Q1 2023 Copa Holdings SA Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Copa Holdings first quarter earnings call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time.
If you have a question you will have the press star one one on your telephone.
As a reminder, this call is being webcast and recorded on May 11 2023.
Now I will turn the conference call over to Daniel <unk> Director of Investor Relations. Sir you May now begin.
Thank you Felicia and welcome everyone to our first quarter earnings call.
Joining us today are better they'll have their own CEO of Copa Holdings, and Jose Montero our CFO .
First that I want to start by going over our first quarter highlights.
Followed by Jose, who will discuss our financial results.
The after we will open the call for questions from analysts.
Copa Holdings' financial reports have been prepared in accordance with international financial reporting standards.
In today's call, we will discuss non <unk> financial measures.
A reconciliation of the non I've idea for us to <unk> financial measures can be found in our earnings release, which has been posted on the company's website or by air Dot Com.
Our discussion today will also contain forward looking statements.
Not 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 difficult in our annual report filed with the S E T.
Now I'd like to turn the call over to our CEO , Mr. Pedro hurdle.
Thank you Danielle.
Good morning to all.
Thanks for participating in our first quarter earnings call.
Before we begin I would like to extend my sincere gratitude to all of our coworkers for their commitment to the company. They are continuous efforts and dedication has kept cap at the forefront of Latin American aviation.
To them, it's always my highest regard for and admiration.
Today, we're pleased to report strong results for the first quarter and a solid outlook for the year.
Despite the continued high fuel prices in the quarter, we were able to deliver an operating margin of 22, 3%.
These results were mainly driven by a robust demand environment in the region.
Which led to an improved load factor as well as an increase in passenger yield during the quarter.
Among the main highlights for the quarter.
Singer traffic grew seven 1% compared to the same period in 2019.
Outpacing our capacity growth of two 8%.
This resulted in an 86, 8% load factor.
A three five percentage point increase compared to Q1 2019.
Passenger yields came in at 14 six cents or.
Or 20% higher than the first quarter of 2019.
While cargo revenue was 52% higher resulting in unit revenues or ration of 13.1 cents.
A 25, 5% increase compared to the first quarter of 2019.
On the cost side.
Our unit costs, excluding fuel came in at $6.02 or two 1% higher compared to Q1 2019.
As a result.
Our operating margin came in at 22, 3%.
Five five percentage points higher than in the first quarter of 2019.
On the operational front.
Copa Airlines delivered an on time performance of 92, 2% and a completion factor of 99.9% once again amongst the very best in the world.
I would like to take this opportunity to express my recognition for more than 7000, coworkers, who day in and day out deliver a world class travel experience to our customers and their contributions are key to our success.
Turning now to our fleet, we received two 737, Max nine aircraft during the quarter and.
And we expect to receive 10 more Max nine during the remainder of.
The year to end 2023, with a total fleet of 109 aircrafts.
With regards to our network as.
As we mentioned in our last call.
We plan to start new service to a series of Manta in Ecuador, and Baltimore in Austin in the U S. Starting this summer.
With these additions we will serve 80 destinations in 32 countries in North Central South America, and the Caribbean as we continue to strengthen and solidifying our position as the most complete and convenient hub in Latin America.
Finally.
With regards to wingo.
Window continues its regional expansion with the announcement of three new domestic Columbia route from Bogota to back on Kenya.
And we've got a manga and one international seasonal service from Cali, and Columbia to Aruba.
These additions Wingo will operate 34 routes with service to 21 cities in 10 countries.
Now turning to our expectations for 2023.
As you saw in our earnings release, we increased our operating margin guidance to a range of 22% to 24%.
Mainly driven by the current solid demand environment in the region.
As we all say lower fuel curve for the remainder of the year.
As always for sale will provide more detail regarding the full year outlook.
To summarize we're off to a very good start in 2023 and expect to keep seeing a healthy demand environment throughout the year.
We continue growing and strengthening our network the most complete and convenient hub for intra Latin America travel.
And as always.
Our team continues to deliver world, leading operational results, while maintaining our cost low.
Lastly, we're confident as ever in our business model, we continue to deliver solid margin and competitive unit cost while offering a great product for our passengers, making us the best positioned airline in our region to consistently deliver industry leading results now.
And I'll turn it over to Jose who will go over our financial results in more detail.
Thank you Pedro good morning, everyone, thanks for being with us today.
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 our first quarter results.
