Q3 2023 Azul SA Earnings Call
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I would like to try to presentation over today's heavily head of Investor Relations. Please.
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Thank you Zach and map them out to adjust preliminary third quarter earnings call.
The preliminary results that we announced this morning the out on this call and the slides that we reference are available on our IR lens.
Presenting today will be Dave uneven as the founder and chairman and John Rodgerson CEO.
Alex Marty <unk>, our CFO and Adam <unk>, the President of Ado I also here for the Q&A session.
Also embark in duration that Enzo has not yet published in its interim financial statements for the three and nine months.
As of September 30, due to the considerable volatile and complexity attack tasks to ensure that all effects of each capital optimization plan.
I correctly reflected in their penetration.
And we'll keep the market updated on these efforts.
Sure I turn the call over to David I'd like to caution you regarding our forward looking statements.
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.
These statements are based on a range of assumptions that the company believes are reasonable but are subject to uncertainties and risks that I discuss it in detail in our C. Bam and SSG fives. During the course of the call. We will discuss along I ever ask for pharmacy measures, which should not be considered in isolation with that.
I would turn the call over to David David.
Thanks, Chris.
I welcome everyone and thanks for joining us for our third quarter 2023 earnings call. As you can see on slide three we can see the strength in Brazil's largest network by adding more than 40, new destinations to it since 2019 were the only carrier in almost 80% of our routes and the leader in departures and 90% of.
Our markets are profitable strategy, we will maintain as we grow. The fact, if you look at our a S. K growth since 2019, 80% has been in five cities four of them.
Four of them hugs and won the one exception being <unk>.
More importantly, we have demonstrated we can grow in a way that maintains our customer service excellence.
We continue to run the most on time airline in the region with the highest net promoter scores John is going to give you more details on the quarter, but let me still he standerfer for a second by summarizing on slide four.
What this incredible team has achieved.
Total revenues up 4.9 billion in the quarter, an all time record, 12% above last year, and 62% above 2019 fares and unit revenues or are all up versus last year.
In Stark contrast to many other airlines around the world, where airlines have fallen, especially in the United States.
Year over year comparison.
And finally, an EBITDA of $1 6 billion. He is an EBIT of 1 billion cash both records.
And most importantly.
Both in EBITDA margin and operating margin above 2019 levels. These numbers are a clear demonstration of what the real sort of looks like and is capable of delivering this amazing team also implemented in record time, a comprehensive capital optimization plans.
And then we are all already described to most all of you.
Upon the conclusion of this plan is it will have no significant maturities until the end of 2028.
And we can now rely on our strong balance sheet, leading liquidity position and lower cost of capital to continue and continue leveraging our superior network product offerings and cost structure, all of which creates a strong cash flow from operations and the best is yet to come for example.
You all know about the <unk> opportunity. This aircraft has lower fuel burn lower maintenance costs lower ownership costs lower trip cost, while generating more revenue with 18 additional seats than the old ones. We only have 17 of them operating now.
But by the end of 2020 for next year, we will have 33.
This is just one reason why we are so excited.
What we can achieve going forward, we are executing on our fleet transformation plan demand environment is strong our business units are all producing record revenues and we are emerging as a more efficient airline all I can say stake you each and every crew member where they continue to deliver is absolutely incredible and we are truly excites.
About the opportunities ahead of us with that let me turn this time over to John to give you more details about the third quarter results John.
Yeah.
Thanks, David I also want to start by thanking our entire <unk> team for their passion and dedication just last week were voted the best airline in Brazil by <unk>, the largest travel site in Brazil, our internal crew member satisfaction scores. This year were another all time record with 82% participation among our people and 87%.
Favorability score our team excels in delivering these will experience our culture is stronger than ever and our customers recognize the difference each and every time. They fly is all thanks to their dedication we delivered another record result in the third quarter on slide five we summarize the cumulative effects of the strong demand environment, along with the high growth in our.
Business units, our all time record revenue of $4 9 billion Reais in the quarter represents a 62% increase over third COVID-19. This is a result of overall capacity up 19% and unit revenues up 36% as you know a S. K growth often leads to a reduction in unit revenue, but demand.
For us oil prices. So high that we were able to simultaneously increase both capacity and fares RASK in the quarter was $42 $5 nine.
It was a record for a third quarter and actually just missed the all time.
<unk> record for <unk> by <unk>, 3%, so overall truly outstanding numbers across the board moving.
