Copa Holdings SA (CPA) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings First Quarter Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this call is being webcast and recorded May 6th, 2010.

I will now turn the conference call over to Joe Putaturo, Director of Investor Relations. Sir, you may begin.

Thank you very much, operator, and welcome, everyone, to our First 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 first quarter 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 that you could limit yourselves 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 first quarter earnings release, which has been posted on the Company's website. 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 First Quarter Earnings Call. As always, my gratitude and recognition goes out to our co-workers for delivering another strong quarter, and setting us on the path to what should be a good year.

Among the main highlights for our first quarter, Copa Holdings recorded net income of $37 million, or diluted earnings per share of $0.84. However, excluding $20.2 million in special charges, which are detailed in our earnings release, net income came in at $57 million, or diluted earnings per share of $1.29, close to 3% above what was a strong first quarter '09.

Our operating margin for the quarter came in at an industry-leading 21.1%, as year-over-year RASM improvement contributed to a 9% increase in operating revenues on 3% capacity expansion. We also continue to maintain very low and competitive unit costs, with CASM ex-fuel declining on a quarter-over-quarter basis on similar capacity. Our balance sheet remains very solid, and we have a robust cash position, which represents 28% of our trailing 12-month revenues.

On the operational front, in the first quarter, Copa Airlines took delivery of three Boeing 737-800s, while Aero Republica in January returned the last MD-80 in its fleet. As a result, our consolidated fleet, at the end of the quarter, stood at 58 aircraft -- 43 at Copa Airlines and 15 at Aero Republica.

We're pleased to say that having concluded its fleet transition program, today Aero Republica has one of the youngest fleets in the world, with an average age slightly above two years. In March, Aero Republica launched a new international route, initiating service from Bogota, Colombia, to Quito, Ecuador, Aero Republica's fourth international destination. In 2010, Aero Republica will continue to bolster its international presence, which already represents more than 20% of its capacity.

For the first quarter 2010, Copa Holdings reported on-time performance of 90.7%, and a flight completion factor of 99.5%, with both Copa and Aero Republica coming in about 90% in on-time performance, which places us among the best in the industry. On a more recent note, yesterday, our Board approved a dividend of $1.09 per share, equivalent to 20% of our 2009 net income, payable on June 15th to shareholders of record as of May 31st.

As you may recall, earlier this year, our Board of Directors changed our dividend policy from 10% of annual net income to now allowing for the distribution of up to 20% of annual net income. This change in policy reinforces our Board's trust in the Company's performance, cash position, and continued financial strength.

Turning back to the first quarter, traffic was very strong with both Copa and Aero Republica showing robust year-over-year load factor growth. Our traffic strength continues to be broad based, growing across all regions. Going forward, we're seeing positive strength in business travel, as corporate accounts get back to business and increase overall travel spending. Additionally, our advanced bookings are up versus last year, and we're also seeing some strength in near-term bookings. As a result, we're again projecting year-over-year yields and load factors to be up every quarter for the remainder of the year.

As you might recall, during the second quarter last year, we began to suffer the negative impact of the H1N1 flu crisis, as well as a more pronounced effect of the global economic downturn in our region. This year, absent H1N1, and expecting a stronger regional economic environment, our revenue outlook is positive and year-over-year comps should be easier in the following quarters.

We are encouraged by our region's resiliency and quick recovery from the global crisis. In fact, recently the IMF increased GDP growth forecasts for most countries in Latin America, and is now expecting regional growth of 4% for 2010. We're also pleased by Panama's economic performance and long-term outlook. In 2009, Panama was able to avert the global economic crisis and come in with a 2.4% GDP growth. Current consensus for 2010 is that Panama's economy will grow approximately 5%, and it's also expected to come in above our regional growth rate for the foreseeable future.

In addition, in March, Panama was awarded investment grade rating by Fitch, placing it among a select group of Latin American countries such as Brazil and Chile. This upgrade reflects a sustained improvement in the country's finances and investment climate, and will certainly attract more foreign investment into our country in the years ahead.