Reported a net profit for the quarter of 125, 21 $5 million or $3.07 per share.
Excluding special items net profit came in at $157 8 million or $3 99 per share.
First quarter special items are comprised of an unrealized mark to market loss of $37 $9 million related to an appreciation in the value of the company's convertible notes.
And at $1.7 million in unrealized mark to market gain related to changes in the value of financial investments.
We reported a quarterly operating profit of $193 $2 million and an operating margin of 22, 3%.
Capacity came in at $6 6 billion available seat miles or approximately 3% higher than in Q1 2019.
Load factor came in at 86, 8% for the quarter, a three five percentage point increase compared to the same period in 2019.
Passenger yields increased 20% to 14 six cents.
As a result unit revenues came in at $13 one.
Or 25, 5% higher than in the first quarter of 2019.
Driven by higher jet fuel prices unit cost or CASM increased 17, 2% versus Q1 2019 to 10 two.
And our CASM, excluding fuel came in at six two times, 221% increase versus Q1 2019.
Driven by additional engine maintenance costs.
Changes in supplemental rent provisions related to aircraft utilization.
As well as additional leased engine costs.
An increase in our sales and distribution costs as a function of higher sales during the period.
I'm going to spend some time now discussing our balance sheet and liquidity.
As of the end of Q1, we had assets of close to $4 $9 billion.
And in terms of cash short and long term investments we ended the quarter with $1 2 billion, which represents 36% of our last 12 months' revenues.
So our debt we ended the quarter with $1 $7 billion in debt and lease liabilities.
And achieved a net debt to EBITDA ratio of 0.6 times.
80% of our aircraft debt is fixed.
Happy to report that our blended cost of aircraft debt for the quarter came in at an annualized rate of 3%.
Turning now to our fleet during the first quarter, we received two Boeing seven seven Max Nines to end the quarter with a total of 99 aircrafts compared to 102 aircraft in our fleet at the end of 2019.
With these additions our total fleet is now comprised of 68 77 800.
22, 7% and Max Nines, nine 737 seven hundreds.
These figures include one 737 800 freighter in the nine 737 eight hundreds operated by Windows.
Two thirds of our fleet continues 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 10 additional aircraft all Boeing 7% Max Nines.
Of the year with a total fleet of 109 aircrafts.
Finally, I'm pleased to inform you that this past month of March our board of directors approved a quarterly dividend of 82 cents per share subject to board ratification, each quarter, which reinstates, our dividend payout of 40% of prior year's adjusted net income.
We made our first quarterly payment during the month of April and the second payment will be on June 15 to all shareholders of record as of May 31.
After our outlook based on the strength of the current demand environment. We can provide the following guidance for full year 2023.
We expect to increase our capacity and enhance versus 2022 within a range of 12% to 13%.
We now expect an operating margin within the range of 22% to 24%.
We're basing our outlook on the following assumptions load factor of approximately 85%.
Revenues within the range of 12 five cents.
CASM ex fuel to be in the range of $6.01.
Finally, we are expecting an all in fuel price of $2 85 per gallon.
Thank you and with that we'll open the call to some questions.
Thank you we will only take two questions per participant one moment, while we compile the Q&A roster.
The first question comes from the line of Stephen Trent from Citi. Steven. Please go ahead.
Yeah.
Hi, Good morning, gentlemen, and thank you very much for taking my questions.
I was wondering kind of on a high level basis, if you could discuss the opportunities related to the renewed strategic alliance with the United Airlines from August 2021, and you know what you might be seeing.
In terms of the potential for a joint fitness agreement.
We're visiting that down the line. Thank you very much.
Yes, Hi, Steven Pedro.
As you know yeah. As you know we have a very strong alliance with United that goes all the way back to the continental days.
And on top of that we are of course part of Star Alliance.
So we feel that with our strong United relationship plus Star Alliance.
Cover watts of most benefit to Copa in terms of where we fly the regions, where we fly where we're active and the earnings that we should be in an alliance with <unk>.
We also have that that.
A letter of intent or whatever it's called.
Between Avianca, United and Copa for a J B, a joint business agreement.
I think that.
It has not been implemented the pandemic working between and honestly I don't really know if that's going to be implemented.
Or it will just be allowed to expire I think it probably has over a year.
That decision to be made but but again, what I'm trying to say is that we have the alliances we need and that add the most value to profile.
Superfast wherever they appreciate that and just my one follow up.
I believe you talked in the past about the leap engines driving kind of a one time.
