Copa Holdings SA (CPA) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Copa Holdings Fourth Quarter Earnings Call.

(Operator Instructions) As a reminder, this call is being webcast and recorded on February 22, 2017.

Now I will now turn the conference over to Raul Pascual, Director of Investor Relations.

Sir, you may begin.

Thank you, Carmen.

Welcome, everyone, to our fourth quarter earnings call.

Joining us today are Pedro Heilbron, CEO of Copa Holdings; and Jose Montero, our CFO.

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 financial reports 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 earnings release, which has been posted on the company's 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, Mr. Pedro Heilbron.

Thank you, Raul.

Good morning to all, and thank you for participating in our fourth quarter and full year 2017 Earnings Call.

First of all, I want to congratulate all of our coworkers for their efforts during the quarter and throughout the year.

Your ongoing dedication and commitment keeps us at the forefront of Latin American aviation.

Our fourth quarter results were a strong finish to a very good year.

Despite an increase in oil prices that put pressure in operating expenses, we delivered a very solid fourth quarter load factor and stronger yields, resulting in the highest unit revenues in more than 2 years and a significant year-over-year operating margin expansion.

Among the main highlights for the quarter: passenger traffic grew a solid 11% year-over-year, outpacing our capacity growth of 9%.

This resulted in a very strong 83.2% load factor, 1.6 percentage points higher than the fourth quarter of 2016.

Yields increased 1.2% year-over-year.

Due to our higher load factor and yields, unit revenues or RASM improved almost 3% year-over-year to $0.111.

On the costs side, ex-fuel unit costs came in at $0.065.

As a result, our operating margin came in at 17.8%, more than 6 percentage points above the fourth quarter of 2016.

On the operational front, Copa Airlines delivered an on-time performance of 87% and a completion factor of 99.6%, again, amongst the best in the world.

Now turning to our main highlights for the full year 2017.

I'm pleased to say that we reached an operating margin of 17.4% for the year or 5 percentage points higher than 2016.

This came as a result of improving unit revenues, our highest since 2014, and record low unit cost as a result of the many cost-saving initiatives we have implemented over the years.

Unit revenues came in close to 5% higher year-over-year driven by 2.8 percentage point increase in load factor and a 1.5% increase in yields.

CASM ex-fuel decreased 1.7% to $0.063, amongst the lowest for a full service airline, and the lowest we have recorded to date on a full year basis.

As for our network expansion, during 2017, we added 2 new destinations, Mendoza in Argentina; and Denver, ending the year with 75 destinations in North, Central, South America and the Caribbean, strengthening our position as the most complete and convenient hub in Latin America.

In terms of fleet, during 2017, we took delivery of 2 Boeing 737-800s and returned 1 Embraer-190, ending the year with 100 aircraft, 1 more than at the end of 2016.

We also continued working on several important projects that should contribute significantly to our results over the next couple of years, including upgrading our reservation system currently in user testing, which will enable us to make the most of new ancillary revenue opportunity; migrating to a new unified MRO solution, which was successfully completed in October and will allow us to more efficiently manage our maintenance programs for both the Boeing and Embraer fleet, resulting in lower costs; and a company-wide project over the last 2 years that achieved more than $40 million in annual savings.

On the operational front, we delivered an on-time performance of 86.7% for the year and were recently recognized by FlightStats for the fifth consecutive year as the most on-time airline in Latin America and by OAG as the fourth most on-time airline in the world.

Finally, Wingo, although a very small 2% of our revenues, did much better than expected both operationally and financially.

Earlier this month, Wingo flew its 1 millionth passenger and is quickly positioning itself as the best LCC option in Colombia, thanks to its low fares and very reliable service.

So overall, we had a strong fourth quarter and a very solid year.

Turning now to 2018.

We expect the air travel demand environment in our region to remain healthy and are seeing good booking patterns for the first quarter of 2018.

In fact, last week, we released our load factor for the month of January, a very strong 84%.

In terms of fleet, we already received 1 737-800 in January.

We expect to return 1 Embraer-190 upon its lease expiration in March and take delivery of our last 737-800 in April.

