Q3 2024 Azul SA Earnings Call
Hello, everyone and welcome Ultra whose third quarter earnings call. My name is Ed and I will be your operator for today.
This event is being recorded and all participants will be in only listen only mode.
Until we conduct a Q&A session. Following the Companys 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 you are named Lisa now please join your microphone on proceed.
For those who are listening to the conference on the fall breath nine joined the queue ethics to accept Thiago when requested.
Speaker Change: I would like to turn to presentation over to Dave heavily head of investors relations.
Dave Heavily: Please proceed.
Dave Heavily: And welcome all to <unk> third quarter earnings.
Dave Heavily: Good morning, the idea of this call.
Dave Heavily: That you reference available on our IR website, presenting today will be David Neeleman and boots.
Dave Heavily: And chairman and John Rodgerson CEO.
Dave Heavily: Alex <unk>, our CFO and <unk> <unk>, the president of Purdue thoughtful here for the Q&A session.
Before I turn the call over to David I'd like to caution you regarding our forward looking statements.
Dave Heavily: Any matters discussed or debated that are not historical facts, particularly comments regarding the companys future plans objectives and expected performance constitute forward looking statements.
Speaker Change: These statements are based on a range of assumptions that the company believes reasonable but are subject to uncertainties and risks there I discuss it in detail in our CPM and SEC filings also during the course of the call we will discuss non <unk>.
Speaker Change: S performance measures, which should not be considered in isolation with that I will turn the call over to David David.
Speaker Change: David.
Hey, David can you hear me.
Speaker Change: Okay.
Speaker Change: David maybe you are on mute.
Speaker Change: Sure.
Speaker Change: Okay stereotypes either yes.
Yes, now we can hear you, okay, sorry about that.
Okay, great. Thanks.
Speaker Change: Thanks, Chris and thank you all for joining us for our third quarter 2024 earnings call.
Speaker Change: We have a lot to talk about today. The first we have our third quarter results, which were very positive.
Speaker Change: With an all time record revenues and EBITA with industry leading margins.
Speaker Change: Second we wanted to talk about the results of our recent <unk>.
Speaker Change: Renegotiations with our principal partners.
Speaker Change: Which again to create a fundamentally stronger result for 2025 and beyond.
Speaker Change: John will lead you through the details, but first let me. Thank our crew members for once again, delivering a solid quarter under very challenging circumstances like many airlines.
Speaker Change: Around the World, we continue to face disruptions with our fleet into removals and supply chain issues, which are leading to short term changes to our network.
Speaker Change: Our crew members are doing an amazing job, taking care of our customers and I want to thank them for all their efforts on slide three.
Speaker Change: I want to remind you about the strength of our business and our competitive advantages, which are now greater than ever our differentiated network combined with our fleet flexibility allow us to access demand and grow the market and a sustainable and profitable way as John will show you.
Speaker Change: Our next generation fleet combined with the efficiency initiatives give us the lowest unit cost in the region. Finally, our fast growing high margin business units logistics Aviate vacations and loyalty are key a key driver to the growth.
Speaker Change: And margin expansion. These are all structural features that we will continue to do we will continue to boost our profitability into the future.
On slide four I want to show you a perspective going back to 2019 pre COVID-19.
Speaker Change: We've overcome a large number of challenges.
Speaker Change: And the key message here is that even with these challenges as <unk> has continued to produce earnings growth and margin expansion, let's take a look at Q3 for as an example in the quarter. Our revenue was 69% higher than the third quarter of 19, our EBITDA with 77% higher and our EBITDA margin.
Speaker Change: Is with one four percentage points better.
All of this with a currency that is 40% devalued and fuel prices that are 73% higher.
That is how strong and resilient. This businesses. This is our ability to grow profitably to create and expand our competitive advantages everything we do.
Speaker Change: Everything we do is focused on making as little stronger for the long term from our fleet our network our business units and our capital structure I'm amazed with what we have accomplished so far.
Speaker Change: And even more excited about the future with that I'll pass the word over to John John.
John: Thanks, David I would also like to thank our crew members for all their hard work during the quarter. What David said is just incredible with the efforts of our crew members Azores revenue is now 69% larger than 2019 on slide five you can see that we set several records. This.
John: This quarter, our revenue was an all time record $5 1 billion Reais, a RASK was $42 87, a record we generated all time record revenue.
John: Kurt.