Moving to slide six you can see how the strength of our business model led us to 5% higher fares in the third quarter versus last year, even with fuel price dropping 33% remember, though that fuel prices are still higher than 2019 and fuel prices in Brazil are the highest in the world, but as David said. This contrast, with what other regions around the world are.
<unk> and this demand is consistent what we've been seeing for almost three years now.
<unk> had one of the fastest demand recoveries in the world and is all had the fastest demand recovery in Brazil, I don't know many airlines around the world, whose revenues are 62% higher than 2019.
Our business units continue to outperform further adding to our arsenal of competitive advantages as we show on slide seven our loyalty program is now approaching 17 million members with high customer engagement. Our co branded credit card is doing incredibly well with a significant portion of the membership base coming from the platinum and infinite.
The categories premium segments with high levels of personal spending in fact, our projection for total card member spend in 2024 is equivalent to <unk>, 5% of the entire GDP of Brazil being spent on our credit card.
Our vacations business continues to break records every month. It is now three times larger than 2019. This growth is extremely well aligned with our business model as it takes advantage of our low aircraft liberalization on nights and weekends.
Finally, our logistics business is all cargo continues to its growth trajectory and maintains its position as Brazil's largest domestic provider.
We know that global cargo market is in a tough spot right now with many airlines reporting revenue decreases of around 30% a little cargo on the other hand is performing significantly better and continues to show revenue growth, especially in the domestic market. We continue to win over new clients and to increase our partnership with existing ones you.
May have seen the news that Amazon at a recent global event in Seattle announced a xul as their partner for air logistics all throughout Brazil.
On slide eight we turn to the cost side of the business. We told you we would emerge a more efficient airline and that's exactly what we've done controlling for head count at our hangar, which does not exist in 2019 absorb today generates 40% more revenue per full time employee than we did in 2019.
This is this result is remarkable we now have the lowest cask in the region not just when comparing aircraft within the same category. The <unk> hundred 20, neo compared to our competitors and with the 737.
We already had the lowest cost there, but now we have the lowest cask overall, even with a smaller aircraft in our fleet and as someone once said low cost always wins.
We have the most.
Efficient cost structure in the region and we will improve it further with our fleet transformation. This really gets us excited about the future as you can see on slide nine we significantly increased the rate of each of deliveries doubling the size of that fleet in the last 12 months, the <unk> delivers 18% lower fuel burn compared to the E. One with 18 more.
<unk>, leading to a 26% lower cost per seat in 2023, we still had.
Had twice as many departures on our <unk> than our <unk> as this ratio switches in favor of <unk>. This will drive significant margin expansion going forward. This fleet transformation that is unparalleled in the region. In addition to making financial sense is also clearly a more sustainable way to grow.
Our fuel consumption per SK and carbon emissions per ask are down an incredible 24% compared to 2016.
Turning to slide 10, you can see the result of all of these remarkable attributes and all time record EBITDA of $1 6 billion Reais and.
And a 31, 6% EBITDA margin, we have surpassed pre pandemic EBITDA, even with fuel 60% higher than in exchange rate and 23% weaker to the dollar frankly these numbers speak for themselves. This demonstrates the strength of our business and our structural competitive advantage.
<unk>.
Turning to slide seven you can see the significant increase in liquidity obtained through our capital optimization plan. We concluded in September as Youll recall. This plan yielded new agreements with practically all of our lessors and Oems with a reduction in lease liabilities and improvement in cash flow given the scope and complexity of this plan, we haven't yet published our interim.
Statements and we will keep the market updated on these efforts.
Also thanks to this plan and all the support of our crew members partners and stakeholders. We have no significant debt maturities until 2028 as you can see on slide 12, now we can turn our attention to focus on our business and growing it on.
On slide 13, we show further evidence that demand in Brazil remained strong by comparing our expectation for fourth quarter RASK versus Bloomberg consensus for other airlines and.
In addition to the domestic market our international network, which is now more than 100% recovered compared to 2019 is performing extremely well with our complete network to the U S and growth in Europe, with our new Paris service.
<unk> and capacity discipline in the Brazilian market continued to be solid this together with our unique network advantages and flexible fleet deployment should result in unit revenue growth in the fourth quarter of 2023, leading again to an all time record.
