unk> fees.
And offset by some of the improvements that we've made in distribution and the capacity impact that we have and pending of course densification going forward.
Okay. That's great. Thank you very much for that detailed response and then if you could just touch very quickly on what youre seeing in terms of corporate versus leisure trends in the first quarter and in the first half I know you guys are we still at that question.
Yes, it's still.
Full recovery I would say right now leisure VFR is about three quarters of.
Of the of the total volume of passengers.
No.
We're serving and about a quarter is related to business. So it is still not back to sort of.
Two thirds, one third where it was.
Pre pandemic.
Okay, Great really appreciate it and have a nice day.
Thank you Josh Thank you you too.
Thank you at this time I'd like to turn the call back over to Pedro <unk> for closing remarks, Sir.
Yeah, Okay. Thank you.
Thank you all this concludes our earnings call and thank you for being with us.
Thanks for your continued support.
Have a great day have a great weekend and we'll see you next time, thank you very much.
Ladies and gentlemen, thank you for your participation that concludes the presentation you may disconnect and have a wonderful day.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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Okay.
Yes.
Yes.
Yes.
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Okay.
Okay.
Okay.
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Okay.
Ian.
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Yes.
The conference will begin shortly.
Lower Johan during Q&A, you can dial star one one.
[music].
Okay.
Okay.
[music].
Hum.
Yes.
[music].