Turning to our fleet plan and expansion plan, in 2010, we will receive eight 737-800 aircraft, and expect to end the year with a consolidated fleet of 63 aircraft. This should result in consolidated capacity growth of approximately 10%, as most of our -- of the incremental aircraft enter into operation in the second half. The added capacity, which will come mostly from Copa Airlines, will for the most part come in the form of new frequencies, which will start to be added in June, before our July and August high season.

Among the new frequencies, we have already announced our fourth daily non-stop to Guatemala City, a third daily frequency to Sao Paulo, a second daily frequency to Los Angeles, a second daily to Punta Cana, and we're adding additional flights to a number of markets with less than daily frequencies. More Copa frequencies and new destinations will be announced later this year. We also expect Aero Republica to continue adding new international destinations, which will continue complementing our consolidated network.

In addition, I'm pleased to say that the new Tocumen Airport expansion, which will support our network growth from 2011 onward, is on track to be completed in the first half of next year. This expansion, without a doubt, places us in an even greater competitive advantage over other regional hubs, which either have or will face infrastructure limitations going forward. The 12 new gates that will be added to our airport will further strengthen and consolidate the leadership of our Hub of the Americas as the best connecting points for intra-regional travel.

Turning now to the competitive environment, capacity growth in our region is being deployed conservatively, and yields are improving as a result of stronger underlying demand. One exception to this is in Colombia, where aggressive fare competition, mainly in the domestic market, has been taking place for the last few quarters. However, we have seen significant traffic stimulation, and as a result of the lower average fares. So, the impact in yields is being partially offset by higher load factors.

On the global alliance front, we plan to be in a position to announce our intentions in the second half of this year. Regardless of this, our main alliance and partnership continues to be with Continental, which remains as strong as ever, and will be further enhanced by the recently announced merger with United.

So, we're very pleased with our first quarter results, and have a positive outlook for 2010 and beyond, as we see positive revenue trends ahead, certainly better than in '09. Our costs are under control. Our business model is as solid and defensible as ever, and we continue to demonstrate it year after year, with consistent and profitable growth. We see significant opportunities for expanding our network in years to come, and have no infrastructure limitations to hold back our growth. And last but not least, we have a world class team that day after day earns the preference of our passengers, and delivers industry leading results.

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

Thank you, Pedro, and good morning, everyone. Thanks again for joining us. First, congratulations again to the whole team for another great quarter. We're off to a fine start for the year, as a result in no small part of the efforts of our co-workers. Our thanks to each and every one of them.

I'm pleased to report that adjusted net income for the first quarter came in at $57 million, or $1.29 in diluted earnings per share, which represents a 2% increase over last year's first quarter earnings. This result excludes a $19.8 million extraordinary charge related to January's devaluation of Venezuela's currency, and a $400,000 charge related to the mark-to-market of fuel hedge contracts. Including these charges, Copa Holdings reported a net income of $36.7 million, which translates to $0.84 in diluted earnings per share.

Strong demand during the quarter resulted in healthy traffic growth on a year-over-year basis, as revenue passenger miles increased close to 11% on 3% capacity expansion. As a result, we saw higher year-over-year load factor for both Copa Airlines and Aero Republica. In fact, our system-wide load factor during the first quarter increased almost 6 points year-over-year, to end the quarter at 80%. Higher load factors, together with a 2% decrease in yields, resulted in a 5.5% year-over-year increase in unit revenues, or passenger revenue per ASM.

First quarter operating revenues came in at $335 million for a 9% year-over-year increase, with both Copa Airlines and Aero Republica each showing similar revenue growth. On the expense side, first quarter operating expenses increased 10% year-over-year, while on a unit basis, costs per available seat mile increased 7%. However, compared to the fourth quarter of '09, CASM decreased 3%.