Relatively smallish CASM ex headwind into this year and you know any high level view on whether that's going to ease as we move through 2024.
Yeah, I'll, let Jose.
Answer yes.
Let me just say that that yes.
Yes, there is some I would say short term headwinds related to the leap engine most of the cost that we've seen so far this year are associated to.
Sure shop visits that some of the engines require too.
As part of campaigns that are that are being performed in the worldwide fleet.
The leap.
Seeing an improvement.
In the performance of the engine and we are relatively advanced in the majority of these campaigns and so going forward in the rest of 2023, we expect to have a lesser number of engines going into into a shop or <unk>.
Some of the fixes that are that are required.
And so that that actually flows into our $6 <unk> CASM.
<unk> that we have for the full year.
The CASM ex guidance.
We had issued back.
Back in February .
Super helpful. Gentlemen, Thank you for the time and looking forward to seeing you on Tuesday.
Thank you Steve <unk> here.
Yeah.
One moment for the next question.
The next question comes from the line of Savi side of.
From Raymond James Savi. Please go ahead.
Good morning, everyone.
I was curious you usually you know fairly conservative team and forecasting and and the kind of revenue outlook improvement is pretty meaningful.
Just curious what's been what you're what trends Youre seeing that gives you confidence this early on to kind of take those numbers up.
Yes, Hello, I I'll start and maybe <unk> you can jump in.
To complement I will say that the first thing is that Q1, certainly had a very very robust.
Demand environment, So I think thats a portion of the increase that we have made to our unit revenue guidance.
And then secondly, I would say that from our visibility that we have for the coming months specifically of second quarter.
The demand environment continues to be relatively robust. So that's also embedded in there and then.
We are cognizant that our visibility is limited for the remainder of the year. So I think thats there is some seasonality as well.
Put into the guidance and of course, we are cognizant that there is a lot of capacity coming into the market. There's a lot of fuel was also.
And item that we are paying close attention to and the movement in fuel. So we're I think we're.
I think.
We can say that we're confident in the top five but its mostly related I would say to Q1 and to the visibility we have into the first half of the year.
And the only thing I would add savi.
Our guidance, even though it has been.
Improvement you will mentioned.
Still puts us at a lower RASM for the second half of 2023 compared to the second half of 2022, and that's because of the decrease the decrease fuel curve and the additional capacity coming into our market. So we're still projecting lower RASM.
In the second half of the year.
That's helpful.
Along those lines for my second question I Wonder if you could talk a little bit about what you're seeing on that business demand standpoint. It seemed like it was a slow progress over the last few quarters and have you seen any improvement there.
There's still some improvement but.
Things have changed at least in our part of the world since since the pandemic.
So leisure is our strongest segment now.
It is not as much as half, but it's in the 40.
Percent of our split between leisure VFR and business.
<unk> business has come up somewhat it is like in the mid twenties, maybe a little bit less than that percentage in terms of that same split.
But slight improvement in the last few quarters nothing very significant.
Perfect. Thank you.
Thank you Sarah.
One moment for our next question.
The next question comes from the line of Guillermo Mendes from J P. Morgan Guillermo. Please go ahead.
Good morning, Pedro Jose Danielle Thanks for taking my question and congrats on the strong results.
First question is a follow up on the on the assumptions behind the guidance I think it is clear on the CASM front.
But just wondering in terms of the capacity addition through its a small reduction just wonder if it's related to any potential bottlenecks on.
On the on the supply side of things Street, and one on the rest.
Our guidance thinking that.
Probably it implies a stronger used 40 year despite of lower fuel cost as well so if you could.
Just for explain.
How you're seeing demand environment going forward.
I didn't write in question.
Yeah, I'll start and then I'll, let Jose.
So in terms of capacity will co op itself itself is receiving 12 aircraft in the year. So that's quite a bit some capacity and then.
Our peers in Latin America.
Getting back to pre pandemic levels, which was not the case in 2022, but will be the case from now on the rest of 2023.
So all of that together there are other airlines, especially you occ's, which are growing faster than than pre pandemic. So when we add all of that up.
A considerable number of additional seats in our region.
Demand is there of course, so so we're confident on the demand and we're confident that there is enough demand, but more capacity plus lower fuel usually.
<unk> two <unk>.
Salt and lower lower unit revenues, mainly in terms of the.
Capacity.
Movement that we made.
In terms of our of our full year guidance. It is yes related to the.
