Copa Holdings SA (CPA) 2012 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 on 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 on May 10th, 2012.

Now, I'll turn the conference call over to Joe Putaturo, Director of Investor Relations. Sir, you may begin

Thank you very much, Operator, and welcome 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 start with 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.

Copa Holdings first quarter results have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss non-IFRS financial measures. A reconciliation of non-IFRS to IFRS financial measures can be found in our first 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 risk and uncertainties that could cause actual results to defer materially and are based on assumptions that are subject to change. Many of these risk 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. Thank you for participating in our first quarter earnings call. First let me once again congratulate our team for another outstanding quarter. Because of them we continue to win day-in and day-out the preference of passengers through world-class service and operating performance. As you can see from our first quarter earnings release, we are off to a great start for the year.

Among the main highlights for the quarter; capacity for the first quarter grew almost 23% while passenger traffic increased more than 22%, led by our international traffic, which expanded 28%. Strong demand resulted in a very healthy revenue environment as the unit revenues, RASM, came in higher on a year-over-year and quarter-over-quarter basis. This favorable demand environment allowed us to offset a significant increase in the cost of jet fuel and register year-over-year operating earnings growth of 12% and an operating margin above 20%.

Our first quarter performance looks even more impressive when we consider last year's 22% capacity expansion included the launch of nine new destinations, the most destinations we have launched in a single year. Our 2012 expansion plan represents another year of double-digit capacity growth.

So far we have announced five new destinations which will start next June; Las Vegas, our seventh destination in the US; Recife, also the seventh city we serve in Brazil; Liberia, our second destination in Costa Rica; Curacao, our fourteenth Caribbean destination; and Iquitos, our second city in Peru. With these new cities our network will cover 64 destinations in 29 countries, by far the most complete and convenient network for intra-Latin America travel.

Additionally, as part of our expansion plan, we will continue increasing daily frequencies in important markets. For instance, in June, Medellin and Miami will go from four to five times daily; Cancun increases to four times a day; and Guayaquil, Quito and Cartagena go from two to three daily frequencies. Also, we will be increasing to daily service several recently launched markets, such as Asuncion, Brasilia, Porto Alegre and Santa Cruz among others.

Although our 2012 capacity expansion calls for another year of above 20% ASM growth, in terms of departures we will be growing around 14%. In addition, most of the capacity for 2012, more than 60%, will be the full year effects of flight we added in 2011. So we are already flying most of the new capacity, and so far demand is keeping up.

Our 2012 growth will be made each year by last year's transition to a six-bank hub and the opening of the North Terminal at Tocumen Airport. We're pleased that this and previous governments value the competitive advantage that our network and regional connectivity brings to Panama, as it consolidates itself as the leading regional business and logistics hub. As a result, the airport continues to expand to meet our needs, which has allowed us to expand and consolidate our network.

And it seems our regional infrastructure advantage will continue, as the government has already mentioned that later this year it will be tendering the bid for a new south terminal expansion at our Tocumen Airport Hub.

On the alliance front, there has been a short delay in our entrance into the Star Alliance, which was originally scheduled for the end of April. Nevertheless, we're ready to join Star and expect to announce an official entry date very soon.

On the economic front, we expect 2012 to be another good year for our region and for Panama. Latin America is expected to grow close to 4% for the year and Panama is expected to grow more than 8%, after growing more than 10% in 2011. In fact, in January and February, Panama's economy grew above 9%, outpacing last year's growth during the same period. The main sectors driving this growth were shipping and transportation, communications, construction and tourism among others.

As you can see from our recently released April traffic figures, where international traffic grew 28%, continued strength in our regional economy and Panama in particular is having a positive impact on the demand for our services as we continue to expand and strengthen even more our network dominance for intra-Latin America travel.

To summarize, we are very pleased with our first quarter results. Our network continues to grow and we're implementing many initiatives to strengthen even more our Hub of the Americas. Our team continues to deliver world-class operational performance and the regional economic environment remains strong, which is evident in the strong demand trends we are seeing.

With that said, we feel confident in our ability to take advantage of the opportunities ahead while continuing to deliver world-class operational and financial results.