In the second half of the year, we expect to receive 5 737 MAX 9s to end the year with a consolidated fleet of 106 aircraft.

We're looking forward to the arrival of our first MAX 9s, which will deliver both revenue opportunities and cost efficiencies.

In regards to our network, we recently announced 3 new destinations starting in July.

Fortaleza and Salvador, our eighth and ninth destinations in Brazil; and Bridgetown, Barbados, our 16th destination in the Caribbean.

After these additions, Copa will provide service to 78 destinations in 32 countries in North, Central, South America and the Caribbean.

To summarize, as laid out in our 2016 path to higher margins plans, we have benefited from the many cost and revenue initiatives implemented over the past 2 years and have seen our financial results improve accordingly.

We're off to a good start in 2018 and expect to continue seeing a healthy demand environment throughout the year.

We continue growing and strengthening our network, the most complete and convenient hub for intra-Latin America travel.

Our team continues to deliver world-class operational performance while achieving industry-leading unit costs.

And we continue focusing on several cost and revenue initiatives that are aimed at further increasing our margins.

Lastly, we're as confident as ever in our business model and our financial position.

We have the strongest network for travel within the Americas, an extremely flexible fleet plan, the lowest unit costs, a very strong liquidity position with low leverage, and a highly committed team.

Now I'll turn it over to Jose who will go over our financial results in more detail.

Thank you, Pedro.

Good morning, everyone, and thanks for joining us.

As always, let me begin by joining Pedro in congratulating our entire team for all their outstanding achievements during 2017.

Now our highlights for the year.

We decreased our ex-fuel unit cost by 1.7% to $0.063, amongst the lowest in the world for a full-service carrier.

Despite significant capacity growth in 2017, we delivered our highest yearly load factor of 83.2%, and operating revenues increased close to 14% year-over-year.

Reported net income for full year 2017 came in at $370 million, which translates to earnings per share of $8.72 and an operating margin of 17.4%, 5 percentage points higher than 2016.

Excluding special items, mainly a fuel hedge mark-to-market gain of $2.8 million, adjusted net income came in at $367.2 million or adjusted earnings per share of $8.66, 82% higher than the adjusted net income of $201.4 million or adjusted earnings per share of $4.75 in 2016.

Now turning to our fourth quarter results.

We grew capacity by 9.2% year-over-year, while revenue passenger miles increased 11.3% year-over-year, which resulted in a consolidated load factor of 83.2%, a 1.6 percentage point increase versus Q4 2016.

Passenger yields came in 1.2% stronger year-over-year, which combined with a higher load factor resulted in a unit revenue increase of 2.9% from $0.107 in Q4 2016 to $0.111 in Q4 2017.

Consolidated revenues increased 12.4% to over $676 million.

On the expense side, our fourth quarter operating expenses increased 4.6% year-over-year on the 9.2% capacity growth, which resulted in a cost per available seat mile decreasing 4% to $0.091.

Our effective oil and fuel price increased 3.5% from $1.96 per gallon in Q4 2016 to $2.03 per gallon in Q4 2017.

The cost per available seat mile, excluding fuel, ex-fuel CASM decreased 6.7% from $0.069 in Q4 2016 to $0.065 in Q4 2017, mainly as a result of a noncash adjustment in our aircraft useful life assumptions, which we made in Q4 2016 and significantly increased the depreciation expense in that quarter.

However, even without this adjustment, our ex-fuel CASM came in almost 4% below that of 4 -- Q4 2016.

Consolidated operating earnings for the quarter came in at $120.4 million resulting in an operating margin of 17.8%, 6.1 percentage points higher than the 11.7% generated in Q4 2016.

Looking at nonoperating income and expense.

Fourth quarter generated a net nonoperating expense of $9.3 million mainly driven by a $5.7 million foreign currency translational loss.

In terms of net results, net earnings for the quarter came in at $100.8 million or earnings per share of $2.38.

When excluding extraordinary items, mainly the fuel hedge mark-to-market gain of $539,000 for a quarter, underlying net income came in at $100.3 million or earnings per share of $2.36, 83% higher than the adjusted net income of $54.7 million or adjusted earnings per share of $1.29 reported in Q4 of 2016.

