Copa Holdings SA (CPA) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings third-quarter 2008 earnings call. During the presentation, all participants will be on a listen-only mode. (Operator Instructions). As a reminder, this conference is being webcast and recorded November 13, 2008. Now I will turn the conference over Joe Putaturo, Director of Investor Relations.

Thank you very much, Operator, and welcome, everyone, to the third-quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings, and Victor Vial, Chief Financial Officer. First, Pedro will open up with an overview of the third-quarter highlights, followed by Victor, who will discuss financial results. Immediately after, we will open the call for questions from analysts. We kindly request if you could limit yourself to one question with a brief follow-up so we can accommodate most questions.

In today's call, we will discuss non-GAAP financial measures. A reconciliation of non-GAAP to GAAP financial measures can be found in our third-quarter earnings release which has been posted on the Company's website, CopaAir.com. In addition, our discussion will contain forward-looking statements, not limited to historical facts, that reflect the Company's current beliefs, expectations, and/or intentions regarding future events and results. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions that are subject to change. Many of these risks and uncertainties are discussed in our annual report filed with the SEC.

Now I would like to turn the call over to our CEO, Pedro Heilbron.

Good morning, everyone. Thank you for participating in our third-quarter earnings call. As always, I want to thank all our co-workers who, quarter after quarter, continue to deliver outstanding customer service, a premium product, and industry-leading results.

I am pleased to highlight that, for the third quarter, Copa Holdings recorded net income of $30.3 million, or diluted earnings per share of $0.70, despite a 63% year-over-year increase in fuel prices, which added $47 million to our fuel costs for the quarter. Net income, excluding special items, which for Q3 '08 included a $15.5 million non-cash charge associated with the mark to market of fuel hedge, would have been $45.8 million, or diluted earnings per share of $1.05.

These results were driven by exceptional revenue growth, which increased more than 32% year-over-year on 9% capacity growth. Also contributing to these results are our continuous effort in maintaining a very competitive cost structure. Unit cost for the quarter, excluding fuel and adjusting for special items, came in at $0.073, representing a 5% increase year over year.

I'm also pleased to highlight that our company ended the quarter with a very healthy balance sheet, and a very strong liquidity position of nearly $400 million.

On the operational front, Copa Airlines once again delivered leading on-time performance and completion indicators, with on-time performance coming in at 86% and flight completion factor at 99.3%. Aero Republica has also made remarkable operational improvement, with on-time performance for the third quarter coming in at 89.9%. Furthermore, Aero Republica has maintained the lead this year among Colombian airlines, both in domestic and international on-time performance.

With regard to our fleet, Copa Holdings ended the quarter with a fleet of 53 aircraft. Aero Republica received two Embraer 190 aircraft, which were incorporated in the month of August and September. Our plan is to continue replacing our MD-80 aircraft with this modern and fuel-efficient aircraft, expecting to end this year with only four MD-80s.

In the fourth quarter, Copa Airlines takes delivery of two Embraer 190s. The first one was received in October and the last one is being delivered tomorrow. The delivery of a Boeing 737-800 scheduled for late November was delayed until the first quarter of '09 as a result of the recently settled Boeing strike.

More recently, in July, Copa Airlines received its new Embraer 190 flight simulator, becoming the first Latin American airline to have both Embraer and Boeing simulators. This valuable training device will now enable us to provide training to our Embraer crew locally, saving time and money.

In September, Copa Airlines was named for the fifth consecutive year the best airline in Central America and the Caribbean, by the independent aviation industry research company Skytrax. Also receiving the distinction for best cabin staff.

In the fourth quarter, Copa Airlines operational plan includes the launching of service to three new destinations. The island of Aruba, which complements our network nightly special in South America, where it's a very popular destination for high-end tourism. Valencia in Venezuela. Valencia, with a population of 1.5 million, is one of Venezuela's main economic centers, containing some of its top industries and manufacturing companies. And finally, Santa Cruz in Bolivia, which will represent Copa's 45th destination. Santa Cruz is another important city which is also not well-connected with our region. It is the most populous city in Bolivia, as well as the capital of one of its most productive regions.