As you can see on slide 14, a zoo is the leading operator in next Gen aircraft in the region with 79% of our Es case flown by Nextgen aircraft given that fuel prices in Brazil are about a dollar per gallon higher than the United States flying a young fuel efficient fleet is crucial.
The fact that our fleet transformation is far ahead of our peers is a clear structural advantage that will remain for years to come. We also continue to outpace our competitors and nexgen deliveries, especially given the fact that embraer one of our main partners is experiencing fewer delivery delays than its competitors, we have roughly one embraer E. Two.
Entering the fleet every month of 2024 remember we fly the most fuel efficient aircraft over the shorter stage length with the lowest unit cost and charging the highest average fares that's pretty hard to beat.
Finally on slide 16, we estimate 2023 EBITDA to be around $5 2 billion reais slightly lower than the previous projection as a result of the recent volatility in fuel prices and our adjusted capacity growth together with international cargo volumes being down.
However, with strong demand, we are seeing together with our.
All of our margin expansion initiatives, including the two we already mentioned here, we increased our 2024 EBITDA expectation to $6 3 billion Reais.
Truly believe the best is yet to come in the last three years, we are focused on getting through the pandemic and then optimizing our capital structure now that this chapter has been completed we can really focus on the future that means accelerating our fleet transformation unlocking value in our loyalty program by pricing our points for profit maximization investing heavily in our co branded.
Card attacking structural costs in Brazil, like the high level of litigation of the country. These results. We showed today are just the start that is why we're so excited for 2024 and beyond.
With that David Alex <unk> are here to answer your questions operator.
Ladies and gentlemen, thank you we will now begin the Q&A session remembering that if you have a question click on the Q&A icon <unk> screen and write your name and company. When your name is announced lease activate your microphone and proceed for those who are listening to the conference Vodafone breast nine.
To join the queue is six to accept deal ideal blend requested.
Let's move on now to our first question. This question will come from <unk>. His AG sales side analysts from Arnie the old DVD Codell, we're going to open your microphone. So that you may proceed.
Thanks, and good morning, I'll start with a follow up on John <unk>.
<unk> comment regarding the guidance part trying to tune it for it'll be nice if you guys could provide us some color on how youre seeing the pass through on forward bookings.
Just trying to understand.
The assumptions for the.
The higher fuel costs being passed through into the tariffs that are selling right now are China 24.
And a second.
Just quickly on the second point.
If you could comment also on the Oems solve supply chain issues, whether you're assuming now.
Some deterioration on improvement looking forward or whether we could see some.
More delays in terms of aircraft being delivered to you guys. Thanks, Andy I'm sorry. Please go on.
Yeah. Thanks for the question, we feel pretty good about the revenue environment.
We've seen very good fair discipline.
Very good discipline on the capacity side as well in fact, if you look at capacity in the domestic market compared to 2019.
For <unk>. This year is actually flat, even slightly negative to what we had four years ago.
Roughly $28 billion to 30 billion Afk's, so and I think that that capacity discipline is going to continue.
For next year and beyond.
So everybody is facing the same.
Issues with few going up and down interest rates. So I really think the industry. Overall is very much interested in maximizing results and focusing on where they are strong like as David said in the opening we've increased capacity, but 80% of it has been in five cities at a typical.
<unk> is our hub so our assumption for unit revenues for next year is basically what we are seeing at the back half of this year and then you take that forward.
All through next year so.
Just to run rate performance.
The growth in our business units, which is a little bit of recovery in ICU cargo continued growth in our vacations business as <unk> and our loyalty business. So we're not expecting something very different than what we are seeing already this year, our overall market discipline and growth in our business unit.
Yeah.
One is how quickly the OEM delays.
Airbus Boeing Embraer Rolls Royce everybody has their challenges and we've received a delay notification for aircraft were supposed to receive in 2026 right. So I don't think this is a problem that gets resolved in the short term I think the new technology that these engines are burning significantly less fuel. They just don't stay on wing.
Right and so.
Engines that were supposed to stay on wing for 20000 hours are coming off at 5000 hours and I think there's a fight in the market for spares versus production aircrafts and so I think what we're seeing today in terms of capacity around the world capacity will be constrained for the foreseeable future until the Oems fix that I think that's a good.
As we look forward into 2024 and beyond we're really excited that Embraer, we worked through our delivery schedule with Embraer next year, we're getting 13, new shelves from them next year not all on time right. Some of those were supposed to be delivered earlier, but we do have a horizon as to when they are being delivered but I think it's across the board and I think <unk>.
