Q1 2024 Azul SA Earnings Call
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Zach: I welcome you all to Azul's first quarterly earnings call. My name is Zach, and I will be your operator for today. This event is being recorded, and all participants will be in listen-only mode until we conduct a Q&A session following the company's presentation. If you have a question, click on the Q&A icon at the bottom of your screen and write your name and company. When your name is announced, please turn your microphone on and proceed.
Speaker Change: The molecule is the worst quarter, earning calls my name is back and I will be your operator for today.
Speaker Change: <unk> is being recorded and all participants will be in listen only mode until we conduct a Q&A session. Following the companys presentation.
Speaker Change: If you have a question Rick on the Q&A icon at the bottom of your screen and write your name and company. When your name is announced lease journey of my Crystal ball on and proceed.
Zach: For those who are listening to the conference on the phone, press 9 to join the queue and 6 to accept the audio when requested. I would like to turn the presentation over to Thais Haberli, head of investor relations.
Speaker Change: For those who are listening to the conference under fall press line to join the queue and six just step D audio when requested.
Speaker Change: I would like to trying to presentation over to <unk> head of Investor Relations. Please.
Speaker Change: Please proceed.
Thais Haberli: Thank you, Zach, and welcome all to Azul's fourth-quarter earnings call. The results that we announced this morning, the audio of this call, and the slides that we referenced are available on our investor relations website. Presenting today will be David Neeleman, Azul's founder and chairman, and John Rodgers, CEO. Alex Malfitani, our CFO, and Abhi Shah, the president of Azul, are also here for the Q&A session.
Speaker Change: Thank you Zack.
Speaker Change: How come out to as though its fourth quarter earnings.
Speaker Change: The results that we announced this morning.
Speaker Change: This call and drives that we reference are available on our IR website, presenting today will be David Neeleman, <unk>, founder and chairman and John Rodgerson CEO, Alex <unk>, our CFO and <unk> <unk>. The president of <unk> are also here for the Q&A session.
Thais Haberli: Before 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 subjected to uncertainties and risks that are discussed in detail in our CVM and SEC findings. Also, during the course of the call, we will discuss non-IFRS performance measures, which should not be considered in isolation. With that, I will turn the call over to David.
Speaker Change: Before 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.
Speaker Change: Derek effects, 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 ICP jacket to uncertainties and risks that are discussed in detail in our CPM and <unk>.
David Gary Neeleman: SEC filings also during the course of the call we will discuss love I FRS performance measures, which should not be considered in isolation.
David Gary Neeleman: With that I will turn the call over to David David.
David Gary Neeleman: Okay.
David Gary Neeleman: Thanks, Thais. Welcome everyone and thanks for joining us for our first quarter 2024 Ernest Cole.
Thanks pace.
David Gary Neeleman: Welcome everyone and thanks for joining us for our first quarter 2024 earnings call.
David Gary Neeleman: First of all, I wish to express my solidarity with the people of Rio Grande do Sul during this very difficult time. We are deeply saddened by the loss of lives, the displacement of people, and the widespread destruction caused by severe flooding in that region. On a personal note, my family has deep connections to that region. My father has done business there for decades, and my daughter served a mission for our church there.
David Gary Neeleman: First of all I wish to express my solidarity with the people of yogurt engine. So during this very difficult time, we are deeply saddened by the loss of lives the displacement of people and the widespread destruction caused by severe flooding in that region.
David Gary Neeleman: On a personal note my family has deep connections to that region my father's day and.
David Gary Neeleman: In business there for decades, my daughter's served a mission for our church, there and we have many many dear friends.
David Gary Neeleman: And we have many, many dear friends. Azul crew members from all over the country have put their heart and soul into relief efforts, donating time, money, and supplies while at the same time running the day-to-day operations. I've always stated that we have the best crew members in the world, and they are once again proving it.
David Gary Neeleman: Zero crew members from all over the country have put their heart and soul into relief efforts donating time money and supplies.
David Gary Neeleman: At the same time running the day to day operation.
David Gary Neeleman: Always stated.
David Gary Neeleman: So we have the best crew members in the World.
David Gary Neeleman: And they are once again proving it.
David Gary Neeleman: I cannot thank them enough for their passion and their dedication. We've already received more than 1,300 tons of supplies and donations. Now the challenge is to swiftly get the supplies to those who need them.
David Gary Neeleman: I cannot thank them enough for their passion and their dedication.
David Gary Neeleman: We've already seen more than 1300 tons of supplies and donations.
David Gary Neeleman: And the challenge now is to swiftly get the supplies to those who need them.
David Gary Neeleman: With that in mind, we have created, together with Itaewoo Bank, a fund to enable as many dedicated flights and truck shipments as possible. I want to especially thank Milton Maluli, the CEO of Itaewoo Bank, for his partnership and support in these efforts. During our earnings, turning to our earnings presentation, I want to remind you of the fundamentals, the fundamentals of our business. Our exclusive network, diverse business units, combined with a growing, efficient, and flexible fleet, are key drivers of another record quarter of results.
David Gary Neeleman: With that in mind, we have created together with <unk> Bank a fund to enable as many dedicated flights in truck shipments as possible I want to especially thank Milton.
David Gary Neeleman: Malooly.
Speaker Change: The CEO of Itaipu first partnership.
Speaker Change: And support in these efforts.
David Gary Neeleman: One clear example of this is the fact that we continue to be the only carrier on 82% of our routes. Many thought that as we grew, we would have to encounter more competition, but in fact, the opposite has happened. We stayed true to our strategy, and we grew within our network, and by doing that, the percentage of routes that we are the only carrier has actually increased. On slide five, we show one great example of this effect: our focus city, Belém, in the north of Brazil.
Speaker Change: During our earnings turning to our earnings presentation I want to remind you of the fundamentals the fundamentals of our business.
Speaker Change: Our exclusive networks diverse business units combined with a growing <unk>.
Speaker Change: Efficient and flexible fleet are key drivers to another record quarter of results.
Speaker Change: One clear example of this is the fact that we continue to be the only carrier in 82% of our routes.
Speaker Change: Many thought that as we grew we would have encountered more competition, but in fact, the opposite has happened.
Speaker Change: We stayed true to our strategy, we grew within our network and by doing that the percentage of routes that we were.
