Q4 2023 Azul S.A. Earnings Call
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<unk> announced lease charge a microphone on and proceed.
None: For those who are in listen more lift in each of the coffers on the phone breast nine and joined the keel and six chicks F. Thiago land requested.
Investor Relations: I would like to turn the presentation over to dice heavily head of Investor Relations. Please phase proceed.
None: Thank you <unk> and welcome all to <unk> fourth quarter earnings call. The results made an offer this morning.
None: Colin and his wife, Debbie reference are available on our IR website.
None: <unk> today will be David uneven as Luc founder and chairman and John Rodgerson CEO Alex.
None: Alex multi shiny our CFO Avi Shack president of adults are also here for the Q&A session before I turn the call over to David I'd like to caution you regarding affordable King statements on the matters discussed today that are not historical facts, particularly comments regarding the company's future plans objectives.
None: And expected performance constitute forward looking statements. These statements are based on a range of assumptions that the company believes are reasonable, but I subject to uncertainties and risks. They are discussed in detail in our helium and SEC filings also during the course of the call we will discuss non ifr as per pharmacy.
None: The measures, which should not be considered a high resolution with that I would turn the call over to David Davis. They face welcome everyone and thank you for joining us for our fourth quarter 2003 earnings call I'm happy to report that as oil at a record 2023 as you can see on slide three we reported record revenues of <unk>.
Record revenues of almost 19 billion reais for the year with $5 billion in a single quarter for the very first time.
David Gary Neeleman: <unk> 19 billion Reais for the year with $5 billion in a single quarter for the very first time record yearly and quarterly RASK and an EBIT of $5.2 billion 2 billion above our previous year twice.
Record yearly and quarterly RASK and an EBIT of.
$5 $2 billion 2 billion above our previous year.
None: 2023 with.
23 was.
David Gary Neeleman: Also transformational thanks to the conclusion of our capital optimization plan, where we partnered with all of our stakeholders to create a win win solution that setup is off for long term success.
Also transformational thanks to the conclusion of our capital optimization plan, where we partnered with all of our stakeholders to create a win win solution that set up for long term success.
David Gary Neeleman: And finally in 2023, we continue to deliver exceptional operational performance by being the second most on time airline in the world.
And finally in 2023, we continued to deliver exceptional operational performance by being the second most on time airline in the world for this I have to thank our incredible crewmembers for what they are doing each and every day. They are taking care of our customers and each other on slide four you can see that our network strength is foundational.
David Gary Neeleman: For this I have to thank our incredible crewmembers for what they are doing each and every day. They are taking care of our customers and each other on slide four you can see that our networks trained is foundational to our structural and long term competitive advantages. We continue to be the only carrier in 82% of our routes. This is a direct result of <unk>.
To our structural and long term competitive advantages, we continue to be the only carrier in 82% of our routes. This is a direct result of our unique network combined with our fleet flexibility, where we put the right aircraft on the right market at the right time in fact, I remember when we went public investors would say as we go.
David Gary Neeleman: Our unique network combined with our fleet flexibility, where we put the right aircraft on the right market at the right time in fact, I remember when we went public investors would say as we grew there would be more more overlap. The opposite is the case, we have more than doubled in size over the past several years.
Through there will be more and more overlap. The opposite is the case, we have more than doubled in size over the past several years.
Investor Relations: Always staying true to our business.
David Gary Neeleman: Always staying true to our business.
None: Into our business model, we have gotten stronger and stronger.
David Gary Neeleman: Into our business model, we have gotten stronger and stronger.
None: The construction of this unique network strategy together with our fleet transformation.
David Gary Neeleman: The construction of this unique network strategy together with our fleet transformation.
None: With the VA.
David Gary Neeleman: With the a b a b <unk> hundred Twenty's and E. Twos is a critical ingredient to our continued sustainability and profitable growth on slide five we show a little more detail.
None: The <unk> hundred <unk> is a critical ingredient to our continued sustainability and profitable growth on slide five we show a little more detail.
None: Our network strength is so unique we have always said that our mission is to grow the Brazilian market to serve cities that have never been served before and to provide end to provide connectivity and convenience like never before.
David Gary Neeleman: Our network strength is so unique we have always said that our mission is to grow the Brazilian market to serve cities that have never been served before and to provide care and to provide connectivity and convenience like never before.
None: Let me give you. An example today a customer can travel from <unk>, a strong agribusiness market in the Midwest in Brazil.
David Gary Neeleman: Let me give you. An example today a customer can travel from so he's though our strong agribusiness market in the Midwest in Brazil.
None: And with one can be in connection our customer can be in Sao Paulo for Monday morning meeting.
David Gary Neeleman: And with one can be a connection our customer can be in Sao Paulo from Monday morning meeting from for a morning meeting.
None: For a morning meeting.
None: A journey that would otherwise take 26 hours by car. This is never existed before and it only does because of this or this is how we grow the market and this is how we continue.
David Gary Neeleman: Journey that would otherwise take 26 hours by car. This is never existed before and it only does because of this old business, how we grow the market and this is how we can see you.
David Gary Neeleman: To profitably grow on slide six I want to show you. Another example, our Recife hub.
David Gary Neeleman: To profitably grow on slide six I want to show you. Another example, our Recife hub.
David Gary Neeleman: We have long identified receive he has a strong market in the northeast of Brazil.
David Gary Neeleman: We have long identified receive he has a strong market in the northeast of Brazil.
David Gary Neeleman: A growing city.
David Gary Neeleman: A growing city has a growing city that has elements of a strong leisure demand with.
David Gary Neeleman: A growing city that has elements of a strong leisure demand with.
David Gary Neeleman: Grab growing corporate demand and technology and automotive.
David Gary Neeleman: Our growing corporate demand and technology in automotive in 2017, we started to build out our CPE hub connecting every major city by a nonstop service and then onto the rest of our network today, where CP is better served than ever rivaling cities like Brasilia in terms of departures and and even.