John: Of over 1 billion Reais of operating income in the quarter with an all time record $1 7 billion Reais of EBITDA.
Speaker Change: As David mentioned, our ability to expand margins compared to 2019 in spite of the currency and fuel headwinds is a clear demonstration of the strength and competitive advantages of our business on.
Speaker Change: On slide six you can see the recovery in capacity and unit revenue compared to the second quarter, which was impacted by the severe floods in human changed at all as we mentioned on our last call. We're starting to see signs of recovery in bookings and revenue and now you can see clearly that we are back on a normal revenue trajectory with RASK up 12.
Speaker Change: <unk>.
Speaker Change: Over second quarter I'm also happy to report that the portrait Library Airport, which was closed since the first week of May was partially reopened on October 21. This is a very positive sign as these customers can now access the full potential of Azores network just to be clear our third quarter had no contribution from port the language at the main airport.
Remain closed until October.
Speaker Change: Looking ahead to our peak summer season, we see a positive combination of overall demand and industry discipline, which gives us confidence and continued strong revenue performance going forward.
Speaker Change: On slide seven you can see.
See the early resorts results of our elevate program, which was described in some detail last quarter elevate is a new way of thinking for the entire organization in terms of processes in terms of priority and technology and this new thinking is already giving us. Some early results. Let me give you a few examples if you look back to our second <unk>.
Speaker Change: The results you will see that we had almost 15800 fulltime crew members. This quarter, we had 15500 and that was with a 10% increase in capacity quarter over quarter. As a result, the airline now is 11% more efficient compared to just last quarter. In addition to staffing we're laser focused.
Speaker Change: Focus on the wide range of initiatives from purchasing to logistics to fuel all of which will drive cost improvement going forward. We already have the lowest cost in the region, even with a more diverse fleet and lower average seat count and this will only get better over the next few years.
Speaker Change: Turning to slide eight we highlight our performance over the previous quarters, even with the headwinds in fuel and currency, we expanded both operating and EBITDA margins compared to last year. This clearly shows that over the medium and long term our business model is 100% able to recapture and recover the negative effects of macro changes.
The competitive advantages inherent in our business model allow us to be resilient robust airline overtime and over varying macroeconomic conditions.
On slide nine we show our cash evolution in the quarter, we generated $1 7 billion Reais in EBITDA, and we amortize more than 100 million reais of debt in the quarter, which led us to a flat liquidity position at the end of the third quarter keep in mind, we paid around 600 million Reais of interest expense. This quarter. This is going to be very important as we talk about.
Speaker Change: The outcome of our transaction, we announced with our bondholders as we will significantly decrease our interest expense in there for improved cash generation going forward.
On slide 10, I want to show you that we're firmly back on our earnings growth trajectory.
Speaker Change: 2024 will be our biggest year ever in terms of revenue EBIT and EBITDA as we look across the board at our passengers logistics vacation and loyalty businesses. We can confidently say that the demand for <unk> products and services has never been higher our outlook for 2025 with a projected record EBITDA of seven four bill.
Speaker Change: <unk> is even brighter.
Speaker Change: As we said in the beginning of the call. We wanted to first talk about the strong third quarter now we want to talk about the results of our negotiations with our partners setting the stage on slide 11, it's important to remind everyone of the challenges we faced in 2024, starting with the devaluation of the currency now at five eight reais to the dollar in 18.
Percent devaluation since the beginning of the year and almost 50% weaker since 2019, we had the devastating floods in the south of Brazil, which impacted 10% of our domestic revenue and one of the highest margin markets.
Speaker Change: As David mentioned, we continue to face challenges with Oems when including the impact of delivery delays early engine removals delays in spare parts and logistics the effect on our network and cash generation is significant over 1 billion Reais this year alone.
Speaker Change: Finally, as we've discussed before as the currency devalued the local capital markets froze.
Speaker Change: Further restricting our ability to raise local capital.
Speaker Change: As you can see on slide 12 in response to these challenges we strengthened the partnerships with our major stakeholders.
First we reached an agreement with our lessor and OEM partners on the equity structure. The result of which we announced on October seven and which limited the obligation at a significantly lower dilution than projected.
Speaker Change: And there was no cash outflow second we strengthened our partnership with existing bondholders, raising new capital, creating a significantly improved cash flow and reduce leverage for our airlines.
Speaker Change: The initial results were announced on October 28, and I will talk more about that shortly finally, the Brazilian government also contributed signing a bill into law that allows for that then the national Civil Aviation fun.