Excluding fuel unit cost increased 8.5% year-over-year to $0.074, mainly driven by higher maintenance costs, a stronger Colombian currency, and expenses related to capacity expansion plans for the second half of the year. On a quarter-over-quarter basis, however, ex-fuel CASM decreased 4% on similar capacity.

Turning to our main operating expenses compared to the first quarter of '09, fuel expense increased 6%, driven by a 5% increase in the expected price per gallon of jet fuel, including realized hedge gains or losses, and a 2% increase in gallons consumed resulting from additional capacity. Salaries and benefits increased 16%, driven mainly by a stronger Colombian currency, and an overall increase in operating headcount to support additional capacity to be deployed during the second half of the year.

Passenger servicing increased 13%, mostly the result of an increase in passengers carried. Commissions increased 4%, for the most part, due to a higher passenger revenue base, partly offset by lower average commission rates. Reservation and sales increased 8.5%, driven mainly by a 9% increase in passenger revenue.

Maintenance, materials and repairs increased 20%, mostly as a result of timing and additional capacity. Depreciation increased 6%, mainly due to additional aircraft and spares. Flight operations, landing fees, and rentals combined increased 5%, mainly due to increased capacity, and other operating expenses increased $3.3 million.

Other non-operating income and expense totaled a net non-operating expense of $27.2 million, the main components of which are a net interest expense of $5.8 million, and the $19.8 million charge related to the devaluation of Venezuela's currency I mentioned earlier. In addition, provision for income taxes increased $1.3 million year-over-year due to higher estimated income taxes payable as a result of Panama's recent tax reform, partially offset by lower estimated taxes payable outside of Panama.

Regarding operating earnings, the Company's operating earnings came in at $70.8 million, approximately 3% above Q1 '09 levels, while our operating margin came in at 21%, which compares to 22.3% for the first quarter of '09. Turning to fuel hedges, during the first quarter, we had 30% of our volume hedged, using crude oil and jet fuel swaps at an average equivalent price in the range of $75 to $80 a barrel, and currently have hedge contracts in place as follows.

For the second quarter, 28% at an average equivalent price of approximately $85 a barrel. For the third quarter, 24% in the range of $85 to $89 a barrel. For the fourth quarter, 20% in the range of $85 to $90. And for full year 2011, 13%, at an average equivalent price of approximately $81 a barrel.

Moving on to our balance sheet, assets at the end of the quarter totaled $2.2 billion, while owner's equity reached $906 million, and debt plus capitalized leases totaled approximately $1.2 billion. Debt at the end of the quarter totaled $907 million, half of which is fixed rate debt with the average blended rate for the first quarter, including fixed and floating rate debt coming in at 3.2%. In terms of cash, we ended the quarter with $361 million in cash, short-term and long-term investments, which represents, as Pedro said, approximately 28% of the last 12 months revenues.

So in summary, demand for air travel in our market is healthy and growing. Business travel is on the rise. Our balance sheet and cash position are strong, and we're well positioned to deliver yet another year of double digit capacity expansion with industry leading profit margins.

In terms of our full year guidance, despite higher jet fuel prices projected for the remainder of the year, and in light of the demand trends we're seeing and the positive outlook with respect to economic growth in Panama and the region, we are reaffirming our operating margin guidance for full year 2010. Accordingly, our new guidance for the year is as follows.

In terms of capacity, ASMs remain the same as in our previous guidance of plus or minus 10.9 billion ASMs for a 10% year-over-year increase. We are raising our RASM guidance from plus or minus $0.13 to $0.131 compared to $0.126 in '09 for a 4% year-over-year increase. We're also raising our consolidated load cycle guidance from plus or minus 76% to 77% compared to 74.6% for '09. We are maintaining our CASM ex-fuel guidance, excluding special fleet charges, at plus or minus $0.071, compared to $0.072 in '09.

In addition, in light of most recent forecasts, we have increased our full year fuel price assumptions from $2.28 per gallon, including into plane and net of current hedges to $2.41 per gallon. And in terms of our profit margin, as I mentioned earlier, we reaffirm our operating margin to a range of 20% to 22% compared to our '09 adjusted operating margin of 19.4%.