David Gary Neeleman: In 2017, we started to build out our Recife hub connecting every major city via Nonstop service and then onto the rest of our network today receive fee is better serve than ever rivaling cities like Brasilia in terms of departures and and even some paolo in terms of destinations served.
David Gary Neeleman: Some paolo in terms of destinations served.
David Gary Neeleman: Today, our entire fleet from the care of adds to the <unk> hundred 30, <unk> fly in and out of Recife, bringing service and.
David Gary Neeleman: Today, our entire fleet from the care of adds to the 830 <unk> fly in and out of Recife, bringing service.
David Gary Neeleman: And connectivity to Brazil and beyond receive he is also a great example of a mark of market discipline, where we are focusing on where we are strong and the industry is focusing on where they are strong. This is the type of network development supported by our flexible fleet and allows us to continue growing within our network finally on slide seven.
David Gary Neeleman: In connectivity to Brazil, and beyond <unk> is also a great example of a mark of market discipline, where we are focusing on where we are strong and the industry is focusing on where they are strong. This is the type of network development supported by our flexible fleet and allows us to continue growing within our network.
David Gary Neeleman: Finally on slide seven I'm excited and proud.
None: I'm excited and proud.
None: Of the partnership we have with the Brazilian Olympic Committee.
David Gary Neeleman: The partnership we have with the Brazilian Olympic Committee.
David Gary Neeleman: <unk> is a unique and uniquely Brazilian.
None: <unk> is a unique and uniquely Brazilian.
David Gary Neeleman: The citizens, we serve the warranty and attention you feel when you fly ash and all and it's all unique to us and reflect the best of Brazil, and the breadth of Breeze.
None: For the cities, we serve the warranty and attention you feel when you fly S and all and it's all unique to us and reflect the best of Brazil, and the breadth of Breeze.
Bill: This is bill.
None: The score.
David Gary Neeleman: With that spirit, we are so happy to partner with the Brazilian team for the Paris, 2024 games and with that I'll turn the time over to John who will give you more details on our and our amazing results. Thanks, David I would also like to thank our amazing crew members for everything they do I've always said, we're a people business and our <unk>.
None: With that spirit.
None: We're so happy to partner with the Brazilian team for the Paris, 2024 games and with that I'll turn the time over to John who will give you more details on our and our amazing results. Thanks, David I would also like to thank our amazing crew members for everything they do I've always said, we're a people business and our crew members are our greatest asset we know.
John Peter Rodgerson: Crew members are our greatest asset we know that sometimes the operating environment can be challenging, but the fact that we continue to deliver exceptional service and performance is all credit to them.
John Peter Rodgerson: That sometimes the operating environment can be challenging, but the fact that we continue to deliver exceptional service and performance is all credit to them.
David Gary Neeleman: On slide eight I want to highlight the big numbers for the fourth quarter as David mentioned 2023 was a record year and particularly the fourth quarter for the first time ever we did $5 billion in revenue, 60% higher than 2019, we had a record RASK of $45 three up 6% year over year on top of a very <unk>.
John Peter Rodgerson: On slide eight I want to highlight the big numbers for the fourth quarter as David mentioned 2023 was a record year and particularly the fourth quarter for the first time ever we did 5 billion in revenue, 60% higher than 2019, we had a record RASK of $45 three says up 6% year over year on top of a very strong.
David Gary Neeleman: Truong base, and with 7% capacity growth fourth quarter EBITDA of $1 5 billion with a 29% EBITDA margin. These are direct results of our competitive advantages and profitable growth strategy.
John Peter Rodgerson: Base, and with 7% capacity growth fourth quarter EBITDA of $1 5 billion with a 29% EBITDA margin. These are direct results of our competitive advantages and profitable growth strategy on.
David Gary Neeleman: On slide nine I want to highlight a really important and strategic shift that has been happening. It is all over the past year more than 25% of our RASK is now non ticket revenue. This is because of our business units vacations loyalty cargo ancillary revenue and charter are all growing even faster than the based airlines.
John Peter Rodgerson: On slide nine I want to highlight a really important and strategic shift that has been happening. It is all over the past year more than 25% of our RASK is now non ticket revenue. This is because of our business units vacations loyalty cargo ancillary revenue and charter are all growing even faster than the based airline.
David Gary Neeleman: This is a key diversification strategy that further extends our competitive advantages. This strategy captures customers from all different segments and brings them into the <unk> universe from where we can cross sell across all of our products and services, even better business units like vacations and loyalty can grow faster by providing services such as hotel.
This is a key diversification strategy that further extend our competitive advantages. This strategy captures customers from all different segments and brings them into the <unk> universe from where we can cross sell across all of our products and services, even better business units like vacations and loyalty can grow faster by providing services such as.
David Gary Neeleman: <unk> experiences shopping travel on other airlines products that do not depend exclusively on as well as grow.
John Peter Rodgerson: Tells experiences shopping travel on other airlines products that do not depend exclusively on as well as grow.
This diversification and contribution or a further example of why we are so confident in our profitable growth strategy going forward, it's hard to believe but the $6 billion in revenue from these business units is almost the same as all of US all as revenue when we went public in 2017.
John Peter Rodgerson: This diversification and contribution are a further example of why we are so confident in our profitable growth strategy going forward, it's hard to believe but the $6 billion in revenue from these business units is almost the same as all of US all as revenue when we went public in 2017.
David Gary Neeleman: Turning to slide 10, we show a bridge for 2022 EBITDA to 2023, you can see the $2 billion increased David mentioned and EBITDA with contributions from RASK expansion network growth lower fuel and currency and offsetting effects from inflation increased maintenance expenses and investments in the future I will discuss shortly.