Thank you. Now I'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, congratulation again to the entire team for another strong quarter as always. Thanks for the hard work. I'm pleased to report we're off to a great start for the year as we expand the capacity year-over-year by close to 23%, added four new aircraft to our fleet, increased revenue by almost 30% and continue strengthening our hub as well as the financial position of the Company.

In terms of financial results, net earnings for the quarter came in at $95.9 million or EPS of $2.16, compared to last year's first quarter net income of $94.4 million or EPS of $2.14. Excluding a fuel hedge mark-to-market gain of $5.3 million, underlying net income for the quarter came in at $90.6 million, more than 10% year-over-year increase compared to last year's first quarter underlying net income of $82 million.

With respect to traffic, we continue to see strong demand for air travel throughout our network as revenue passenger miles increased 22% year-over-year, driving a consolidated load factor for the quarter to 77%. Yield too in the quarter also remained strong showing a year-over-year increase of 7%, contributing to a rise in unit revenues or RASM of more than 5%.

Operating revenues for the quarter came in at $543 million or a 29% year-over-year increase on 23% capacity growth; a very strong revenue performance especially in light of the fact that during the course of the last 12 months or so, we've added nine new destinations to our network.

On the expense side, first quarter operating expenses increased 35% year-over-year, while cost per available seat mile increased approximately 10%, the main driver being a 19% year-over-year increase in fuel prices.

CASM excluding fuel came in at $0.068 or a 4% year-over-year increase, the main drivers being passenger related cost due to a 16% year-over-year increase in length of haul, in addition to an increase in the mix of international passengers as we scaled back domestic capacity in Columbia.

Secondly, maintenance expense, mainly driven by provisions related to operating lease return conditions. And thirdly, aircraft rentals, as we added seven operating leases to our fleet during the course of the past year, increasing the mix of operating leases versus financial leases in our fleet from 25% in Q1 '11 to 30% in Q1 '12.

Moving on to operating earnings, consolidated operating earnings for the quarter came in at $112 million or a 12% year-over-year increase, which translates to an operating margin of 20.5% despite significantly higher jet fuel prices.

And just on non-operating income and expense, first quarter results reflect a net non-operating expense of approximately $800,000, consisting mainly of a net interest expense of $5.7 million and a $5.3 million fuel hedge mark-to-market gain.

With respect to fuel hedges, we currently have coverage for 22% of the projected volume for the year. This includes oil swaps at an average price of $87 a barrel. In addition, for next year, we have approximately 10% coverage at an average of $89 a barrel.

Turning to our balance sheet, we continued to strengthen the Company's balance sheet as assets at the end of the quarter reached $3.2 billion. Cash and cash equivalents totaled $648 million, which represent approximately 33% of last 12 months' revenues. Owner's equity totaled approximately $1.5 billion, and total debt amounted to $1.1 billion, with the Company's debt-to-equity ratio reaching a very solid 0.75 times at the end of the quarter.

In terms of fleet, we received four new Boeing 737-800s during the quarter; two operating leases and two financial leases. During the quarter we got a fleet of 77 aircrafts; 31 737-800s, 27 100s and 26 EMBRAER-190s.

In terms of future aircraft delivery during the remainder of the year, there are nine scheduled deliveries; four in the second quarter, two of which were already delivered in April; three in the third quarter; and two in the fourth quarter. We'll also be returning three operating leases to the source; two 737-700s in the second quarter and one 737-800 in the fourth quarter.

Thus there will be a net increase of 10 aircraft for the year to end the year with a fleet of 83 aircrafts with an average age of approximately five years. So we are making the necessary investment to sustain our growth, while maintaining our progress still and the fewer maintenance efficiency of our fleet.

To recap, demand for air travel in our region is solid and the outlook continues to be confident. We had another quarter of very strong capacity and revenue growth. Our financial position continues to strengthen, and we're well positioned for what should be another year of strong earnings.

In terms of our guidance for 2012, given our performance during the first quarter and the outlook for air travel in the region, we are updating our guidance as follows. We are increasing our year-over-year ASM growth from plus or minus 22% to plus or minus 23%.

We are increasing our load factor guidance from plus or minus 74% to plus or minus 75%. We are also raising our RASM guidance from plus or minus $0.132 to plus or minus $0.138. We are raising our CASM ex-fuel guidance from plus or minus $0.065 to plus or minus $0.067 to reflect mainly higher inflation and higher passenger related expenses due to our increased load factor assumption.