With this new city, Copa will, by year-end, serve 45 cities in 22 countries in the Americas, by far the most extensive and convenient network for intra-Latin America travel. By year's end, Copa will have increased the number of cities served by 50% in less than three years, while still increasing its load factor and yields.

Now looking at the current business environment, we're closely monitoring the possible implications of a global economic slowdown to demand in our region. Although the region's growth prospects have tempered, our region's economies are arguably better prepared than in past global economic downturns.

We're especially encouraged by the strength of the Panamanian economy, whose growth we expect will continue to outpace other regional economies. During the first half of '08, Panama's economy grew almost 10%, and although it's not isolated from the rest of the world, in October the IMF forecasted growth of 8.3% for '08 and 7.8% for 2009, which would be the fastest-growing economy in the Western hemisphere next year. Panama's economy, which is overwhelmingly service-sector driven, will continue to benefit from the Canal expansion, a seven-year, $5.5 billion mega-project, which will contribute to GDP growth and job creation for years to come, both directly and by stimulating related industries.

Continued activity and investment related to ports expansion, hydroelectric power, telecommunications, and construction. Major public and private infrastructure projects, which are underway or about to begin, and continued consolidation and importance as a regional business and banking center, which is gaining popularity as headquarters for multinational companies. So we do expect to keep on benefiting from a healthy Panamanian economy in the coming years.

I'm also pleased to say that we are seeing healthy demand in our region. This week, we announced October traffic figures where load factors continued to beat '07 levels, despite significant capacity growth. Additionally, our advance bookings for November and December look good. And we continue to observe a very rational pricing environment, despite the sharp drop in fuel prices during the last few months. So we expect a good fourth quarter, driven by a very healthy topline and lower unit costs as a result of lower fuel prices.

This result, year to date, speaks highly of our business model, which continues to deliver growth and industry-leading margins. With regard to Aero Republica, for the third quarter, operating earnings came in at $5.7 million, representing an operating margin of 7.7%. Although topline growth was healthy, the airline's operating results were affected by increased fuel costs and scheduled aircraft and engine maintenance events related to the MD-80 fleet.

For full-year '08, despite this increased costs and the fact that they are still flying approximately half of their capacity, on less efficient MD-80 aircraft, we still expect the airline to turn a positive operating margin and possibly a small net profit for the year.

I must remind you that these results are on a stand-alone basis and do not include a significant amount of revenues that Aero Republica contributes to Copa Airlines' net worth through its service from five Colombian cities into Copa's hub in Panama.

Furthermore, Aero Republica continues to look secure in its strategy of increasing its international participation. In fact, year over year, international capacity almost doubled, representing nearly 25% of total capacity for the quarter. International expansion will continue in December when Aero Republica will launch service into Panama City from Periera in Colombia.

So to recap, Copa Holdings' third quarter was marked by a healthy demand environment, strong yields for both Copa and Aero Republica, and unprecedented fuel costs environment, which added nearly $50 million in fuel costs for the quarter, and the continued execution and strengthening of our business model.

Looking ahead into '09, our preliminary guidance, which Victor will go into more detail, has Copa Holdings delivering a consolidated capacity growth of 13%, very similar to this year. Capacity growth will once again be driven by our core business with Copa Airlines growing approximately 16%, while Aero Republica will stay flat to slightly down in terms of ASM, as we replace the remaining MD-80s with Embraer 190s.

With regards to our '09 aircraft deliveries and assuming eight- to 10-week delays in our Boeing deliveries, we now expect Copa Holdings to receive four aircraft -- two Boeing 737-800 for Copa Airlines and two Embraer 190s for Aero Republica. Our two Embraer deliveries in '09 will be operating leases. As for the two purchased 737-800s, we have already arranged the financing for one of them and have secured preliminary US Ex-Im Bank commitments for the other one.

Furthermore, considering our current plans to replace Aero Republica's remaining four MD-80 aircraft during '09, this would place our year-end fleet for '09 at 55 aircraft, the same as in 2008. So our growth for '09 is for the most part a result of growth that is coming online during 2008. I should add we expect demand to closely follow capacity expansion, though we anticipate unit revenues will decrease slightly as some of the fuel surcharges implemented during the last month gradually come out. If fuel prices remain at current levels, nevertheless we expect to see some margin expansion and the forecasted drop in unit revenues will be more than offset by fuel cost savings. Consequently, we expect to continue on a path of sustainable growth and profitability, benefiting from having developed the most comprehensive and convenient network for intra-Latin American travel and complemented by world-class customer service.