John Peter Rodgerson: Turning to slide 10, we show a bridge for 2022 EBITDA to 2023, you can see the 2 billion increase David mentioned and EBITDA with contributions from RASK expansion network growth lower fuel and currency and offsetting effects from inflation increased maintenance expenses and investments in the future I will discuss shortly.
We significantly increased margins improved revenue performance grew the airline and therefore produce the best results in our history.
John Peter Rodgerson: We significantly increased margins improved revenue performance grew the airline and therefore produce the best results in our history.
On Slide 11, we bridge immediate liquidity from the third quarter to the fourth quarter you can clearly see the operation generated positive cash flow, which was used to pay down debt and deferrals cash flow from operations was significant enough that even after aircraft rent capex and interest payments, we generated $300 million in cash this clear.
John Peter Rodgerson: On Slide 11, we bridge immediate liquidity from the third quarter to the fourth quarter you can clearly see the operation generated positive cash flow, which was used to pay down debt and deferrals cash flow from operations was significant enough that even after aircraft red Capex and interest payments, we generated $300 million in cash this clear.
John Peter Rodgerson: Really shows that our EBITDA directly will result in cash flow generation and deleveraging.
John Peter Rodgerson: This shows that our EBITDA directly will result in cash flow generation and deleveraging.
John Peter Rodgerson: As a result, as we show on slide 12, our leverage at the end of last year was down to $3 seven a full two turn improvement since 2022 and in line with our guidance even more exciting is that thanks to the significant EBITDA generation in 2024, and the continued pay down of debt our leverage at the end of this year it will be a very solid three two.
John Peter Rodgerson: As a result, as we show on slide 12, our leverage at the end of last year was down to $3 seven a full two turn improvement since 2022 and in line with our guidance even more exciting is that thanks to the significant EBITDA generation in 2024, and the continued paydown in debt our leverage at the end of this year will be a very solid three two.
John Peter Rodgerson: <unk> this is lower than what we had in the fourth quarter of 2019, when using the same methodology. We told you we would emerge as a stronger company and we truly are a remarkable achievement by our team.
John Peter Rodgerson: This is lower than what we had in the fourth quarter of 2019, when using the same methodology. We told you we would emerge as a stronger company and we truly are a remarkable achievement by our team.
John Peter Rodgerson: Transitioning now to the future the exciting part of as a rule I want to talk about how we're preparing and investing so that we can meet and exceed our updated EBITDA guidance of $6 5 billion for 2024.
John Peter Rodgerson: Transitioning now to the future the exciting part of as a rule I want to talk about how we're preparing and investing so that we can meet and exceed our updated EBITDA guidance of $6 5 billion for 2024.
John Peter Rodgerson: And even higher in the years to come we realized late last year that we needed to invest in our operational capabilities to prepare for this growth we invested in operational staffing, allowing us to reduce aircraft ground time and increased aircraft utilization, we invested in fleet and engine availability, ensuring we have adequate spares.
John Peter Rodgerson: And even higher in the years to come we realized late last year that we needed to invest in our operational capabilities to prepare for this growth we invested in operational staffing, allowing us to reduce aircraft ground time and increased aircraft utilization, we invested in fleet and engine availability, ensuring we have adequate spares.
John Peter Rodgerson: Adequate spare engines, we invested in our maintenance facilities, bringing forward by three years additional heavy maintenance capabilities that we are not dependent on external MRO capacity. Finally, we invest in pilots and flight attendant hiring so that we can have the crude trained and ready to go all of this combined with our next gen deliveries, especially the E twos.
John Peter Rodgerson: Adequate spare engines, we invested in our maintenance facilities, bringing forward by three years additional heavy maintenance capabilities that we are not dependent on external MRO capacity. Finally, we invested in pilot and flight attendant hiring so that we can have the crude trained and ready to go all of this combined with our next gen deliveries, especially the E twos.
This year means that we are ahead of the curve and are more in control in terms of our fleet availability and capacity.
John Peter Rodgerson: This year means that we are ahead of the curve and are more in control in terms of our fleet availability and capacity.
John Peter Rodgerson: On Slide 14, you can already see the results of some of these investments while aircraft utilization improved in 2023, there is still opportunity to grow. It looking ahead at our planned network for 2020 for reaping the rewards of operational investments and reduction in ground time, we can take another significant step to increased aircraft utilization all fleet.
John Peter Rodgerson: On Slide 14, you can already see the results of some of these investments while aircraft utilization improved in 2023, there is still opportunity to grow. It looking ahead at our planned network for 2020 for reaping the rewards of operational investments and reduction in ground time, we can take another significant step to increased aircraft utilization all fleet.
John Peter Rodgerson: <unk> will once again increased aircraft utilization in 2024. These are opportunities that we continue to develop but we're extremely excited at the progress we're already making in 2024.
John Peter Rodgerson: <unk> will once again increased aircraft utilization in 2024. These are opportunities that we continue to develop but we're extremely excited at the progress we're already making in 2024.
John Peter Rodgerson: On slide 15, we thought it would be important to give you a panorama of our OEM partnerships for the <unk> hundred 20 Neo fleet, we have the leap engine as well as the CFM 34 for our Embraer E. One fleet for our <unk> and <unk>, we have partnered with Pratt and Whitney for our wide body fleet. We are partnered with Rolls Royce with each of these partners we have ongoing long term maintenance agreement.
John Peter Rodgerson: On slide 15, we thought it would be important to give you a panorama of our OEM partnerships for the Asia 20, Neil Fleet, we have the leap engine as well as the CFM 34 for our Embraer E. One fleet for our E twos and a T. Ours, we have partnered with Pratt and Whitney for our wide body fleet. We are partner with Rolls Royce with each of these partners, we have ongoing long term maintenance agreements.