With respect to fuel, we are now assuming for the year effective price per gallon including into-plane and net of hedges of approximately $3.40 compared to our previous guidance of $3.25 per gallon. And with respect to our operating margin, we are maintaining our guidance in the range of between 18% to 20%.

Thank you. And with that, I'll turn it over to Pedro for closing remarks.

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

(Operator Instructions).

Daniel Spilberg, Barclays.

My question is that, historically the Company has been able to upset fuel pressures with yield increases and also a smart capacity management. Now, I think in your guidance, you are already -- you are 18% to 20% operating margin. You are already factoring in cost per gallon of $3.4.

So my question would be if fuel prices retrace to the previous level or even below, how should we think about your yields and your margins?

If fuel goes back to the previous guidance, you mean?

Yes, to the previous guidance or even below that level?

Right. We are not -- our fuel guidance is not far off the curve. The way we see the curve right now, even though it might be higher than the spot price today. So it's really hard for us to guess if fuel goes back to the previous guidance or even below what will happen to yields and margins.

Usually, margins benefit from lower fuel and usually yields come down at a slower pace than fuel. So that's what usually happens. But I don't want to speculate because it's too early.

And let me just add to that, Daniel. If you look at our operating cost structure and you try to measure sensitivity in terms of operating expenses of movements in the fuel prices, for every $1 of movement of WTI the impact on annual expense is roughly $7 million or so. So that will give you an idea of what the impact would be on the operating expense side of the equation as fuel goes up or down looking forward.

And then on the demand side, I would just add to what Pedro said is that right now, we are looking at very solid demand and very strong yields. So if fuel prices do come down, so much the better.

Okay. Thank you very much.

Helane Becker, Dahlman Rose.

Just on other revenues, I see they came down from the fourth quarter to the first quarter right from $24 million to $19 million. Is that a timing thing or is there something else happening there?

Most -- hi, Helane. This is Victor. Most of that is cargo related, not so -- you'll see that it will fluctuate depending on seasonality. So I wouldn't consider that as any leading indicator with respect to how you should expect cargo mail and others to be headed looking forward. So -- between the fourth quarter and the first quarter of the year, you will see some fluctuation in demand on the cargo side, but it's really season driven.

Okay. And then just one clarification question, Victor, on financial leases being, I think 30% now, up from 25%. So is that something we should consider going forward like a new ratio, because I thought it might be less expensive to own your aircraft?

Well, we've traditionally favored financial leases versus operating leases. But we do value having a good mix as a result of when you have operating leases and you stagger the expiration dates of those operating leases. You do get some flexibility in terms of fleet planning and capacity planning.

If you look at the past couple of years, we've been very heavy on the financial lease side. We are trying to balance it more. Having said that, it's not a level to 50/50 any time soon. But you should expect to have a mix of at least two-thirds financial leases and a third operating leases going forward for the next few years.

Okay. Great. Thanks very much. Have a good day.

Thank you, Helane.

Thank you.

Jim Parker, Raymond James.

Good morning to all.

Good morning, Jim.

Okay. Your business seems to be pretty strong throughout LATAM. I am curious with what's going on in Brazil, though the economy is a bit soft and currency has weakened considerably there and it shows up in the domestic numbers for airlines in Brazil. And I think the weaker currency might impact international travel for Brazilians. Can you tell us how much of your revenue comes from Brazil and are you seeing any softness in your Brazilian traffic?

Hi, Jim. This is Pedro, first, and then I will let Victor give you some more specific numbers. So far we have not seen a softening of our demand in Brazil. Our Brazil flights continue to do very well, and I think -- what I would say is that there has not been in the recent past enough capacity to serve the Brazilian market.

So I would say that even if demand was to soften a little, there's still more than capacity. So we are not seeing an impact there. Obviously, a lot will depend on what continues to happen with its currency. But the currency even though it has devaluated somewhat this year, I would say that it's still a strong currency, especially in our region. So again, we have not seen a softening of our demand originating in Brazil

Now, Victor, do you want to add?

