Copa Holdings SA (CPA) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Copa Holdings fourth quarter and full year 2009 earnings call. (Operator Instructions). As a reminder, this call is being webcast and recorded, February 11, 2010. Now I'd like to turn the call over to Joe Putaturo, Director of Investor Relations. Sir, you may begin.

Thank you very much, operator. And welcome, everyone, to our fourth quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings and Victor Vial, our Chief Financial Officer.

First, Pedro will open up with an overview of our fourth quarter and full year highlights, followed by Victor, who will discuss our financial results. Immediately after, we'll open up 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'll discuss non-GAAP financial measures. A reconciliation of non-GAAP to GAAP financial measures can be found in our fourth 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 our 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'd like to turn the call over to our CEO, Pedro Heilbron.

Thank you, Joe. Good morning to all and thank you for participating in our fourth quarter and full year 2009 earnings call. I would like to begin by congratulating our coworkers for their efforts in delivering a great fourth quarter and another year of outstanding results.

Looking back at '09, it was a year of many accomplishments and highlights. Copa Holdings achieved another year of double-digit passenger and capacity growth, despite weaker regional economic conditions and the H1N1 flu crisis. For full year '09, we reported a net income of $240m, or diluted earnings per share of $5.50. Excluding special items, our net income came in at $202m, which represents a 16% increase over 2008 adjusted net income.

Our consolidated operating margin came in at 17.8%, despite a 13% drop in consolidated unit revenues and a charge of close to $20m, related to Aero Republica's return of its remaining MD-80 aircraft.

Our adjusted operating margin, which excludes these special fee charges, came in at an outstanding 19.4%. These results are even more impressive when you consider that during the year, we recorded more than $40m in realized fuel hedge losses and experienced the negative effect of the H1N1 flu crisis, which hit us in the second quarter.

During 2009, our team once again delivered excellent operational performance, as Copa reported on-time performance of 88% and a flight completion cycle of 99.4%, maintaining its position among the best in the industry. Additionally, Aero Republica's on-time performance came in at 90.1%, leading in both the domestic and international market in Colombia.

So we continue to deliver what our passengers expect from us, a superior network for intra-Latin America travel, with more choices, better schedules, and a world-class product.

At the same time, Aero Republica continued expanding internationally and contributing to our consolidated network by initiating flights to Quito, Ecuador from Bogota, as well as adding new frequencies from Baranquilla, Colombia into our Hub of the Americas in Panama City.

Among other highlights for '09, during the year, Copa Airlines and Boeing announced firm orders for 15 new Boeing 737-800 aircraft for delivery between 2010 and 2015, with options for eight additional deliveries between 2015 and 2017. We now have firm orders and options for 33 Boeing 737-NG aircraft, as well as 11 options for Embraer 190s. At the same time, we obtained preliminary commitment from the Export/Import Bank of the US to support the purchase and financing of most of our scheduled aircraft deliveries for the next three years.

In August, as part of our ongoing e-commerce initiatives, Copa Airlines launched its new website, which we expect will be a valuable tool in our efforts to increase direct sales and lower distribution cost going forward.

In October, the Panamanian government issued the order to proceed with phase two of the expansion project of Tocumen International Airport in Panama. This new expansion adds 12 international gates to our hub, bringing the total to 34, more than the combined gates of our competing hub airports. We cannot overstate the importance of this expansion, as it will allow us to grow our network in the foreseeable future without infrastructure limitations that face our competition.

With regards to our fleet, Copa Holdings ended the quarter with a consolidated fleet of 56 aircraft, one more than in '08. During the year, we received four aircraft, two Boeing 737-800s and two Embraer 190s. In addition, in the third quarter, Aero Republica returned three of its four remaining MD-80 aircraft, as part of its fleet modernization and renewal program.

Now looking at the main highlights for our fourth quarter. Consolidated passenger traffic increased nearly 13% as load factors increased more than 5 percentage points year over year. And we're actually stronger than the third quarter, which is our high season.