Speaker Change: To fund loans to Brazilian Airlines.
Speaker Change: These developments together with increasing strength of our business provide a solid footing, Brazil to continue to grow into the future.
Speaker Change: Turning to slide 13, I want to get into the details of the transaction that we announced over the past several weeks and most importantly, how positive. This is for example, and our partners. This processed is comprised of several steps.
Speaker Change: The first step was the agreement with our lessors on the equity instrument, which address pandemic era.
Speaker Change: Lease deferrals and reductions.
Speaker Change: As we've already announced we have agreed to settle a $3 1 billion reais in obligations with our lessors and Oems for 100 million preferred shares of absorb this is a strong vote of confidence from the leasing community in the future of <unk> and their desire to increase their commitment to us in fact as they have done in the past this year's lessors continued to deliver air.
Speaker Change: Kraft to us for a 332 <unk> hundred 20 ones for E twos, even while we were in active negotiations clearly they have a strong belief in the future of Xul step two is the agreement with the existing bondholders for new funding via Super priority Note. We initially announced this agreement on October 28, whereby a xul bondholders have.
Speaker Change: Agreed to inject up to $500 million of fresh capital into the company.
Speaker Change: Plumbing is coming in steps with $150 million already received.
Speaker Change: $250 million to come upon the completion of documentation and a final $100 million based on a collaborative initiative to generate cash flows of $100 million per year, which I'll talk about next.
Speaker Change: And finally step three as we discussed our plans with our bondholders they challenged us to look at a much larger opportunity here to fundamentally strengthen Azores balance sheet and increased cash generation. They committed to increase the new money to $500 million and <unk> $800 million in secured loans.
Speaker Change: This would in turn create $100 million in annual cash flow savings from reduced interest expense the condition to unlock this which will fundamentally improve Azores financial strength is to realize another $100 million in cash flow improvements per year from $25 26, and 27, we therefore embarked upon a joint effort with the <unk>.
Speaker Change: Bondholders to identify these improvements and meet this condition.
Speaker Change: I realize this is a lot of information and we will show you. What this means for our financials next but let me summarize restructured a comprehensive transactions together with our partners to eliminate over one $5 billion of debt from our balance sheet and Ms process improve our annual cash flow by another 200 million.
Speaker Change: Put this altogether with our projected EBITDA growth for 2025, you can see how this plant is so transformative for our business.
Slide 14 is what I'm really excited to show you. This is the result that gets us so optimistic about our future I know it took a lot of slides to get here, but it's really important to set the stage and describe the various steps for us to be able to get this resolved.
Speaker Change: Let's highlight the important numbers on the table above first the lessor equity you can see in the adjustments column that this value is being eliminated the $2 3 billion reais from a balance sheet, which is the present value of $3 1 billion reais in obligations I talked about earlier second is the total debt. This is a very significant reduction of $2 2 billion reais in the.
Speaker Change: In the <unk> of the 100 $800 million second lien notes together with the new capital of $500 million coming in.
Speaker Change: Third we have another 800 million reais and additional concessions from lessors and Oems related to the 2030 notes.
Speaker Change: Putting it all together you can see the result, a net $5 4 billion reais reduction in debt and a one four turn improvement in leverage from $4 eight today, if adding lessors and Oems equity instrument to a pro forma three four when considering the last 12 months EBITDA of $5 6 billion.
Speaker Change: As I stated earlier, we're going to do $6 billion. This year and $7 4 billion next year now.
Now you can clearly see why this is such an important opportunity and why we had to take advantage of it resetting as well as balance sheet to three four from $4. Eight today is extremely powerful this resets our credit rating puts us in a completely different category of airlines globally is already one of the highest margin airlines in the world, but we.
Had a challenged balance sheet with this transaction, we are now placing a xul back on the list of the strongest most resilient profitable airlines in the world.
Speaker Change: Slide 15 demonstrates the significant leverage reduction from this transaction, but it's important to also highlight the component parts of this leverage since we are an airline that primarily leases our aircraft our main asset by which we generate our revenue and EBITDA. The majority of our leverage is related to our aircraft leases. After this transaction our leverage from loans and finance.
Speaker Change: <unk> will only be one four times.
Speaker Change: On slide 16, we highlight the benefit from the agreement with our partners so leading to a significant reduction in gross debt through acquisition envisioned by this transaction.