Speaker Change: That we are the only carrier has actually increased.
Speaker Change: On slide five.
Speaker Change: We show one Great example is this effect our focus city billing.
Speaker Change: In the north of Brazil.
David Gary Neeleman: In the past, if a customer from the north of Brazil wanted to fly to another destination in the north, they first needed to fly south, the so-called Z-Route, adding hours and sometimes more than a day to their journey.
Speaker Change: In the past if a customer from the north of Brazil wanted to fly to another destination in the north they first needed to fly south the so called V rafts, adding hours and sometimes more than a day to their journey, we saw that as an incredible opportunity to connect all of the north of Brazil Bio beltline.
David Gary Neeleman: We saw that as an incredible opportunity to connect all of the north of Brazil via Berlin. Since 2019, only in Berlin, we're up 70% in departures. Out of the 23 destinations served, we have competition on only five of them.
Speaker Change: Since 2019, only in Berlin, we're up 70% in departures.
Speaker Change: Out of the 23 destinations served we have competition on only five of them.
David Gary Neeleman: This is just another of the many examples around the country of how we've been able to grow by finding and developing new demand. We are confident Brazil still has a lot more room to grow and Azul will continue to explore that opportunity on Slade Slip, Slade Slip Road, Slade, Slade 6. We summarize Azul's ecosystem of businesses, which has powered our growth and diversified our strategy. In Q1, our core businesses of loyalty, vacations, and cargo once again had solid results.
Speaker Change: This is just another of the many examples around the country of how we've been able to grow.
Speaker Change: By finding and developing new demand.
Speaker Change: We are confident Brazil still has a lot.
Speaker Change: More room to grow and as <unk> will continue to explore that opportunity.
Speaker Change: On slide split Sideslip sites go ahead six.
Speaker Change: We summarize Azores ecosystem of business, which has powered our growth and diversified.
Speaker Change: Our strategy in Q1.
David Gary Neeleman: For example, gross billings of our loyalty program increased 31% versus the first quarter of 2023, and our vacations business increased gross billings by 75% year over year thanks to strong demand and leisure markets supported by our dedicated vacations network. Even with all this growth in the Brazilian market since we founded Azul in 2008, Brazilians still travel significantly less than countries such as Colombia, Chile, or Mexico.
Speaker Change: Our core businesses of loyalty vacations and cargo once again had solid results.
Speaker Change: For example, gross billings of our loyalty program.
31%.
Speaker Change: Versus the first quarter of 2023.
Speaker Change: And our vacations business increased gross billings by 75% year over year, thanks to strong demand in leisure markets supported by our dedicated vacations network.
Speaker Change: Even with all this growth in the Brazilian market since we founded as it will in 2008.
Speaker Change: Brazilians still travel significantly less in countries, such as Colombia, Chile, or Mexico, So imagine the opportunities we have to grow.
David Gary Neeleman: So imagine the opportunities we have to grow even more in these businesses. In addition, we continue to ramp up our maintenance unit, Azul Tech Ops, our overhaul and maintenance unit. We have seen accelerated growth in our charter unit, Azul On Demand, as well. These fast-growing, high-margin businesses strengthen our leverage in our business model and are a major factor in driving margin expansion. I am proud to see the great strength of our company.
Speaker Change: Even more in these businesses.
Speaker Change: In addition, we continue to ramp up our maintenance unit as little pickups.
Speaker Change: Our overhaul and maintenance unit.
Speaker Change: Yes.
Speaker Change: We have seen accelerated growth in our charter unit is all on demand as well.
These fast growing high margin businesses strengthen our leverage.
Speaker Change: In our business model.
Speaker Change: And are a major factor in driving margin expansion.
I am proud to see the great strength of our company. Once again, we are reporting record results and margin growth. We are doing all we can to help the people of yogurt initiatives. So at the same time.
David Gary Neeleman: Once again, we are reporting record results and margin growth. We are doing all we can to help the people of Gilgamesh, and at the same time, we are laser focused on our business and our path through 2024 and beyond. With that, I will now turn the time over to John to give you more details on our record first quarter results.
Speaker Change: Our laser focused on our business and our path for 2024 and beyond with that I will now turn the time over to John to give you more details on our record first quarter results John.
John Peter Rodgerson: Thanks, David.
John Peter Rodgerson: First, as David said, our heart goes out to all the people affected by the devastating floods in Jilberton and Azul. I've been in contact with dozens of our crew members, and we're doing all we can to support them during this difficult time. I'm so proud of all of our crew members for their incredible volunteer efforts, which are deeply appreciated by the people in the South. The culture and sense of family at Azul are stronger than ever. One question I'm sure you all have is when do we expect Porto Alegre Airport to reopen? The answer is, we do not know yet.
John Peter Rodgerson: First as David said, our heart goes out to all the people affected by the devastating floods and Hubert and just so I have been in contact with dozens of our crew members and we're doing all we can to support them. During this difficult time I'm. So proud of all of our crew members for their incredible volunteer efforts, which are deeply appreciated by the people in Lasalle the culture and Thats a family. It is all are stronger than ever.
John Peter Rodgerson: One question I'm sure you all have is when do we expect the Port Alegre Airport to reopen the answer is we do not know yet and of course, a knock and report our monitoring this difficult situation and we will determine when the airport can be reopened safely in the meantime, we are working with authorities to allow a limited number of commercial flights into the neighboring <unk> airbase. This will allow the.
John Peter Rodgerson: And, of course, ANOC and Porto Alegre Airport are monitoring this difficult situation, and we will determine when the airport can be reopened safely. In the meantime, we're working with authorities to allow a limited number of commercial flights into the neighboring Canoas Air Base. This will allow the industry to reconnect the region to the Brazilian airline network, enabling the critical movement of people and supplies. We will keep you updated as the situation develops.
John Peter Rodgerson: Try to reconnect the region to the Brazilian airline network, enabling critical movement of people and supplies. We will keep you updated as the situation develops.
John Peter Rodgerson: Focusing now on our results, as you can see on slide 7, we once again had a record quarter. Our operating revenue increased 4.5% to 4.7 billion reais, driven by a healthy demand environment, robust ancillary revenues, and growth in our business units. RASC and PRASC stood at record levels for a first quarter, demonstrating the strength of.