The only thing I would add to that, Jim -- and I -- I confirm what Pedro just said. Yes, we're not seeing anything in advanced bookings that would indicate that there's any pull back in demand out of Brazil. And when you look at Brazil in terms of the impact to the top line, obviously it's important. Roughly, 12% to 15% of our sales are in Brazil. But again, the other 85% is also well diversified. So we are not seeing any impact. Right now, our demand remains strong. We are very well diversified also in the region.

Okay. And Victor, in your fuel guidance on the cost per gallon of $3.40, what WTI level and crack price are you assuming?

Yes, that would take you -- well, that $3.40 includes into-plane and that it levels current hedges. So when you back that out, that takes you to around $3.06, $3.08 or so, which would take you to a WTI in the range of $95 and probably a track -- a crack somewhere in the range of $30 to $32.

Okay. Great. Thank you.

(Operator Instructions).

Michael Linenberg, Deutsche Bank.

Hi, everyone. This is actually Richa Talwar filling in for Mike. Just a few questions here. First, on your yield performance. We were pretty impressed by how high your yields were despite such a sharp increase in capacity. It's definitely not something we see all the time in this business, and I was hoping you could flush out a little bit more of what you attribute to that level of stellar performance, maybe by markets, new markets that are doing better than expected?

And also on that point, it looks like if we were to continue to move -- or if you were to continue to move on similar trajectory, your RASM guidance for the year is pretty conservative, as it implies about a 1% increase or so in yields. So, there may be some risk to the upside there. Is that a fair assessment?

Well, the first question -- this is Pedro. I would say that in general Latin America has been growing healthy, the economies of Latin America and air traffic in particular. So we are benefiting from that and that's why in spite of the additional capacity we're seeing better yields. I should add also that due to higher fuel it's been easier to implement price increases.

It's been easier to get other airlines to follow when everybody is being affected by the higher fuel. So that combination of higher fuel and very healthy economies in Latin America has contributed to the strength of our yields.

Yes. And then just to add to that, when you look at growth in Panama, Panama again is having another great year in terms of GDP growth. Last year, the economy grew at over 10%, and this year estimates are now anywhere between 7% or 8% and some estimates are actually in the range of 9% to 10%. So again, it's another year of very strong economic growth, which results in very strong demand for air travel. And that's Panama specific.

And if you look at the rest of the region, it should be a healthy economic environment, so 2012 would [show us a] result in good demand for air travel. So we'll keep managing RASM as we always have. Again, we are not an airline that's just looking at load factors and tries to (inaudible) [fill every feet]. We will manage RASM and we will be focused on healthy yields.

But I think the message here is that the environment is such that it's allowing us to really manage very effectively, have very healthy yields, and that's why we raised our RASM guidance from $0.132 to $0.138.

Okay. Great. And do you think it was a fair assessment to say that there is some risk there to the upside for the RASM guidance, just given that it implies a lower increase than you saw in the first quarter?

Yes, I think you have to look really at the context of the capacity that will be flowing in the remainder of the year. When you look at ASMs in the first quarter versus the second quarter of this year, they're pretty similar. There's not much additional ASM growth or capacity growth in the second quarter versus the first quarter.

When we look at the third quarter, you're looking at a quarter-over-quarter growth of at least 11% or so. And then you are having another 5% on top of that in the fourth quarter. That's a lot of capacity that is growing. So the guidance we provide takes that into account. We'll see how it goes. But I think the good news is again we're looking at a very favorable economic environment. So maybe there is [upside].

Okay. Great. Okay, and just on my second question, this is more of a clarification. I know that you talked about the impacts to CASM ex-fuel this year, the items that should be impacting that, maybe some cost pressure we might be seeing there.

Can you just clarify again and maybe flush that out a little bit more what cost pressures you might be seeing and if those are more transitory in nature?

Yes, this is Victor again. There are two main items, I would say. One of them, I think it's no surprise to anybody. When you are seeing very strong economic growth at some point you will see some inflation, and we are seeing some inflation in Panama and we're seeing inflation in the region. So part of it is inflation related.

And the other part is we did raise our load factor guidance, so there will more variable cost related to passengers transported. And that's why we decided to take the guidance up from $0.065 to $0.067. Those are the two main items I would highlight.

Okay. Got it. Thank you so much.

Thank you.