Turning to the balance sheet.

We closed the quarter with a very strong financial position.

Assets totaled $4.3 billion or an increase of over $400 million versus the end of 2016.

Owners' equity totaled $2.1 billion.

Debt plus capitalized leases totaled approximately $2 billion, and our adjusted net debt-to-EBITDA ratio came in at a very strong 1.4x, by far the lowest in our peer group and one of the best in the industry.

We closed the quarter with approximately $1.2 billion in debt, more than 60% of which is fixed with a blended rating, including fixed and floating-rate debt of approximately 2.7%.

In regards to cash, short- and long-term investments, we closed the quarter with approximately $1 billion, about $200 million more than at the end of the fourth quarter of 2016.

Our cash balance at the end of the quarter represents approximately 40% of last 12 months' revenues.

In terms of fleet, we took delivery of 2 Boeing 737-800s during 2017 and returned 1 leased Embraer-190, ending the year with 100 aircraft: 80 Boeing 737s and 20 Embraer 190s.

For 2018, we already received 1 Boeing 737-800.

We're scheduled to return 1 leased Embraer-190 in March, and we expect to receive another 737-800 in April.

During the second half of the year, we expect to receive our first 5 Boeing 737 MAX 9s to end the year with a total of 106 aircraft.

It is important to note, we have already secured the financing for all of our aircraft delivery in 2018.

Finally, I'm pleased to announce that our Board of Directors has approved a quarterly dividend of $0.87 per share, corresponding to our dividend policy of 40% to prior year's adjusted net income.

The first quarterly dividend will be paid on March 15 to all shareholders of record as of March 5.

So going back to our results and to recap, we delivered very strong financial results for the year in accordance with our plan to return to higher margins.

We continue to actively manage capacity, while selectively capturing market opportunities.

For 2018, we expect demand for air travel in our region to remain healthy.

We continue in our path to improve our revenues and reduce our costs.

We have one of the strongest balance sheets in the industry, and we continue to return value to our shareholders.

Today, we're also providing guidance for 2018 based on our operating plan and expectations for air travel demand for the year.

We're maintaining our capacity growth in terms of ASMs at approximately 9%.

And even though we're now assuming a higher fuel price for the year, we are reaffirming our operating margin range of 17% to 19%.

Our 2018 full year guidance is based on the following assumptions: load factor of approximately 83%; RASM of approximately $0.109; CASM ex-fuel of approximately $0.063; and an effective fuel price per gallon, including into-plane of approximately $2.05.

So we expect better results during 2018, supported by a healthy demand environment and the many initiatives we have continued working on to strengthen our competitive and financial position.

Thank you.

And with that, we'll open the call to some questions.

(Operator Instructions) And our first question comes from the line of Michael Linenberg with Deutsche Bank.

I guess a couple of questions here.

Your -- Jose, on your operating margin guidance, the 17% to 19%, previously, when you had provided that, we didn't have all of the underlying costs, and I don't believe we have the cost and revenue forecast.

So what has changed?

Obviously, fuel prices are higher, and yet, you're keeping the same number.

So it suggests that is it the cost outlook coming in better?

Or is it all revenue?

So maybe it's a mix of both.

What has changed since you initially gave the guidance a few months ago, 3 months ago?

Yes, Mike, I think it's both.

I think -- as I mentioned earlier, we are working very diligently in terms of our cost position and ensuring that we have -- we deliver our lowest cost that we can.

And we have embarked on this program to reduce our costs.

We've achieved already over $40 million of savings.

But also, yes, the fact that the economies we're seeing still a recovering environment, and so, therefore, there is also a bump-up in our unit revenues and our kind of guidance for the year related to that.

Okay.

And then just on the bump-up in revenues.

Is it because there's better pricing in the market?

Or is it better volumes?

And I'm highlighting the volume piece because your load factors are running very, very high during what is seasonally some of the more periods where you'd see lower loads.

So hi, Mike, this is Pedro.

In most markets, we're seeing a combination of better loads, and you've seen our load factors, which have kept on improving, and also better yields.

So it's slightly better yields with slightly better load factors make for healthy better PRASM numbers in most markets.