Speaker Change: Focusing now on our results as you can see on slide seven we once again had a record quarter. Our operating revenue increased four 5% to $4 7 billion reais driven by a healthy demand environment robust ancillary revenues and growth in our business units Raskin <unk> stood at record levels for our first quarter.
John Peter Rodgerson: Okay.
John Peter Rodgerson: <unk>.
John Peter Rodgerson: Our business model. Capacity for the quarter grew 2.6%, supported by a 6% growth in the domestic market, offset by a temporary reduction in our international network due to a transition in our wide-body fleet. EBITDA reached 1.4 billion reais, a record for our first quarter and an increase of 37.4% compared to the first quarter of 2023. Our EBITDA margin of 30.3% was also a first quarter record and one of the highest in the world. It clearly confirms our ability to grow and expand margins at the same time.
John Peter Rodgerson: So our business model capacity for the quarter grew two 6% supported by a 6% growth in domestic market offset by a temporary reduction in our international network due to a transition in our widebody fleet.
John Peter Rodgerson: EBITDA reached one 4 billion Reais a record for a first quarter and an increase of 37, 4% compared to first quarter 2023, our EBITDA margin of 33% was also a first quarter record and one of the highest in the world. It clearly confirms our ability to grow and expand margins at the same.
John Peter Rodgerson: As David mentioned, as we grow, we get stronger and more profitable. On slide 8, you can see the continued evolution of our EBITDA. Since the first quarter of 2019, our EBITDA has more than doubled as the company has grown. But now our EBITDA margin has reached a record as well, at more than 30 percent. This is especially remarkable given the fact that both currency and fuel are much more difficult to obtain today than they were in 2019.
John Peter Rodgerson: Time, as David mentioned, as we grow we get stronger and more profitable on slide eight you can see the continued evolution of our EBITDA.
John Peter Rodgerson: Since first quarter 2019, our EBITDA has more than doubled as the company has grown but now our EBITDA margin has reached a record as well to more than 30%. This is especially remarkable given the fact that both currency and fuel are much more challenging today than they were in 2019, so even with these headwinds we were able to grow and <unk>.
John Peter Rodgerson: So even with these headwinds, we were able to grow and expand margins, demonstrating once again the strength of our business. On slide nine, I want to highlight one of our key initiatives to further expand margins this year and beyond, aircraft utilization. We have significantly increased aircraft utilization compared to last year, supported by strong demand throughout our businesses. For example, our vacations business alone has doubled its dedicated route network. These flights allow us to increase utilization at non-peak times while at the same time bringing us a whole new segment of demand.
John Peter Rodgerson: Spanned margins demonstrating once again the strength of our business.
John Peter Rodgerson: On slide nine I want to highlight one of our key initiatives to further expand margins this year and beyond aircraft utilization, we have significantly increased aircraft utilization compared to last year supported by strong demand throughout our businesses.
John Peter Rodgerson: For example, our vacations business alone has doubled its dedicated route network. These flights allow us to increase utilization at non peak times, while at the same time, bringing us a whole new segment of demand. These are opportunities that we continue to develop and we're extremely excited with the progress we're making.
John Peter Rodgerson: These are opportunities that we continue to develop, and we're extremely excited with the progress we're making. Looking ahead to the rest of 2024, I want to talk about a key driver of our growth and EBITDA expansion, our E2 deliveries. As you can see on slide 10, we will significantly increase the rate of E2 deliveries this year with 13 new Embraer E2s. To remind you, the E2 has 18 more seats and delivers 18% lower fuel burn compared to the E1.
John Peter Rodgerson: Looking ahead to the rest of 2024.
John Peter Rodgerson: This means we get a 26% reduction in our cost per seat. In summary, with this aircraft, we can have more revenue and lower costs compared to the first-gen E1s that we're flying today. Today we have 20 E2s flying, but by the end of 2025, that number will more than double. Slide 11 shows how relevant the E-2s are becoming.
John Peter Rodgerson: I want to talk about a key driver of our growth and EBITDA expansion, our <unk> deliveries as you can see on slide 10, we significant we will significantly increase the rate of each of deliveries. This year with 13, new Embraer E. Twos to remind you that he too has 18 more seats and delivers 18% lower fuel burn compared to the.
John Peter Rodgerson: This means we get a 26% reduction in our cost per seat and summary, with this aircraft. We can have more revenue and lower cost compared to the first gen. <unk> that were flying today today, we have 22 flying but by the end of 2025 that number will more than double.
John Peter Rodgerson: Slide 11 shows how relevant E twos are becoming in the next 12 months alone the flight and capacity flow 90, twos will more than double the economics of the <unk> allows us to fly longer stage length and more hours in the day and as a result drive significant operational leverage and margin expansion.
John Peter Rodgerson: In the next 12 months alone, the flight and capacity flow on E-2s will more than double. The economics of the E-2 allow us to fly longer stage lengths and more hours in the day, and as a result, drive significant operational leverage and margin expansion. Azul will be a larger airline as we exit this year.
John Peter Rodgerson: <unk> will be a larger airline as we exit this year, our broad network and unique connectivity serve as the ideal platform for this profitable growth going forward.
John Peter Rodgerson: Our broad network and unique connectivity serve as the ideal platform for this profitable growth going forward. Moving on to slide 12, you can see we have had consistent growth in EBITDA expansion over the last 15 years, only interrupted by the pandemic. But if you exclude that period, you can see that we're back to the earnings growth trajectory that we've always had, and there's more to go. Our 2024 EBITDA of 6.5 billion Reais will be by far our best year ever, and the best is still yet to come.
John Peter Rodgerson: Moving on to Slide 12, you can see we have a consistent growth and EBITDA expansion over the last 15 years only interrupted by the pandemic, but if you exclude that period you could see that we're back to the earnings growth trajectory that we've always had and there's more to go or 2020 for EBITDA of $6 5 billion reais will be by far our.
John Peter Rodgerson: <unk> ever and still the best is yet to come.
