Copa Holdings SA (CPA) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Copa Holdings fourth quarter and full-year earnings call. (Operator Instructions)

As a reminder, this call is being webcast and recorded on February 13, 2014.

Now, I will turn the conference over to Rafael Arias, Director of Investor Relations. Sir, you may begin.

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

First, Pedro will start with our fourth quarter and full-year highlights, followed by Jose, who will discuss our financial results. Immediately after, we will open up the call for questions from analysts.

Copa Holdings' fourth quarter financial 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 the non-IFRS to IFRS financial measures can be found in our fourth quarter earnings release, which has been posted on our Company website, copa.com.

In addition, our discussion will contain forward-looking statements not limited to historical facts that reflect the Company's current beliefs, expectations, and/or intentions regarding future events and results. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions that are subject to change. Many of these risks and uncertainties are discussed in our annual report filed with the SEC.

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

Thank you, Rafa. Good morning to all, and thank you for participating in our fourth quarter and full-year 2013 earnings call.

I'd like to start as usual by congratulating our coworkers for their efforts in delivering an outstanding fourth quarter and a great year. 2013 was another excellent year in terms of financial and operational results, and it would not have been possible without the hard work and dedication of our world-class team.

Our vision remains to be the best option for intra-Latin America travel by connecting passengers in Panama, the most complete and efficient hub in the region; by offering our customers great service and convenient schedules; and by delivering world-class operational standards, including world-leading on-time performance which ultimately results in industry-leading financial results.

Among our main highlights for 2013, we were able to deliver another year of very strong growth, as traffic increased 16% on 14% capacity expansion.

We continued to strengthen our network by adding two new cities, Boston in July and Tampa in December, our 8th and 9th destinations in the United States. So, we ended the year serving 66 destinations in 29 countries in the Americas, by far the most complete and convenient network for intra-Latin America travel.

On top of these two new cities, during the year we added frequencies to 13 of our existing destinations.

During the year, we continued enhancing our customers' travel experience, by launching our fourth Copa Club, in San Jose, Costa Rica.

Despite considerable capacity expansion for the year and an increased length of haul, we were able to grow load factors while maintaining yields. This resulted in very healthy unit revenues, which combined with very competitive unit costs led to another year of strong financial results.

During 2013, we also took delivery of seven Boeing 737-800 aircraft, to end the year with a consolidated fleet of 90 aircraft. All of our deliveries feature the Boeing Sky interior and came equipped with our new in-seat inflight entertainment system and enhanced business class seats, designed for our longer missions.

We also continued looking for efficiencies. We implemented an in-house heavy maintenance line and accomplished [80 seat checks] during the year, resulting in cost savings.

On the operational front, our team once again delivered very strong numbers, with Copa Airlines' on-time performance coming in close to 89% for international service. This, along with a flight completion factor of 99.6%, placed us once again among the best and most reliable airlines in the industry.

Last, but not least, we're proud to have received the 2013 Skytrax awards for best airline and best cabin and airport staff in Central America and the Caribbean.

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.

Now, looking at the main highlights for the fourth quarter, excluding special items we delivered an adjusted operating margin of 23.2% and an adjusted net margin of 20.4%, the best quarter all year.

Passenger traffic came in very strong, increasing almost 11% year over year on 9.5% capacity expansion.

Yields increased almost 6%, which led to a year-over-year increase in unit revenues of over 6%.

Additionally, on the cost front, adjusted unit costs came in slightly lower, mainly due to a lower fuel price year over year.

In terms of our network, in the month of December we added frequencies to several important markets -- specifically, an eighth daily flight to San Jose, Costa Rica; a sixth daily flight to Cancun; a fifth daily to Cali, Colombia; a fourth daily to Punta Cana; a third daily to New York; and second daily frequencies to Las Vegas, Asuncion, Paraguay, and Pereira, Colombia.

Looking at our fleet, we added one Boeing 737-800 during the quarter, ending the year with a fleet of 90 aircraft.

For this year, we expect another year of double-digit capacity expansion, as we will add eight new Boeing 737-800 aircraft, closing the year with 98 total aircraft.

Similar to our 2013 strategy, this year's incremental capacity will be mainly focused on adding frequencies to existing markets.

Our expansion plans for the first half of 2014 includes Montreal, our second Canadian destination; Fort Lauderdale, our tenth city in the US; and Georgetown, Guyana, which will become the 30th country we serve.