Okay, in most markets.

And then just lastly on your -- if you look at your cash position to sales, you're back all the way up to 40%, and I suspect that internally, the right number for you is probably somewhere between 25% and 30%.

I -- as I recall, I know you had a share repurchase program out there, which I think you had exhausted.

You were done with that.

What are your thoughts on what you think that right number is?

And are you running a pretty high surplus?

Mike, the first thing is that we have -- first of all, we are -- we want to keep a very strong balance sheet and a very strong cash position.

This is -- given the industry we're in, et cetera, but I'd say that also, we have a significant number of investments coming up our way in the next couple of years in terms of aircraft deliveries.

This year, we have 7 aircraft deliveries.

And next year, we have 8 aircraft deliveries.

So there's a quite a bit of investments going forward and pre-delivery deposits related to that.

But also, we've also increased our dividend.

Our dividend at $0.87 per share is up from last year, so we are returning more cash to our investors as well.

So I think that the way to frame it is really related to the significant number of investments that the company is going to have in the next couple of years.

Our next question comes from the line of Savi Syth with Raymond James.

It's just -- my first one is just a follow-up on Mike's question for a little bit of clarity on the revenue side.

As you think about it, it looks like roughly 3% revenue, and I understand that's just based on the current environment.

Should we think about that as relatively steady?

And with maybe second half, getting more of a contribution from ancillary revenue initiatives?

Or would you kind of expect similar contribution from ancillary revenue?

Or are you even considering that in your kind of outlook?

Yes, this is Pedro first, and then I'll let Jose add anything.

But obviously, in our guidance in our revenue -- unit revenue guidance, we have embedded a increase or improvement in ancillary revenues.

So that started last year, and we expect that improvement to continue this year.

That's already in our numbers.

And I would say that over all, we are expecting a steady number throughout the year, knowing that there's seasonal variations.

So not every quarter is going to be the same.

Yes.

And indeed, I think that in terms of ancillaries we're talking here, I think last year, during the Investor Day, we were talking a figure of around $20 million, and we're kind of in that sense around that in terms of ancillaries for the year.

And we've rolled out last year our seat program or purchase of seats.

We recently modified slightly our baggage policy, so there's some of the items that we had been planning to do, we started to roll them up in these last couple of months.

Helpful.

And Pedro, I think you alluded to this a little bit, but I was wondering now that Wingo has been up and running for a year, if you can kind of talk about the progress there and your thinking on, one, when that gets to profitability; and two, if you're still kind of planning to keep Wingo the size that it is today or if there's an opportunity to kind of either grow or shrink that?

Yes.

So we're very happy with how Wingo has developed.

It's been flying now for 12 months, a little bit over 12 months.

And it has reduced our Colombian losses significantly, which was kind of the first objective with Wingo was replacing a traditional legacy service on a network, a Colombian network that require more of a low-cost offering.

And that's what we did with Wingo, and that has worked out very well.

Wingo performs with very high reliability and very low cost and pricing at the same time, which is a unique combination that is not found in just any LCC or ULCC.

And we're seeing improving results accordingly.

We're not reporting Wingo separately, but we see this year off to a good start.

And the number should be better than last year where, again, we reduced losses significantly.

So I think breaking even, if things continue the way they are, are in the not too far away horizon for Wingo.

And obviously, Wingo's performance is already included in our guidance.

Our next question comes from the line of Duane Pfennigwerth with Evercore ISI.

Just following up on ancillary.

I wonder if you could disclose an ancillary revenue per passenger and what it contributed in terms of RASM growth in 2017.

And maybe how many points of the 3 points you're assuming it will contribute in '18.

So I don't think we can share the specifics that you're asking for, Duane.

But what we promised when we presented our path to higher margins plan in 2016 was that we were going to produce $30 million over -- $20 million to $30 million over the next 2 to 3 years, and we're in that path.

I think we're about half of that already.

Yes.

And again, just to again restate, Duane, we have -- I'd say the biggest buckets there are our seat program, our selling of seat that we rolled out last year; baggage, our baggage allowance that we've kind of recently refurbished; and loyalty as well as the air program that you would argue is part of that kind of $20 million to $30 million figure for the first -- for the next couple of years.