John Peter Rodgerson: Our strong operational performance leads to improved cash flow and reduced leverage. On slide 13, you can see that even in a seasonally weak quarter, from a cash perspective, the operation was able to generate enough cash to pay down aircraft debt, capex, and interest. We've also been able to invest in our growth with, for example, pre-delivery payments for upcoming aircraft, which we know will come back when these aircraft are delivered. By the second half of this year, the airline will be about 15 percent larger than it is today.
John Peter Rodgerson: Our strong operational performance leads to improved cash flow and reduced leverage on slide 13, you can see that even in a seasonally weak quarter from a cash perspective, the operation was able to generate enough cash to pay down aircraft debt Capex and interest. We've also been able to invest in our growth with for example, pre delivery payments for upcoming aircraft, which we know will.
John Peter Rodgerson: Come back when these aircraft are delivered in the second half of this year the airline will be about 15% larger than it is today combined with favorable demand seasonality EBITDA will be even higher while the cash outflows will practically not changed clearly leading to improved free cash flow generation.
John Peter Rodgerson: Combined with favorable demand seasonality, EBITDA will be even higher, while the cash outflows will practically not change, clearly leading to improved free cash flow generation. As we annualize these numbers, you can clearly see that we're on the path to sustained cash generation. As a result, as we show on slide 14, thanks to significant EBITDA generation in 2024 and continued debt paydown, our leverage at the end of this year will be around three times lower than what we had in the fourth quarter of 2019.
As we annualize. These numbers you can clearly see that we're on the path to sustained cash generation.
John Peter Rodgerson: As a result, as we show on slide 14, thanks to significant EBITDA generation in 2024 and continued paydown of debt our leverage at the end of this year will be around three lower than what we had in the fourth quarter of 2019 as we reached this milestone we will exit 2024 is a truly stronger company than we've ever been.
John Peter Rodgerson: As we reach this milestone, we will exit 2024 as a truly stronger company than we've ever been. Concluding on slide 15, our business is doing extremely well with record revenues and EBITDA. Going forward, our continued fleet transformation and increased aircraft utilization will lead to much higher growth in EBITDA than in lease payments or CapEx. Our interest payments will also reduce as we pay down debt and our cost of capital improves. This leads directly to higher cash generation, which is why we're so excited about the future.
John Peter Rodgerson: Concluding on slide 15, our business is doing extremely well with record revenues and EBITDA going forward. Our continued fleet transformation and increased aircraft utilization will lead to much higher growth in EBITDA than in lease payments for Capex. Our interest payments will also reduce as we pay down debt and our cost of.
Speaker Change: Ill improves this leads directly to higher cash generation, which is why we are so excited about the future more importantly, our customers love to fly us and our crew members love to work with US we are sharply focused on executing our business plan for 2024 and beyond with that David Alex I'll be and I are available to answer your questions and I turn the call over.
John Peter Rodgerson: More importantly, our customers love to fly with us, and our crew members love to work with us. We are sharply focused on executing our business plan for 2024 and beyond. With that said, David, Alex, Abhi, and I are available to answer your questions, and I turn the call over to the operator.
Speaker Change: To the operator.
Speaker Change: Okay.
Operator: Ladies and gentlemen, thank you. We will now begin the Q&A session. Remember that if you have a question, click on the Q&A icon at the bottom of the screen and write your name and company. When your name is announced, please activate your microphone and proceed. For those who are listening to the conference on the phone, press nine to join the queue and six to accept the audio when requested. The first question will come from Gabriel Rezende, Sales Site Analyst, Ita. Gabriel, we will open your audio so that you can ask a question. Please proceed.
Speaker Change: Ladies and gentlemen, thank you.
Speaker Change: I'll begin the Q&A session remembering that if you have a question click on the Q&A icon at the bottom of the screen and write your name and company.
Speaker Change: Name has announced please activate your microphone and proceed.
Speaker Change: Those who are listening to the conference on the phone breast nine to join the queue and six to accept the audio when requested.
Speaker Change: Let's now move on to the first question.
Speaker Change: First question will come from Gabe deal is aging sell side analyst.
Speaker Change: <unk>.
Gabe: Got it.
Gabe: And you're out of so that you can ask a question. Please proceed.
Gabriel Rezende: Hello everyone, thanks for taking the time to answer my questions. It would be great if you could provide some comments regarding the forward bookings and the respective yields you are seeing at this point for the coming months, the months for which you already have some visibility, mainly considering that Azul has been able to maintain yields at a very attractive level, increasing on a year-on-year basis despite what has been happening with fuel costs and the favorable effects on a year-on-year basis as well.
Gabe: Hello, everyone. Thanks for taking my questions.
Gabe: It'll be great. If you could provide some comments regarding the forward bookings and their respective yields you are seeing at this point for the coming off the month that you already have some visibility mainly considering that also have been able to maintain the yields at a very attractive level, increasing on a year on year basis. Despite what has been happening with fuel costs.
Gabe: The favorable effects on a year on euro basis as well.
Gabriel Rezende: So that's my first point. And the second point, if you could provide some comments regarding potential supply chain risks that could challenge your expectations for the aircraft to be delivered this year, I understand this might be a key point for your guidance and expectations regarding fuel savings as well.
Speaker Change: So that's my first point.
Speaker Change: The second point, if you could provide some comments regarding potential supply chain risks.
Speaker Change: That could challenge your expectations for the aircraft to be delivered this year understand this might be a key point for our guidance and expectations regarding fuel savings as well. Thank.
Speaker Change: Thank you.
Abhi Manoj Shah: Hi Gabriel, Abhi here. I can take the first part. So overall, we feel pretty good about demand. We are in the middle of the second quarter, so there is second quarter seasonality, which is very similar to last year. So I expect similar flown RASCs this second quarter to last second quarter. But we are seeing really good momentum in terms of future sales. I'll give you some highlights here for the month of April.
Speaker Change: Yeah, Hi, Gabrielle I'll be here I can take the first part.
Speaker Change: So overall, we feel pretty good about demand we are in the middle of second quarter. So there is second quarter seasonality, which is very similar to last year. So I expect a similar flown risks. This second quarter two last second quarter, but we are seeing really good momentum in <unk>.
Speaker Change: A future sales.
Speaker Change: Give you some highlights here for the month of April So the month of April for example, we had a 100% recovery in corporate volumes versus pre pandemic, we had a 40% increase year over year in corporate volumes versus last year, and a 40% increase in leisure volumes versus.
