Gol Linhas Aereas Inteligentes SA (GOL) 2018 Q1 法說會逐字稿

Welcome to the GOL Airlines First Quarter 2018 Results Conference Call. This call is being recorded. (Operator Instructions) This event is also being broadcast live via webcast, and may be accessed through GOL's website at www.voegol.com.br/ir, and the MZiQ platform at www.mziq.com. Those following the presentation via the webcast may post their questions on the platform and their questions will be answered by the management during this call or by the GOL Investor Relations team after the conference is finished.

Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of GOL's management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that events related to macroeconomic conditions, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

At this time, I will hand you over to Paulo Kakinoff. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and welcome to GOL Airlines first quarter 2018 conference call. I am Paulo Kakinoff, Chief Executive Officer; and I am joined by Richard Lark, our Chief Financial Officer.

Good morning.

This morning, we released our first quarter figures. Also we made available on GOL's Investor Relations website, 3 videos with our results presentation, financial review and brief Q&A. We hope this allows you a better understanding of our quarterly results and give us much more time on this conference call for questions-and-answers.

We significantly improved all indicators in the first quarter 2018. Those RPKs increased by 4.5% from BRL 9.6 billion in first quarter 2017 to BRL 10 billion this quarter, mainly due to a 1.8% increase in the number of transported passengers. Strong demand allowed GOL to continue driving revenue management. Average yield per passenger increased by 10.3% quarter-over-quarter, reaching BRL 0.2802. Supply growth was measured with ASKs increasing 3.3% compared to first quarter 2017, driven by a 0.7% increase in takeoffs and 3.6% stage-length expansion. As a result, the average load cycle in this quarter grew 0.8 percentage points compared to the same period in 2017, reaching 80.4%.

GOL remains the industry leader in on-time performance with 93.7% of flights on time in the first quarter 2018, according to Infraero. We continue to have a strong revenue growth. The combination of higher demand and optimized pricing resulted in a net revenue for the quarter of BRL 3 billion, an increase of 14.4% compared to the first quarter 2017.

Net RASK was BRL 0.2387 this quarter, an increase of 10.7% over same period 2017. Net RASK increased 11.5% quarter-over-quarter, reaching BRL 0.2253. Average fare increased by 13.1% from BRL 296 to BRL 335. GOL's 2018 guidance is for net revenues of approximately BRL 11 billion.

The GOL network serves higher-yielding routes and has a leading share in the corporate client segment. We have the largest share of business traffic in the country. This year, we will begin incorporating the latest generation 737 MAX 8 to our fleet, which will provide reduced operating expenses and extend the range of our network to allow us to cover all of Latin America, the Caribbean and destinations in the Southeast of the United States.

With that, I am going to hand you over to Rich, who is going to take us through some of the highlights.

Thanks, Kaki. First, we'd like to comment about our controlled cost environment. Total CASK in the first quarter of 2018 was BRL 0.1908, which is 1.9% higher than the same period in 2017 in spite of a less benign fuel environment. On an ex-fuel basis, CASK fell by 4.8%. Excluding gains on aircraft sales in the quarter, CASK ex-fuel increased by 0.2% and GOL remains the cost leader in South America for the 17th consecutive year.

Second, our margins continue to expand, while the average price of jet fuel increased by 7.4% on this quarter over the fourth quarter of 2017, a combination of stronger pricing, higher demand, BRL 19 million of gains on fuel hedging and BRL 82 million of gains on aircraft sales permitted GOL's EBIT margin to expand to 17% in the first quarter of 2018, which is the highest first quarter indicator since 2006 and a 7.1 percentage point improvement quarter-over-quarter.

Operating income, EBIT, was BRL 504 million in this quarter, an increase of 97% compared to the same period in 2017. EBITDA margin was 22% in the first quarter of 2018, a growth of 8.1 percentage points quarter-over-quarter. EBITDAR margin was 30% in 1Q '18, an increase of 6.7 percentage points in comparison to 1Q '17, and GOL's 2018 guidance is for EBIT margin of approximately 11%.

And to finalize this brief review, we want to share the highlights of our balance sheet strengthening. Our net debt, excluding perpetual bonds, to LTM EBITDA was 2.5x as of March 31, 2018, improving versus 3x at the year-end and year-ago metrics which were 5.2x.

Total liquidity, including cash, financial investments, restricted cash and accounts receivable, totaled BRL 3.1 billion, an increase of 105% versus a year ago.