And we're, I think, well on track to achieve that.

We're pretty confident of that figure overall.

And then just a follow-up, you mentioned a comment about your res system upgrade is in testing.

When do you plan to go live with that?

Is it a sort of cutover from one system to the next?

Or how are you planning on that migration?

Yes.

So call centers and city ticket offices are going to go live in August -- that's the plan -- and airports in October.

But as Jose mentioned, we have advanced some of the ancillary initiatives with our current tools.

So we found workarounds with our current tools.

But once we launch the new upgraded system in August and October, it will just facilitate things, and we'll be able to do more and do it more effectively.

And by the way, the launch of these modules is not kind of flipping of a switch.

It will be on a gradual basis that we feel minimizes any sort of risk related to the system change.

So that's kind of the approach that we're taking here.

Right.

And as we've mentioned, it's improvements to our current system.

That's great.

And then just for my last question, how would you frame gross CapEx, so not cash CapEx but gross CapEx, for 2018 and 2019?

Yes, Duane, so for 2018, we're talking about around $500 million in total CapEx.

And then 2019, call it, about $600 million.

Our next question comes from the line of Helane Becker with Cowen.

This is actually Conor, in for Helane.

So you kind of answered this with Mike's question, but I was curious if you could provide a little detail on the unit revenue and like specifically which markets it's coming in.

So some other carriers have talked about Brazilian revenue being flattish now and the Caribbean improving.

We're just curious on what you guys are seeing currently.

Yes.

So I would say most markets are positive and except for mainly Brazil.

Brazil is flattish to slightly negative after a strong unit revenue improvement or growth in most of 2017, and it's due mostly to additional capacity from all airlines.

Capacity in the first quarter of this year for Brazil is up over 25% year-over-year.

Most of it between Brazil and North America and the U.S., most of it.

Some other markets are also up in capacity.

So that has affected unit revenues, and again, those were flattish to slightly negative.

Okay, great.

And then, so given the fact that you have had a solid recovery over the past year and margins are returning to like historical levels, has there been any discussion about reinvesting in the product?

Maybe adding WiFi or power in the seats?

I would think that WiFi would actually benefit your ancillary strategy as well, and maybe you can talk if that's included in the $20 million to $30 million you just referred to.

Okay.

So our kind of strategy or philosophy over the years is to try to be as consistent as we can, which means not cutting important stuff during tough times and then adding a bunch of unnecessary stuff during good times.

And in a way, the fact that we also have consistent positive financial results or steady financial results, we've been able to maintain that philosophy, that thinking.

So we -- we're never in a position where we have to add stuff that we've cut in the past for lack of financial resources, and that we feel it's an advantage.

Having said that, we always look for opportunities.

I think there's a day where probably 90% of the fleet in the world will have WiFi.

It's not where we are right now.

We have no plan -- no immediate plan to implement WiFi.

But when we think that it's good for the business and that it's going to be positive in every sense of the world, we will be ready to do it.

But it's not where we are right now.

Our next question comes from the line of Hunter Keay with Wolfe Research.

You mentioned the CapEx, I think, of $500 million this year and $600 million next year.

And I think, Jose, you also said 8 deliveries for aircraft next year, I think you said.

If you go back and look at the fleet plan from early 2017, I think you show you were down like 4 shelves in 2019.

Obviously, that's changed.

But so what is the fleet plan for net fleet growth in 2019?

And can you bracket in sort of a low and a high end capacity figure as you're thinking about it now, assuming this recovery continues?

Yes, Hunter.

So for next year, I think you can plan -- first of all, I have to say I have to introduce my answer by saying that we pride ourselves in having a very, very flexible fleet plan.

I think it's one of the key strengths that our company strategy has.

For next year, we have a net growth of 4 aircraft.

So we will go from 106 airplanes in 20 -- at the end of 2018 to 110 in 2019.

And so we will take delivery of 8 737 MAXs in 2019.

And currently -- we currently have a 4 leased airplanes, 4 leased 737-800s that are planning to be returned.

However, having said that, that is not a final written in stone plan.