All the Oems are impacted by it and it's a challenge that the industry has overall, so it's not necessarily specific to any manufacturers because <unk> is just an across the board problems. The Oems are having.
Great. Thanks, guys, that's very clear.
Thank you, let's move on now to the next question. The next question will come from strong diesel sell side analyst for Goldman Sachs drunk leave you open your auto so that you can ask your question.
Please proceed.
Thank you very much good morning, guys. Thanks for taking my questions two from our sides.
The first one relates to the to the liquidity you guys pulses right. So I would just like to to help you get your help to reconcile.
Immediate liquidity change quarter over quarter.
Given their recent Banda mission and the commitments you guys hadn't even through Q right. So we saw.
Immediate liquidity rise by $1 5 billion Reais in through Q, while you guys have raised it roughly <unk> <unk> sorry in the third quarter reached its 128th notes right. So.
I would just like to get a sense from you guys to what were the key uses for the cash you guys raise it and then a second one super quick or relates to the other operating expenses.
This quarter was significantly higher than the previous ones.
I just wanted to understand if this is then you'll have you'll get we should expect going forward or we should see a normalization back to two last quarters average. Thank you very much guys.
Sure. Thanks, Rob.
Yes, so the $4 billion real number roughly that you mentioned, obviously, that's the gross capital raise that we had.
We are going to provide a lot more detail once we have our interim financials with the auditors review.
But just to give you a preview.
Some of this went to paying down debt and we provided already some of this information on the exchange offer because we paid down some of the bonds that were exchanged from 2024 into 2029 already paid down so that his future.
Debt payments that we have already made right now we also paid down some of our convertible debenture, which is also principal debt that.
That has been paid down now versus in the future. Obviously when you do a capital raise like this we actually had four big transactions right. When you think about it we have the big capital raise of $800 million. We also had to exchange offers that together got to almost a $1 billion.
The exchange of the convertible note all of that unfortunately requires lawyers fees and emolument and advisors.
Which also took some of that money, but having said that as we.
I have told you already before this was a much more cost efficient way to restructure our balance sheet right. We estimate that we paid maybe 12.
<unk> to 30% of what a court process would have cost us right and what our.
With some of our competitors went through so but there is a big number of fees. There and then there are some adjustments into.
Payments to lessors that we hadn't paid we had gotten from some bridge financing from lessors, which were paid some of it when the capital raise happen and then we had gotten some deferrals from our fuel suppliers, mainly that we also paid down when we did the capital raise so.
The important I think concepts to everybody to keep in mind here is that yes. The cash flow cash increase obviously was not as high as $4 billion or 4 billion Reais for all the reasons that I mentioned, but the cash generation is as strong as ever right. So the restructuring that we did and primarily.
The reduction in lease payments that we were able to negotiate and also in the Capex deferral repayments that we had originally contracted that has significantly decreased and it should allow us to deliver on the cash flow generation that we indicated when we.
<unk> published.
When we talked about.
Capital optimization plan, and we cleaned up the payables right as Alex said there were some there was some fuel notes that we've got some deferrals on we have no debt maturities coming in the next five years. So.
There was a lot of clean up that happened, we feel very good about the cash balance where we're at today, especially with.
Where we're at we invested some capex in the quarter as well that was a significant thing because the airline is getting back to growth and I think that that was an important use of the proceeds as well now that we fixed the balance sheet. We can focus the airline back on growth again.
And then on other expense.
Yes, this is sort of a catch all.
And so there are many things within this line none of them are sort of big enough yet for us to kind of.
Break them out, but we discussed that.
Often here.
But some of these expenses are driven for example by revenues, but for example, so GDS fees as our reservations increase sometimes when we start flying internationally, we start using more gds's and then you'll see an increase in those fees by even more than our <unk>.
Growth Brian.
Some of these numbers here are driven by.
By the exchange rates. Some of these are driven by bike passenger.
Passenger counts, but this is where we also recognize the cost of litigation right and that is a number that we've been talking about about the fact that this is increasing there is a bit of a.
The cost of litigation is not a smooth number every quarter I think this one was a particularly high quarter compared to historical levels, and particularly compared to the same quarter last year, but this is something that the industry is very focused on it's a cost that all passengers in Brazil have to bear in spite of the fact that.