We will also be increasing frequencies to some of our larger markets, such as San Jose, Costa Rica, and Bogota, Colombia, and adding second daily frequencies to Brasilia, Aruba, and San Andres, Colombia.

In addition to our network expansion, we will continue implementing initiatives to improve our product and services, as well as generate efficiencies.

This year, we will continue to improve our website and mobile capabilities as the pillars to further reductions in distribution costs.

We will initiate construction of a new maintenance hanger to expand our heavy maintenance program.

We will be the first airline in Latin America to implement scimitar winglets on our eight 2014 deliveries, and we will retrofit 10 existing aircraft, which will generate approximately an additional 1.7% fuel reduction on these aircraft.

Another important initiative for 2014 will be to continue working with the airport in Panama in the design and construction of the south terminal expansion project, which will add another 20 jet bridges to our connecting center. This expansion, which is currently ahead of schedule, should be ready in the second half of 2016, ensuring that our hub has the necessary infrastructure to accommodate our future growth.

Turning to our current demand environment, and as you can see from the January traffic figures we just released, we're having a good start to 2014. Traffic for the month came in very strong, growing 10.5% on 9.6% capacity expansion, and our load factor of 80% was 0.6 percentage points higher year over year.

Now, turning to the economic front, prospects for the region while still quite favorable have slowed down somewhat, yet reports indicate the region should grow around 3% in 2014, which would be similar to slightly better than 2013. Air traffic growth is expected to surpass GDP growth. So, overall, we remain positive on our region's growth prospects and the strength of our network.

Our home country, Panama, continues to outperform the region. For 2013, forecast calls for approximately 7.5% GDP expansion. And in 2014, Panama is expected to grow about 7%. This should have 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.

So, to summarize, we're pleased by our fourth quarter and full-year results and this year's demand outlook. The overall economic outlook for our region remains positive. Our network continues to expand, and its long-term growth prospects remain strong. Our team continues to deliver world-class operational performance. And we're implementing the necessary initiatives to strengthen even more our Hub of the Americas, improve our product, and maintain our operating efficiency.

So, we're well positioned strategically, financially, and operationally to take advantage of future opportunity, while continuing to deliver world-class financial results.

With this, I will turn it over to Jose, who will go over our financial results.

Thank you, Pedro, and good morning, everyone. Thanks again for joining us.

First and foremost, as always, let me begin by joining Pedro in congratulating the entire team for another strong year.

During 2013, we added seven new 737-800s to our fleet, moved ASMs by more than 14%, added two new destinations to our network in addition to frequencies to several cities, increased revenues 16%, and further strengthened our balance sheet to continue funding our growth and return value to our shareholders.

Undoubtedly, these results would have been impossible to achieve without the commitment of the whole Copa team. To all, thank you and, again, congratulations on an outstanding year.

Today, we are reporting $428.2 million in net income for full-year 2013, which translates to earnings per share of $9.64 and an operating margin of 19.9%.

However, and not taking into account special items which include a fourth quarter accounting non-cash intangible impairment charge of $31.2 million, underlying net income came in at $468.1 million, or adjusted earnings per share of $10.54, compared to an adjusted EPS of $7.57 last year.

Full-year adjusted operating margin was 21.1%, 3.2 percentage points higher than 2012.

The impairment charge arises from an intangible asset booked in 2005, with the acquisition of AeroRepublica, now Copa Airlines Colombia, linked to Colombia's domestic route rights from their network. Given that we have significantly reduced capacity in the domestic market in favor of more profitable international flights and have plans to continue this strategy in 2014, an impairment was necessary.

We also had a very solid fourth quarter, with capacity in terms of ASMs increasing close to 10% year over year as we continued strengthening our Hub of the Americas in Panama City.

Additionally, we continued to see strong demand for air travel during the quarter, as revenue passenger miles increased almost 11% year over year, resulting in a consolidated load factor of 76.5%, almost a full percentage point increase over Q4 2012.

Passenger yield came in almost 6% higher than last year, resulting in revenue growth of more than 16% year over year, to almost $700 million.

On the expense side, fourth quarter operating expenses excluding special items increased 8% year over year, and our cost per available seat mile decreased about 1%.