We still have flexibility to extend leases.

We have that option in case the market conditions are favorable for doing that.

So as it is right now, I'd say that the growth for next year is, you could argue, it's probably in the high single digits, but it could probably be as much as low double digits as well.

But again, I have to restate how important the flexibility portion of our fleet plan is in terms of our overall strategy.

Yes, makes sense.

And then a little bit of an oddball question for Pedro, but I think, this is your -- Pedro, your 30th year as CEO.

I'd be curious to know kind of what you've learned over that time frame and what you would think is sort of the single most important guiding light for Copa that you think is core to the airline's success now and going forward.

If you had to pick one thing.

Okay.

I think we only have 1 hour for this call, so -- but I'll give you a simple answer.

Copa's success is based on its people and its culture.

I know it's easy to say that, and probably most airlines in any industry say that, but we do have a very highly committed team, dedicated and committed team with a great company culture.

I think that makes us different than many other airlines.

We have, as you know, high executives that come from other airlines all over the world, and I think that's one of the things that surprised them the most about Copa.

So I would say that's our 1 not secret but key formula for consistent success over the years.

Our next question comes from the line of Ricardo Alves with Morgan Stanley.

Just a couple of questions for me.

With the 5 MAXs and the other 8 you mentioned for next year, just help if you could talk a little bit about your expectation in terms of fuel burn improvement?

Maybe if you could, I don't if it's possible, to quantify that a little bit.

I know that's one of the major drivers in terms of cost cutting for the next couple of years.

So if you can give a little bit more perspective or maybe quantify it, that would be helpful.

And then kind of related, we noticed you're closing 2017 with no further hedge contracts.

So if you could provide a little bit more color on your strategy on the hedge side, fuel hedge side going forward.

Yes.

This is -- yes, thank you, Ricardo.

It's Pedro.

I will talk first, and then I'll let Jose talk about fuel hedges.

So it's 5 MAXs -- MAX 9s this year, 8 next year and so on.

We will -- actually, the number goes up in 2020 and beyond.

That aircraft is going to come with a few benefits: one is lower fuel consumption, and the other one is more seats.

So we're going to have much -- in terms of fuel, I think it's around 14%, the fuel consumption improvement.

And then the additional seats are also going to allow us to, let's say, produce lower ex-fuel -- I mean, lower total CASM numbers and ex-fuel CASM numbers.

So on both sides, we're going to be able to deliver better numbers with the MAX 9.

But it's only 5 this year, 8 next year.

I think it's going to take maybe 3 years before the MAX 9 starts having a significant impact in our CASM and ex-fuel CASM number.

I do not have a specific impact number to share with you right now, but it's going to be meaningful.

It's not something that we will ignore.

It's going to be noticed once we have 20-plus MAX 9s in our fleet.

So Ricardo, this is Jose here.

And talking about the hedges, we haven't entered into new hedges.

We were hedge positioned since July of 2015.

As you know, we -- over the last several years, we lost over $20 million in kind of these financial instruments, so we've decided not to pursue any more hedges.

And to be honest with you, the economies in Latin America are commodity-based economies.

So you would argue that there is a correlation, a favorable correlation between fuel price strength and the strength of some of the currencies that we're operating.

And I think that a good way of looking at it is that we just increased our fuel price assumption for the year for -- by $0.20 and reaffirmed our operating margin guidance.

So it kind of tells you a little bit about how we see it in terms of the revenue impact or the revenue -- the way that revenue reacts to fuel.

Our next question comes from the line of Dan McKenzie with Buckingham Research.

Just a couple of questions here.

With the move of Aeromexico to go the route of a joint venture with Delta, I'm just wondering how your thought process is evolving here, if at all.

And is it potentially an opportunity for Copa?

And then just related to that, what IT challenges might exist, if any?

Yes.

So as you know, we have a long-standing and very strong and close commercial alliance with United.

And it's not a JV, but we code share.

We have frequent -- full frequent flyer reciprocity, not only through Star Alliance but also through our alliance, which has been in place...

20 years.

Close to 20 years now.

It will be 20 years in May of this year.

So that has provided us with some of the advantages of a JV in many aspects, and in that sense, we feel very comfortable.