Abhi Manoj Shah: So the month of April, for example, we had a hundred percent recovery in corporate volumes versus pre-pandemic. We had a 40 percent increase year over year in corporate volumes versus last year and a 40 percent increase in leisure volumes versus last year as well. So looking ahead to the end of the middle of June, the end of June, July onwards, we feel pretty good about how the curves are building and how the demand is kind of moving forward. So I would say second quarter seasonality, very similar to last year, but a really good month in terms of forward bookings, like I said, up 40 percent in the month of April. Looking ahead, John.
Speaker Change: Last year as well so.
Speaker Change: Looking ahead to the end of Middle of June end of June July onwards.
Speaker Change: We feel pretty good about how the curves are building and how the demand is kind of moving forward. So I would say second quarter seasonality very similar to last year, but a really good month in terms of forward bookings, but like I said up 40% in the month of April.
Speaker Change: Looking ahead, John just quickly on the supply chain issue that you that you highlighted we had a great partner and Embraer with a great partner in Airbus as well as ATR and we're closely tracking the deliveries this year and we were assured by our partners that all the deliveries were supposed to get will happen on the new schedule and so they are more backend loaded than we would.
John Peter Rodgerson: Just quickly on the supply chain issue that you highlighted, we have a great partner in Embraer. We have a great partner in Airbus as well as ATR. And we're closely tracking the deliveries this year, and we were assured by our partners that all the deliveries we're supposed to get will happen on the new schedule. And so they're more back-end loaded than we would want. However, that's why we're exiting 2024, a much larger airline, which rolls forward to 2025, and that will be a much larger airline going into 2025 because of the back end.
Speaker Change: However, that's why we're exiting 2020 for a much larger airline, which rolls forward to 2025 that will be a much larger airline going into 2025 because of the backend nature of when the aircraft will deliver I just want to remind everybody that all of our engines are under power by the hour agreements, which is a strategic advantage.
John Peter Rodgerson: nature of when the aircraft will deliver. I just want to remind everybody that all of our engines are under power by the hour agreements, which is a strategic advantage at this time in the industry. People that do not have deals locked in with the OEMs have a strategic disadvantage. And all of our engines are now under a long-term agreement with the OEMs, which means we've got great partnerships and the ability to grow going forward.
Speaker Change: At this time in the industry people that do not have deals locked in with the Oems. It's a strategic disadvantage in all of our engines are now under a long term agreement with the Oems, which means we've got great partnerships and the ability to grow going forward.
Speaker Change: Okay.
John Peter Rodgerson: That's very clear. Thank you, John. Thanks, Abhi.
Speaker Change: That's very clear thank you John Thanks Avi.
Operator: Thank you. The next question now comes from Victor Mizusaki, Cellsite Analyst, Bradesco. We will open your audio, Victor, so that you can ask your question. Please proceed.
Speaker Change: Thank you. The next question now comes from fixed services hockey sell side analyst, but a desk.
Speaker Change: We will open your audio Victoza that you can ask a question. Please proceed.
Victor Mizusaki: Hi, congratulations on the quarter. We have two questions here. The first one is a follow-up with regard to the aircraft deliveries. So, John, considering that the deliveries are backloaded this year, what does this mean in terms of capacity growth for 2025? And my second question is if you can comment about a potential deal with a goal or the negotiations with ABRA. Thank you.
Speaker Change: Alright, congrats for the quarter.
Victoza: Two questions here.
Speaker Change: The first one is a follow up with regards to the west of Devers.
Speaker Change: So John concerning that the deliveries are back loaded this year.
Speaker Change: What does this mean in terms of capacity growth for 2025.
Speaker Change: And my second question is it's kind of comments.
Speaker Change: The potential deal with go or where the negotiations with Bob. Thank you.
John Peter Rodgerson: Yeah, hi, Victor. So the aircraft for this year, I think our guidance for capacity growth was 10 to 11 percent. There's going to be a little bit of an impact now with the Porto Alegre network, so I think 10 to 11 percent is a good number for this year. When you then take the aircraft that we are expecting in the second half and beyond and you annualize that towards next year, you can expect a slightly higher rate for 2025.
John Peter Rodgerson: Yeah, Hi, Victor.
John Peter Rodgerson: So.
Speaker Change: The aircraft for this year.
Speaker Change: Our guidance for capacity growth was 10% to 11% theres going to be a little bit of an impact now with the port of La Great network. So I think 10.
111% is a good number for this year.
Speaker Change: When you then take the aircraft that we are expecting second half and beyond and you annualize that towards next year, you can expect a slightly higher rate for 2025, we don't have great 25 guidance yet.
John Peter Rodgerson: We don't have 2025 guidance yet, and, of course, we're still closing in on the fleet plan, but this year between 10 to 11 percent and a little bit above that for 2025 versus 2024 in terms of overall ASK growth.
Speaker Change: And of course, we're still we're still closing the fleet plan, but this year between 10% to 11% and a little bit above that for 2025 versus $2 24 in terms of overall <unk> growth.
John Peter Rodgerson: And Victor, obviously, we can't comment on any of the news reports. The only thing I'll say is, you know, we believe strongly in what Azul is building, we believe strongly in what we have going forward, and we're big fans of consolidation. I think that that's also, you know, something that we've been pretty open about for the last five years or so, and so we'll see what happens going forward. There's a process in place, and we're watching very closely, and that's all we can really say. Thank you.
John Peter Rodgerson: And Victor, obviously, we can't comment on that.
Speaker Change: Hey, Victor obviously, we can't comment on.
News reports, yielding I will say is we believe strongly in what is always building. We believe strongly what we have going forward and we're big fans of consolidation I think that Thats also.
Speaker Change: Something that we have.
Speaker Change: It's pretty open about for the last five years or so and so we'll see what happens going forward. There's a process in place and we are watching very closely and Thats. All we can really say.
Speaker Change: Thank you.
Operator: Okay, so the next question will come now from Seve Sith, the Southside Dentalist from Raymond James. We will open your audio, Seve, so that you can ask your question. Please proceed.
Speaker Change: Okay. So the next question will come now from Saturday system sell side analyst for mainland Raymond James.
Speaker Change: <unk> our auto savvy. So that you can ask your question. Please proceed.