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

Thank you, Victor. As you can see from our first quarter results and full year guidance, we're off to a good start this year, and business should improve in the following quarters.

Now, we would like to open up the call for some questions.

Thank you, Mr. Heilbron. Ladies and gentlemen, today's question-and-answer session will be conducted electronically. (Operator Instructions).

We will take our first question from Nick Sebrell with Morgan Stanley.

Hi, Pedro and gentlemen. I was wondering if you could just talk a little bit about the announced merger between United, Continental -- how that might affect you guys, and where your decision on joining Star is if you can make any comment on that.

Okay. Hi, Nick. Well obviously, we know kind of the big picture about the merger. There is not a lot of details. But we are very excited that our partner, Continental, is now the largest airline in the world. And we're also excited that we do not need to repaint our aircraft, which as you know share the same livery as Continental, and will be maintained in the new partnership.

So, we're very excited. So, although there are not many details that are known right now and are going to be worked out in the coming months, I think it's all for the good. In terms of Star, as we've mentioned before, by the end of June, we should be in a position to announce our decision.

Okay. Conceptually, though, a larger Continental, effectively -- since I guess they're going to be taking the management side -- allows potentially for more cooperation across the US, or more code sharing? I mean, is that something you've thought about for the future? Or do you think you are where you want to be in terms of code sharing with US airlines, or Continental specifically?

Well, we have a unique relationship with Continental. Like I don't think there are many similar -- at least not between a Latin American carrier and a US partner. And what we have now is a larger Continental. It's going to be called United, but it's a larger partner. And Jeff Smisek, who you know is the CEO, with whom we've had a relationship for many years, and I think we're going to see an expanded relationship in terms of code sharing and frequent flier and -- it's turbo charging what we do already successfully. So again, I think it's all for the better.

Excellent. Thank you.

And we will take our next question from Duane Pfennigwerth of Raymond James.

Hi, thanks. Good morning.

Good morning, Duane.

Hi, Duane.

So, you typically provide very conservative guidance, which I'm sure investors appreciate. I have to say, though, with respect to unit revenue growth guidance of 4%, you just put up 5% in the first quarter. It looks like comparisons get about 9 points easier sequentially. You're comping against Swine Flu last year. So, it just seems like 4% is far too conservative. So, my question is should we view this as your typical conservatism in guidance with respect to revenue specifically? Or is there something that you're seeing that makes you more cautious?

Neither. I would say, as you know, Duane, we call it as we see them. And what you have to also put into the equation is the fact that most of the growth this year is coming in the second half of the year in terms of ASMs. If you look at our growth and you break it down by quarter versus prior year, first quarter you're talking about 3% growth. Second quarter is going to be 7% growth year-over-year. But then, it shoots up to 11% for the third quarter and then, the fourth quarter is 19% growth in ASMs year-over-year.

So, it does get tougher when you're trying to forecast yields and load factors ahead six to nine months to come to a certain degree of accuracy. We right now see business traffic coming back nicely. We saw very healthy demand during the first quarter. You're right, in the second quarter we're going to have the benefit of the comp versus second quarter last year where we saw H1N1. So obviously, we'll have better load factors and RASMs and that is reflected in our guidance of RASMs for the year.

But what we're also considering is that we have significant growth in the second half of the year, and in that context, we've been prudent in what we're forecasting vis-a-vis yields and load factors still. When you look at the guidance, RASM increase year-over-year is healthy, and operating margins between 20% to 22% for the year, healthy is an understatement, I think.

Okay, that's helpful. And then just on April, your traffic came out this morning. Can you just comment on sort of 1% consolidated growth? And then, any commentary you have would be appreciated on what yields did year to year, given loads were up 2.5 points. Thanks.