Speaker Change: The gross debt and leverage reduction together with the cash flow savings in EBITDA generation puts us in a very confident position from which the services that this truly makes us a robust resilient airline for the future.
Speaker Change: A key element of this plan is to improve cash generation.
Via a reduction in interest expense if you recall back on slide nine I ask you to remember the 600 million Reais, we paid in interest expense in the third quarter alone and how this is such a large drag on cash generation will now. Thanks to this plan, we are able to reduce our interest expense by nearly 1 billion reais per year as you can see on slide 17.
This reduction translates.
Speaker Change: Directly to cash generation, which then leads to a consistent virtuous cycle for liquidity and deleveraging. This is a structural improvement that fundamentally strengthens us for the years to come.
Speaker Change: On slide 18, we present, our 2025, EBITDA and cash flow guidance. Thanks to our strong EBITDA generation of seven 4 billion Reais combined with a significantly reduced interest expense our guidance is for free cash flow to firm of 1 billion Reais for the year and now we will become an airline that will consistently generate cash and this is.
Including all of the challenges from higher fuel, which is 70% higher than a currency, which is almost 50% higher than it was in 2019. This is a result of all the work I. Just described described the lessor instrument converting towards will share the improvements in operating cash flow the EBITDA generation and a reduction in interest expense and the reduction in leverage.
All of this combined to produce positive free cash flow to firm in 2025 and beyond truly making a xul a much stronger company.
Speaker Change: Finally, turning to slide 19 to conclude my comments, we're incredibly excited about our future as I showed you before our goal is already one of the most profitable airlines in the world and now with this work and our capital structure, we're making ourselves one of the most resilient as well. In addition to these incredible results. The best is still to come we still have significant fleet transformation ahead of us.
Speaker Change: With more retailers to delivered in 2025, our business units continue to be high growth high margin businesses, our elevate way of thinking is already producing unit cost reduction with more opportunities in front of us combining all of this with our exclusive network and a unique fleet flexibility lead us to be incredibly excited.
And optimistic about the future with that David Alex and I are available to take your questions.
Speaker Change: 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 the screen and write your name and company.
He was announced please activate your microphone and proceeds for those who are listening to the conference on the phone line to join the queue and six <unk> was requested.
Speaker Change: Let's go to our first question.
Our first question will come from Andrea Fajitas sell side analysts, but it is called BV.
Speaker Change: And then we will open your microphone. So that you can ask a question. Please proceed.
Andrea Fajitas: Hi, Good morning. Thank you for taking my question and congrats on the results.
Speaker Change: I wanted to ask about two points here. So first if you could update us on the expected deliveries for the wide bodies for by the by year end and for 2025.
Speaker Change: If there are any delays St for the choose how many are left this year.
Speaker Change: And for the next year as well and if you're I mean, you're.
Speaker Change: I already commented a bit among the delays, but when should that those aircraft come in and.
Speaker Change: And second point about the 2025 guidance.
Speaker Change: Just wanted to channel how much how much capacity growth is assumed in those.
Speaker Change: Those numbers. Thank you.
Speaker Change: Hey, Andre I'll be here I can answer that on the wide bodies, we got for wide bodies. This year. So we are in good shape for now.
Speaker Change: The next set of wide bodies is our next nearest the next order of the newest data 30 news, which are scheduled for fourth quarter of next year, probably late next year.
Speaker Change: So this year, we had four four wide bodies already delivered already in service.
Speaker Change: On the issue is we have 10 deliveries this year.
Speaker Change: A little bit of delay I would say, maybe 30 45 days delayed but still okay. And then for next year, we're assuming between 12 and 15 E twos maybe.
Speaker Change: Maybe.
Speaker Change: Maybe some of them slip into January 26, so in that range of <unk>.
<unk> so.
Speaker Change: Our growth as you probably know is going to be very much focused on the E. <unk>, which is an up gauging strategy from the E ones significantly lower trip cost significantly lower fuel burn for 18 extra seats. So we're very excited about that aircraft.
Speaker Change: Danny to us this year and maybe 12 to 15.
Speaker Change: Next year in terms of capacity growth.
Speaker Change: We're looking at roughly about 10% next year capacity growth is going to be lower than that on the domestic side and it's going to be higher than that on the international side because of the four wide bodies. We received this year halfway through the year.
Speaker Change: They will come full circle next year so.
Speaker Change: I would say high single digits domestic and then the rest of it would be it will be mostly the growth will be on the international side. Thanks for the wide bodies.