The customer experience in Brazil is one of the best in the World right, where the most onto Maryland in the World. We are one of the highest NPS scores in the world and there are other Brazilian airlines in these.
On time rankings as well right. So this is something that I think we're all collectively interested not just the airlines not just the industry, but I think even the.
The regulator and the government are interesting in fighting.
Often that we're now back to focusing on running the business and so to answer. Your question is this the new norm.
Not be we're going to drive the cost of this airline to be even more efficient going forward. We have a task force to go after a lot of these initiatives on a go forward basis, and so nobody is happy with where that line is and Youll see improvement going forward and there is several things we are working with the government on as Alex said on litigation side, but there's other things that we're doing now.
We're focusing on running the business, we're focusing on driving our unit costs even lower.
Thank you very much guys.
Thanks, Ron.
Thank you.
Now move on to the next question. The next question will come from <unk>, but it is with sell side analysts and his group.
We have done we are going to open your microphone. So that you can ask a question you may proceed.
Okay.
Good morning, guys can you hear me okay.
So I have two questions from our side here.
The first one.
We saw it as when peers are in talks with the government over FY <unk> breast prices.
So could you give us some color about this discussion and if there is any kind of discussion also regarding the fuel prices.
And the second one.
Related to the Brazil program.
The Ministry of ports and airports should submit by November 5th now official proposal for the program. So could you guys could advise.
Date us about this program and how should we expect as Youre benefiting from this looking ahead. Thank you yeah, great. Thanks for the question.
I have a pretty active agenda in brasilia and working closely with this new government on opportunities for Brazil, right I think what's an opportunity for Brazil, Brazil still has the highest fuel cost in the world, Brazil still has the highest.
Civil claims in the World for aviation, where were 3% of the world's flights, where 92% of the world's civil lawsuits and we run the most on time airline in Brazil. Those are huge opportunities for this industry. There are huge opportunities to invite more people to fly and so I don't think the government is happy with where fares are in the country today, but first need to be.
At these levels given the cost of capital interest rates and the highest fuel costs in Brazil. So the agenda in brasilia as to look at fuel prices look at the cost of capital look at these as these lawsuits and how can we invite more people to fly, which which kind of leads to your second question, which is both in Brazil, and Thats getting the class C of Brazil to fly and I think.
Our biggest desires to have more people entering into aviation and flying more with US we want to grow. This airline we think theres tremendous opportunity were currently in 160 cities in Brazil, and <unk> has a forecast to be in 200 cities in Brazil, and we need to do that by attacking the structural cost disadvantages that bridge.
Jill has which creates an opportunity to create more jobs in Brazil create more opportunity.
Anytime you hire a pilot a maintenance technician is one of the best jobs, you can get in Brazil, and so <unk>, Brazil is a great program overall, we have been.
Working very closely with the two ministers, one minister Marcia.
Marshall, France at the start of the program and then now Minister Silvio who is kind of taking it on but there was a change and thats one of the reasons why it hasnt gotten off the ground yet, but we're fully supportive of it and I think theres a lot of opportunity in Brazil look at what <unk> been able to do with the highest fuel cost in the world look at what is little has been able to do with the highest civil claims in the world.
Imagine how many more brazilians could be traveling by airplane. If we attack. Some of these structural thing that's why I think there's a great opportunity in Brazil today fuel prices today are still 60% higher than they were in 2019. That's one of the reasons why fares are up we're grateful that fares are up because we need to run a profitable business. It's good for our people is good for investors.
It's good for our growth going forward and so I think I think the the agenda in brasilia as very positive.
Thanks.
Thank you.
Moving onto the next question.
The next question will come from Michael Lindenberg.
Sell side analyst from Deutsche Bank.
Michael we're going to open your microphone. So that you can ask your question.
You May proceed.
Okay can you guys hear me.
Yeah, no great Hey, I guess I have a couple here.
John and I'll be your talk about how strong the demand environment is in Brazil, and yet when you look at the overall GDP.
Estimates and sort of where we are right now in Brazil and over the next quarter or two it does look like we may be going through a bit of a soft patch.
Are you seeing anything with respect to corporate or even discretionary travel that woods.
Reinforced the fact that Brazil, maybe drilling into a bit of a downturn and not just Brazil, but the southern cone.
Anything out where you define sort of the macro backdrop.
Hey, Mike.
Three Q flown revenue was pretty good we missed the all time record just by 0.3%, but bookings actually in the quarter were even better at the accelerated kind of late in the quarter September October timeframe.