However, our adjusted ex-fuel CASM increased approximately 2% year over year, to $0.069, mainly as a result of distribution costs [that are primarily related to high revenues and airport rentals]. These were partly offset by lower maintenance expense.

In terms of operating earnings, consolidated operating earnings for the fourth quarter excluding special items came in at $161.8 million, compared to $104.3 million in the fourth quarter of 2012, with our adjusted operating margin coming in at 23.2%.

Looking at non-operating income and expense, fourth quarter generated a net non-operating expense of $7.6 million, mainly consisting of $4.6 million corresponding to a non-cash foreign exchange impact, and net interest expense of $3.5 million, and a $2.6 million fuel hedge mark-to-market gain.

With respect to fuel hedges, in accordance with our fuel hedge policy, we currently have in place the following coverage. For 2014, we have coverage for 22% of our projected volume in crude oil swaps and jet fuel swaps at an average equivalent price of $89 per barrel and $2.91 per gallon, respectively. And for 2015, we have already hedged 14% of our projected volume with jet fuel swaps at an average of $2.73 per gallon.

Turning to the balance sheet, we continue to strengthen the Company's position, as assets reached $3.95 billion at the end of the year, for an increase of almost $500 million during the year. Owners' equity totaled approximately $1.9 billion. Debt plus capitalized leases totaled $1.7 billion. And our debt to equity ratio came in at 0.6 times, the lowest in our peer group and one of the best in the industry.

In terms of debt, we closed the year with approximately $1.1 billion in bank debt, half of which is fixed-rate debt, with a blended rate including fixed and floating-rate debt coming in at 2.5%.

Looking at cash, we closed the year with almost $1.2 billion in cash, short-, and long-term investments, which represents approximately 45% of past 12 months' revenues. However, $487 million of our cash is in Venezuela pending repatriation.

Regarding Venezuela, the recent announcement [made] by the government there to move airlines from the CADIVI exchange rate to the SICAD rate applies only to sales not yet submitted for monthly repatriation. In other words, future sales made by airlines operating in Venezuela will use as a reference the exchange rate that results from the weekly auctions the government holds. This exchange rate currently stands at VEF11.36 per dollar.

The government also indicated in its announcement that funds already submitted for repatriation will be honored at a VEF6.3 per dollar exchange rate. However, there is no official word from the government on how and when they plan to honor pending repatriation requests by airlines.

I would like to point out that our cash position excluding our exposure in bolivars is very healthy, representing 26% of last 12 months' revenues. So, this exposure by no means compromises our financial position.

In fact, in accordance to our dividend policy, our Board of Directors approved our 2014 dividend in the amount of $3.84 per share. As a result, on March 15 we will pay our first quarter dividend in the amount of $0.96 to shareholders of record as of February 28. You might recall that during 2013, our Board of Directors approved an increase to our dividend payout from 30% to 40% of previous year's net income, and went from a yearly to a quarterly dividend payment schedule.

In terms of [fleet costs in] 2014, we have already taken care of the financing of four of our eight deliveries for this year and expect to have sourced all our [financing] needs for the year in the coming weeks.

So, going back to our results and to recap, we had another quarter and another year of strong capacity and revenue growth and again delivered some of the best profit margins in the industry. We have the balance sheet and liquidity to continue funding our growth. And most of all, we are well positioned to have another strong year in 2014.

In terms of our guidance for 2014, as in past years, last November we provided preliminary guidance for the year ahead. Given the economic outlook in the region and demand trends, we are reaffirming our 2014 full-year guidance as follows.

We are maintaining our capacity growth in terms of ASMs, at plus-or-minus 10%.

Load factor is expected to come in at plus-or-minus 77%.

We're keeping our RASM guidance at plus-or-minus $0.137.

We're maintaining our CASM ex-fuel guidance at plus-or-minus $0.68.

We are also maintaining our fuel price assumption for the year at an effective price per gallon including into-plane and net of hedges of approximately $3.15.

And with respect to our operating margin, we continue to expect another strong year, with operating margins in the range of 19% to 21%.

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

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

Thank you. (Operator Instructions)

Mike Linenberg, Deutsche Bank.

This is actually [Bridget Tower] filling in for Mike. Just a couple of questions. First, some more on Venezuela. Can you give us some more figures around your business there -- your revenue from the nation and how to think about the profitability generated from that operation?

I'm not sure of exactly what you are asking for, but I can give you general direction. You know we don't share a per-route or per-market profitability, but directionally I can tell you that demand in Venezuela remains very strong.