Net income, excluding special items, came in at $66m, or diluted earnings per share of $1.50, flat against last year's strong fourth quarter earnings, which represents a significant improvement against our third quarter as a result of an improvement in unit revenues. Excluding special items, our operating margin for the quarter came in at an industry-leading 22.3%.

I'm also pleased to highlight that we ended the quarter with a very solid balance sheet and cash position. Our Company continues to consistently deliver above-average growth and industry-leading margins. We saw this back in '08 when we experienced record fuel prices, and now again in '09 with a difficult economic environment and a reduction in business travel.

On the economic front, it is estimated that for 2009, Latin America had a GDP contraction of less than 2% as the region emerged from a short and mild recession. And it's on the road to recovery since the third quarter of last year. This recovery will continue in 2010, as GDP is expected to grow between 3% to 4%, led mainly by South America, where GDP is expected to grow 4.7%. Central America and the Caribbean are expected to grow 3% and 1.8%, respectively. So it appears that the worst is behind us and the region is once again on a growth path.

Although Panama's economy showed lower growth, with regards to '07 and '08, it grew close to 3% and was among the best performing economies in the region. Currently GDP forecasts for 2010 are between 4% to 5% as the Panamanian economy benefits from increased foreign trade and infrastructure projects, such as the Canal expansion.

Now turning back to our business. During the fourth quarter, passenger traffic grew nearly 13% on a 5% capacity expansion. The strength in traffic was also accompanied by yield improvement as we started seeing a recovery in business travel and higher load factors allowed us to better revenue management. We have now seen two consecutive quarters of both load factor and yield improvements, with RASM 21% higher than our second quarter and 8% higher than the third quarter.

Earnings for Aero Republica, excluding the charges they took in the quarter related to the return of MD-80s, they came in with solid results. Adjusted operating earnings came in at $7m which represents an operating margin of almost 11%. Although yields were down significantly as a result of a more competitive air environment in the Colombian domestic market, RASM decline was mitigated due to a 17% year-over-year increase in traffic, which led to a nearly 10-percentage-point increase in Aero Republica's fourth quarter load factor.

Aero Republica's results continue to be positively impacted by its transition to its modern gauge and more efficient Embraer fleet, as well as growth in their international operations, which represented 20% of total capacity in Q4 '09. As a matter of fact, in December, Aero Republica -- (technical difficulty).

Thank you for standing by. You're currently on line for the Copa Holdings conference call. At this time, we are experiencing technical difficulty and will be back underway momentarily. Thank you for your patience. Please remain online.

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Okay. I think we're back online. Sorry all for this technical difficulty. I think I was speaking about Aero Republica when we got cut off. So excluding the charges they took in the quarter related to the return of MD-80s, Aero Republica came in with solid results.

Adjusted operating earnings came in at $7m, which represents an operating margin of almost 11%. Although yields were down significantly as a result of a more competitive air environment in the Colombian domestic market, RASM decline was mitigated due to a 17% year-over-year increase in traffic, which led to a nearly 10-percentage-point increase in Aero Republica's fourth quarter load factor.

Aero Republica's results continue to be positively impacted by its transition to its modern gauge and more efficient Embraer fleet, as well as growth in their international operations, which represented 20% of total capacity in Q4 '09. As a matter of fact, in December, Aero Republica launched a third international destination when it began service to Quito from Bogota. In addition, Aero Republica has announced it will be serving the city of Guayaquil later this year.

With regard to 2010, we continue to notice a considerable improvement in demand and a healthier yield environment. Business traffic is improving and we're currently seeing higher business class load factors and strong traffic trend, which should allow us to continue driving unit revenue improvement.

In terms of fleet, we ended the year with a consolidated fleet of 56 aircraft, compared to the 58 aircraft we mentioned in our last earnings call. This is the result of delivery delays in two aircraft we expected to receive in December and which were finally delivered last month. For 2010, we expect to end the year with 63 aircraft as Copa Airlines receives a total of eight 737-800s and Aero Republica returns its last MD-80 aircraft.