Bookings have been up 30% since June for example booked revenue.
On the back of volume and fares.
This of course helped by seasonality late <unk> was very very strong seasonally and then our summer peak in January but some examples group's revenue group's revenue is three times higher than 2019.
We're just seeing a huge increase in conventions in.
Corporate events and trainings.
That's something that out, but what we hear from our corporate customer is going to continue.
Corporate volumes are 100%.
In terms of volume much higher in terms of revenue, but we had weeks with 100% corporate volume recovery and we set five corporate all time record fairs Records in September and October.
Just a ton of events happening around the country, we had formula one last week I'm a swifty. So Taylor Swift is here next week.
And you know what she can do to the economy.
Tickets.
No no take it too hard too difficult.
But.
But overall international doing very well, especially Europe.
And our and one.
International metric, that's really interesting is that off hour.
International unit revenue growth, which is up like 60% above 2019 business class is up 20 <unk>.
As economies up only 10 cents and so we're seeing some pretty good premium traffic as well so and combining this with capacity discipline and our network is different right. Our network is more exposed to the Brazil that grows to the Brazil still has a lot of growth ahead of it whether it's agro weather.
It's infrastructure or network is significantly more exposed to the part of Brazil, That's not just Sao Paulo, Rio our brasilia, so the trends have been accelerating.
<unk> and <unk>, so it feels pretty good from what we can see December is ahead of last year January is ahead of last year as well.
That's great that's great. Thanks, Thanks Avi.
That's super helpful. And then just my second question.
U S.
You slightly.
The Airbus <unk> hundred <unk> I believe.
You use the leap engine. So you don't have to deal with the GTS, Although John you did mention that it seems like power plants are coming off wings sooner.
No matter what the engine is what about just on your <unk>.
<unk>, we know that the GTS.
This is potentially an issue with <unk> and <unk> hundred <unk> couple of carriers are saying, they're waiting to hear from Pratt.
The manufacturer said to you about <unk> do you have any grounded right. Now for example, anything on kind of the engines et cetera. Thanks, Yes.
Yes, Good news, Mike as we've got no aircraft grounded on the issue right now I had a call with the president of Pratt over the weekend and we're monitoring it very closely. Good news is is there's not as many <unk> customers in the world and so I think we just need to get in front of it you need to make sure you have the proper spare ratio, we're very important customer to embraer and Pratt <unk> Whitney.
And our business model is based on the <unk> right and so I think that thats kind of crucial and it's constant dialogue to make sure that the spares are there the deliveries are coming and so it's not perfect. We understand that nobody wants to be where we are today, but I think I think we have a good relationship and we're working very closely with <unk>.
<unk> and Embraer to ensure that we keep that fleet flying and we're doubling that fleet in the next 12 months right and so that's a kind of a key driver for us.
Great to hear thank you.
Thank you. The next question now will come from services sales had evidence from Raymond James.
Savi, we're going to open your audio so that you can ask a question you may proceed.
Hi, Good morning. This is <unk> on behalf of Sandy side.
First question today is.
I know you provided early thoughts on 2024 capacity, how do you see that split between domestic and international.
Yes.
So at the International network is going to be you can take what we flew in the last quarter, which is public or public capacity data.
And it's just going to be year round. It. So there will be some growth, but it's basically the network we're flying today year round.
And the domestic network is going to be just the deliveries of the <unk> up gauging from what we have today, so overall capacity growth around 10 or 11%.
International is going to be kind of more.
Mid single digits, if you will just coming round and the rest of it domestic.
Okay Super helpful. Thank you and how is demand evolving in the Brazil U S and principally Europe markets.
Yes, Europe has been strong for everybody you heard that from the guys in the U S as well.
It's been a very very strong European summer, we fly to the two largest European markets.
Portugal in Paris, so pretty resilient demand.
Even through the unseasonable winter.
U S is a little bit more up and down but it's looking very good right now for December January if you look at U S. Brazil capacity, it's still only 85% of what it was in 2019 and so you still have capacity shortages in U S. Brazil U S. E. R. Brasil Europe is around 90% 95% recovered.
<unk>.
But good demand, but overall, we're very happy with international.
And how its performance pay up if I could just add interesting about our network, we fly to the U S from announced billing convenes receive fee and Campinas and many of those routes are relatively new and developing and that kind of shows the strength of our network in the north of Brazil in the northeast of Brazil at our second main hub.