The latest forecast that we have in terms of aircraft deliveries for the year. So that's that's that's what we have in terms of our best knowledge.
As of now in terms of new aircraft deliveries.
[noise] Super clear. Thank you and the second question is in terms of the capital allocation.
And that's really the dividends already out you have with your buyback, hoping as well, but thinking debt leverage remains below one time net debt to EBITDA. If you see room for maybe an extraordinary payment or a more aggressive buyback.
Okay Alright.
Alright.
I have to say that we reinstituted our dividend.
Board approved add back in March and it's 40% of our.
The prior year's adjusted net income and so.
We're I think happy I think with that level I would say that our buyback program. As you saw continued to be active during this year during the first part of the year and.
I think there's a couple of.
The important points to make number one is that we have a sizable number of investments coming in related to aircraft.
For for growth of our business. So I think that part of this capital that we have is.
Geared towards growth.
So by itself and number two.
We have the convert and we also are have to want to have a lot of flexibility in terms of the management of that liability.
Clear. Thank you have a great day.
Thank you thank you Peter.
One moment for our next question.
The next question comes from the line of Michael Lindenberg from Deutsche Bank. Michael. Please go ahead.
Hey, good morning, everyone and those.
Great forecast.
A couple here.
One.
The move.
Move to add additional domestic service in Columbia by window was that in response to the suspension of Veeva and ultra is it is it a tactical move is it.
<unk> Europe may be getting bigger and the domestic Columbia Ed.
Is there an opportunity for you to maybe get some of the slots that that will potentially be released as a result of.
Consolidation and rational rationalization in the Colombian market. That's my first question. Thank you.
Okay. So a few things there Michael.
One is that wingo, it's not really a large player in domestic Columbia.
When was nine plane as we know it is $9 $700 seven 800.
This capacity shift.
Has to do with some something that's been developing over there over the last number of months, which is a more strength in the domestic market.
And some of the international routes that have seen a lot more capacity. So it's tactical as tactical as limited yes.
The shutdown of certain airlines.
<unk> has a positive effect, but actually benefits much more the other airlines the other incumbents in Columbia Wingo again, it's not significant and it never really competed that much.
Head on.
The airlines are not no longer flying so not a huge impact not a huge impact.
There is a little bit better strength in the domestic and that's why they're there.
Reduce what we've always done is reduced frequencies.
And some of the international market that we're not doing as well and redeploy them in the domestic market that is doing better so again tactical.
Anything on the Bogo test slots that potentially come available are you in line to try to grab some of those for your use.
Right. So although there are no. Although there are no plans to grow the wingo fleet in an aggressive way we are we tend to be disciplined.
And.
We will continue taking advantage of opportunities and not just <unk>.
Taking a bunch of aircraft. So so wingo will remain disciplined and opportunistic.
But the Bogota lots are very important because it was very difficult for wingo. It is very difficult for wingo to Pablo China advanced schedule and fly at the right time at the peak times.
When most passengers want to fly because of it.
Up to now the floods in Bogota have been dominated by a single carrier.
And so hopefully.
This is going to change and make Bogota, which is like the only or one of the very few slug restricted airports in our continent. It will make it a more competitive and it will allow wingo and others to offer service at the times passengers want to fly so we see that as a positive development.
Okay, Great and then this is just another sort of network question Pedro one of the things that we saw coming out of Covid as we saw a lot of the big global hubs.
Actually only benefit from the recovery of local traffic and I think as things have started to turn on we're seeing a lot more what we call sixth freedom traffic third and fourth freedom connections, which is something that you specialize in and so when you look at the commentary out of say a Turkish are in Emirates or a cafe.
<unk> Youre really starting to see that benefit and I think when I look at Copa and I look at capacity coming online by some of your competitors, where I think you really outshine the competition.
Is all of the connections that you fly in city pairs that nobody else serves and I suspect that maybe that wasn't seeing as much service in the earlier part of the recovery period, and that's starting to turn on now and those are markets that are uniquely served by Copa is that is.
Is that a is that right is it something that is that something a trend that you've been seeing in your markets or maybe you're connecting markets turned out from day one.
Well, we've seen strength.
Throughout our markets and throughout our network.
And we're staying true to our to a revision to our business model.
So coming out of the pandemic, we went back to doing what we've always done in a very focused and disciplined way and that demand has kind of been there from the beginning I would say, but it's obviously stronger now and it continues to grow its holding up and theres more capacity from other airlines come from.