Duane Pfennigwerth, Evercore Partners.

Hi. Thanks. Good morning.

Good morning, Duane.

Wondered if you could -- I mean, just to echo the comments, right; 7% yield growth on a 16% length of haul is very strong and pretty rare. How much of that is currency related?

How much is --

Currency related.

Currency related? It's obvious, when you look at the currency in the first quarter, actually the reais -- actually, the value went down on a year-over-year basis. And the Colombian peso actually was stronger slightly on a year-over-year basis. So I would say that the yield increase is not significantly being affected by currencies. I mean, it's, as such, a result of very overall strong demand in the intra-Latin network. It's not a transnational type of gain that you're seeing.

Correct. And there's a fuel cost impact there also, obviously.

Can you talk about -- I know you don't report the segments anymore, but Colombia in terms of revenue improvement in the Colombia domestic market, maybe yield improvement that you are seeing there. Is it similar to what you are seeing on a system level or better?

Yes, for Colombia, as you know, we would be scaling back domestic capacity and that's working quite well in the sense that it's, I would say, enhancing overall earnings for the Company.

The strategy of reallocating capacity from domestic to international market, it's yielding good result, I would say. Generally speaking, the environment in Colombia is more open for yielding better result because fares have recovered since last year as there were changes in the competitive dynamic when IRIS was acquired by LAN. So there was some capacity rationing and fares have improved some. And that's for the domestic market.

Having said that, again domestic is now a small part of the total capacity in Copa Colombia.

So, yes -- so even though yield did improve, domestic Colombia is not having a great impact. I think it's less than 8% of total ASMs Colombia domestic, right.

That's great. And then just lastly, Victor, your interest expense, your gross interest expense was flat year-over-year. Is this is a reasonable expectation for the rest of the year, and can you just remind us how much of your debt is fixed rate debt? Thanks for the taking the questions and nice quarter.

Yes. Thanks.

Fixed rate debt is roughly half. I mean, we're pretty well balanced right now. We're doing very well with debt and fixed rate debt. By the end of this year we expect to be more or less at the same -- with the same mix, 50/50.

And we'll see how LIBOR behaves from now until then, but the past couple of quarters have been pretty stable. So I won't expect any big changes in terms of interest expense going forward, expect for the fact that we are bringing additional financial leases on board. But on the rate side, we'll have to see how the LIBOR behaves going forward. But we haven't seen any big changes in the past couple of quarters.

Next question?

Hunter Keay, Trahan.

Hi. Thank you. Good morning, everyone.

Good morning.

So you guys have competition on a city [fare] basis from what I can tell about 40% of your routes. But did you have any idea what that is on an O&D basis given the amount of traffic obviously that connects through Tocumen?

I'm not sure that we have -- not sure we have --

I mean, you could --

Yes?

If you look at --- I mean, obviously a lot of your markets have less than 20 (inaudible), and I would assume -- what is that? -- 70 some odd percent. I would assume that the majority of those is -- you have no non-stop competition -- no competition on them either on a connecting basis, right?

So is it fair for me to assume that north of 75% of your markets you do not have any direct competition or any competition at all for that matter? Is that a reasonable conclusion?

I think it's a little bit less than that. And you mentioned, well, based on O&Ds what percent of our O&Ds do not face a lot of competition or in what percent of our O&Ds we have higher than, let's say, 70% or 75% market share. And the numbers around 50% -- in around 50% of our O&Ds we have better than a 70% or 75% market share. So maybe that gives you some direction in trying to answer your question.

Yes. Okay, Pedro, that's useful. Thank you for that. And maybe, Victor, one for you. I'm looking at fuel efficiencies is measured by ASM per gallon. It got a little worse on a year-over-year basis, which is a little surprising to me given what happened with your stage length. So, A, what happened there, and B, how should we think about modeling in your fuel efficiency trending throughout the year, given the puts and takes that we are going to have with your stage length changes?

Okay. You're probably looking at the fact that we grew ASMs by 23.2% or so --- or 22.8%, and then gallons grew by 23.2%, something like that. So the one gap.

Yes.

So kind of a disconnect between gallons consumed and the ASM growth. I would say that there are two main reasons for that. One is we have been using more APU than usual, auxiliary power units, at our hub operations as the result of the additional fee. So we were expecting to be using already, which has been somewhat delayed.