Okay, this is Pedro and I'll let Victor talk about yields. But I think the key with April is that it was very little capacity growth. As Victor mentioned, most of the capacity growth is going to come after June. It's also Holy Week, which is high travel season; it fell all 100% in April during '09. But this year in 2010 was split between the last weekend of March and the first weekend of April. So, we also had that impact. But we had -- I think we had solid load factors, solid load factor growth in April and we had about 4% RPM growth with almost a flat capacity. So, I think considering what I've just said, it was a pretty solid April.

And I would just -- go ahead, Duane.

I was just going to -- any comment on yields?

Yes, the comment on yields is that -- I think Pedro mentioned it earlier is that we do expect yields to continue improving as we move forward during the year. And if you look down the line, second, third, or fourth quarter, sequentially we expect yields to marginally be better each quarter. And again, the result of very strong demand, also business travel picking up.

Okay, thanks. I think Jim has a question.

Yes, Pedro and Victor, good morning. There's -- I saw where on Monday of this week the Colombian aviation regulator increased the number of flights for airlines using Colombian airports. So, just -- I want to know the impact on Copa, and in particular, [IRIS], the low fare, low cost airline in Colombia, it appears will be flying two per day, or at least have the right to fly two times per day from Bogota to Panama.

And then, it looks like Avianca will be increasing frequencies to Havana. But one of the other things, apparently, is they're going to be able to fly to some other cities north of Panama. They, I guess, stop from Bogota into Panama, and then continue. And those cities, Guatemala, San Salvador, and another one. So, I'm just curious -- and I believe there's something here for Aero Republica as well to be able to fly, perhaps, to Mexico City. Can you give me your assessment of that increased competitive capacity?

Right. This is Pedro here. Sometimes there are news that seem to make -- there's more noise than the power of what's really happening and this is one of those instances. It's not really as material as it would sound. First, about its route rights, it's a land grab. It's grabbing route rights so no one else gets them or so another airline doesn't get them, and it does not necessarily translate out into actual flying. So, that's the first thing I should say.

But even if it's flown, it's really not material. For example, Bogota, Panama, we're adding our fifth flight -- we're adding our fifth flight in June, Copa Holdings, and our flights connect to a vast network of over 40 cities. If a Colombian carrier adds two point-to-point flights, it's not really material to our overall network.

And then, the other flight you mentioned -- the other route rights that Avianca got are also not that significant in the overall context of our business and our network. So again, it's more noise than anything else. There will be some additional flights for sure. But it doesn't really change our business model and we don't think it's going to have a material impact in our 2010 or beyond results.

Yes. Pedro, is Avianca permitted to stop in Panama and pick up passengers and continue north?

Yes, they are permitted. But those are markets that we dominate. So, I mean they could try doing that, but there is not a lot for them -- there's not a lot left for them to pick up. So, we don't think that there will be significant service beyond Panama from Avianca or anyone else, for that matter.

Yes, okay. Thank you.

Welcome.

(Operator Instructions).

We'll take our next question from Jamie Baker of JP Morgan.

Hey, good morning, gentlemen.

Good morning, Jamie.

I'm just curious if in the last quarter there was any change in the percent of overall revenue that's derived from markets with fewer than 20 [pay days].

Not really, Jamie, and that's one metric that we make reference to very often when we meet with investors and analysts in that a significant portion of the markets we serve have very low density, which makes our hub even more important and relevant in our business model and competitive environment that we operate in. And I believe the last time we spoke, the number was somewhere around 75%, 74% and it's pretty similar. There hasn't been that much of a change in the past -- actually the past few quarters.

And are you seeing anything that would -- obviously what I'm trying to get at is the rate of change going forward. Is there anything that you could look at -- and it would probably come in the form of those markets growing rather than shrinking -- that would suggest that the number a year from now would be 64%, for example?

Right. No, and it's also a function of the fact that if you look down the road in the next 12 to 18 months, we're also going to be adding new markets. So, you maintain that mix. So, if there was a change, I don't think the change will be significant. Maybe you go from 74% to 70%, but what we've seen in the past, and looking forward, we're not doing much different from what we've done in the past in terms of the markets we add to our network. That figure doesn't change that much.