John Peter Rodgerson: That support the operational reliability of our fleet on the aircraft manufacturer side. The majority of our future deliveries over the next few years will come from Embraer a relationship that we are very close to and it is OEM and as an OEM that we believe is better positioned than others to deliver aircraft on time, while the situation is still volatile.
John Peter Rodgerson: That support the operational reliability of our fleet on the aircraft manufacturer side. The majority of our future deliveries over the next few years will come from Embraer a relationship that we are very close to and it is OEM and as an OEM that we believe is better positioned than others to deliver aircraft on time, while the situation is still volatile.
John Peter Rodgerson: We strongly believe that these are the best possible partnerships and with our own internal capabilities. We are well positioned to continue our fleet transformation and growth plans.
John Peter Rodgerson: We strongly believe that these are the best possible partnerships and with our own internal capabilities. We are well positioned to continue our fleet transformation and growth plans.
John Peter Rodgerson: As I draw to a close I want to share that we released updated guidance. This morning as you can see on slide 17, we expect $6 5 billion of EBITDA. This year on an overall capacity increase of 11% levers as I mentioned earlier will be around 3% below 2019 levels. Our fundamentals are strong our business model is very unique and I'm very.
John Peter Rodgerson: As I draw to a close I want to share that we released updated guidance. This morning as you can see on slide 17, we expect $6 5 billion of EBITDA. This year on an overall capacity increase of 11% levers as I mentioned earlier will be around three below 2019 levels. Our fundamentals are strong our business model is very unique and I'm very.
John Peter Rodgerson: Excited to see all the great results, although we will deliver and thanks to our incredible and passionate crew members I am confident that <unk> will deliver better than expected results on a going forward basis with that David Alex <unk> are here to answer any of your questions.
John Peter Rodgerson: Excited to see all the great results of Zelle will deliver and thanks to our incredible and passionate crew members I am confident that absorbed will deliver better than expected results on a going forward basis with that David Alex Avi and I are here to answer any of your questions.
None: 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 at the bottom of your screen and write your name and company.
None: Ladies and gentlemen, thank you we will now begin the Q&A session.
None: Memory and that if you have a question click on the Q&A icon at the bottom of your screen and write your name and company.
None: My name is announced please activate your microphone and proceed.
None: Her name is announced please activate your microphone and proceed.
John Peter Rodgerson: For those who are listening to the conference on the phone breast 90 to join the queue and fixture accept deal I do when requested.
None: For those who are listening to the conference on the phone breast nine to join the queue ethics to accept the audio when requested.
John Peter Rodgerson: Let's go on now to the first question will come from Victor <unk> from a sales side analysts from Bradesco Victor We will open your microphone. So that you can ask your question. Please proceed.
None: Let's go on now to the first question will come from Victor who sees lucky from sell side analysts from Bradesco Victor We will open your microphone. So that you can ask your question. Please proceed.
John Peter Rodgerson: Alright.
Victor: Alright, I have two questions here.
Victor: Two questions here.
The first one.
Victor: The first one.
John Peter Rodgerson: It is a material facts to talk about the order numbers.
Victor: It is a material fact talking about the artist tumors are the audit financial statements.
John Peter Rodgerson: The financial statements.
But at this time I mean, why do we take on <unk>.
None: But at this time I mean, why do we take out from the Brazilian shebang.
John Peter Rodgerson: You can see almost.
You can see all almost due to the <unk> financial statements.
John Peter Rodgerson: It does dilute financial statements.
None: So my first question I mean, you can kind of comment what.
None: My first question I mean, you've kind of commented on what's exactly bottleneck.
John Peter Rodgerson: Exactly.
None: Difficult comps bright to me what kind of change.
John Peter Rodgerson: If we can't compromise I mean, what kind of changed.
We can expect on the other side.
None: We can expect for the audit fee, you're absolutely right. There is something related to the negotiations with home visit companies.
John Peter Rodgerson: There's something related to the negotiations with all these new companies.
John Peter Rodgerson: And the second one I'm talking about cash flow forward on that one for.
None: And the second one talking about our cash flow forward on a time for <unk>.
John Peter Rodgerson: You lose the guidance for EBITDA.
None: You lose the guidance for EBITDA, but.
John Peter Rodgerson: If you start to think about let's say capex and working capital.
None: If you start to think about let's say capex and working capital.
None: And because of working capital, we can see a drop.
John Peter Rodgerson: Because of working capital, we can see a drop.
John Peter Rodgerson: Q4 in terms of all of our accounts receivables.
None: Q4 in terms of our accounts receivables.
John Peter Rodgerson: You should think about in terms of days.
None: If you think about in terms of days you've heard does this kind of a sustainable level, Florida on the tank car.
John Peter Rodgerson: Does this kind of a sustainable level fourth on the tank car.
John Peter Rodgerson: You can also comment about the Capex, what we can expect for this year. Thank you.
None: You can also comment about the Capex, what we can expect for the year. Thank you.
John Peter Rodgerson: Oh.
None: Oh.
John Peter Rodgerson: Thanks, Victor it's Alex here, so on the audit statement so no change.
None: Thanks, Victor it's Alex here, so on the audit statement so no change.
Alex: It's really more our independent auditors kind of finishing up their work and documenting formalizing we.
Alex: It's really more.
Alex: Our independent auditors kind of finishing up their work and documenting formalizing.
Alex: We do not expect any changes to our financial statements and that's why we put out both the earnings release and the complete financial statements, but they are unaudited, we do not have the audit report yet, but we will have it in a few days and then we'll update the market accordingly.
Alex: We do not expect any changes to our financial statements and that's why we put out both the earnings release and to complete our financial statements, but they are unaudited, we do not have the audit report yet, but we will have it in a few days and then we'll update the market accordingly.
John Peter Rodgerson: We do not expect.
Alex: So we do not expect any change on the EBITDA I mean.
John Peter Rodgerson: Any change on the EBITDA.
John Peter Rodgerson: Youre in Brazil, but I think it's good for us to highlight that in Brazil.