Our 2010 growth plan, which calls for a 10% capacity growth, will mostly be focused on incorporating new frequencies to existing markets and may include new destinations in the second half of the year. The new frequencies will, for the most part, be added in markets that are consistently running at very high load factors and where the marginal cost of adding this service low. In fact, we have recently announced new frequencies to Sao Paolo, Los Angeles, Guatemala and Punta Cana, and more will be announced later in the year.

As you can see, we continue strengthening what is currently the most complete and convenient intra-Latin American network, providing our passengers with better options in terms of destinations and frequencies.

As Victor will detail later on, our updated 2010 guidance reflects an improved business outlook, which should result in stronger top-line growth which, along with our continued commitment to maintaining a low cost structure, should allow us to deliver year-over-year operating margin expansion.

To summarize, we're very pleased by our fourth quarter and full year results. We faced a challenging year on many fronts. And we were able to deliver another year of strong growth and very solid results. The regional economic environment is improving. Demand trends continue to be healthy. And we're seeing improvement in business traffic, which gives us optimism for this year.

And last but not least, our markets continue to grow. And we have the team, the resources and the right business model to take advantage of opportunities ahead, maintain our regional leadership and continue delivering world-class results.

Thank you. Now I will turn it over to Victor, who will go over our fourth quarter and full year results.

Thank you, Pedro, and good morning everyone. Thanks again for joining us. First let me begin again by joining Pedro in congratulating each and every one of our coworkers for another outstanding year. They continue to deliver exceptional results and we can't thank them enough for their efforts and hard work.

Pedro mentioned Copa Holdings had another year of strong financial results, reporting net earnings of $240m, which translates to $5.50 in diluted earnings per share. Including special items, which include a $19m special fleet charge related to the termination of Aero Republica's MD-80 fleet and a $58m mark-to-market gain, related to fuel hedge contracts, adjusted net earnings in '09 reached $202m, reflecting an increase of 16% year-over-year.

With respect to the fourth quarter, Copa Holdings reported net income came in at $70.4m, which translates to diluted earnings per share of $1.61. Excluding special items, adjusted net income for the quarter came in at $65.7m, slightly above last year's adjusted net income. Special items for the quarter included a $4.8m special fleet charge related to the termination of Aero Republica's MD-80 fleet and a $9.6m mark-to-market gain related to fuel hedge contracts.

Fourth quarter showed solid traffic growth on a year-over-year basis as revenue passenger miles increased close to 13% on 5% capacity expansion. This resulted in high year-over-year load factors for both Copa Airlines and Aero Republica. In fact, our system-wide load factors during the fourth quarter increased more than 5 percentage points, to 79.4%, with Copa Airlines coming in above 80%.

In addition, yields during the past two quarters have been climbing, although on a year-over-year basis, yields for the quarter were down 11.7%, contributing to a 5% decline year over year in passenger revenue per available seat mile. On the other hand, the impact of lower unit revenues was mostly offset by lower unit cost, driven mainly by lower fuel prices, enabling us to deliver a 22% adjusted operating margin for the quarter.

In terms of revenues, Copa Holdings fourth quarter operating revenues came in at $343m for a 1% year-over-year decline, with Copa Airlines and Aero Republica showing revenue declines of 1% and 4%, respectively.

On the expense side, fourth quarter '09 operating expenses increased 3.5% year over year on 5% capacity expansion while, on a unit basis, cost per available seat mile decreased 1.6% year over year, to $0.109. Excluding fuel and special fleet charges, unit cost increased approximately 5.2% year over year, to $0.077, mainly driven by higher labor costs to support capacity expansion and higher passenger servicing cost related to an increase in passengers carried.

In terms of our main operating expenses compared to the fourth quarter of '08, fuel expense decreased 15%, driven by a 19% decrease in the effective price for a gallon of jet fuel, including realized hedge losses, partially offset by a 5% increase in gallons consumed, resulting from increased capacity.