Should ice and so there's we have five different points of entry from Brazil into the United States.
Alright, thank you.
And Kim will answer the next question now and the next question will come from Daniel Mckenzie.
Sales side analyst from Seaport global.
Daniel remains your opinion on this event you can ask a question you May proceed.
I think any of them.
No.
Okay Daniela.
Yeah, he types of questions or maybe it is.
Not all of it.
Yeah, Hey, Dan.
Good morning, sorry about that.
Just a couple of questions here, just going back to the $6 3 billion in EBITDA for 2020 for that outlook.
What.
First of all just some expectations around that are the first is there any unusual working capital P&L considerations for next year, there should be aware of or will that EBITDA translate fairly accurate accurately too.
Cash from operations and then just related to that if you could help us unpack 2020 for Capex on a gross net cash basis.
And then just kind of tying back to this idea of slower economic growth.
What rate of slower economic growth might worry you with respect to the outlook that we see today.
Hey, Dan I'm going to start and then Alex will give you the details, but I think what I want to highlight is this third quarter shows what azula capable of right record revenue record EBITDA margins above 2019, we did $1 6 billion of EBITDA in the third quarter right next year, we will have roughly.
<unk> 15, more E twos and the fleet because we are getting some at the end of this year and so that that gives you an idea of what this airline is capable of producing in terms of EBITDA on a go forward basis. This year, we didn't have the full effect of <unk>. We didn't have a full effect of the <unk>. We didn't have the full effect of kind of leveraging our loyalty program.
Does of because of the crisis, we were in and so again take a look at the third quarter and start to look at while what does this all capable of as you roll this forward.
Into 2024 with all the other good things that we're working on as I've said several times. This management team is now focused on running the business. This third quarter. We showed once again two quarters in a row, we have the lowest cask in the country, that's with flying Apr's E Jets and <unk> hundred <unk> right and so this <unk>.
Company is capable of much much more and kind of look at where we're at today and I'll, let al Al you kind of walk through the details on the cash for next year. Yeah. Thanks. John. So then there is a little bit of working capital help yes, because as we grow.
We will be selling an airline that's bigger than the airlines that we're flying right. So throughout these years, where we're having the rate of growth that we're guiding to you can expect that the cash inflow from operations should be a little bit higher than the EBITDA or whatever.
EBITDA number is and we updated our EBITDA guidance for 'twenty four as you as you saw.
In terms of Capex, we haven't given guidance on Capex.
So I can't give you.
The number <unk>.
Separately speaking you can see you can kind of revert back to all of the concept of the capital plan that we put out there what.
The objective of that was right was to the Capex and the leases were primarily the target of us trying to reduce it out and exchange it for a 2030 bullet note and in.
And equity structure right. So you will see the effects.
In Capex from that restructuring plan.
But we're in the middle of our budget right now.
Normally we don't put out 2024 guidance until we finalize the budget.
We're very excited about what we're seeing here on the demand side. So we went ahead and put out for guidance we may provide additional.
Details as we finalize our toy and training for our clients.
Very good.
Final question here I guess my last question.
I'm wondering if you just.
Expand a little bit on the cargo operation to what extent is it is it profitable either more or less profitable relative to the core airline.
Yeah, Hey, Dan.
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We like to have a balance of about 80% cargo in the belly, 20% cargo on the dedicated aircraft as you can imagine the belly cargo is extremely profitable because you are piggybacking on the airline itself crew cost fuel.
Navigation, all that kind of stuff right.
The dedicated.
Margins are not as.
Our profitable as the belly, but they are important to complementary product offerings heavy palletize cargo industrial customers, even manufacturing customers. So we like to have that 80 20 mix.
We think its good risk management overall and kind of yield good margins overall, but the belly part is definitely extremely profitable give.
Given the fact that you are piggybacking on our 900000.
Fight today.
Okay. Thanks, guys. Thank.
Thank you.
Okay.
We will now close the Q&A session.
And we will give the floor to John to make the final remarks.
I want to thank everybody and we'll be communicated the market. Shortly once we have our audited financials out there.
I want to thank everybody for all the hard work look forward to seeing everybody had conferences feel free to reach out to any of our management team and thanks for all your support.
Thank you. This concludes the <unk> audio conference call for today. Thank you very much for your participation and have a good day.