Alex: You're in Brazil, but I think it's good for us to highlight that in Brazil flows and differences between your cash balance in the account receivable balance and do not mean, the same thing that they mean in other words right. That's why in other countries. That's why we look at cash flow receivables together because for example on.
John Peter Rodgerson: And differences between your cash balance in the account receivable balance and do not mean, the same thing that they mean in other words right. That's why in other countries. That's why we look at cash flow receivables together.
John Peter Rodgerson: For example on.
Alex: Uh huh.
Alex: And in quarters, where we have big.
None: In quarters, where we have big.
Alex: Capital raises for example, like we did in Q3, we do not need to advance receivables right because it costs not a lot of money to advance receivables, but it does cost a little bit. So if we don't need to advance receivables because we have a lot of cash that we just raised normally that quarter is a quarter, where the receivable balance goes up.
None: Capital raises for example, like we did in Q3, we do not need to advance receivables right because it costs not a lot of money to advance receivables, but it does cost a little bit. So if we don't need to advance receivables because we have a lot of cash that we just raised normally the quarter is a quarter, where the receivable balance goes up <unk>.
Alex: Normally if youre looking at a company and you'll see the receivable balances going up do you think that is a problem in Brazil that is a sign of strength showing that you just raised cash and you actually have a lot of cash from from another source than normal terms right because selling in installments as a very unique Brazilian feature and its a powerful.
Really if youre looking at a company and Youll see the receivable balances going up do you think that is a problem in Brazil that is a sign of strength showing that you just raised cash and you actually have a lot of cash from from another source than normal terms right because selling in installments as a very unique Brazilian feature and its a powerful sales.
Alex: <unk> tool and yellow very economical vary.
Victor: Tool and very economical very.
None: A very good way to.
Alex: A very good way to.
None: <unk> and our customers to buy tickets and to be able to afford travel and other purchases.
Alex: Motivate our customers to have to buy tickets and to be able to afford travel and other purchases.
None: We sell them in advance and then we sell in installments or then we advance. These cash flows forward and again, it's just a little bit of money more than the risk free rate in Brazil, right. So I encourage everyone to look at the cash flows to receivable balance fluctuations are more a question of whether there was a capital raise in the quarter or not.
We sell it in advance and then we sell in installments and then we advanced these cash flows forward and again it cost just a little bit of money more than the risk free rate in Brazil, right. So I encourage everyone to look at the cash flows to receivable balance and fluctuations are more a question of whether there was a capital raise in the quarter or not.
None: And Thats the case with Q3, if you compare Q3 to Q4, you may think that the policy or the.
Alex: And Thats the case with Q3, if you're comparing Q3 to Q4, you may think that the policy or the the advancement of receivables changed but it's really because they are fungible. So no change there for capex.
None: Advancement of receivables changed but it's really because they are fungible. So no change there for capex.
It's higher or lower than what the average quarter will be going forward and Victor just to highlight a couple of things. We got the approved line with GE, Selma, which is $200 million credit line for Capex. This year, but I think as you look at cash generation and take a look at what we did in the fourth quarter with that EBITDA. We paid the aircraft rent we paid capex, we actually pay the interest in.
Still had money leftover and so that is the plan going forward to continue to pay down more expensive debt generate cash operating the airline and deleverage the company as quickly as possible.
Okay.
None: Great. Thank you.
None: Hey, Mike.
None: Thank you. The next question will come now from Sandisk is sell side analyst from Raymond James.
We will open your microphone or auto so that you can ask your question. Please proceed.
None: Hello, everyone.
None: You called out for my first question that you know you called out strength in domestic and internationally and in the release I'm just kind of curious if you could provide a little bit more color on what youre seeing in your expectation for.
None: <unk>.
None: The second quarter and beyond.
None: Hey, Savi Avi here sure. So first of all even if <unk>.
Dice Heavily: Six 1% RASK improvement on already a very high base of more than 35% RASK versus 2019. So.
None: The demand environment continues to be strong.
None: And what restock way bass back about pent up demand is.
Has continued and continues to be the case.
None: First quarter and second quarter of this year. So we feel pretty good about the demand environment. This year is going to be a little bit different it feels to me in terms of seasonality I think second quarter is going to be stronger than we expect.
None: And one of the reasons is that last year, we had a lot of holidays throughout the year, especially in April So we had a little bit up.
None: Bunched up demand in March and then a weak April may if I look ahead right now in April may and June which is seasonally the weakest quarter.
None: All of the three months actually running ahead of March right now in the domestic market. So that gives me a lot of confidence.
None: Kind of going forward in the domestic market International is holding steady we do have some capacity variations, especially now as we transition the <unk> hundred 50 fleet, which was which stop flying at the end of January and we have some wide bodies coming in now but replace them service April May June.
None: July onwards, so, but overall im not seeing anything different in terms of international appears to be very very steady and just like last year. The European Summer I think is going to be very very strong, especially Paris with the Olympics, and even less Venezuela and on the U S side for US continues to be strong with Orlando and Fort Lauderdale.
David Gary Neeleman: And with our partnership with Jetblue, and DAP and United So I would say steady overall I think we're going to be.
David Gary Neeleman: Pretty happy with second quarter seasonality. This year honestly last year I think we were disappointed but I think this year, it's going to behave differently a lot more steady between <unk> and <unk> you can expect positive unit revenue growth in <unk>, and then higher unit revenue growth in <unk> and then we get into a strong second.
None: Half seasonality, Hey, Savi, if I could just add something to what Avi said the demand remains very strong in Brazil, and we wanted to highlight the OEM relationships and the problems that the world is seeing because capacity is going to be in check for the foreseeable future with all of the problems with the large Oems are having in delivering aircrafts with engine availability.