Salaries and benefits increased 17%, driven mainly by an increase in operating headcount to support capacity expansion and a stronger Colombian currency.

Passenger servicing increased 17%, mainly as a result of an increase in passengers carried. Commissions increased 6%, mostly due to higher average commission rate.

Reservations and sales increased 7%, driven mainly by a 14% increase in passengers carried. Maintenance, materials and repairs increased 13%, mainly as a result of additional capacity and the timing of maintenance events at Copa Airlines.

Depreciation remained flat at $11.3m. Flight operations, landing fees and rentals, combined, increased 6%, mainly as a result of increased capacity. Other operating expenses increased $1.1m. And lastly, as mentioned earlier, we recorded $4.8m in special fleet charges at Aero Republica.

Other operating income and expense totaled a net non-operating gain of $6.4m, the main components of which are net interest expense of $5.2m and a $9.6m non-cash gain related to mark to market of hedge contracts.

Regarding operating earnings, the Company's operating earnings, excluding special fleet charges, came in at $76.6m, compared to $84m in Q4 '08.

With respect to profit margins, our adjusted operating margin came in at 22.3%, compared to 24.3% in Q4 '08.

Turning now to fuel hedges, during the fourth quarter, we had 25% of our volume hedged at an average equivalent price in the range of $74 a barrel and currently have hedge contracts as follows. For 2010, 24% at an average equivalent price in the range of $77. And for 2011, 10% at an average equivalent price in the range of $68.

Moving on to the Company's balance sheet, assets at the end of the quarter totaled $2.1b, while owners' equity increased to $867m. And debt plus capitalized leases totaled approximately $1.2b.

Debt at the end of the quarter totaled $845m, 43% of which is US Export/Import Bank guaranteed debt. And the average lender rate for the fourth quarter, including fixed and variable rate debt, came in at 2.3%.

In terms of cash, we ended the quarter with $356m in cash, short-term and long-term investments, which represents approximately 29% of the last 12 months' revenues. In addition, it's worth highlighting that during the year, the Company funded from cash approximately $120m in pre-delivery payment related to Boeing aircraft scheduled to be delivered in 2010 and 2011.

So, in summary, despite a soft economic environment, in addition to the H1N1 crisis which affected us earlier in the year, we delivered yet another year of strong capacity expansion, with 12% year-over-year ASM growth. Our team delivered another year of solid financial results, with operating margins coming in at 19.4%. Our balance sheet keeps getting stronger. And, most importantly, we continue to be well positioned for the future.

In terms of our 2010 guidance, as you may recall, last November we issued our preliminary guidance. At that moment, we did not have much clarity on when or to what extent we would get improvement in business travel. Since then, we are seeing a positive improving tendency in business traffic, as well as yields in general. And though we expect some of these gains will be offset, partially by a lower RASM from Venezuela, as a result of the recent devaluation of Venezuelan currency, we are now expecting higher unit revenues for the year.

Therefore we are revising our guidance for full year 2010 as follows. ASMs remain the same as in our previous guidance at plus or minus 10.9b ASMs for a 10% year-over-year increase. We're increasing our consolidated load factor guidance from plus or minus 75% to plus or minus 76%, compared to 74.6% in '09.

We're increasing our RASM guidance from plus or minus $0.128 to plus or minus $0.13, compared to $0.126 in '09, representing a 3% year-over-year increase. We're also increasing our CASM ex-fuel guidance, excluding special fleet charges, from plus or minus $0.07 to plus or minus $0.071, which compares to $0.072 in '09.

And we're now projecting our full year operating margin to come within the range of 20% and 22%, which compares to our previous guidance of 19% to 21%, and with '09's adjusted operating margin of 19.4%. Our fuel price assumption for the year remains unchanged at [$2.28] per gallon, including into plane and net current hedges, compared to $2.17 in '09.