Thank you. Now we'll turn it over to Victor, who will go over our third-quarter financial results.

Thank you, Pedro, and good morning, everyone. Thanks again for joining us today. As always, let me start again by joining Pedro in congratulating all of our co-workers for another strong performance. I'm pleased to report that, despite unprecedented high fuel prices, we delivered another quarter of strong earnings with Copa Holdings' net income for the third quarter reaching $30.3 million, which translates to diluted earnings per share of $0.70.

This result include a $15.5 million charge during the quarter associated with a mark to market of fuel hedge contracts for future periods. Excluding this charge, reported net income would have been $45.8 million and diluted earnings per share would have reached $1.05. Impressive results, I might add, considering record high fuel prices we saw -- regular high fuel prices we saw, then, $47 million of additional fuel expense for the quarter on a year-over-year basis.

Copa Airlines, which only accounts for 83% of Copa Holdings' total available seat miles, had another quarter of strong capacity growth with a 14% year-over-year increase in ASMs. Demand for travel in our markets remains strong, resulting in another quarter of increased unit revenues at Copa Airlines, where revenue per available seat mile, RASM, increased 20% year-over-year. Copa's RASM increase was a result of higher load factors, which averaged 80% during the third quarter, as well as higher yields which increased compared to Q3 '07 and Q2 '08, 18% and 3% respectively.

With respect to Aero Republica, which accounted for the other 17% of Copa Holdings' total ASMs, available seat miles increased approximately 10% compared to the third quarter of '07 as we continue to downgrade from MD-80s to an Embraer 190 fleet. This 10% capacity decrease during the quarter led to a revenue capacity or miles increase of 2.6%, resulting in a 4.6 percentage point increase in load factors, to 63%.

Unit revenues at Aero Republica increased more than 30%, mainly due to stronger yields, which compared to Q3 '07 showed a 19% increase. Approximately 40% of these yield gains were the result of the strengthening of the Colombian currency against the US dollar on a year-over-year basis, with the remainder due to higher domestic fares and increased capacity into higher-yielding international routes.

Strong yield and load factor gains led to record quarterly operating revenues for Copa Holdings, which for the quarter came in at $349 million for a 32% year-over-year increase. Both segments showed strong revenue growth, with Copa Airlines operating revenues increasing 37%, while Aero Republica delivered an 18% increase. Passenger revenue for Copa Holdings, which accounted for 94% of total operating revenues, saw an increase of 32% from just under $0.25 billion in Q3 '07 to $330 million in Q3 '08.

On the expense side, operating expenses excluding special items increased 34.5% year over year, or approximately $75 million, while unit costs, or cost per available seat mile -- CASM, excluding special items, increased 23% year over year to $0.127. However, unit costs excluding fuel and special items increased 5.1% year-over-year to $0.073, mostly as a result of a stronger Colombian currency average during the period, the effect of downgrading to an Embraer 190 fleet, and additional MD-80 maintenance events at Aero Republica.

Now turning to Copa Holdings main operating expenses compared to the third quarter of 2007. Fuel expense increased 75%, driven by an 8.4% increase in gallons consumed due to increased capacity, and a 63% increase in the average price per gallon of fuel, net of realized hedge gains. Salaries and benefits increased 22%, mainly as the result of an overall increase in operating headcounts to support increased capacity and the effect of the Colombian currency appreciation.

Passenger service increased 13%, driven by an increase in passengers carried by Copa Airlines, more international service offered by Aero Republica, and the effect of the Colombian currency appreciation.

Commissions increased 11%, for the most part as a result of a 32% increase in passenger revenue, mostly offset by lower average commission rates in both Copa Airlines and Aero Republica. Reservation and sales increased 8%, mainly due to more passengers carried by Copa Airlines. Maintenance materials and repairs increased 14%, mainly due to more scheduled major maintenance events at Aero Republica related to their MD-80 fleet. Depreciation increased 23% due to additional aircraft and fares. Aircraft rentals decreased 2%, primarily related to when these expenses incurred in Q3 '07 -- not incurred in Q3 '08. And flight operation, landing fees, and other rentals combined increased 22%, mainly as a result of increased capacity, increased international operations at Aero Republica, and higher crew-related expenses.