Our sales are coming in but the whole market has improved.
And yes, I think youre right. We have we have something unique about our our network and we hope to continue developing.
Okay, well, great great great results and thanks for answering my questions.
Okay.
One moment for the next question.
The next question comes from the line of Renault Moran from Ges Bruno. Please go ahead.
Yes. Thank you for taking my question. So you know I like to hear from you as possible what's our vision.
A few years in terms of.
The competitive dynamics and the expected profitability for that business of course.
Adjusting for eventual exit.
Macro conditions, which might happen.
My point here being that if you look in the 2010 to 2014 cycle margins around 20% and talking about EBIT margin band between 2016, and 19 margins hovering around 16%.
So.
If you work together for the next few years are we more in the type of market that we saw between.
Between 2016, and 19 or is it possible just to say mark.
We're around 70%, even though you know you are not growing as much.
The cycle range of 40.
<unk> and <unk>.
As you know is growing but eventually after the pandemic you might be softer due to less competition.
Just trying to figure out what will be the new normal going forward and it would be great to hear your thoughts around that thank you.
Yeah.
Okay. So we are we.
We have provided guidance for 2023 only not not from not for the years after that.
And I would like now.
Not to speculate much.
About the future, but I should say that.
We spend a lot of time working on improving every aspect of the company what we've always done.
And makeup on more competitive.
As we go and as we grow it.
We see right now right now what we can see now.
<unk>.
Robust demand environment.
We see a good future for our business model focused on one half of the Americas in Panama, and we see many opportunities to increase the connectivity and add new cities and we will continue working towards a cost competitive on <unk>.
<unk> passenger friendly with Ey.
And efficient.
Productive and motivated workforce. So that's that's what we do that's what we will continue to do and it seems like the environment for such an airline to thrive in our part of the world is there and it might be getting better. So so that's what we're working on Theres always competition of course.
Hopefully there is room for the ones that have also a business model that makes sense for them.
And thats realistic with the size of the market so as long as it does.
That balance.
I think we'll be fine.
Any case.
Hope to always be in a position to do better than the others. So.
That's our focus.
But beyond 2023, I think we have to wait a few more earnings calls.
That's great. Thank you both with respect to you if I may just a very.
A quick follow up again after the capacity, we expect to come back bring down here as you mentioned.
It will be in the San Jose you shouldn't look at resolved.
Overlaps and competition are at all because the pre pandemic scenario more or less competition.
Any comments on the competitive.
Manscape roster of these deposits are there do you expect to come back.
Well I think.
I mean, the competition is pretty public so we probably kind of have the same information.
But competition has.
<unk> is not I would say, it's not less than before if anything its more its more dynamic may be more aggressive, but it's change in the sense that it's grown more towards the low cost.
Side of the spectrum.
And in that sense.
Like one of the few remaining.
Full service airlines in our part of the World.
And there are some there is a space.
Space for that.
But there's a lot of competition and we compete with all and we tried to be as aggressive as anyone.
Especially since.
We've talked about a larger percent of passengers in our leisure than pre pandemic.
[noise] vertical for walnuts.
Thank you Bruno.
Please hold for your next question.
The next question comes from the line of Helane Becker of Cowen Helane. Please go ahead.
Thanks.
Hi, guys. Thank you for the time.
So you guys are coming up to New York next month, and holding our Investor day. When we think about things you can say have you thought about the focus of that and what you can update us on I don't want to run ahead of it but I'm kind of wondering what's the look forward too.
Well hopefully a good meal.
<unk>.
And.
A good career.
Q&A session, but as you know and then.
Our storing doesn't change much from from year to year.
We always stick to pretty much the same business model, which as I was mentioning before we try to always improve and make better and hopefully we'll talk about that.
But what are we working on what are we focusing on what we're making better what's working what might need changes.
But never big surprises, we tend to have like.
Our way of doing things and longest doesn't need to be changed we just look to improve it so I would say.
More of the same and maybe maybe well sorry go ahead I'll just add well first of all for sharing things remain weak.
We try to take one day at a time so we're preparing for the air initially for the earnings call and then maybe next week, we'll start working on the details of the Investor.
Investor base, but.
I would say a couple of things to add to what Pedro mentioned number one is that.
Our last Investor day was here in Panama back at the end of 2019 before the pandemic. So we are cognizant that it is important to.
We review and.
To get face time with us and I think part of what we have in store is also getting face time with.