The combination of GOL's credit rating upgrades, tender offers and redemptions and improved cash liquidity substantially increased the company's financial flexibility, while decreasing its blended cost of debt and increasing the average maturity of the company's indebtedness.

On January 30, 2018, the GOL subsidiary, GOL Finance, priced an additional issue, a re-tap offering, in the amount of $150 million on its senior notes due 2025 with a coupon of 7% per year.

Regarding guidance, we expect 2018 to show continued improvement for GOL over 2017. Demonstrating our commitment to financial discipline in the face of the recent depreciation of the Brazilian currency, we plan to reduce our fleet by 1 aircraft this year versus our previous projection. Therefore, we reduced the projection of our 2018 average operating fleet from 118 aircraft to 117 aircraft. We expect to close 2018 with a 0 to 2% annual growth rate in domestic ASKs, a reduction of 1 percentage point versus the previous plan.

We projected an average load factor of 79% to 80% and an ex-fuel CASK of around BRL 0.14. EBITDA and EBIT margins in 2018 are expected to be around 16% and 11%, respectively. We expect earnings per ADS to be between USD 0.50 and USD 0.65, down from our previous projection, reflecting the recent depreciation in the Brazilian currency.

Leverage, measured as net debt over EBITDA, for 2018 should be close to 2.8x, reflecting the deleveraging of our balance sheet.

For 2019, we expect our domestic capacity growth to be between 1% and 3%, and nonfuel CASK to be around BRL 0.15. We also project an EBITDA margin of around 18% and expect to end the year with leverage of approximately 2.5x.

And with that, I'd like to return it back over to Kakinoff.

Thanks, Rich. We are delivering continuing improvement in our results, which we believe is proof that our strategy of offering a differentiated, high-quality product, while relentlessly focusing on cost efficiency, is bearing fruit. We remain focused on offering the best experience in air transportation, providing punctual, exclusive services to our customers on new, modern aircraft that connect our main markets with the most convenient schedules. Our entertainment platform is the most complete and modern in Latin America with live on-board television and on-demand Internet. The fleet has been retrofitted with eco-leather seats and onboard WiFi. We also offer our customers self check-in, GOL+ Conforto seats and expanded menu of onboard products while maintaining low fare leadership.

In summary, and to finalize, we had a very positive quarter, continuing on the strongly-improving trend we have been showing over the past 21 months. We remain extremely focused on disciplined capacity and prudent management of our balance sheet and liquidity, maintaining our cost leadership and continuing as the preferred airline for our customers while driving sustainable margins and returns for our shareholders.

To conclude, I would like to mention again that we made available on GOL's Investor Relations website 3 videos with a results presentation, financial review and brief Q&A, as well as the full presentation and the earnings release. We hope this will provide a better understanding of our quarterly results. In addition, this format will give us much more time on the conference call for the questions-and-answers session that we'll start at this moment.

(Operator Instructions) The first question will come from Duane Pfennigwerth of Evercore ISI.

So I think the market is maybe a little hyperfocused on fuel and currency. But I wonder if you could just comment on, to the extent that those are inputs to your planning process, how your planning process has changed since the crisis? Looks like you took down your domestic capacity growth and actually your fleet a little bit, but I wonder if you could talk a little bit about how those things are inputs into your planning process and how that planning process has changed over the years.

Good morning, Duane. No, our planning process -- obviously, we went through a major restructuring of the asset side of the balance sheet end of 2015, 2016. And we also built into our capacity, at that point in time, flexibility to vary the fleet up or down, based on economic conditions. Basically, we have the ability to vary our fleet, our capacity, if you will, up or down by about 10% around that plan within a 6- to 9-month period. And so that's our modus operandi. And so with the -- all we're doing is kind of applying this planning process, which basically kind of has 3 levels: it's capacity, making sure that, that is rationally matched with demand; very optimized revenue management, taking advantage of our characteristics here in Brazil, which are a very high level of corporate travel, which gives us a high degree of pricing power.

As you saw in the first quarter, we were able to get a -- we call it a recapture -- of 100% of the net variation in oil prices and currency onto our fares and yields. And then finally, complementing that with hedging where needed on the leg that we need. And you saw the gains and the results of that additionally in the Q1. And so we continue to apply that on a regular basis. And that's reflected in our slight tweaking of capacity for this year, which is updated there.