Other operating expenses increased from $4.7 million to $14.4 million. However, excluding last year's nonrecurring gains of $8 million as a result of insurance proceeds in excess of book value related to a constructive [whole] loss, other operating expenses would have been $12.7 million in Q3 '07, compared to $14.4 million in Q3 '08 for an increase of $1.7 million.

Other nonoperating income and expense total of net, an operating expense of $25 million, the main components of which are net interest expense of $7.1 million and a $15.5 million non-cash charge associated with a mark to market of fuel hedge contracts related to future quarters.

In terms of operating earnings excluding special items, the Company produced $57 million of operating income which represents an increase of almost 20% compared to Q3 '07, while operating margin before special items came in at 16.4%. Undoubtedly, outstanding results in light of the record high fuel prices reached during the third quarter.

With respect to fuel hedges, Copa Holdings had 25% of its third-quarter volume hedged through jet fuel swaps and crude oil collars, which resulted in realized hedge gains of $4.6 million and $16.1 million for the quarter and year to date, respectively. Looking forward, we currently have hedges in place for 21% of our 2009 consolidated volume and 4% for 2010.

Now, moving onto the balance sheet, assets at the end of the quarter totaled $1.9 billion. Owners equity reached $610 million, and debt and capitalized leases totaled $1.2 billion. The Company's bank debt at the end of the quarter totaled $882 million, 44% of which is US Ex-Im Bank guaranteed debt. Half of our total debt balance has been fixed for up to 12 years, and the average blended rate including fixed and regular rate debt for the third quarter came in at a very competitive 5.1%.

In terms of liquidity, the Company maintains a very strong position with $396 million in cash and cash equivalents, in addition to $20 million in committed lines of credit at the end of the third quarter, which translates to approximately 32% on that 12-month revenue.

So in summary, we continued to see strong demand for air travel during the quarter. Despite record high fuel prices, our business model continues to deliver strong profits, and what would be considered by any standards a very healthy market; we have a solid balance sheet, not to mention a very strong liquidity position, and we're well positioned for both the challenges and opportunities 2009 may bring.

Looking at 2008 guidance, based on the Company's performance through the third quarter, and in light of advanced bookings, we are maintaining our 2008 guidance as follows. Full-year capacity at plus or minus 8.8 billion ASMs, which compares to 7.9 billion in 2007, for an 11% year-over-year increase. On a segment basis, its growth breaks down into Copa Airlines expanding plus or minus 17%, with Aero Republica decreasing plus or minus 9%, mostly the result of downgrading from an MD-80 fleet to an Embraer 190 fleet.

Load factor at plus or minus 76%, up from approximately 74% in '07 as we expect advance for air travel to continue strong for the remainder of the year. We are expecting a healthy fare environment to continue through the remainder of the year. As such, we're maintaining our RASM guidance at plus or minus $0.145, compared to $0.13 in '07, for a 12% year-over-year increase.

With respect to unit costs, we're maintaining our cap [and fuel] guidance at $0.075 compared to $0.071 in '07. And lastly, we're maintaining our operating margin guidance in the range of 15% to 17%, compared to 19.2% last year. However, we are -- while we are -- in our last guidance had expected to come in at the low-end of the range, we're now expecting to come in at or above the middle of the range. I should add that our guidance is based on an average price of US Gulf Coast jet fuel net of hedges of $3.05, compared to $3.17 in our last guidance.

In terms of our preliminary guidance for '09, though advance bookings continue to look healthy, even the limited visibility we have with respect to '09 demand, and in light of recent developments regarding economies in the US and Europe, we're taking a cautious approach with respect to demand estimates and are assuming some softening of demand as economic growth in the region is estimated to pull back from 4.6% in '08 to 3.2% in '09, according to recent IMF estimates.