Members of management that are beyond us too. So I think that's also an important part of it and just simply.
I'll provide an update on some of the initiatives that we had discussed back.
Three years ago. So so.
I think thats kind of what we have in mind.
Kind of along.
And then my follow up question is something I think so to say that you talked about in terms of capital allocation with respect to share repurchase and the convert which I think is callable.
Okay.
I interpret your answer correctly that either either one of them is is up.
It's fair game that you would buy back the convert.
If it made sense, yes, I don't want to speculate I don't want to get into necessarily details of a potential.
Avenues that we might pursue but I would say that we at this stage want to maintain flexibility in terms of the options that we have so I think that the balance sheet is very very strong.
And we want to keep alternatives open to minimize the cost for us in terms of the settlement of the convert so and yes. We're also cognizant of that.
The convert has a call option in there.
We all alternatives are on the table right now related to that.
Yes.
Thank you.
Thanks.
One moment for the next call our next question.
The next question comes from the line of Daniel Mckenzie of Seaport Global Danielle Please dial.
Okay.
Oh, Hey, good morning, guys, congratulations on the quarter and the outlook here.
Just have a couple of questions. The first really ties to revenue from premium seating and I'm really just trying to get a basic understanding on this part of the story. So I guess first you know what percent of the revenue is it today versus what it was in 2019 and then just related to that how quickly is that growing.
Yes, Okay. So let me start and.
And then I'll, let Jose.
A follow up so that we don't share that specific information.
But what I can say is that premium demand and premium yields are above pre pandemic levels.
So load factors are better yields or better.
And premium seating profitability is better than pre pandemic.
Well and also our paid load factor in business class, which we don't disclose but we can say directionally that it is higher today than where it was back in 2019 as well so I think thats.
Another data point that's important.
Okay.
And then I guess a second question here is just a question on the new distribution strategy that you've talked about in the past.
What percent of the revenue is booked on the <unk> website today versus the GDS is and how does that compare to 2019.
And then you know to what extent is that helping you to capture some additional revenue save from upsell opportunities or bundling in and then tied to that how material or the cost savings that youre seeing from this this new strategy.
Okay, I'll start and if I leave anything out so big Big picture pre pandemic.
We could say that a third of our distribution was direct and two thirds.
Were indirect so agencies and the like.
Two they were very close to flipping those numbers were.
Two thirds will be direct including NBC connections.
One third is going to be.
Traditional.
Travel agency <unk> book.
Bookings, so we're about to flip the numbers there.
Ratios as I, just mentioned and that of course comes with considerable savings.
Including that we're charging a surcharge for a traditional GDS bookings, which make up for any any cost difference.
No.
I don't know if we if we.
We are sharing yet any amy.
Cost saving numbers, but when we add when we add the revenue impacts the revenue the rest of it I mean, I think that so far.
First of all we have to say that this started in Q3 of last year. So.
Still.
An ongoing process that we have but it is from let's say.
IRI perspective, or a cash perspective performing.
Think as expected or maybe a little bit better, but as Pedro mentioned there is a portion of the benefit here that shows a factoring revenue.
Because of the fact that that we have.
Fee that we charge for sales that are not performing ear on NBC channels or on our own direct channels.
Going forward, our expectation is that the actual cost pure cost of distribution should come down.
In the matter that our direct.
Channel sales continue growing so we have an expectation that will come.
Or the.
Next several.
That benefit actually buy that channel shift benefit Dan is included in the guidance at 601 <unk> guidance at least for the end of this year, but again this is.
Is that kind of a change of.
Model.
And so be with us for many years to come.
And as important is the fact that now we have much better control of our distribution.
And that's going to allow us to do more things in the future that would lower costs.
On improved revenues of course.
Yeah, that's perfect. Thanks, so much you guys.
Thank you.
And your next question.
Yeah.
The next question comes from the line of Alberto <unk> of UBS Alberto. Please go ahead.
Okay.
I General Jose.
Thank you for taking.
Taking my question.
All done.
Sorry to be repetitive here, but it was amazing the guidance the guidance just provided for the year.
And you want every year to find wet.
What was the difference between the guidance that you just provided.
February mid February .
Two months and a half later.
Two months later.
Guidance that you guys are providing today.
So you talked about the demand already that stronger instead also maybe higher exposure to the high income plus we continue to business travelers.
Is there anything else like that.
Exposure to regions North America, South America.
Or does something different.
That people.