David Gary Neeleman: And one of the unique strengths and says that all of our deals are on power by the hour and we have the spare engine capability in place and so we see a strong demand environment and we see capacity very much in check for the foreseeable future.
None: That's a great point and actually it takes me to my second question, if I might ask the incremental addition in capacity I was wondering where that's coming from and maybe just generally Asia.
Does that change at all on where the capacity is going to be allocated.
None: Yes, I mean, not really savvy, we still see a lot of opportunity in our network.
None: In Belo Horizonte for example is doing very well for us.
David Gary Neeleman: Our belem recently as a focus city for US we added.
David Gary Neeleman: Some flights, there, which are doing really well <unk> as well so again.
David Gary Neeleman: As as David talked about the network and our foundational areas for US and just won one factoid, we still had 77000 departures in 2023 on the <unk> 77000, all of which we want to go to the E twos as soon as we possibly.
David Gary Neeleman: We can.
Adding more seats, 25% lower trip costs on each and every one of them. So theres still a lot of opportunity to up gauging in our own network.
None: Very helpful. Thank you.
None: Thank you. The next question now will come from Gabriele <unk> sell side analysts from at all.
David Gary Neeleman: <unk> <unk>.
Gabriele: Neurology. So that you can ask a question. Please proceed.
Thanks, and good afternoon, everyone.
Just following up on the last topic regarding the to Madame overall.
None: What are your for Athene in terms of yields if you could comment a little bit about competition as well.
None: You're just messing up that.
None: Capacity finance industry remains somewhat capped given the the supply chain bottlenecks were seeing right now, but it will be great to hear once again, how are you feeling that your competitors are behaving in terms of prices.
David Gary Neeleman: Through the first two months of the year.
David Gary Neeleman: Three months of the year.
David Gary Neeleman: The already booked flights as well at a second topic here.
David Gary Neeleman: If you could comment also comment about the labor expenses, we saw in the fourth quarter.
David Gary Neeleman: Solve them, increasing both up year on year basis on a quarter on quarter basis.
David Gary Neeleman: Looking at the unit expenses.
None: You mentioned that you would need to increase your number of pilots as well as crew members. Just wondering if you already have seen.
None: A portion of this increase in the fourth quarter.
None: The unit growth from pure <unk> to be more limited thank.
None: Thank you.
None: Hi, Gabrielle.
I think the industry overall is doing as good as it can I think it is pretty disciplined on the capacity side as John said and I think the industry is doing all of the right things on the fare side as well.
There are there have been several.
John Peter Rodgerson: So the industry is moving fares.
John Peter Rodgerson: As a few varies as dollar varies and is doing a really good job of recapturing those costs. So I think the industry is very motivated on maximizing results.
John Peter Rodgerson: Like I said you can expect.
John Peter Rodgerson: Positive year over year RASK in one view, even higher positive year over year RASK into Q and.
John Peter Rodgerson: A big part of this is because the industry is doing the right things in my opinion on making sure that we maximize results and and if that yields that's fine and if that load factor that's fine as well so.
John Peter Rodgerson: I am very comfortable right now with the overall industrial environment and looking ahead, I don't really see that changing.
John Peter Rodgerson: Whether its overall capacity, whether its use and also sort of.
John Peter Rodgerson: Competitive dynamics as we mentioned in the opening remarks, I see the industry, focusing where each one is strong and I think thats actually generates the best results for everybody and I don't see that changing in any meaningful way. So overall I think we can be pretty satisfied with industry discipline.
None: And then on the labor side, Yes, I think we explained qualitatively what's going on.
None: In this quarter, but just to give you a little bit more color I would separate it into things right. One is we found opportunities in cytosorb.
John Peter Rodgerson: To reduce total cost, but that is increasing the salary line and it's reducing another line, but in net it is providing a reduction in cost for example, we internalize a lot of maintenance services and if we didn't have these maintenance services today with the supply chain issues and where would the MRO.
Restrictions that exist, we would never be flying as much as we're flat right. So that is an example of the salary line going up but enabling the amazing revenue performance that we're seeing right, but the net result is obviously very positive for ozone <unk> same thing with in sourcing we saw that.
John Peter Rodgerson: There were situations, where we have third party providers.
John Peter Rodgerson: Outside people, where it would be much more efficient much more affordable and we would have a better quality. If we just used our own crew members for that work. So that's an example, and then theres all the investment in the future.
John Peter Rodgerson: John and David mentioned.
John Peter Rodgerson: We will have to hire pilots bogo, so higher pilot six months before they are actually going to fly right we had.
John Peter Rodgerson: Two.
Increased airport staffing, but in exchange, we got a decrease in minimum ground time, which again gives us more aircraft hours supply, which more than pay for the incremental cost of staff right. So what that means is that the number that you saw for Q4 will not increase significantly.
John Peter Rodgerson: It's also I think pretty representative of what the average quarter will be in 'twenty three 'twenty four that means we're going to grow into the staffing that we have already brought into the company.
None: Thanks, Savi on Alex very clear.
None: Okay. Now the next question will come from a basketball that on the sell side analyst from UBS.
None: So we're going to need to open your audience. So that you can ask your question. Please.
None: Please go on.
None: Hi, John Alex Thank.
None: Thank you for taking my question I have two one on my side. The first one that's a bulk guidance.
John Peter Rodgerson: If you take the.
John Peter Rodgerson: The fourth quarter results.
None: And on <unk> on <unk>.
None: That is a little bit stronger than the other quarters.
None: We remain a little bit adding.
None: Adding the 11% capacity expansion for 2024.
John Peter Rodgerson: My estimate to you.
John Peter Rodgerson: Lucky 300 million Reais I would like to know if you are expecting as Ed said it from the <unk>.
Victor: Aircraft, if you are expecting.
Victor: Higher yields or higher margins for 2024.
Victor: It is my first two questions. My first question and my second one is about the quarter over quarter results.