But if a JV is the way to go in the future, we -- that's something that will be considered by both airlines, and it's an option that we always have.

Okay.

And then, I guess, a second question here.

It's pretty early to be looking at second quarter booking data, but it is available, at least the GDS.

I've got a partial sample of what I'm looking at here.

And there is some -- demand is looking pretty strong overall, but you do have some countries that are weaker, some that are quite stronger.

And for those countries that are a little bit weaker --I'm looking at Chile and Costa Rica -- I'm just wondering what you can share; if we should read anything into that at this point, or if that's just perhaps a revenue management system on your part, just given strength elsewhere across the system.

Yes, it's hard to read that data accurately so early.

We have a -- for one, we have a shift in Holy Week, and where it falls.

Carnival fell earlier in the year.

Holy Week is going to fall earlier also, so that always affects bookings from 1 month to the other.

And then there are -- of course, as you well mentioned, revenue management tactics, which adjust to whatever happened the year before or the season before.

So it might be that 1 year, we're open to sale too early and lose some yield opportunities there.

And then the following year, we may be a little bit tighter earlier on.

And so it's hard from the outside to see that and to see what's happening by just looking at booking data, especially, again, 3 or 4 months before.

Our next question comes from the line of Stephen Trent with Citi.

Just two quick questions for me.

First is Tocumen Airport, if you could give us a view on how the build out's going there as well as whether they have implemented any procedural changes.

I believe a few months ago, after there was a power failure that created some disruptions.

And then the other question, I'm not sure if I heard you correctly, but I thought I heard you say something about centralizing MRO operations.

And if you could elaborate, that would be great.

Okay.

So in terms of the airport, we're not (technical difficulty) expecting.

And it seems like a date that we can trust to a high degree is to start partial operations in the new airport by the end of this year, by the end of the fourth quarter.

So it will be the use of a few gates in the -- towards the end of November and then more gates early 2019; and a kind of an increase in operations until sometime between April and May where we'd be fully operational.

But we should have a few gates available by the end of this year.

So that's good news.

And in terms of the power outage they had in September of last year, they've hardened their system.

They've brought in people.

They brought in technicians from the Panama Canal.

And from what we've seen, they've done a very good job in improving their systems and avoiding this happening in the future.

And in terms of the maintenance capabilities, there are a couple of items.

One, last year, we upgraded our maintenance IT platform, and that came out very successfully.

And more importantly, we are in the process of constructing an expanded hangar in Tocumen that more than double our current capacity in terms of ability to perform heavy checks here locally.

So -- and that we expect to be completed by, I want to say, the fourth quarter of this year.

So we will have that expanded capability in the latter part of this year.

Okay.

Great.

And Jose, any chance that the MRO might eventually even be extended to third-party servicing?

For now, I think that we're comfortable with our own needs, and I think the plan in the immediate future is just simply to cater to our own requirements in terms of maintenance.

And our last question comes from the line of Lucas Barbosa with UBS.

My question is actually a follow-up on the unit revenue question.

So you see unit revenue improving further into the rest of the year.

Is that the right interpretation?

And are you seeing supply increase only in Brazil?

Or in other markets, too?

So that's my questions.

So yes, the answer to the first part of your question is yes, we see unit revenues improving this year, year-over-year over 2017.

And Brazil is not the only market where we're seeing some softness, again, due to increased capacity, but it's by far the main market.

The other market where we're seeing some softness is Argentina, and -- but there, we've grown ourselves quite a bit.

So the minute we put in more capacity, there's going to be more lower fares available to sell.

So that's kind of expected.

That's not surprising.

It's normal.

It's part of growing.

We've grown quite a bit the last number of months.

So to us, that's okay.

Thank you, and that concludes our Q&A session for today.

I would like to turn the call back to Pedro Heilbron for his final remarks.

Yes.

Okay.

Thank you, all.

This concludes our earnings call, so thank you for being with us, and thank you for your continued support.

Have a great day and a great weekend.

And ladies and gentlemen, with that, we thank you for participating in today's conference.

This concludes the presentation.

You may disconnect, and have a wonderful day.