Speaker Change: Yeah.
Perfect. Thank you.
Speaker Change: Thank you. The next question now will come from Michael Lindbergh sell side analysts Deutsche Bank.
Speaker Change: Michael We will open your microphone. So that you can ask your question. Please proceed.
Speaker Change: Okay.
Speaker Change: Mike.
Speaker Change: Hey, Good morning can you hear me, Okay, Hey, Mike.
Speaker Change: Great.
Speaker Change: Two questions here.
So first when we look at the $807 million of debt Thats can be echoed ties. It's it looks like three different phases there.
Speaker Change: And then it looks like.
Speaker Change: The three phases represented 47, 5% of the principle.
Speaker Change: And then there's another 52, 5% that I think is tied to a note that becomes an exchange of all can you give us a sense because I think you've indicated in the release that there were term sheets on our Investor Relations site I didn't I didn't see them, yet, but give us a sense of maybe the underlying shares.
Speaker Change: Tied to that $800 million.
Yes, so Mike just to kind of walk through what the transaction does okay.
Speaker Change: Most likely this will all close by the first quarter.
Speaker Change: We're hoping in the January timeframe, that's whether that's what we're looking at right now we're actively working with these partners.
Speaker Change: Obviously, theres dilution here and but this is a significantly stronger company going forward and so.
Speaker Change: It's going to be based on with the share price is at the time and so we feel very good about it and so and in addition to taking the debt off the balance sheet. This is now a company that will cash flow on a go forward basis right and so we are going to be measuring free cash flow every year going forward and not just.
Speaker Change: Value is all based on EBITDA and so we will walk through the details, but youre right. It happens in a couple of different phases and initial part happens right away at 10% that turns the equity then.
Speaker Change: And then the second chunk and then the rest of it is a convert that will hopefully will get converted through.
Speaker Change: Maybe by the end of 2025 is what our expectation is based on the value of us all at that time.
Speaker Change: Great and I should be clear that you.
Speaker Change: It is a real deleveraging moment and I should offer congratulations on the amount of heavy lifting that you guys accomplished so I want to make them.
Speaker Change: On the record just one quick follow up on the wide bodies.
Avi: To Avi.
Speaker Change: As I recall last quarter I thought we were going to see some wide bodies come later this year and some got pushed into the early part.
Speaker Change: 2025, and now it seems like Youre not going to be getting anything until late in 2025 has there been a change or a shifting in the order book.
For taking my questions. Yeah, So Mike we actually got wide bodies from the secondary market actually so we received.
Speaker Change: Two neo as from the used market. We received two Ceos from the used market as well ex Condor. Those are currently flying off those four we were looking at two other neo is as well that we're used.
Speaker Change: To enter maybe <unk> of next year, but we think we're better off not taking those right now and going directly to our order with Airbus, which is going to be in the December timeframe of next year.
And Mike Theres, just challenging the engines worldwide right now and that's not exclusive to narrow bodies. It's also a challenge we are seeing on the wide bodies as well and so that's why it was important for us to kind of lock down. These used aircraft. This year, but then we'll be taking aircrafts in our spec on a go forward basis.
Speaker Change: Great. Thanks, everyone.
Speaker Change: Thank you. The next question comes from Savi <unk> sell side analyst Raymond James.
Speaker Change: <unk> open ear on microphones. So that you can ask your question. Please proceed.
Speaker Change: Hey, great. Thanks, good afternoon, everyone.
Speaker Change: Okay. If I on the 2025 guide is that reflects.
Speaker Change: The completion of everything that you're working on today and the current kind of.
Speaker Change: FX environment, which is that'd be kind of a bit more challenging and along those lines. Maybe just if you could talk about.
Speaker Change: The demand environment today, and like what Youre seeing on the pricing front, both leisure and corporate side of things.
Speaker Change: Hey, Savi, it's Alex here on the 2025 guidance. So for example, EBITDA essentially it doesn't depend right on.
Speaker Change: Transaction.
Speaker Change: It took firm seven four in our estimation.
As we usually do we the big unknowns here, our FX and oil for oil we always use the Bloomberg forward curve essentially look at heating oil, which tracks very nicely to jet fuel, but it's a much more liquid derivatives. So we like using HOA.
Hey.
Instead of jet fuel and we essentially just use the forward curve to project next year.
Speaker Change: FX, we normally use the focus survey.