So we are using more remote positions, and we will be using more remote positions than expected probably for another month or two. So that's having an impact. And then the other thing is, we are seeing some disruptions out of (inaudible) as a result of constraints the operation has -- the airport operation has vis-a-vis air space, and that's what's impacting some of the consumption as well.

Okay, so maybe as we trend through the year it can get a little bit better?

Yes.

Okay. Thanks a lot.

Stephen Trent, Citi.

Just two questions, to some extent a follow-up. I'm just also looking at this very strong RASM guidance. Is it fair to say that as you look to increase the RASM guidance that very little of this came from what you're seeing on an underlying competition front? So, for example, we can kind of write-off, let's say, American Airlines, American Eagle pulling back in parts of the Caribbean this kind of thing. Is that fair to say that competition was a small factor in the RASM adjustment?

Right, probably not a factor. So you're correct.

Fair enough. Great, Pedro. Thank you. And just one other very quick question also relating to competition. Looking at Colombia, you guys have done a nice job of scaling back there and redeploying the capacity. Given the airport flight constraints in Bogota, the fuel burn from the high altitude runway, et cetera, are you hearing anything further about these VivaColombia guys that have been trying to put something together?

We understand they're going to start flying sometime this month of May, towards the end of the month. They're based in Medellin. But again, we have reduced our domestic capacity quite a bit in Colombia, so we do not expect to be greatly impacted by their service or by this new competitor in domestic Colombia.

Very clear, Pedro. Thank you very much again -- once again guys. And I'll let someone else ask a question.

Thank you, Stephen.

Pedro Balcao, Santander.

My question is regarding your operating margin guidance. You kept it at 18% to 20%, although you delivered a 20.5% in the first quarter. And frankly, on my numbers, it does seem you could very well end the year above or at least in line with the upper limit of that range. Can you please give us some color on this and why do you expect it to fall over the rest of the year? Thank you.

Hi, Pedro. This is Victor. I find myself in the odd position of having to ask for excuses or tell excuses on 18% to 20% operating margin guidance. I don't think there are too many airlines out there giving that kind of guidance. But --

Absolutely.

Well, I think, first, you're seeing a higher fuel price assumption. So just mathematically when you have higher fuel cost, even if you're covering dollar for dollar each additional dollar of expense in fuel, you're going to have the huge margins. So that's part of it.

Two, I think if you look at the margin for this Company in the past five years, we have been in that range between 18% to 20%. So it is consistent with what we've been delivering with the business model in times of high fuel prices and low fuel prices.

And three, again I will highlight what I said earlier in the call that we are deploying a lot of additional capacity going forward. So if you look at the capacity growth again in the third quarter versus the second quarter, 11%-12% on a quarter-over-quarter basis. So we would expect that would have an impact on your RASM and that's why RASM is not going any higher than the 13.8% guidance we provided. So I would say that's the way we see it. If fuel prices come down and GDP growth stays the same and demand remains strong, you could see it even higher. But right now that's the way we see it.

Thank you. Thank you again.

Augusto Ensiki, Morgan Stanley.

A question -- unless you change a little bit of your positions on your fuel hedges. Could you tell us what the average spec prices are for, well, I guess the rest of the year and for the 2013 portion as well?

And secondly, I apologize I missed the -- a little bit at the beginning where you talked about the -- that the government will be tendering bids for the Tocumen expansion later this year. What is the work or could you remind me what the expansion that project is going to be for or rather what that project will add to the airport? Thank you.

Okay, so this is Pedro. I'll answer your second question first, and then I'll let Victor answer the fuel question. So Tocumen Airport recently expanded by 12 gates from 22 to 34 by building a north concourse, a new north concourse. What's coming next is a new terminal that's going to be connected to the current terminal. It's going to be a new terminal built to the south.

The bid is going to come out probably in a couple of months, and it will take around two to three years to complete. And we have not seen the final plans yet. We have seen a draft and we've seen the master plan, but we haven't seen the final package. But it's going be somewhere around 20 to 30 additional gates at least in the first phase, which -- it's been -- we believe it's been tendered for bid at the right time, because by the time it's delivered, let's say, three years from now, we will most likely have a use for those additional 20 gates. So we are very pleased that our government is kind of keeping pace with our expansion needs and developing the infrastructure at Tocumen Airport.