Staios traveling.
Sure.
Yes.
It's automation on that certainly helped a lot.
So in a very simple way and I'll, let Jose.
To add anything in or be more specific in a very simple way what Jose mentioned before we have now visibility on the first half of the year.
A lower fuel curve.
So those two things are are the main drivers to the improved.
Operating margin guidance, yes, I would say that.
In terms of regional performance I would tell them most of our regions are performing.
Very well ahead of.
When we add.
Before and as Pedro mentioned in first half is separate from me. When you look at the operating margin guidance, we cannot forget about fuel as well when we provided our guidance back in February fuel was a higher level than where it is today as well.
We can say also that the competition is less tourists have been.
Yes, because when we see fewer drops in the past, we see yields come down.
Adding to the guidance that you've got to provide units could be flat for the year, even which if youre growing double digits Delta.
No not necessarily.
As I mentioned before.
Our our RASM guidance.
For the for our RASM guidance implies a lower RASM.
For the second half of 2023 then.
The actual RASM, we delivered for the second half of 2022 the year before so we are factoring in.
A lower than 2022, RASM and that's the lower fuel curve and capacity from competitors.
But again, having the better visibility for the first half of the year allowed us to adjust.
RASM upwards for the full year.
Fantastic Fantastic.
It came a little bit above.
Why do you have estimate for the quarter, just wondering whether it's something low recovery this quarter a longer working capital matters. Thank you again for taking my question and congrats on the results.
I would say that.
We add.
From an NGL perspective, I think even though APL is actually down for the quarter.
Sales are still ahead I think there's some items that related to some refunds of tickets.
Next buyer coupons et cetera, but it's I think there's also a seasonality in there as well so et cetera.
The main main drivers there.
Fantastic.
Thank you.
Thank you.
One moment for the next question.
Okay.
The next question comes from the line of Chihuahua, and write a bank of America Bank of America. Please go ahead.
Yeah, He actually did it goes everywhere.
Thanks, a lot for the opportunity Pedro Jose Daniel.
I had one question.
Last time, we saw margins close to where copper is delivering was up prior to 2015.
If I'm not mistaken Venezuela was was doing great at the time was.
Actually pushing that margin.
<unk> significantly.
Is there.
A reason to believe that copper is actually much more profitable model them at at that time.
Let me put them in other words. This question any reason to believe that copper the structural margins is higher now.
Then before if so where.
Does it mostly come from in our view.
Thank you very much.
Yes, Thank you Virginia.
As I mentioned before we always we're always working towards being a more competitive airline.
And we never bank on strong revenues, because we know there are cycles in our industry.
We bank on is having competitive cost and be more effective efficient and more productive.
And we are a much more efficient and productive airline than back then in 2013 2014, the bigger changes, where we have a lower we have a lower CASM ex.
So we're more efficient in that sense, we've worked hard to improve our <unk>. So we have better unit cost, which allows us to be more profitable even with lower yields and part of that is also having a more.
Fact, if efficient fleet, we have a single fleet.
<unk> 778, hundreds and Max nine which has better much better operating cost than back then and we've done a number of things that will probably be a long list to be more efficient but for example.
Do our own C checks in house, we didn't do that back then.
Distribution strategy is yielding results.
The Australia there is a list of other amplification of other initiatives.
We have densify the fleet some somewhat under is more to come. So so yes, we are much more competitive and have better unit costs are more efficient.
When we were what we were back then in 2011 2012.
2013, when we had.
Similar margins, but maybe revenues were stronger.
Okay.
Clear congratulations for the very strong results.
And all of these.
Cost reduction and efficiency in the past years. Thank you.
Thank you very much Rajiv.
One moment for your next question.
The next question comes from the line of Josh Milberg Morgan Stanley Josh. Please go ahead.
Hi, Pedro Jose good to talk to you guys and congrats on the results I had a couple of follow ups and please forgive any repetitiveness I'm on my side.
Hoping you could comment a little further on that issue.
How much.
It's been impacted by aircraft delivery delays and also just on the Avianca side, if you've been seeing any impact from.
That airlines shift in strategy with respect to network or in any other sense. That's the first question and then the second question is if you could comment a little bit further on your fleet plan and what it could mean for capacity growth in 2024, I know you said before that it's sort of early days to be getting into next year, but.
I know that.
You have the 737 eight hundreds that are scheduled to come off lease.
I think your plan shows you are holding on to those.