Speaker Change: With some adjustments when you have strong movement, because there is a little bit of a lag for the focus survey to kind of reflect current market conditions should conditions. So right. Now for example, when the real is the spot price is much higher than what the forward curve. What the focus survey is projecting we also.
Speaker Change: Adjust the focus survey a little bit up right. So we're a little bit higher than what the focus survey has for 2020 by FX, but normally we use Bloomberg and the Central Bank focused survey to project oil and.
Speaker Change: And effects now when we're talking about leverage and interest expense and cash generation yes.
Speaker Change: The projections assume that we complete stage III and we're confident that we will be successful and I just want to highlight on that before I pass it to Avi sorry.
Speaker Change: Our partners are excited about this when we go to our lessors are Oems. They say wait a second I can be inside of a de levered as wall and all we have to do is everybody contributes a little bit helps cash flow generation over the next couple of years and it's across all of our partners. Our lessors are Oems or all of our suppliers and we sat there and say hey, we have the <unk>.
Speaker Change: Opportunity to to take leverage down by one five turns overnight right that is a powerful thing and people have been with US along this journey for many years and everybody is really excited about that so I think the $100 million a year in 'twenty five 'twenty six 'twenty seven we are very confident that will happen and I think we're going to kind of announce.
The market that we've completed that prior to year end.
Savi on the demand side, we're not assuming anything too different from what we're seeing right now.
Speaker Change: If you just look at the second half this year and you take that as an exit rate that already puts us at the seven point do EBITDA number three six in second half exit rate. So.
Speaker Change: The International Network is just what we've what we're flying right now, but instead of flying basically four months. This year. Our five months. This year, it's going to slide 12 months next year. So that's not going to be anything due to different and on the domestic side, it's going to be <unk> dos <unk>.
Speaker Change: E one markets.
Speaker Change: Within our own network.
Speaker Change: So we're not really asking for anything too different I'm overall pretty happy with the way demand is looking we've seen good recovery.
Speaker Change: August September October and November each month being ahead of the month before.
Speaker Change: And actually if you remember.
Speaker Change: <unk> of this year, which we're now looking at the booking curve for next year.
Speaker Change: We actually feel some pretty low load factors, we grew 73 in February.
Speaker Change: Low seventy's in in March as well. So we're actually quite ahead of our booking curve is right now when we look at first quarter.
Speaker Change: On a on a good fair base I think the industry overall has done a good job of keeping keeping pace with the way dollar is moving with the way fuel is moving.
Speaker Change: Are trying to make sure that the fares are keeping base I think the industry has shown good discipline and finally, our business units. If you notice third quarter, just 76% of our unit revenue came from the passenger business.
Speaker Change: Our our vacations business unit revenue was up 30.
Speaker Change: <unk>, 30%, our loyalty business unit revenue was up 30% our charterers business unit revenue was up like 90% and so we made a strategic decision to diversify our revenue base.
Speaker Change: And so that's really going to give us a lot of benefits as we go forward here and these businesses keep growing and to keep diversifying so I'm pretty confident overall about our next year's looking right now.
Speaker Change: That's all very helpful. I appreciate it and I recognize.
Speaker Change: I have two questions, but if I might clarify Alex.
Speaker Change: It sounds like the supplier agreement.
Speaker Change: Hey, Greg Lynds, Youre working with the suppliers and your partners is that all related to financing and nothing that Berkshire than EBITDA.
Speaker Change: Oh, you mean on the target for $100 million of cash flow improvements exactly there is both there is there is there are things that will help the P&L are there things that you know.
Shifts.
Speaker Change: There are postponed payments, but it's essentially a $100 million cash flow target.
Speaker Change: Okay. Appreciate it thank you.
Okay.
Speaker Change: Thank you. The following question now comes from John Snyder sell side analyst at Jpmorgan.
Speaker Change: We will open your microphone. So that you can ask a question. Please proceed.
Thanks Al.
Speaker Change: Just just one from me here a couple of other questions were answered, but just hoping you can quantify what percent of the cash impact from the FX devaluation was offset by the higher fares in this quarter and then what we should expect for bears and <unk> in 2025.
Speaker Change: Yeah, Hey, so.
Speaker Change: We're expecting a steady improvement at <unk> over for Q4, Q seasonality is better than <unk>, we are heading into our peak summer we have been able to recover the the effect of FX and fuel <unk>.
Speaker Change: 100% over the long term quarter to quarter. It takes a little bit longer maybe we were 60, 80% right. Now are we can check the number but we feel pretty good about the trends going forward.