So, the issue there is not one of demand. It's one of getting paid after selling in local currency. And we have been paid on a regular basis, even though late, up to October of last year. So, it's been a little bit over three months since most airlines have stopped receiving dollar funds.

But demand is not the issue. Demand remains very strong and [often] with full flights. And with full flights, you can revenue manage loads. So, you would say that profitability in Venezuela is very healthy.

Right now, between 14% and 15% of our revenues last year came from Venezuela.

OK. Thanks. That's helpful. And then, just a little bit more on that, given that we've heard some of your competitors are actually pulling out of -- pulling flights from that nation, have you benefited from that trend? Has the competitive environment actually improved, given that some of the smaller carriers have been pulling out?

Actually, I don't anybody has pulled out of that market yet. Plus, we would not really benefit at all from that commercially, in the sense that our flights operate pretty full with high load factors.

No, that hasn't happened yet.

OK. Thanks. And then, just generally, on your capacity plan, I was wondering if you could tell us how much room you have to basically adjust your capacity plan, for instance, if you had to cut capacity because demand trends weren't holding up? How much wiggle room do you have there with the leases coming due this year and the planes that you're getting?

Well, we have always a number of other markets, routes where we can initiate service or add frequencies. Plus, next year, in 2015, we have around five leases that come due, which we're planning to renew most of them, if not all. But that gives us a lot of flexibility.

OK. Great. And Pedro, what about this year? Do you have leases coming due?

No. This year, basically our capacity in terms of aircraft is set. And as we mentioned during our release, and we are guiding for 10% capacity growth for this year.

OK. Great.

Jim Parker, Raymond James.

Given such terrific earnings numbers, I apologize in advance for pursuing the Venezuelan issue a bit further, but just a couple of things in that regard. How can you say with confidence that you will be able to repatriate some or all of that cash that you have there? Just, what are the political, economic reasons why you're optimistic about those funds eventually being repatriated?

OK. I'll say a couple of things, Jim. This is Pedro, again. First, I did not refer to that specifically. So, I did not say that with confidence or optimism.

What I said was that the issue is one mostly of repatriating those funds, more than demand. The demand is there. There's more demand than supply. But I did not comment on repatriating the funds.

But now that you ask, obviously that is the (inaudible) uncertainty in the whole Venezuela issue. But most airlines, if not all, operate based on international treaties that guarantee the repatriation of those funds. But obviously you cannot comply with international treaties, but I have not seen that happen before.

So, we're hopeful that a solution is to be reached, because airlines are not going to operate indefinitely without getting funds. And any country requires air service for its development and its growth. So, I'm confident that a solution will be reached.

But, again, there is uncertainty there of course.

Pedro, why not take some or all of your capacity out and redeploy it in other markets where you'll actually get paid?

Well, first, remember that up to October, we were getting paid on a regular basis, late but getting paid on a regular basis, almost a monthly basis. So, this is a recent development relatively speaking, a little bit over three months. And we're still hoping on a solution.

It's an important market. It's an important country. You don't want to just exit, abandon that, and then see it [change] the following day and having difficulties going back in.

And we are owed that money. So, we're hopeful that a solution with be reached.

However, if that does not happen in the near future, we will consider any and all possibilities. And I would say that most airlines will be forced to do the same. It's just a matter of dollars and cents. It gets to a point where you cannot operate if you're not getting your funds.

So, again, this is relatively a new development, but it needs to be fixed in the near future. And I'm now not talking only about Copa. All the airlines are in this same boat. For some reason, a lot of the comment has been addressed towards Copa, but we're in the same boat as the rest of the industry.

Hopefully, that will help.

All right. Thank you.

Eduardo Couto, Morgan Stanley.

Congratulations on the results. Just like Jim, sorry for our focus on Venezuela. It has been the major subject we are getting from clients.

Just a couple of other questions on Venezuela. Did you receive any cash at all in the fourth quarter from Venezuela, because your cash position there grew $95 million which is more or less 15% of the revenues that you mentioned you are doing in Venezuela? So, I was just wondering if you got any cash out of the country during the fourth quarter?

Yes, as I mentioned, the last payment was in October (multiple speakers).

(multiple speakers)

What's that?

(inaudible), Pedro, because the cash position grew 15% of the revenue?