John Peter Rodgerson: If there is some different mix.
John Peter Rodgerson: On the quarters, we see a little bit lower.
John Peter Rodgerson: RP case.
John Peter Rodgerson: Third quarter for the fourth quarter and as well the margin was a little bit below two five percentage points.
None: This was just one Paul for this year or if you can see a different trend for 'twenty 'twenty four and afterwards on this seasonality during the year. Thank you.
None: Yeah, Let me just kind of address your second question first and then we'll go I'll go back to your first question.
John Peter Rodgerson: Keep in mind that I think we did $1 six to $1 7 billion of EBITDA in the third quarter, but fuel increased about 16, and 17% quarter over quarter. So the third quarter into the fourth quarter fuel was up significantly and so yes, we delivered.
John Peter Rodgerson: Almost the same amount of EBITDA with significantly higher fuel prices in the fourth quarter compared to the third quarter. So I think that shows it shows the strength of the business as youre going into 2024, where we are today keep in mind, we are significantly increasing our capacity of 11%, but that capacity is nextgen.
John Peter Rodgerson: Capacity and utilizing the existing aircraft, we have even more and you should have a lower fuel price and average lower fuel price in 2023.
Alex: 224, then you had in 'twenty three so yes, you will see margin expansion because of that and we should be getting more economies of scale as we grow this business.
None: Thank you very much so seasonality should it keep the thing was just more from one quarter to the other.
John Peter Rodgerson: Youre right it.
John Peter Rodgerson: It was just the fuel is just going to take a take a look at the average fuel price fourth quarter versus third quarter. And then also we use bloomberg to forecast fuel going forward right. We use HOA. So you can also see that what we expect for Q2 Q3 Q4 is very different than what you saw in Q4, so multiplied by four layers of very I think easy way to say.
John Peter Rodgerson: That it doesn't take much for you to see that our exit rate of 2023 provides us great momentum into the $6 5 billion that we guided for 2024, and then you add the capacity growth and then you add the fact that we are already paying for staff in Q4 and Q1, that's going to.
To produce EBITDA in the full year of 2004 that there are maintenance lines that we installed in our hangar that did not work necessarily for all of Q4, but they will work for all of 2024 right. So there is a lot, but it's more about the run rate.
None: About the seasonality, yes, I think it's also important I want to really address this point on Oems, There's a battle worldwide with the Oems right people are fighting over spare engines are fighting over slots at engine facilities and the fact that we have a long term relationship with GE CFM we.
None: With Pratt and Whitney I think Thats, a competitive advantage that we locked it in.
None: Going forward and what you saw the fourth quarter was us ensuring that we have the assets in place to grow.
None: Makes total sense. Thank you very much.
None: Thanks Robert.
None: Now the next question will come from Lulu sell side analysts from Goldman Sachs.
Lulu: We will open the microphone. So that you may ask your question. Please proceed.
None: Hi, Thank you for taking my question I just have a follow up on the outlook for this year. If we look at the fourth quarter results. If we adjust for what happened with fuel prices. Since then to your point and if we account for the growth in Quebec.
Alex: <unk> achieved for the improvement in the competitive environment.
None: We can easily get to.
Alex: The margin that you're guiding for this year just by taking into account the jet fuel benefits and on top of that you have the capacity growth improving competitive environment is it fair to say the guidance is conservative or am I missing something here. Thank you.
Alex: Thanks.
Alex: Usually try to under promise and over deliver so our guidance I would not say as our $50 50 number but it's the beginning of the year as Brazil, but youre right. I mean, there is a lot that we talked about this when we finalized our capital optimization plan. We're very proud of that plan I think we're proud of the support that we got but.
Alex: Obviously, it took a lot of work right. It took a lot of energy and time from the senior management team now we can just divert all that bandwidth to our resort and to do what we'd like to do which is to take care of the business take care of our customers look for opportunities are not going to say that theres a lot of batting but I think it is on us.
Alex: Absolutely work all year to deliver something better than the $6 five and Bruno.
Alex: Rest assured we're shooting higher.
None: Thank you have a good day.
Alex: Moving on to the next question will come from Daniel Mckenzie sell side analysts from Seaport Global.
Daniel J. McKenzie: He will bring a microphone for you to ask a question you May proceed.
Daniel J. McKenzie: So it will move the.
None: Turn the microphone over now to <unk>. So that she may ask the question.
None: Thank you Zack.
None: Asking about their heating oil prices.
None: And so why is there a possibility.
None: Flexibility that we have and that is their willingness.
None: To put back on growth to help support lower than revenue.
Zack: Yeah, Hey, Dan I'll be here look I mean, we want to be disciplined overall right. We want to grow within the network. We want to update so I think we'll do what maximize it result in what makes sense.
Alex: In terms of delivery flexibility I think we do have a little bit of flexibility second half of the year on the <unk> side.
Alex: Depends how embraer delivers but I think there is a couple of Uber flexibility there to anticipate if we want.
Alex: We're going to focus on making sure we maximize margins maximize the result.
Alex: And.
Alex: Still stay disciplined to the overall market because we think that's healthy now and we think the healthy long term so.
Alex: I think we'll do what makes sense and we will do it what can a REIT for the market overall.
Alex: The second question is about operating <unk> plan, what are your expectations throughout the year.
Alex: Bank job has led to that upside.
Alex: Is that driving an uptick in operating travel.
Alex: Yes.
Alex: <unk> revenue has been strong with very strong second half of last year, especially kind of September October November timeframe.
Alex: We actually had periods, where we've crossed over 100% in corporate volume recovery revenue just to remind everybody is way is well ahead more than 50% ahead because of the average fares and yields are up so significantly. So we're not seeing any resistance in terms of corporate revenue in terms of corporate volumes.
Alex: We think the.
Alex: The Brazilians are flying the flag of our leisure, they're flying to meet their customers.