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

Thank you, Victor. Now we will open up the call for some questions.

(Operator Instructions). And we'll go first to Stephen Trent with Citigroup.

Good morning, gentlemen. And thank you for your comments.

Hi Steve.

Hi. Just a question, actually looking at what you said about the competing regional hubs. Have you noticed any shift at all or any movement in the competition on some of your trunk routes since German Efromovich, Avianca took over Grupo Taca? Or do you think it's more too early? I'm just sort of curious as to if you're seeing any changes at all in the wider region.

Well we have not seen any changes. There's no material or significant changes since that happened. There hasn't been much movement recently actually in the competitive landscape. It's pretty stable. Plus I should add that Panama has such an infrastructure advantage over competing hubs that we don't think that's going to change overnight.

Okay, super. Thanks, Pedro, and appreciate the time again.

Thank you, Stephen.

We'll go next to Michael Linenberg with Bank of America.

Yes, hi. Good morning, everyone. Two questions. Pedro, your comments on changes to the competitive situation in response to [Aeria Taca. Does that also pertain to the Colombian market? And you put out your January numbers just a few days ago and we saw that the Aero Republica loads were up nicely. But I do know that's being driven by the stimulative activity. What are you seeing in that competitive market and how big is [Aris] today? Do we see more planes going into that business? What is your sense of how you think they may be doing, etc.?

Well the domestic Colombian market has changed quite a bit. There is more low-cost competition, which has a lower yield, but at the same time, stimulated the market. And we have mitigated a good percentage of the yield drop by higher loads. And not everything, though. So there's a net negative effect. But it's really not -- it has not, so far, been material to Copa Holdings.

Aero Republica is well positioned, with a fleet of 100% brand new Embraer 190s with the right gauge for the size of a market. And they're also emphasizing international growth and not growing domestically. So, so far we've done okay, even with the increased domestic competition.

And Mike, just to add to that -- this is Victor.

Hi Victor.

To put it into the right context, when we acquired Aero Republica four years ago or so, they were 100% a domestic operator. Right now about 25% to almost 30% of the capacity is actually international capacity, most of it into our hub. But actually, some of that actually into other cities in the region. And at the end, when you look at the ASMs in Aero Republica, they end up representing around 15% of the total ASMs of Copa Holdings, just so you keep that in mind.

Okay, good. That's helpful. And then you commented, Pedro, about the pickup in business travel and you're starting to see yields move up, loads move up. Is it across your system or is it Panama south is maybe stronger than Panama north? Any color on where you're seeing the business travel pick up and in what part of your region?

It is across our system. We have a very balanced network. And seldomly do we see just one region strengthening, although there are obviously differences. But right now it's across the region. And we're actually seeing business class load factors which are higher on a year-over-year basis.

Okay, good. And then my last question, just what's the timing on whether or not you decide to go Star or another alliance grouping? Is this a 2010-type decision or is it beyond? Do you remain independent and keep bilateral ties with Air France, KLM on one hand and Continental on the other? What is the latest on that?

It's a 2010 decision. It's going to happen this year, probably towards the middle of the year. And the decision we have to make is between Star and remaining independents. With our relationship with Continental, we're not going to go to another alliance. So it's either Star or independent. And we're going to do as we've mentioned before, what generates the most revenues for Copa Holdings. So we think we're in a comfortable position and we're confident that we'll make a good decision for Copa Holdings.

And Mike, just to add to that, Star or independent, but still independent -- it still includes Continental. Our alliance with Continental is longstanding and that would not be affected, as a matter of this decision being made.

Okay, very good. Thank you.

Thank you, Mike.

We'll go next to Nick Sebrell with Morgan Stanley.

Hi, gentlemen. I was wondering if you'd talk a little bit about fleet flexibility. Given the positive environment that we seem to be experiencing in most of the region, what's your ability to raise capacity growth, if you find it warranted in the next 12 to 24 months? That's the first question.