OK. Yes. Correct.

OK. And can you give us a color regarding the yield decrease and what sort of margin you're getting there? And also, what FX you are using to translate the ticket solds in bolivars to US dollars when you do your consolidated numbers? What FX are you using?

Again, we do not share specific route P&L information.

And before the decrease that was mentioned by Jose during his part, we used the official exchange rate up to that date, which was VEF6.30. And as of the decree at the end of January, we switched to the SICAD rate which stands right now at VEF11.36.

OK. So, for the fourth quarter, it was -- all sales in Venezuela were [repatriated] at VEF6.30.

Correct.

OK.

Duane Pfennigwerth, Evercore.

Just coming back to your RASM guidance, RASM was just up 6%. Can you give us a sense for -- to get to flat in 2014, any sense for the cadence there? Should we think about a first half that looks more like the second half of 2013? And then, given a lack of visibility into the second half, some conservative assumption? I'm just struggling to see how we --. If I look at sequential revenue trends, even discounting it for some obviously Easter shift, I'm just struggling to get to flattish.

We really are comfortable with our guidance on our revenue performance for 2014. It's still pretty early in the year. And as you mentioned yourself, we have limited visibility for the latter months of 2014. We are seeing the first quarter forward bookings to be good, but still pretty early in the year.

And by the way, we're guiding to very strong operating margins for full year. So, we're pretty confident that our performance for the year should be very strong.

I appreciate that. So, I guess, just coming back to the cadence, by quarter is it something where we should assume up, up, down, down, because we don't have the visibility in the second half?

I would say that it's a matter of visibility at this point.

Yes.

And as I mentioned, we're seeing that the first quarter is looking good in terms of forward sales, which is basically where we have our visibility. And we're seeing first quarter performing well.

And there's still enough noise out there to be hard to predict that it's going to be up, down, down, up or what's going to happen in the next quarters.

OK. Appreciate that. And then, again, I echo Jim's apology. Just to come back to this a little bit, on the cash that's presently there, can you say how much of that relates to travel that's already been consumed versus in advance ticket liability?

I don't know if we have that.

Yes, I don't know if we --. We owe you that one. I don't think we have that information with us right now.

But I should say that we have probably the strongest cash position in the industry, and we have a very strong cash position even taking out the bolivars of Venezuela exposure. I think that's also something important to highlight.

And, again, in Venezuela, it's not an issue of when we're going to get paid and how. And we can argue how optimistic we're going to be about that or not. But demand is still there.

And the one thing that I wanted to say, Duane, is that the cash that we have, according to the Venezuelan regulations, should be honored at the VEF6.30 exchange rate, even if it has not been flown yet, because it was already submitted for repatriation to the Venezuelan government.

So, in that sense, once the issue of the repatriation gets settled, this cash according to the Venezuelan regulatory literature that is out there, should be paid at the VEF6.30 exchange rate.

Certainly appreciate that, and it feels like it's, honestly, more than discounted into your stock at this point. However, I think we all are struggling a little bit to understand, given the portfolio of growth opportunities that you have, why you'd continue to do any business with a country that doesn't pay you per agreements that you already have in place. And just to add to that, maybe you could just comment on this?

Sure. I'll comment. We have about eight daily flights into Venezuela. And as you've been able to see, we're not the only airline that's staying put, because it's a market where flights are full because there's not enough capacity. And when flights are full, you can revenue manage, sell [wide] fares, et cetera, fill up your business class, which means that it's a very profitable market for all airlines.

This is something that happened a little over three months ago. And in our particular case -- but I think it applies to the rest -- but in our particular case, we're strong enough to be able to be a little bit patient and wait for a solution and not jump the gun and abandon a very profitable and important market that needs our service, to then regret it two or three months down the line.

So, that's kind of the chance every airline is taking. That's why we're being patient. But obviously, that cannot go on forever.

Understood. Clearly, you've shown an owner's perspective in the time that we've covered you. So, thanks very much for the time.

Thank you. And if we get another question, what we're going to do is we're going hold our next Investor Day in Caracas. (laughter)

Hunter Keay, Wolfe Research.

This is actually Jared Shojaian in for Hunter. So, I hate to be the one that goes back to this Venezuela issue, but a separate question on that. If I look at your capacity in Argentina and Venezuela, it looks like it makes up roughly 5%, or so, on a seat basis. But revenue, it looks like it's about 20% of your total revenue.