Alex: And to make new deals, we're not really hearing any resistance from corporate customers at all so I think now it's just kind of moving forward up gauge the network and continued to capitalize on the strong environment.
Alex: And the last one is regarding the government support to create and to have the airlines.
Alex: <unk> found that the plan would be competitive with the capital markets with respect to borrowing and Samsung.
Alex: Until that deal with one carrier.
Alex: Yeah.
Alex: Yes, so what I would say is I think theres been a great dialogue with the Brazilian government I think the three airlines are working jointly to kind of show some of the main concerns of the Brazilian industry has faced over the last few years, one of which is having the highest fuel prices in the world.
Alex: Which that.
<unk> holds growth in place because of that and so we've kind of showed that the Brazilian government I think they're very receptive.
Alex: To those concerns also theres a lot of lawsuits in Brazil represents 3% of the world's flight 90, plus percent of the world's lawsuits and so the Brazilian government working jointly with the airlines and I think that it's a very open dialogue, but the credit is where we're getting the most traction overall and yes. There is a significant burden on the airlines.
Alex: Because the cost of capital has gone up significantly and because of the Brazilian industry did not get any government aid at all a lot of people are talking about a bailout package in Brazil really we're talking about is access to credit at more competitive rates then the capital markets right and so if there's more competitive rates in the capital markets. Then we would certainly would access.
Alex: That and that would help us continue our growth plans going forward bring more capacity into the market and I think that the Brazilian government, we'd like to see more capacity because of the demand environment is very strong, but I think the dialogue with the Brazilian government has been very good they've been very receptive and we have an agenda and we're working through that agenda jointly and so we're excited about what that could mean.
Alex: For the industry as a whole moving forward.
None: Thanks, John.
None: Mike Lin Bertrand I think also has some questions. The first one is a follow up on the government's part here.
Speaker Change: He thinks it is going to be one thank you.
Speaker Change: Our credit line.
Speaker Change: Just to know how it is going to be divided among the airlines and that will be a terms.
Speaker Change: Yes, so I don't think its fully defined yet but in our conversations with Brazilian government. They are talking about roughly six to 8 billion reais divided equally between the major airlines in Brazil, and so that's what we're looking at.
Speaker Change: Still ongoing conversations will be in Brazilian next week to discuss this again.
And as I said I think we're getting some great traction and this is very positive overall reminding everybody. There was no help given.
Speaker Change: Previously and so this is an opportunity for the Brazilian government to help the industry grow in helping the industry grow is helping Brazilians travel market. We havent really good for the economy, Stan just to add what John said I think sometimes in the past. This is portrayed as a negotiation or a rescue package and Thats like John said, that's not what I see.
Speaker Change: Both the government and the industry has seen as that.
Speaker Change: Brazil has a huge potential and we want to unlock that potential. So we're going after the root causes of why that potential has not been materialized, yet, but we're confident that we can work together and work out a few of these structural issues that this is going to be great for Brazil are great for the consumer and great for the industry.
None: And one thing Alex always likes to remind us none of this is in our forecast right and so if we can reduce judicial claims.
None: That's upside if we can get a better cost of capital that's upside if we can get traction on fuel prices in Brazil, that's upside.
None: Thanks, John and the second question is.
None: Update on the Embraer delivery are you seeing the same type upgrades, adding brands.
None: And I think kind of Airbus and Boeing are you on track to get it.
None: Good to hear I could that be at late.
None: Hey, Mike.
None: We feel good about where we are with Embraer, obviously, we're working very very closely with them on making sure the deliveries.
Hello, We had three aircraft already enter service in January of this year and now sort of June onwards, you will start to see a steady stream of aircrafts between June and January.
None: For 2025, so so far we're on track, obviously talking very close with them and with the engine manufacturer to make sure that the engines are in place as well for the deliveries so far seems good.
We are a little bit of upside potentially in our plan, but we are on track for now I think Mike the only thing I would say on that is backend loaded like most Oems and so I think it was all exit rate of 2024 is going to be a much larger company than other and certainly we enter 2024, just because a lot of those deliveries are.
Second half of the year.
Yes.
None: Okay. Thank you and our next question now will come from collateral managers sell side analysts from J P. Morgan.
None: We will open your microphone. So that you can ask a question. Please proceed.
Okay.
Speaker Change: Good afternoon, everyone. Thanks for taking my question. My question is on the liability management front.
Speaker Change: And thinking about the equity issuance, that's coming up in third quarter of this year going up until the 2027.
None: Assuming that the top ones via <unk>, how do you guys think about the potential use of proceeds to compensate the scores.
None: Potentially additional equity dilution or using debt and if that is the case, where cash flow or whatever it is it's included on the leverage guidance for this year. Thank you.
None: Okay.
None: So we have the option.
None: When we finalized our plan we communicated this is an equity structure that we have the option to pay in cash.
None: <unk> is fully on us. So you could also pursue you could also look at this as a different ways. You can look at this as debt that matures over the course of 14 quarters, all the way into 2027 with zero interest where I have the option if I want to give shares instead of.
None: Cash right. So if you look at it that way I think it's a great facility.
So thats very comfortable that fits within our cash flow generation and obviously, we're going to look at.
None: Our stock.
None: And make a determination on whether we think the stock is fairly priced and decide whether we pay that in cash where we pay that in insurers.
None: That's clear thanks, Alex.
None: Okay. Thank you so discloses the Q&A session I'll turn I'll turn to John for the final remarks.
John Peter Rodgerson: Thanks, everybody for joining us today, and a special thanks, and shout out to all of our Great crew members, who continue to deliver fantastic results for us.
John Peter Rodgerson: Reach out to any of us in our Investor Relations team, we look forward to seeing you over the next over the coming weeks.
Yeah.
None: Thank you. This concludes <unk> audio conference for today. Thank you very much for your participation and have a good day.