However, Panama is expected to grow on a GDP growth rate of approximately 7.8%, which, while down from 8.3% in 2008, is still a very healthy growth rate. As Pedro mentioned, Panama's economy will benefit in '09 from several projects either currently underway or soon to start, such as the Panama Canal expansion, hydroelectric grant projects, public and private infrastructure projects, and other -- and the expansion of ports, among others.

As such, we're currently estimating consolidated capacity growth of plus or minus 13%, with our core business, Copa Airlines, [scoring] plus or minus 16%. It's worth highlighting that more than 80% of this growth will be the full-year effect of capacity added during the course of '08.

We're estimating Aero Republica's capacity to remain flat as we continue to migrate from an MD-80 fleet to an Embraer 190 fleet. We are estimating load factors to come in at plus or minus 75%, slightly down from the plus or minus 76% estimated for '08.

Unit revenues of RASM is estimated come in at $0.136, down from $0.145 as a result of a slight decrease in load factor and yields. CASM ex-fuel is expected to remain flat at $0.075, and operating margin is expected to increase from a range of 15% to 17% to a range of 16% to 18% as we expect the drop in fuel prices to result in lower fuel costs, offsetting the estimated decrease in RASM.

We are assuming an average price of jet fuel per gallon net of turned hedges of $2.48 for full-year '09 compared to $3.05 for full-year '08.

With that, I'll turn it over to Pedro for closing remarks.

Again, thank you all for joining us today. At this time, we will be happy to open up the call for questions.

(Operator Instructions). Nikolai [Sabrille], Morgan Stanley.

If you could talk a little bit more about the analysis you've been doing about the regional economy, you said that you are being a little more cautious on the outlook. In the event that the US downturn is prolonged, in the event that we see Mexico go into a recession, Brazil's slowdown, which, let's face it, is the majority of Latin America -- how might that affect your business? Or what kind of sensitivities have you looked at, even if you could just talk about it qualitatively? And then, fitting in that question is, how much of your business really depends on Panama? If Panama is still growing strongly, it's obviously a good base. But, if the rest of the area is weak, then how can we think about your traffic composition in order to understand what impact that might have?

In terms of Panama, the Panamanian economy, as you know, has been running on all cylinders for the past couple of years. Last year's GDP growth was around 11%. This year is estimated to be about 8%. And next year, in recent estimates by IMF actually have it slightly lower than this year, a 7.8% GDP growth rate, which is still pretty good. So we feel pretty good about Panama.

As Pedro mentioned, there are many projects underway. These are projects that are not -- probably not would get canceled, even at downturn. So the Panamanian economy, we feel pretty comfortable with, and Panama, at the end of the day, accounts for 50% of our traffic on an OND basis and when you look at it in terms of sales, it is anywhere between 10% to 12%. So, Panama we feel comfortable with.

Obviously, you always take a cautious approach when you see everything that's going on in the world. But what -- Panama's economy should be insulated from a lot of what's going on.

In terms of the rest of the region, it's hard to say right now how the region is going to be impacted. The recent report that we saw from the IMF still has growth in the region. It's lower than what is expected for '08. But there's still growth. So how that might impact us, we would expect that there is net GDP growth. You might see some softness of demand, but when you look at how much fuel prices have come down, right now our expectation is that whatever we lose on the topline we're going to make up and then some on the fuel expense line. And the other point is that our hub is pretty well diversified. We're not overly reliant on any other country. Of the 22 countries that Pedro mentioned, besides Panama being our hub, and Panama is doing well, but we're pretty well diversified. So that should also help mitigate the impact of a downturn.

Mike Lindenberg, Merrill Lynch.

Good morning, all. I have a couple questions. If we go to your guidance for 2009, you highlighted the fact that the RASM decline is a gradual decrease in surcharges tied to lower fuel prices. Where are you -- with respect to currency, only because we have seen some meaningful declines or depreciation in some of your key currencies, like the Colombian peso versus the dollar to Brazilian real, just over the last four to five weeks. Any sense on, and then maybe what you're guiding to, on particular currencies for 2009?