Zahra: Hi, this is Zahra speaking on behalf of Sabi. Our first question is, can you comment on what you're seeing in the domestic market in terms of competitive capacity?
Saturday: Hi. This is <unk>. Our first question is can you comment on what Youre seeing in the domestic market in terms of competitive capacity.
John Peter Rodgerson: Yeah, hey, absolutely. So regarding competitive capacity, we see a pretty mild competitive Capacity Environment. We think overall capacity growth this year, I think, is going to be low single digits for the industry overall. We're not seeing any large variations from any of the players.
Speaker Change: Yeah, absolutely so regarding competitive capacity, we see a pretty mild.
Speaker Change: Competitive.
Speaker Change: Capacity environment disciplined.
Speaker Change: We think overall capacity growth. This year I think is going to be low single digits.
Speaker Change: For the industry overall, we're not seeing any large variations from any of the players.
John Peter Rodgerson: So it feels pretty disciplined overall. I think everybody's focused on results. And even the allocation of capacity within the networks, as I've said many times before, I think airlines are focusing where they are strong, and I think that's providing the best results for each one. And I think that's best for the consumer. I think it's best for the industry overall. So if you were to model the whole year domestic market, I would say overall capacity growth this year a little bit. Now, Porto Alegre puts that in doubt, but I would say low single digits.
Speaker Change: So it feels pretty disciplined overall I think everybody is focused on results and even the allocation of capacity within the networks.
Speaker Change: As I've said many times before I think airlines are focusing where they are strong and I think thats, providing the better results for each one.
Speaker Change: And I think Thats the best for the consumer I think is the best for the industry. Overall. So if you were to model the whole year domestic market I would say overall capacity growth. This year, a little bit now port electric was that in doubt, but I would say.
John Peter Rodgerson: And I just want to highlight the OEM issues that exist with engines across all of the engine manufacturers are making it really tough to add capacity in the short term, and Airbus and Boeing are having issues delivering aircraft on time. So I think that keeps capacity in check for the foreseeable future as well, which makes for a healthy environment.
Speaker Change: Low single digits and I just wanted to highlight the OEM issues that exist with engines across all of the engine manufacturers are making it really tough to add capacity in the short term and Airbus and Boeing having issues delivering aircraft on time, so I think that keeps capacity in check.
Speaker Change: For the foreseeable future as well, which that makes for a healthy.
Speaker Change: Environment.
Zahra: Okay, great. Thanks. And then just one more quick one.
Speaker Change: Okay, great. Thanks, and then just one more quick one do you have any color on cargo demand as well.
John Peter Rodgerson: Do you have any color on cargo demand as well?
Speaker Change: Yes, so our cargo continues to be sideways I would say.
Speaker Change: Internationally, we're not yet seeing a robust.
John Peter Rodgerson: Yeah, so cargo continues to be sideways, I would say. Internationally, we're not yet seeing robust demand; we're seeing strong demand, but we have not seen a return in cargo yields. International cargo yields are still low.
Speaker Change: We're seeing strong demand, but we have not seen a return in cargo yields international cargo yields are still low and I think many airlines that have reported so far have already commented on that domestically, we are growing which is good.
John Peter Rodgerson: And I think many airlines that have reported so far have already commented on that. Domestically, we are growing, which is good. We see strength in our partnership with e-commerce players like Amazon, for example. Amazon had a press release about Azul a couple of weeks ago, so we're growing with them. So we are growing; I would say growth is going to be in the mid single digits this year, which is still a positive scenario compared to many airlines around the world that are still reporting negative cargo revenue growth.
Speaker Change: We see.
Speaker Change: Strength in our partnership with E Commerce players like Amazon for example, Amazon had a press release about a zoo.
Speaker Change: A couple of weeks ago, So we're growing with them.
Speaker Change: We are growing I would say growth is going to be in the mid single digits. This year, which is still a positive scenario compared to many airlines around the world that are still reporting negative cargo revenue growth. So I would say domestic are growing mid single digits international good demand.
John Peter Rodgerson: So I would say domestic growing in the mid single digits, international good demand, but yields are still soft, and we haven't seen that. So I would say kind of mid single digit growth on the cargo side. Okay, perfect. Thank you.
Speaker Change: But.
You still soft and we haven't seen so I would say kind of mid single digit growth on the cargo side okay.
Zahra: Okay, perfect. Thank you.
Okay perfect. Thank you.
Operator: Okay, so the next question will now come from Alberto Valerio, Sales Site Analyst, UBS. We will open your audio so that you can ask your question. Alberto, please proceed.
Speaker Change: Okay. So the next question will now come from Alberto Valerio sell side analyst at UBS, we will.
Alberto Valerio: Upon your audio so that you can ask a question. Please.
Alberto Valerio: Please proceed.
Alberto Valerio: for the initiatives that they are doing in Rio Grande do Sul. I have two questions. First one is about the seasonality of the year. Usually, we have a first and second quarter very close to each other. Last year, we had a slightly worse second quarter compared to the first quarter.
Alberto Valerio: So thank you very much for taking my question first I would like to congrats I'll switch him for being such that they are doing yoga entered the soup.
Alberto Valerio: I have two questions. The first one it's about the seasonality of the year, usually we have a first and second quarter very close to each other unless you have a slightly worse in the second quarter compared to the first quarter or would you like to see about <unk> hull.
Alberto Valerio: I would like to see about this year, how this year will be, and my second one is about cash generation for the year. We, at the beginning of the year, were forecasting a zero cash burn for the year. If you can keep thinking that way, we have slightly negative numbers for the quarter compared to our numbers, I think 200 million reais difference. I would like to see if you can still keep this cash generation at zero for the year. Thank you very much.
Alberto Valerio: And my second one is about the cash.
Alberto Valerio: Generation for the year.
Alberto Valerio: We at the beginning of the yogurt.
Alberto Valerio: Casting a zero cash burn for the year.
Alberto Valerio: If you can keep.
I think in that way, we have a slightly negative.
Alberto Valerio: Numbers for the quarter compared to our numbers I think 200 million Reais. The difference how would you like to see if you can keep this.
Speaker Change: Cash G&A ratio that attitude for the year. Thank you very much.