Right. So any color there would be all right.
Yes, Thank you Josh.
So I'll talk about when you pre planned second, but we have well talk fleet plan first because we have published 24 2024.
So we're getting 12 aircraft this year and we've published that we're getting eight Mac.
Max eight next year.
But it would have been more before is not for Boeing delays as we know Boeing Airbus.
One has delays so so the delays are between three and four months in some cases could be even even longer for next year.
So so we have published aid we hope to get more hopefully we can get more than eight once we get the latest information from Boeing.
Also have a number of leases that come due and we will renew we will try to renew as many as we need to.
It all depends on how many deliveries we get from Boeing So it's kind of like a.
Dan.
It did.
<unk> of the assets of the aircraft assets. So so so we need to balance the lease expirations with the Boeing deliveries with the.
Demand forecasts and right now it all looks good actually.
Demand forecasts and right now it all looks good actually.
So were hopefully that it will get more aircraft and demand will remain strong as it is right now if you want to add anything to fleet Jose.
Yes, I think thats very complete in terms of 2020 for us, but as I mentioned, we have right now our plan is polishing our investor Relations website.
The eight aircraft that Pedro mentioned for 2024.
In terms of competitors I'm not sure if there's much more to say I would like to give them like free advertising or anything like that.
But.
You ask about Bianca.
We of course compete compete quite a bit against Avianca, we have always competed.
With Avianca, even though we're also together and Star Alliance and we have code sharing and frequent flier reciprocity. So so I would say is.
Friendly unhealthy competition and they.
There are still growing their hub Theyre also flying nonstop they've changed their model.
So they have they went through chapter 11.
They are a strong competitor no doubt.
Does that does that show that.
It is noticeable.
Of course, it is but we're also growing and competing so there is a balance there is some sort of a balance there.
As they grow and compete so do we.
And in terms of the rest.
They are pretty much back to pre pandemic capacity as we are.
So if latam and others that were smaller back then are probably above those levels. So we're in a dynamic market with strong demand.
And I think it's what would be expected in any case.
Thank you Josh.
Thank you very much those were.
Great responses have a nice day.
You too.
Please hold for the next question.
The next question comes from the line of.
Duane Cynic word.
Core.
ISI Duane Please go ahead.
Hey, Good morning, this is Jake on for Duane.
So just to put a finer point on previous questions about geographic demand strength on a previous call you talked about point of sale for U S versus local could you talk about just how that's trending now.
I don't know if it's I don't think it's changed much.
We see strength in most of our regions and markets.
It may be South America is not as strong relative speaking as it was before.
So South America is not as strong, but it's still positive.
But that could change from one quarter to the other.
U S point of sale remains pretty strong.
Even though even though the currency the U S. Dollar has lost a little bit of value still has a lot of strength.
And the economy as we know in the U S.
Still strong.
Even though efforts were being made slow it down.
Resilient.
So there is still strength in U S point of sale. So I don't think anything has changed that much from from our previous call.
Okay.
And then on capacity just given demand strength.
And the capacity constraints.
Where or how much more would you want it.
ROE without these constraints.
So our fleet plan I think.
It's a good reflection.
Of our growth plan.
We're getting 12 Max Nines this year.
Next year, we have published aid Max eight we'll be getting but as I mentioned, if we could get more because we were supposed to get more.
But due to delays.
We're not getting them all in 2020 for the ones, we were expecting to get the originally.
We can get a few more and we'll be very happy and we're waiting to hear from Boeing maybe that would happen. So that gives you an idea of our growth which is in the double digit range for go ahead Scott I.
I was just going to say Jack.
A good way to look at it and then just theoretical of course, but.
Look at the.
Preliminary full year guidance that we issued back in November .
At a 15% growth and so that was you could argue that our original expectation of where we want it so yes.
Sure.
Okay that makes sense. Thank you and have a nice thank you.
Thank you.
Thank you I would now like to turn the call back over to Pedro.
Hi, Brian Hey, Joe. Please go ahead.
Yes, thank you very much.
So thank you all this concludes our earnings call for the first quarter of 2023.
So I would take this opportunity to announce that we will have our investor day, I think I think Helen mentioned, it's going to be on June 22nd New York City, you should be getting the invitations and any other details in the next couple of days. So hope to see you then.
Next month and have a great day. Thank you as always for your support.
Ladies and gentlemen, thank you for your participation that concludes the presentation you may disconnect and have a wonderful day.
Okay.
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