On the fuel hedges, just to give you more color on that. I said that for the year we have 22% cover. The strike price is at $87, probably will see a hike. And it doesn't really vary much by quarter. The fourth quarter is a little bit lower. It's in the $85 range, but the other two quarters, second and third quarter is at $87, $88.

And then for next year, it's 10% for the year; it's pretty even by quarter, and the strike price is between $88 and $90. Again, it doesn't really vary very much by quarters.

That's it. Thank you very much.

Daniel Spilberg, Barclays.

As a follow-up of the previous questions about demand, could you elaborate specifically on the maturation of the nine new routes you recently opened and how they have been performing relative to the normal maturation period you saw in previous years when you also launched new routes?

I think they've done --- this is Pedro here again. I think they've done very well. And the best proof of that is that route that we opened last year such as Brasilia, Porto Alegre and Asuncion, all of which we opened with four weekly frequencies are going up to daily service now in the month of June. So a year or less since those cities were launched we're already increasing frequency. So I think that's the best proof of how well they are doing. And in general, I think all nine launches were successful.

Okay. Thank you.

Thank you.

Hunter Keay, Trahan.

Just two more quick one for you guys. Pedro, I'm wondering if you can give us your thoughts on the appetite for liberalization from other Latin American countries, and just kind of give me your sense for maybe how given changes in the political landscape do you see any other risk within the region of other airlines, maybe gaining fixed freedom rights, which is obviously a huge building block for some of your success. And maybe talk about your thoughts on that, maybe over the next -- not just one or two years, but over the next 5 to 10 years? I'd love to hear your thoughts.

Okay. We -- what we have seen over the past, let's say, 10 years is gradual liberalization of air markets in Latin America. But it's very gradual. And as that happens, we always have some countries that go back and become more restricted than what they were at any given time, and others that do continue to liberalize.

And we see that -- I see that continuing over the next 5, 8 to 10 years. So in general, the trend is towards a more open market, but there will be countries that will be from time to time due to political issues, different governments that will be tougher from time to time.

But again, in the overall, they're becoming more open. And that's actually good for us and we actually -- we support open skies throughout our region. We know that won't happen tomorrow. That will take decades probably. But usually, open skies do not really give you more in terms of fix -- I mean, they give you fixed freedom, but it's not what we're looking for.

As you also mentioned, we operate our hub that depends on just having route rights. This fixed freedoms come automatically from having the route right. So we benefit from the airline ability of route rights. And our competitors have pretty much same access to routes as we have, because we are all competing based on hubs, not on -- not as much on point to point service.

So today, they have pretty much the same route rights we have. So we don't think it's going to be a disadvantage is there a more liberal or open skies in our region, and we think we will benefit the way we operate.

Okay. Great. Thanks. And maybe one more while I have time is, you mentioned the delay in joining Star obviously. But how should we think about the benefits that you're getting now from any antitrust immunity, because I think you do still have antitrust immunity with United.

But can you maybe verify that if that's true, and how the Star Alliance membership might provide benefits just to beyond simple codeshare, but maybe a ramped up partnership through the antitrust immunity, if that makes any sense? So I guess the question is, are you getting any antitrust immunized benefits now and how much can it go once you join the Star through --?

Yes, you're totally right. We have antitrust immunity with United and we have as broad a commercial alliance as you can have. So Star is not going to change their relationship with the United. It is already as strong as it can be. Again, it's [free] antitrust immunity.

So even though we will get additional benefits from joining star through mainly frequent flyer reciprocities with all 26 or 27 Star members, our main alliance is United that's already in place. So a one or two months delay during start does not really have a material impact in our performance this year.

Okay. Thank you so much.

Thank you. And I show that is all the questions that we have for today's call. I would like to turn the program back to our presenters for any concluding remarks.

Okay, that's it. Thank you all. This concludes our first quarter earnings call. Thank you for being with us and thank you for your continued support. We hope to see you next time. So have a great day, have a great weekend.

Ladies and gentlemen, thank you for joining today's conference. This does conclude the presentation. You may disconnect and have a wonderful day.