Speaker Change: With fares with booking trends and you can already see the 12% improvement in flown RASK from <unk> to <unk>. So it will continue to <unk> the normal seasonality curve that we've been seeing over the last several years, but I think there are two points that I just want to highlight first of all the fourth quarter now has port delivery unit, we did not have.
Speaker Change: That in the third quarter, and that's very important to us and the other is the industry needs higher fares. It's just a fact right. When you have a 20% devaluation of your currency the industry as a whole needs higher fares the industry as a whole is dealing with the OEM challenges and so how do you combat the macro situation that we're in you need to dilute your fixed <unk>.
Speaker Change: With more capacity and you need higher fares and I think everybody is in that same boat I think as you look at everybody in the industry. They are fighting over engines are fighting over deliveries and so I think the industry is very disciplined right now which is a which is a positive thing.
Great. That's very helpful and that's it for me appreciate the time and congratulations on the the holistic delever.
Speaker Change: Deleveraging.
Speaker Change: Are you.
Speaker Change: Okay.
Speaker Change: Okay. So the next question will now come from.
Speaker Change: Your sell side analyst of Bank of America.
Speaker Change: Have you opened your microphone. So that you can ask your question.
Speaker Change: Please proceed.
Speaker Change: Hi, guys.
Speaker Change: Hear me.
Speaker Change: Yes.
Speaker Change: Okay, great yeah. Thanks for the opportunity I had one question on cost to cost line that caught our attention.
Speaker Change: First one is on salaries there was a drop year over year, you mentioned in the release that you would just be sort of one 5% of the employees. Despite continued to expand operations.
Speaker Change: So the.
Speaker Change: Question is.
Speaker Change: And these are sustainable if you're getting.
Speaker Change: Youre doing please again and what you expect for this line.
Speaker Change: The coming quarters and the second one is on the other expenses line.
Which came in slightly below 400 below <unk>, which was a 26% drop year over year and.
Speaker Change: Actually came back to pre COVID-19 levels. Its about seven 5% of revenue it was almost 10% in the previous a year or so.
Speaker Change: Should we expect to beef.
To go back to pre Covid levels already in the upcoming quarters as can we see that as sustainable. Thank you.
Speaker Change: Sure so on salaries, we need to be more productive right and we will be.
Speaker Change: The fleet transformation enables us to be more productive.
There was growth that we had prepared for it and didn't come because of portfolio agony because of OEM issues.
Speaker Change: So we fully expect to be more productive than we are today.
Speaker Change: Forward sorry, so if you look at our seven 4 billion EBITDA for 25, I think it includes essentially the the.
Speaker Change: Activity levels that we're seeing today was a little bit more improvement from elevate from fleet transformation right. We just need to be constantly more efficient throughout the whole organization under our beyond the fleet transformation. There are many ways to do it right through processes through.
Speaker Change: Automation by just being better every day and the idea of having a.
A program.
Speaker Change: No.
Speaker Change: Our packaging of the elevate plan behind it is to rally.
Speaker Change: <unk> 15500 crew members to all pushing the same direction and B every day more and more productive. So we believe that the current productivity that we have is sustainable and we can actually improve upon that on the other expense that is a catch all line, which has a number.
Speaker Change: Of items.
Speaker Change: <unk> look at it to see if it makes sense for us to break it out but I think the biggest item within this expense is ICU with roughly like 40 or 50 million high so it.
Speaker Change: It is a big bucket of other expenses and some of them are dollar denominated some of them are not some are fixed or variable.
Speaker Change: So it is a bit more difficult to forecast, but the $7 4 billion EBITDA I think it has a quarterly rate that is higher than the number you are seeing there a little bit because of exchange a little bit because of of growth.
Speaker Change: Okay.
Speaker Change: Perfect.
Speaker Change: Thanks very much.
Speaker Change: Okay.
Speaker Change: Thank you. This ends our Q&A session for today I will now turn to John for final remarks.
John: Well, thanks, everybody for joining us today, we're very excited about where we are you are looking at a deleveraged azula going forward a company that will start to generate cash in 2025 and beyond and we'll be on the road speaking to many of you were going to have is all day I think the first week of December we'll have the opportunity to spend time with each of you and kind of go through all of the pause.
John: Ziv aspect that we've been able to put together and feel free to reach out to any of US if you have any questions.
Speaker Change: 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.