Abhi Manoj Shah: Hi Alberto. On seasonality, yes. This year as well, we will have 2Q slightly below 1Q levels, very similar to last year, and then a rebound in 3Q and 4Q. Last year, we had many holidays in 2Q, especially in April. This year, we have much fewer holidays, which is good from a bookings perspective. We are seeing significantly higher bookings, especially with the more days available, but we are seeing a more diluted flown revenue environment, just not as peaky, not as many peak days as we had last year. So, overall, we will have similar seasonality to last year, 2Q slightly below 1Q, and then a rebound in 3Q and 4Q, which is normal for Brazil.
Speaker Change: Yeah. So on the seasonality, yes, this year as well we will have.
Speaker Change: Two Q slightly below <unk> levels very similar to last year and then the rebound in <unk>.
Speaker Change: Last year, we had many holidays into Q, especially in April.
Speaker Change: This year, we havent much fewer holidays, which is good from a bookings perspective, we are seeing significantly higher bookings, especially with the more days available, but we are seeing a more diluted flown revenue environment. This not SPE.
Speaker Change: Not as many peak days as we had last year. So overall, we will have similar seasonality to last year to Q slightly below <unk> and then a rebound in <unk> and <unk>, which is normal for <unk>.
Speaker Change: For Brazil.
Alexandre Wagner Malfitani: Yeah, and Alberto, on cash. Right, we're very excited. I think this is a year where you start to see, you know, everything that we've built and everything that this strong EBITDA generation can provide. And you can see on the slide that we provided, kind of using the direct method, that our EBITDA in a seasonally unfavorable quarter in terms of cash, like Q1, was enough for us to pay everything that we have to pay, right? You know, we generate a lot of cash inflows from the operation. And that's enough for us to pay for all of our rent, to pay for all of the interest, and all of the capital expenditure.
Speaker Change: Yes, so on the.
Speaker Change: Cash right. We're very excited I think this is a year, where you're starting to see.
Speaker Change: Everything that we've built in everything that the strong EBITDA generation can provide and you can see by the slide that we that we provided kind of using the direct method right you can see that our EBITDA in a seasonally unfavorable quarter in terms of cash like Q1.
Speaker Change: It was enough for us to pay everything that we have to pay right. We generate a lot of cash inflows from the operation and that's enough for us to pay for all of our ramp to pay for all for the interest of all of the Capex normally in a seasonally unfavorable quarter, you could even burn a little bit of cash on that basis, our free cash flow to firm and still generate.
Alexandre Wagner Malfitani: Normally, in a seasonally unfavorable quarter, you could even burn a little bit of cash on that basis, right, of free cash flow to the firm and still generate cash for the full year, right? Especially the way that Abhi talked about seasonality, you know, he talked about the first quarter and the second quarter, but also, you have to think about how the first half is different from the second half, right, in terms of when the capacity growth is coming, and what the fuel curve for the year is, right? Clearly, fuel is going to be higher in the first and second quarters, right? It's going to be for the third and fourth.
Speaker Change: Cash.
Speaker Change: For the full year right, especially the way that I'll be talking about the seasonality.
About the first quarter and second quarter, but also you have to think about how the first half is different from the second half right in terms of when the capacity growth is coming what is the fuel curve for the year right clearly fuel is going to be higher in the first and second quarter that is going to be for the third and fourth and just.
Alexandre Wagner Malfitani: And just the natural demand seasonality that you have during the year, you always have demand accelerating into the third quarter and fourth quarter. So if we're breaking even in a quarter like Q1, you know, we're very excited about what the result is going to be for the full year, right? And we reaffirmed our leverage guidance, right, for the year, right? We will be below the leverage that we had in 2019, in the pre-pandemic, which gives you an estimate for what the cash position is going to be.
Speaker Change: Natural demand seasonality that you have during the year, you always have demand accelerating into third quarter and fourth quarter. So we're breaking even in a quarter like Q1, we're very excited about what the result is going to be for the full year right and we reaffirm our leverage guidance right.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: For the year right, we will be below the leverage that we had in <unk>.
Speaker Change: 2019 into pre pandemic, which gives you an estimate for what the cash position is going to be and that's 2025 right. There we're very excited.
Alexandre Wagner Malfitani: And that's 2025, right? That's 2024 we're very excited about. But if you start doing this math for 2025, 2026, the number that we're going to generate this year, which will be a positive number, can increase by about a billion every year after that, right? It's not that we turn positive this year and then, you know, stay at those levels.
Speaker Change: For that we're very excited about but if you start doing this math for 2025 26, the number that we're going to generate this year, which will be a positive number can increase by about $1 billion every year after that right. It's not that we turn positive this year and then stay at those levels EBITDA generation is.
Alexandre Wagner Malfitani: EBITDA generation is going to continue to grow. And as you know, we don't really have a lot of increased fleet costs, right? The capex is what it is, you know, the rent goes up, but it doesn't go up as much as EBITDA. It doesn't even go up by as much as capacity, because some of the capacity growth comes from the upgrading of E1s into E2s and A320s. And some of it comes from increased aircraft utilization, as we described, right?
To continue to grow and as you know, we don't really have a lot of increased.
Speaker Change: Fleet costs right. The Capex is what it is the rent goes up but it doesn't go up as much as EBITDA doesn't even go up by as much as capacity because some of the capacity growth comes from the up gauging of <unk> into <unk> and <unk> hundred 20, and some of it comes from increased aircraft utilization as we.
Alexandre Wagner Malfitani: So revenue growth and capacity growth is going to outpace growth in rent. And so when you do that math, you can see these significant jumps in cash flow generation year over year going forward.
Speaker Change: So I saw the revenue growth and the capacity growth is going to outpace growth in rent and so when you do that math you can see the significant jumps in the cash flow generation year over year going forward, especially as the airlines just gets size with all of these issues that we're talking.
Alexandre Wagner Malfitani: Especially as the airline just gets bigger, you know, with all these E2s that we're talking about.
Alberto Valerio: Thank you very much, Abhi, Alex, and John.
Speaker Change: Thank you very much.
Speaker Change: <unk> syndrome.
Speaker Change: Thank you.
Operator: Okay, so the next question will now come from Rogelio Araujo, Southside Analyst, Bank of America. We will open your audio, Rogelio, so that you can ask your question. Please proceed.