So, I guess, are yields in these markets just so much stronger than the rest of your network? Is that --? Should we assume the profitability is comparable to that ratio as well? Or, how are you thinking about that?

Well, you should assume that --. Again, we won't talk about specific profitabilities. But when we think of markets where capacity for all operators is restricted and where demand is very strong, you should assume that profitability is better than the share of revenues of that particular market.

OK. Great. And then, I guess just a general question here on cash [deployment]. When we see your stock decline 20% in a very short amount of time and we see these volatile day-to-say swings from macro-related noise and things that are, really, outside of your control, does it make you wish you had a buyback in place, to be able to go in and support the stock?

And I know in the past, you've talked about your preference for a dividend over the buyback. So, is it fair to say that you wouldn't even consider announcing a buyback at some point later this year? Or, how are you thinking about that?

Well, yes indeed, the stock has been hit in the recent weeks. Our company is keen on returning value to its shareholders. We think we've proven that. As a matter of fact, as we announced today, our Board approved a 40% dividend based upon 2013 net income, and that's following up with a dividend policy change that we did last year, bringing it up from 30% to 40%.

And you know what, if we believe that there are opportunities to return additional value to our shareholders, we will consider options such as this one. But for now, I think we believe that our 40% dividend payout is, I think, something that we believe is returning value to our shareholders.

OK. Great.

Helane Becker, Cowen.

Just in Panama itself, are you starting to see an increase in competition in that market, or an increase in capacity from other providers?

Not really. There are more flights coming in, some from Europe, which are good for us. They bring unique feed to our hub. And there are other airlines coming in, but nothing really materially different to what we've seen in the past.

We still have, I think, around 85% of the capacity at the airport, and I don't see that changing going forward.

So, I would say that we have strong competitors. Some are increasing their flying, but competition in our region, it's also very rational right now. What's going to happen in the future, I don't know. But right now, it's rational and we haven't seen a material change from the past.

OK. And then, my other question is related to actually the fuel price and the fuel surcharges that you are sometimes charging in the revenue line. So, at what price would jet fuel have to go to, I guess because we've seen it increase a little bit in the past week or two, for you to add a fuel surcharge to the ticket price?

I would say historically --. First of all, we've been able to pass on fuel increases to our ticket prices over the last several years, and I wouldn't say that that is different in this particular case.

I think historically we've been passing most of the increase in fuel that we've had over the last two to three years to the ticket price without much issues.

And I would add that fuel has been very -- last year was very stable. And we are guiding to something similar fuel prices this year. So, we really have not faced, at least not in the last 12 months --. And one never knows what's going to happen in the future, but projections are that it won't be happening this year. We have not been facing an unstable, raising fuel environment. If it happens, we'll consider it at the time.

OK. Those are all my questions.

(Operator Instructions) Thomas Kim, Goldman Sachs.

I just wanted to ask what percentage of your revenue is originating outside of Panama?

It's above 90%.

90%. OK.

Above. Above 90%.

OK. And then, what percent of that is vulnerable to FX volatility?

OK. So, what's in dollars and what's in foreign currency? Do we have that here?

Basically, I would say that in terms of revenue, about 40% are dollar-denominated revenues. And to complement that some, we really haven't seen yet an impact of foreign exchange on demand, at least for the months where we have visibility here in the first quarter. And so, therefore, we haven't really seen an impact on FX on our demand in the major countries where we operate.

And I should add that obviously what we sell in other currencies, it's priced in dollars. So, it's adjusted at the current exchange rate for each currency in which we sell.

And can you remind us of what percentage of your OpEx is in dollar terms?

About 52%.

OK. Great. All right. So, the net exposure is still relatively limited. And then, to what extent are you hedged for that, let's just call it, 10% short-dollar position?

Well, we don't hedge foreign currencies. And again, remember that we price in dollars. So, it's different. And over 97%, around 97%, of our capacity is in either dollars or dollar-denominated markets. It's international. It's not domestic.

Where you have a greater issue with currency devaluations is when you're flying domestic and your expenses are in hard currency, in dollars. Because when you fly domestic, you cannot price in a different currency.

But since over 97% of our capacity is international, we always price in dollars, even if we sell in foreign currencies.