And another comment I would just say there is that a couple of months ago, we were getting questions about more the conservatism of our guidance, meaning that we should be doing better-than-expected than what our guidance was, say about 3 years -- 3 months ago from the sell side. All I can say is that at that point in time, we were already incorporating a large portion of where we are on both oil prices and currency in our forecasts this year as in Brazil we're in an election year. So generally about 6 months before an election, we get some increased volatility on the currency side.

Obviously, that has been affected by the structural change in U.S. interest rates which has really kind of been happening now since the end of January up until now. But those numbers, those phenomena, both the fact that we're in an election season here in Brazil, combined with the increase in interest rates, those are already incorporated in our guidance for the year. But as a result of the management tools we have, the real tools we have which are capacity, revenue management and hedging, we're applying those, and those are reflected in our revised outlook for this year.

But I would say, the only, I would say, additional comment I would make on that is that we, more or less, expected fuel to be where it is -- I'm sorry, oil prices to be where they are at these levels. Currency is probably around 15% to 20% -- BRL 0.20 higher than we'd expected previously, exacerbated by what's been going on with U.S. interest rates and the fact that we have the lowest historical interest rates in Brazil ever. And the implications of that, for the carry trade and flight-to-quality and things like that.

And then I guess, an additional comment I would make, just to take advantage of your question, we also have to manage this through the seasonality cycle in our business. And you saw this in our fleet management last year, where basically between the trough of the year on capacity, which is more or less now, April, May and the peak, we run a difference in operating fleet by 10 to 12 aircraft. And so these numbers that we're guiding on, the average aircraft from the year, but remember that we also vary the capacity to reflect the seasonality of the year. And so, for example, in Q2, we have a much lower operating fleet as you saw last year, and what that means basically is that we schedule things like WiFi retrofit and structural maintenance during the seasonality.

So not just do we have the ability to vary our overall fleet to match GDP growth. During the course of the year, we also have a really good ability to match our capacity to the seasonal demand. And that also is reflected in these planning numbers. Even though we provide very robust annual guidance, probably the most robust you can find out there in the market for an airline, on a quarterly basis, I can say that these tools also apply, meaning that we're -- we also vary the capacity to match demand seasonally, and that also reflects in the revenue management and also what we do on the hedging side of the equation. Hopefully that answers your question.

Yes. Just as a follow-up, so in the first quarter, you saw 100% recapture. As you think about a longer term -- again, who knows if the scenario we are seeing today is the right scenario -- but based on the scenario that we are seeing today in terms of fuel and currency, what's your longer-term planning assumption with respect to that recapture rate?

Yes, sure. You should assume, like for your modeling purposes, a number around 70%. That's what we assume for our planning purposes, which is reflective of the composition of business traffic in the Brazilian market. When I say 70%, it would be of the net variation in WTI and currency. Now Brazilian jet fuel is a basket based on WTI, Brent and the crack spread x currency. And so what I -- what we guide the market on is with our business, with our GOL business, we recommend using a number of around 70%. The 100% we've been getting thus far this year is above average. It's been an above average recapture. I don't think that should be assumed for modeling purposes. But we continue to see solid demand growth here in Brazil in the domestic market in kind of, you know, the above 5% in our domestic market. And we continue to be the leader as the largest company, and we continue to lead fares and revenue management with more or less the competition following. And so we feel like we have a pretty good grip on how to be managing that through this blip of a couple of months on the net effect on currency and oil prices.

The next question will come from Josh Milberg of Morgan Stanley.

I had a couple of very specific questions on your guidance. One thing that we saw was that at the midpoint, Richard, of your EPS guidance, does that imply an assumed FX of just under 3.5? And that is a meaningful depreciation from where you were before with your prior guidance. And so at the same time that you have that move, I mean, your outlook for aircraft rent didn't move much. So I was just hoping you could touch on why rent itself isn't being more affected by FX?

Yes, sure.

Okay. Why don't you address that one and then I'll...

Basically, as we've guided, like I said, we incorporated a -- we are not providing guidance, specific guidance on oil prices or currency to the market. I don't think you should necessarily infer -- what you're doing there is taking our EPS guidance in reais and currency -- there directly. The main effect on EPS guidance is on the -- more of a conversion, if you will, and impact on interest expense, and a little bit on taxes there. So it's not totally out of the exchange rate, but obviously there's a conversion there of the Brazilian real earnings per share guidance to the ADR guidance, which -- but it's not a precise number on the exchange rate.