Perfect. Exactly what I was hoping to hear. Thank you very much.

And we will take our next question from Rodrigo Goes with BTG Pactual.

Hi, guys. You answered part of my question already. But I was wondering if you could make some comments with regards to the Colombian market, what you think the outlook is for that particular market in the context of a low cost carrier growing. And just to make an analogy of what happened in Brazil with GOL popping up out of nowhere and yields entering this sort of secular declining mode, and which hasn't even stopped yet. What are your thoughts with regards to yields in that market considering yields are pretty high in Colombia?

This is Pedro here. And yes, fares have been kind of trashed in the domestic Colombian market. At the same time, demand has been very elastic and we have seen an increase in traffic. It has not completely compensated for lower fares, but has mitigated a substantial percent of it.

Going forward, it seems like that's going to continue for a while. It's really hard for us to say for how long. Is there room in Colombia for three carriers going forward in the long term? I'm not sure. I can tell you that we'll be one of those carriers. We're very strong, we're the strongest of them all. So -- and we don't plan to lose that position. But for how long the fares are going to remain low, it's anybody's guess. But I should also add that that's all embedded in our full year guidance. So, we're still guiding to an operating margin somewhere between 20% to 22%.

And in part, it's due to the demand stimulation I mentioned before in the Colombian domestic market, which has compensated a portion of that yield drop. Also, as Colombian domestic, it's only a small portion of Copa Holdings overall revenues and network, and when we think of Copa Holdings, we've got to think of everything. In the case of Colombia, how it contributes to our whole network, not only that small piece, which is called Colombia domestic, which for a while we've been de-emphasizing, and we've been focusing more on international growth.

Can you remind us how much Colombia domestic represents for Copa in terms of revenues?

Well, of the total -- let me give it to you in terms of percentages. Of the total capacity of Copa Holdings, Aero Republica is probably 15%, and domestic, with that 15%, is around 75%. Basically, you're talking about 10% net-net.

Okay, perfect. And just one last question if I could. Do you know how much market share IRIS currently has in the domestic market, and how much incremental capacity they plan on having this year?

No, we don't have those numbers right now handy. We can get them for you, but not right now.

Okay, thanks.

(Operator Instructions).

We will go next to Stephen Trent with Citi.

Hi, good morning, gentlemen. Most of my questions have been answered. Just one follow-up if I may. Could you refresh our memories with respect to the timing of the Tocumen airport expansion? Just so I have that clear as to when we should see those milestones?

It's before June 2011 the expansion should be ready. I don't know exactly if it's going to be May -- April, May, or maybe June. Knowing how things usually go, it's probably going to be June 2011. We're going from 22 to 34 gates, so 12 additional gates are being added. At the same time, I should say that we have a very dynamic government present in Panama and they're already talking about the next expansion phase about the south terminal, and the government is pressing the airport authorities to start planning for what comes next. So, we think we're going to have the leading airport, the leading hub in the region for years to come.

Great. Thanks, Pedro. And I don't mean to violate the rules here, but just one real quick one. Anything you're seeing as well or hearing with respect to the ongoing expansion of the Panama Canal?

Well, I would say that the expansion is running on all cylinders. They're actually now starting the heavy work, which is the actual construction of a new set of locks. The project is on schedule to be finished in the year 2014. And the heavy employment part of the project is underway and they estimate that there will be at least 10,000 new jobs created at the peak of the project as a result of this expansion of the canal. So, everything is moving ahead pretty smoothly.

Okay, I'll let somebody else ask questions. Thanks, guys.

Thank you, Stephen.

And we will take our next question from Caio Dias with Santander.

Good morning, gentlemen. My question is a follow-up question on Jim's question regarding the authorization of Avianca to operate in Tocumen. Could you please remind us how is the regulation in Panama? Is Avianca allowed to connect in Tocumen and pick up passengers and distribute along the Central American region to the US? How does it work exactly?