Okay. So the next question will now come from Eduardo was your sell side analyst of Bank of America.
We will open your audio <unk>. So that you can ask a question. Please proceed.
Rogrio Arajo: Hey, good afternoon. Thanks very much for the opportunity. I have a couple here.
Eduardo: Hey, good afternoon, thanks, very much for further opportunity I have a couple here one is.
Rogrio Arajo: One is one-off costs and expenses. The company had been reporting five to 7% of revenue in one-off costs in the previous quarters, but now it was zero. And this led to a strong margin gain when taking out this when actually including these one-off expenses. My question is, how should we think about it in the upcoming quarters? Should it continue to be close to zero? And that's the first one.
Eduardo: One off costs and expenses.
Eduardo: But it had been reporting 5% to 7% of revenue in one off costs in the previous quarters, but now it was zero.
Speaker Change: This led to a strong margin gain.
Speaker Change: When taken out of diesel when actually including these one off expenses. My question is how.
Speaker Change: How should we think about it in the upcoming quarters should it continue to be close to no.
Speaker Change: And that's the first one the second is on the 2.6% capacity, especially in the deepwater you you're talking about a temporary reduction.
Rogrio Arajo: The second is on the 2.6% capacity expansion in the quarter. You talked about a temporary reduction because of international capacity during this wide-body fleet transition. If you could have more detail on that, it would be great. Thank you.
Speaker Change: Because of international capacity on these wide body fleet transition if you could have a more detail on that would be great. Thank you.
Alexandre Wagner Malfitani: Yeah, on non-recurring, a lot of the non-recurring that you have been seeing in 2023 was related to the restructuring, right? We were, you know, deeply, you know, in a restructuring mode last year. And that caused, you know, restructurings in the fleet in the lease payment schedule, obviously, a lot of one-time fees to advisors, a lot of, you know, fees for new issuances. So yeah, going forward, and let's see if there's anything that's actually extraordinary. We do not expect to have, you know, anything relevant in terms of a one-time adjustment.
Speaker Change: Great.
Speaker Change: Nonrecurring, although a lot of the nonrecurring that you had been seeing in 2023 was related to the restructuring right we were.
Speaker Change: <unk>.
Speaker Change: In restructuring mode last year and that caused restructurings in the fleet and the.
Speaker Change: Lease payments schedule, obviously, a lot of one.
Speaker Change: One time fees to advisors, a lot of fees for new issuances. So yes going forward unless there is anything thats actually extraordinary we do not expect to have.
Speaker Change: Anything relevant in terms of one time adjustments and.
Abhi Manoj Shah: And Rogerio, on capacity growth, yeah, so a big impact this quarter from the international wide-body fleet. To give you more detail, we had our two A350s that were flying. They, as part of the restructuring from last year, were returned to the Lessor at the end of January.
Speaker Change: And Jorge on the capacity growth, yes. So.
Jorge: Big impact this quarter from the international wide body fleet to give you more detail we had our two <unk> hundred <unk> that were flying.
Jorge: They as part of the restructuring from last year were returned to the lessor at the end of January so they exited the fleet.
Abhi Manoj Shah: So they left the fleet. We will; we have four A330s coming to replace them. But due to the transition of the fleet, they are coming now. So one is already flying; it started flying in April. The second one is going to start flying in the first week of June. The third one is going to start flying in the third week of July, and the last one at the end of August. So that's why you have the slow ramp-up in capacity.
Jorge: We will we have four <unk> hundred <unk> coming to replace them.
Jorge: But.
Jorge: Due to the transition of the fleet.
Jorge: They are coming now so one is already flying its started flying in April the second one it's been a fast start flying in the first week of June and the third one is going to start flying.
Jorge: Third week of July and the last one at the end of August. So that's why you have the slower ramp up in capacity you have the dip that was our February March April and then you have the recovery in international capacity as we go through Q3, Q and <unk>. So that's on the international side, we basically have two wide bodies.
Abhi Manoj Shah: You have the dip that was February, March, and April, and then you have the recovery in international capacity as we go through 2Q, 3Q, and 4Q. So that's on the international side. We basically have two wide bodies leaving the fleet at the end of January, and then we have four coming in. We also had some heavy maintenance calendar timing. And then, as John mentioned, we have the E2s coming in the second half of the year that's going to provide some capacity for this year and then for next year. But that's the detail on the wide body fleet. Okay, that's pretty.
Rogrio Arajo: Okay, that's pretty clear. Thank you very much. Thanks for the ADR.
Jorge: Leaving the fleet end of January and then we have four coming in we also had some heavy maintenance calendar calendar timing and then as John mentioned, we have the <unk> cutting sort of second half of the year, that's going to provide some capacity for this year and then for next year, but that's the detail on deemed under under Widebody fleet.
Speaker Change: Okay, that's pretty clear thank you very much.
Speaker Change: Thanks Eddie.
Operator: Okay, so this closes our Q&A session for this call. We will put the call over now to John for closing remarks. Please, John.
Speaker Change: Okay. So disclosed in our Q&A session for our call.
Speaker Change: The call over now to John for closing remarks, please John.
Speaker Change: Yeah.
John Peter Rodgerson: I appreciate everybody and look forward to seeing many of you in New York this week. And once again, let's pray for the people who are here. Very catastrophic what's happened there, and rest assured Azul is doing all we can to help as we run a fantastic business. We'll continue to grow this business going forward. We feel very strongly about what we built, and we're going to continue expanding margins and generating cash on a going forward basis. Thanks, everybody.
John Peter Rodgerson: I appreciate everybody and look forward to seeing many of you in New York This week and once again, let's pray for the people inhibitor and you just saw.
John Peter Rodgerson: Very catastrophic what's happened there in a rest assured as well as doing all we can to help as we run a fantastic business will continue to grow this business going forward, we feel very strong about what we built and we're going to continue expanding margins and generating cash on a go forward basis. Thanks, everybody.
Operator: Okay, thank you. This concludes the ZOO audio conference call for today. Thank you very much for your participation, and have a good day.
Speaker Change: Okay. Thank you. This concludes <unk> audio conference call for today. Thank you very much for your participation and have a good day.
Speaker Change: Goodbye.