OK. All right. That's very, very helpful. And then, just moving along to Brazil, can you just give us an idea of how yields have been trending there? And then, to what extent can you comment on your capacity plans surrounding the World Cup, if it's not too early to be commenting on that?

So, we haven't really seen an impact on yields in the Brazil market, at least, again, given the visibility that we have for the first quarter. We haven't really seen an impact on yields or traffic in the Brazil market. They're performing well, to our expectations.

As far as the World Cup is concerned, it's a contained event in a high season month. It's high season anyways. I don't think that we will necessarily add any significant capacity specifically for the World Cup. We're already taking advantage of the high season and maybe one or two flights for the season, but nothing material.

OK. Great.

Pedro Balcao, Santander.

Two quick questions, really. The first one -- sorry, again -- on Venezuela. How come the demand is not affected by such a massive depreciation? You were using an exchange rate of VEF6.30 until a couple of weeks ago, and now you are using VEF11. How does that not affect the demand?

And the second question is actually very similar to a previous one. Your guidance for the margin for 2014 is flat versus 2013. But during 2013, what we saw was margins continuously improving. So, does this mean that I should expect margins up year on year on the first half of the year and down year on year on the second half of the year?

I will go the second first. I think you should expect what we're guiding to. And depends on how you see first quarter and second quarter, I think it will be easier to figure out the remaining quarters of the year.

But right now, we're only guiding for end of the year results. So, we'll have to wait for first quarter and second quarters to have a better idea of how the second half comes.

But now, we will review our guidance very quarter. So, if we need to make any adjustment, we will. But obviously, the guidance, what we're guiding to, 19% to 21% operating margins are top in our industry. So, I would not expect that to change on the upside that much. Those are very strong margins.

In terms of your first question --.

It was, how come there is no impact on demand in Venezuela (multiple speakers)?

(multiple speakers) I don't want to --. Maybe this is a Freudian slip. I don't want to answer more Venezuela. No, but I'll answer anything.

I don't want to speculate the reasons behind it. There are many reasons. But I'm giving you the fact. The fact is that demand in Venezuela is very strong at VEF11.30, as strong as it was at VEF6.30. It's made no difference. And it's kind of a fact of the market, which tells you a little bit about the right exchange rate and capacity and many other factors. But that's just a fact of the market right now.

OK. Thank you very much, and I'm definitely looking forward to that Investor Day in Caracas. (laughter)

Stephen Trent, Citi.

Three very quick questions, if I may, and I didn't -- just to make sure I caught everything correctly. You mentioned a heavy maintenance facility this year, and you mentioned retrofitting 10 aircraft with scimitar winglets. I was wondering if you highlighted any numbers around that? And I apologize; I had some trouble connecting. If you could give me some color on that?

Actually, the scimitar winglet should be able to give us for the aircraft where we install them around 1.7% fuel savings versus the current baseline. And of course, we will start the scimitar winglet program with the eight deliveries that we have through this year. And also, we will retrofit approximately about 10 aircraft, but they'll be done throughout the year. So, the impact would be put in on a paced basis throughout the year.

The aircraft that have the scimitar winglet will probably be put into our longer-haul flights. That should give us an absolute decrease in our fuel consumption.

And so, just to clarify, this 1.7% fuel savings is on top of our current blended winglet savings that we have in the fleet.

And in terms of maintenance in Panama, we've started, as Pedro mentioned, a seat check program in our maintenance facility here in Panama, and that should be able to continue next year. The one thing that I have to say, also related to maintenance, is that in 2014 there are some specific timing of engine events that offset somewhat some of our maintenance savings that we have, given our seat check programs. And it's a little bit of a blended type of effect there in 2014 with this.

OK. Very helpful, Jose. And certainly, I'm not one to beat a dead horse, but just super quickly on Venezuela. The cash that's there, does it accumulate interest at all to your knowledge? Or, it just -- we're still just talking nominal terms?

So, the cash in Venezuela, first of all, is in our own bank accounts in Venezuela, and it accumulates very little interest. I would argue it's essentially almost zero interest.

It's fair enough, Jose.

I'm not showing any further questions at this time. I'd like to turn the conference back over to Pedro for closing remarks.

OK. Thank you, Operator. Thank you, all. This concludes our fourth quarter earnings call. Thank you for being with us. Thank you for your Venezuela questions and for your continued support. We will see you next time. Have a great day.

Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may disconnect. And have a wonderful day.