And I was wondering if you could talk, within the fleet and looking forward, do you think you're more likely to add, when you do add, larger planes or smaller planes? What do you think is the right mix given your business model, between the 737-800s, the 700s and of course, the 190s?

Okay. This is Pedro again. In 2010, during this year, we're receiving eight 737-800s. So we don't think we're going to be changing that number. We won't be increasing that number. In 2011 and beyond, we do have flexibility, which comes mainly from -- in 2011 it comes mainly from renewing leases, airplanes that we have on lease, expiring those years, which we plan to return but which we could renew those leases in 2011 and 2012. I think we have around -- between five to seven aircraft, actually seven -- well between -- in 2011 and 2012 it's a total of six aircraft that come off lease. We could renew some or all of them.

There is also plenty of aircraft available from lessors, from operating lease companies in those years. So we could lease in aircraft. And then we can always go back to Boeing. 2011 looks kind of tight, but we have options in 2012. And there is availability in 2012. So we feel that we have enough flexibility to increase our fleet as needed in the coming years. And we're actually ready to do so if that's what it calls for -- if that's what the market tells us.

And to answer the second part of your question, Nick, this is Victor. With respect to the mix, we should be close in 2010 with approximately 26 190s and 37 NGs. And looking forward, most of the aircraft that we're going to be taking delivery of will be the NGs, the Boeing aircraft. And actually, we're focusing more on the 800, rather than the 700. And that's a function of how the markets are growing and the additional frequencies we're adding and how the markets are behaving. So in the next two or three years, you may see two to four additional 190s but the growth is really coming from the Boeing fleet.

Okay, very interesting. And then, when you look towards growth in the next 12 months, a little bit more than that, what regions are growing fastest within those areas that you serve? Is it more South America? Is it Caribbean? Is it north/south traffic?

Well, what's interesting, we just announced four new -- we just announced frequencies to four new markets -- I mean to four existing markets, and one each in every region, LA in North America, Guatemala in Central America, Punta Cana in the Caribbean and Sao Paolo in Brazil. So, again, we keep a balanced network. And we think growth is going to continue to come from each one of those four markets.

So it seems then that the growth is pretty well spread?

Definitely.

And if we're talking about growth, Nick, maybe it's appropriate to break down the growth of ASMs per quarter because actually this year the growth is going to be heavier on the second half of the year. So when you look at ASM growth, that 10% projection that we gave you in our guidance, the first half of the year is going to be around 6%, 7% growth. And then in the second half, you're looking more at 15%, 16% growth.

And then if you break it down by segment, the heavy growth again is going to be in the Copa segment, Copa growing around 12% and then Aero Republica growing somewhere around 6%, 7%.

All right, very helpful. Thank you.

Thank you. (Operator Instructions). And we'll go next to Duane Pfennigwerth with Raymond James.

Hi. Thanks. Good morning.

Good morning.

I wonder if you could give us some detail behind your 3% RASM growth in 2010. It just feels conservative, given the 13% reduction you had last year. And when do you start to see yields turn positive, given the easing of the comps that you have here in the near term?

Right. That $0.13 RASM guidance we gave, which is a 3% year-over-year increase, may well be conservative. I would just highlight the fact that we're giving full year guidance for RASM. And it's February, so it's rather tough, especially when the big growth in terms, already as said, is actually coming in the third or fourth quarter of the year. So when we have our next earnings call in May, we'll have more clarity on how third quarter looks. And actually, as you know, third quarter is when our high season occurs. But right now, that's -- based on the recent trends and based on the recent traffic stats and demand trends, the RASM of $0.13 is what we feel comfortable with.

In terms of yield improvement on a year-over-year basis, as you know, we've mentioned that business traffic has been picking up in the past few months. And more clearly now, when we look forward, we expect, looking at yields by quarter, the improvement to be heavier in the second and third quarter, and in the first quarter, actually even or a little bit below last year because, as you may recall, last year's first quarter was actually pretty strong for us.