It -- we have, I would say a limited open agreement with Colombia -- between Colombia and Panama, it's open. Colombian and Panamanian airlines can operate as many frequencies as they wish to as many cities. Beyond Panama, where you're talking about fifth freedoms, it's limited to one flight per day for each market. But it's specific markets. There are only so many available and these are markets that we dominate. So, it's not easy for Avianca or anybody else to come into our territory, into our hub and try to serve other markets.

I mean, realistically maybe they'll come in to one or two. It's not material, it's not significant. For example, they got two weekly fifth freedom rights between Panama and Guatemala which they could fly. We fly four times per week. So, is there room for -- four times per day, I'm sorry, I'm sorry. We fly four times per day. They will get two per week. So, is there room there for them? I don't think so. So, it's not something -- the news might sound interesting, but it's not something that's going to be material or significant.

Okay, and on the United, Continental merger, what evolution will be the timing of the process? And in terms of -- how do you believe it should work in the future in relation to the agreement we have with them in terms of -- do you believe that the number of cities that will be served by the agreement will increase significantly only by the merger? Or you should sign a different kind of contract limiting the distribution in the code share? How do you believe it's going to work in one year from now, for instance?

Well, exactly the timing and how things are going to develop, I cannot comment on that. I don't know enough of that and actually, I think United and Continental are going to start working out those details now. What I can say is all of our agreements with Continental will transfer to the new entity, to the new corporation.

So automatically, we're going to be partnering with an airline that's going to be many times larger than our previous partner when it was just Continental. And that's automatic. That's all legally and -- that's going to happen when they change corporate -- whatever that's called when they integrate -- when they merge the two corporations.

Okay, thank you very much, and congratulations for the quarter.

Thank you.

Thank you.

And we will go next to Nick Sebrell with Morgan Stanley.

Thanks for taking my follow-up question. A quick question on Venezuela pricing dynamics. Are you able to reset pricing in Venezuela at will, or are you subject to price controls by the current administration? What -- how does that work in terms of how you plan your yields and whatnot in Venezuela?

It's basically market pricing. There are certain formalities, but they're not any more unusual than you find in other markets. So, it's really market pricing. What we -- and I know you're making reference to the devaluation that we saw earlier in the year. What we saw initially was definitely a drop in yields, and load factors, for that matter.

But what we've also seen recently is recovery of those yields and load factors. So, we would expect the market to get normalized soon enough, and we price based on market demand and the product that we offer. It really isn't any unusual restriction in terms of pricing.

So, you can set yields, and theoretically they should follow the path of inflation and demand and whatnot. And so, in as much as the -- I don't know how to call it -- but we used to follow the Venezuelan currency via some of the stocks that you had prices both in dollars and -- like [Contave] when it was trading. One would expect to see a kind of trend where you're raising yields that translated into another currency might look high until a devaluation takes place. Is that accurate?

Well, in theory, I would just point out that the last time Venezuela devalued was -- as far as I can remember -- was back in 2003 or so.

Yes, yes. It's not often.

It's not something that happens every year.

Right.

And if the demand is there and you're running high load factors, you're going to optimize RASM, and there might be, yes, an impact on yields, so.

Okay, okay. Makes sense. And short second question, how are you seeing the environment for aircraft if you were to decide to maybe buy a couple extra, or expand your fleet by a little bit more because 2011 looks better? Is the environment changing at all for either leased or new aircraft acquisition?

This is Pedro. We still see an opportunity to bring additional aircraft with a short lead time. So, in answering your question, they're still available. There's still enough capacity available out there.

Excellent. Thank you very much.

Thank you.

Thank you.

And that does conclude today's question-and-answer session. I'll now turn the conference back over to Mr. Heilbron for any further and closing remarks.

Okay, thank you. This concludes our First Quarter Earnings Call. Thank you all for being with us today, and as always, thank you for your continued support. And have a great day, and see you during our next call.

And that does conclude today's conference. We thank you for your participation.