We have seen significant devaluation in the past couple of months, especially in the Colombian peso, the Brazilian real. Right now, we're assuming for the [paninis] preliminary guidance, we're going to be firming it up in February when we do our full-year earnings call, fourth-quarter earnings call. Right now, we're assuming pretty much steady-state, meaning the Colombian peso is paying somewhere at around 2,300, which is where it is right now, on that range. A couple months was in the range of 1,900, so we're not assuming any strong appreciation. Also with the Brazilian real, we're assuming it's going to stay more or less at the levels we're seeing right now. That's what's embedded in our preliminary guidance.

Okay, good. My second question has to do with what you're seeing. Your pricing has been good. What are you seeing with the competition, number one? And sort of part two to that question, with the cost of capital having moved up pretty dramatically, certainly there has been a decline in fuel prices that would help any new entrant, or it would help any competitor. But what are you seeing on the competition side, both among the weak, the stronger competitors, as well as the weaker competitors? That's the only reason why, I just -- I brought up the cost of capital piece because it would seem that the current environment would be very difficult for some of the weakest competitors. Are we seeing them cut back capacity, for example? Any color on that front would be great.

We have not seen much right now in terms of action from our major or minor competitors. What we do know, and it's a little bit what you're saying, is that we are in a very good position. We're in a position of strength, both from the strength of our network, of our hub, which is probably twice as strong or complete as any other competing network or hub for intra-Latin America travel. Also in terms of our finances and liquidity position, and also in terms of our capital needs. We have the fleet we need going forward, we have enough flexibility there to adjust either way, and we have the financing in place. So we feel we're in a good position to take advantage of any opportunities that -- which may arise from this crisis.

Maybe as a follow-up on that front, I just -- I was looking at sort of the forward schedule, and I'm going to pick a market like Miami. Historically, that was a market where you always said, we have to be there but we're not the big player. It was American and there may have been another -- maybe another South American carrier or European carrier in that market. When I look at the Miami market for later this year, you may not have as many seats as American, but they're down to two frequencies. And I now think you have a frequency advantage. And so, I'm just -- I'm wondering if that's playing out in other markets where, you know, you're maybe not as a big player and because of what's going on, you're now becoming a much stronger presence. Maybe that's the connectivity of the hub, etc.

And that has been gradually happening over the last few years, thanks to the connectivity of the hub and just the general strength of Copa and its business model. So we see more of that quarter after quarter, so as you were implying, if anything, we will gain strength in that direction.

Very good. Thanks, nice quarter.

Duane Pfennigwerth, Raymond James.

This is Jim Parker, then Duane has a question. Victor, I want to pursue this 5% decrease in yield that it appears you're anticipating in '09. And I believe that you indicated that, of the price increases you have affected to offset higher fuel, that only about 38% were in the form of surcharges. Are you going to initiate reductions in the surcharge? Or are you going to follow the competition?

And then secondly, as a part of that, would you actually just reduce the fare base, which most of the increase to offset fuel was in the fare base and not in the form of surcharge?

As I think when you look into medium and long term, as fuel prices come down, you would expect fuel surcharges to also come down. At the end of the day, we're always [revenue] managed, so -- the base fare will be adjusted to reflect demand conditions in each market. Are we going to be the ones to initiate a decrease in fuel surcharges? If you look back, that has not been our tradition. But having said that, again, with fuel coming down, you would think that fuel surcharges would come down. And we will continue to revenue management through to [macaroni] managed to maximize yield as we always have.

Duane?

Victor, can you give us quarterly detail on the level and the composition of your fuel hedges, please?

On the fourth quarter of '08, when you look at consolidated volume for Copa Holdings, we have approximately 25% of our volume hedged. Next year --

I'm sorry, at what price?

We have a mix. We have US Gulf Coast jet fuel swaps at 249. We also have the crude oil collars with a floor of 114 and a call, as a ceiling, 152.

In terms of '09, the percentages -- again, on a consolidated basis, for the first quarter is 31%, second quarter 25%, third quarter 18% or so, and the fourth quarter is around 10%. And it's mostly crude oil collars, and the puts are more or less in the range of 110 or so. And the calls are between 145, 150, except in the fourth quarter where the put is at 95 and the call is at 110. So, for 2010, we do have hedges, but only 4% for each quarter of the year.

Thank you very much.

Stephen Trent, Citigroup.