And then the fourth quarter of 2010 should be slightly above, maybe even with '09 because in '09, as I mentioned, we had a pretty good quarter, pretty strong quarter. And that's when yields started picking up. And we had the heavy ASM growth, as I mentioned earlier.

Thank you, Victor. I have one more and then I think Jim has one. I'm not sure if you can quantify this, and we haven't talked about it in awhile. But how much do you think swine flu impacted your RASM in 2009?

Swine flu in 2009, if I recall correctly, the impact to our revenues was roughly maybe $15m or so. It impacted us in April, May, and to a lesser extent in the third quarter. So obviously we don't expect that to happen in 2010. And I think the point you're driving at is that maybe that should result in higher RASM guidance for 2010. But I would also mention, as I said in my script, that we are having an impact as a result of Venezuela devaluation, which means it's offset fully by the rest of the network. But that has an impact too.

Thank you, Victor. Jim.

Victor and Pedro, can you provide a little more insight into the Venezuelan currency devaluation? So it's approximately 10% of your revenue. And you peg your fares to USD, so essentially, your fares in Venezuela should have gone up 100% to offset that currency devaluation, but that's not practical. Your costs should have gone down as well. How do we model that? How do we model the RASM impact?

Well it's included in our RASM guidance of $0.13 for 2010. And we try to stay away from giving RASM guidance by market. But what I can give you, I guess directionally, is that definitely we don't expect passengers to pay twice as much in bolivars overnight. And that's what happens when you price in dollars and the currency goes to half the value it used to have.

But as you know, we revenue manage our fares, as always. What we're seeing basically is that we're selling more in the lower fare buckets. That's not a surprise. And we're also actually seeing also an impact on load factors, which we would expect in the short term. And then in the medium to longer term, we should see some recovery as things adjust to a new reality.

So I guess if we say how are yields being affected and how are load factors being affected? What we've seen in the past few weeks is our yields being down somewhere around 20% or so and load factors being down around 10%, maybe as high as 12%, 13% or so. So it is having an impact.

But I would drive the point again that that's the whole strength of our business model, that we don't over depend in any one market. We've seen this before in the past, where we have a country with some kind of crisis. But the rest of the network makes up for it. In 2010 we see the same thing happening. Venezuela had a devaluation. It's having an impact. But we see the rest of the network performing quite well. So that's how we arrive at the $0.13 RASM guidance.

Okay. Victor, if Venezuela is 10% of your revenue, approximately how much of your costs are in Venezuela?

It's going to be much less, given -- this is Pedro, given that the costs you're going to have in Venezuela -- well fuel is always in dollars. So you're talking employees and rent mainly, and airport costs, which won't -- will not amount to a similar percentage.

It's going to be probably as little as 3%, or maybe even below that.

Okay, thank you.

Thank you. We'll go next to Augusto Ensiki with Morgan Stanley.

Hi. Good morning, gentlemen. Just a question on your fuel hedges. If you could repeat once again what you said about 2010 and 2011 hedges, and also if you have a quarterly breakdown of those hedges. Thank you.

Sure. For first quarter of 2010, you're talking about 30% of the volume hedged. For second quarter, around 27%. For the third quarter, close to 23%. And for the fourth quarter, around 10% or so. For 2011 it's around 11%.

And is all at the -- that was at the strike price of $77 for 2010?

Yes, it's equivalent pricing is what I gave. And we had a combination of jet fuel swaps, but also crude oil. So the prices I mentioned were equivalent in terms of crude oil per-barrel pricing, including [prices].

Okay, great. Thank you very much.

Thank you. And with no further questions, I'd like to turn our program back over to Mr. Heilbron for any additional or closing comments.

Thanks, sir. This concludes our fourth quarter earnings call. Thank you all for being with us. And thank you for your continued support. Have a great day and hope to see you at our Investor Day conference next month. Take care.

That does conclude today's conference. Thank you for your participation.