Good morning, gentlemen. Forgive me, I didn't get to hear the entire call, so I apologize if this is a repeat. But did you mention something about advanced bookings? And if you did, I was wondering if you might give us a little color on how advanced bookings look on the routes that you recently launched.

What I mentioned was that advanced bookings for the fourth quarter look good. And we have to bear in mind that we have limited visibility. We have a good feeling for what's going to happen 45 days to 60 days ahead. So that takes us pretty much to the end of this quarter. So, in that sense, we have -- we feel good about our bookings for this period.

But obviously, that also includes business travelers that book later. So, it depends on our projections for business traffic. But again, what I said was that advanced bookings so far look good, look normal, similar to what we've been seeing in the previous quarter. So we've seen no slowdowns, no slowdowns so far.

Great, thank you. Just one other thing, Pedro or Victor. Looking at the competitive landscape, now that fuel has come off significantly, are you seeing any actions from competitors, Aviant or Grupo Taca or others that are raising eyebrows on your side of the fence? Or does that still look fairly steady-state?

Steady-state. We haven't seen any major actions from our competitors. I mean, different to what has been going on throughout the year, or to what we know in plan already. I should say also that the drop in fuel prices has been quite rapid. In a month and a half or so, so probably not enough time for anybody to plan any crazy action. But we have seen a very rational environment in Latin America for the past few years. And we see no reason why that would change going forward.

That's great. Thanks, Pedro.

Keith [Weisman], Calyon Securities.

My first question relates to the type of traffic you're seeing, especially with respect to your forward bookings. Have you noticed any pattern of travelers downgrading from premium affairs to -- economy-based affairs, are you seeing any change in booking patterns there?

No, we haven't, so far.

And in terms of your costs, are there any cost lines that we should be concerned about in terms of currency inflation?

Actually, with the devaluation that you're seeing in the currencies and the assumption that we're making for '09, actually on the cost side, you'll get a benefit. So, a slight benefit.

Okay, that's all I had. Thank you.

(Operator Instructions). Gustavo [Morera], UBS.

This is actually Jose Alvarez. Just one question on capacity growth. I noticed your '09 guidance includes -- 10 billion worth of ASMs. And I don't have my model in front of me, but what is that on a year-over-year basis in terms of growth?

That's plus or minus 13% consolidated. If you break it down, that would be Copa Airlines growing at plus or minus 16%. And highlighting, again, the fact that more than 80% of that Copa Airlines segment growth is actually added capacity during the course of the year 2008.

And if -- can you go over what your alternatives are in terms of reducing the speed of growth, if needed? I'm guessing you'd turn to aircraft utilization first and then next, potentially trying to renegotiate some of your contracts. Have you given any thought to any of that?

We always do. We actually have a lot of flexibility embedded in our fleet plan. Next year, for example, '09, we are not planning to grow in terms of additional aircraft. In part, thanks to the Boeing delays, but on top of that, we have at least two lease expirations -- two aircraft that have lease expirations which we could return next year. So that will be then a reduction in fleet size, if needed. And we can also do earlier grounding of our MD-80s, which is always an efficiency gain by an early grounding of an inefficient MD-80.

For 2010, we have four lease expirations. And then also, the other aircraft in our fleet plan for 2010 are all options, which we have not exercised yet. And we still have some time before deciding on exercising those options. So a lot of flexibility there. I should add, however, that given what's going on, we also are looking at, not at '09, but at 2010 and beyond, fleet needs, and we will look at opportunities to add aircraft for future delivery. As you know, it's better to order during down times and take delivery during peak than the other way around. So hopefully, we will have opportunities to do that in the near future.

The two aircraft that are expiring, the two leases that are expiring, can you tell us what these aircraft are?

NG -- 737 NG. Next generation. 700.

Perfect. Okay, thank you very much.

That concludes the question-and-answer session today. At this time, I would like to turn the call back over to Mr. Putaturo for any additional or closing remarks.

I just want to thank all for participating in today's call. Rest assured that our team remains focused on the opportunities and challenges ahead. I'm more committed then ever on delivering world-class results and value to our shareholders. Have a great day.

This does conclude today's teleconference. You may now disconnect, and have a good day.