On the aircraft side of the equation, we have been reducing the cost of, if you will, on an ASK basis, and also on a total basis, through a combination of better productivity and effectively lower operating fleet there throughout the year. And so the main effect on it it's a combination of better productivity and lower aircraft is what I would say there. And plus what we're also been doing on our fleet management of our leasing finance portfolio, we -- in GOL's first order with Boeing, we acquired 80 aircraft. We did 40 in sale-leasebacks and 40 in finance leases. Since the beginning of 2016, we started a disposition of those 40 finance leases. In 2016, the company sold 9 aircraft. And in the first quarter of this year, we sold 2 aircraft. And so we also start to get into a more regular, let's say, monetization disposition of our lease finance -- our finance lease portfolio over the next 3 years to 4 years.

As we transition to the MAX, the 737 MAX, as we transition out of the 737 NG 800, that also will involve, on a recurring basis, the monetization of aircraft, and also a shift in our portfolio, with an increasing proportion of finance lease versus operating lease. Now that cycle is just starting this year on a more limited basis. And so it's not a big impact in that number but there's a small impact there as well as we start to realize the gains on the earnings on a regular basis over the next 3 to 4 years. And you'll start to also see that effect in our results. And it will become a more permanent component of our results also because as we build our portfolio of the 127 MAX 8s, we'll be doing a similar process where we will be building up about 60 finance leases over the next 6 to 8 years and the corresponding equity value.

So that tends to come into that number as well when you look at more the 2019 guidance that we're providing there, which also does not have a big increase on those costs. But the main driver is increased aircraft utilization and higher productivity that we're squeezing out of the assets. And then the secondary component would be just where we're going to be operating with a lower average fleet this year. Plus you have all the exchange rate assumptions in there in terms of what we think which don't necessarily need to be yours, but it's never a good idea to just kind of lock in today's oil prices and today's currency when they get to peak and assume those for the rest of the year; that would be probably not a right assumption to use there. And so what we're assuming on currency and oil prices for the rest of the year is reflected in those numbers, and you can infer from that as you want. Sorry, you had another question?

No, no. I was just going to ask, I mean, what are you assuming for additional gains from aircraft sales over the remainder of the year. That was obviously a big impact in the first quarter.

Well, nothing specific as it depends on our -- as we -- those things can't be put on a regular basis, they're kind of chunky on when we negotiate the deals because we also do that in conjunction with deals on new aircraft. All I can say there is over the next 4 years, our plan is to monetize all those aircraft. Those 29 are -- will basically be sold over the next 4 years as we transition to the MAX. We don't have specific planning on that. In other words, we don't have any others negotiated, for example, for Q2 specifically, I can tell you that. But it depends on the deals we could negotiate. We could potentially have some additional gains in 2018, but nothing finalized yet at this point. But over the next 4 years, all those 29 aircraft will exit our ownership, if you will.

Okay. I get that it's kind of lumpy, that it's not very predictable exactly when you may have sales, but is the profit that you guys generated in the quarter on the aircraft sold maybe a good indicator of what we could expect for future sales?

Well, obviously, again, it depends a lot on the negotiations because when we do that, we also negotiate the lease return conditions. Because you also see in our cost side, it's very expensive to return aircraft. And so we also have the cost of returning the aircraft that we also negotiate sometimes as a package deal. But the profit that we realized in the first quarter of 2016 for aircraft, was about half the profit we realized in Q1. So if you probably took the average of those, that would be a good number to use.

And then what I would just say is that you can assume that those are going to be on a regular, let's say, on a smoothed out basis over the next 4 years, those 29 aircraft remaining would be disposed. So you could divide that 29 by 4, and assume that we'd have that cash flow coming back into the business over the next 4 years. But it'd be about somewhere between around $350 million of cash flow coming back to the company over the next 4 years, vis-à-vis the monetization of those aircraft. As I said, the exact quarter of those is difficult for us to guide on or assume a commitment because it depends on negotiations. But you could assume that it is going to happen 1 quarter per year over the next 4 years. And I think that would be pretty close to what ends up happening.

The next question comes from Mike Linenberg of Deutsche Bank.

Good quarter. Rich, I have a question on just the guidance as it relates to the leverage. So previously, it was 3x on a net debt-to-EBITDA basis and you're going to 2.8. Now it looks like the EBITDA margin is the same, so it looks like that there's improvement on the net debt side. And I'm just curious with the movement in the currency, is it that whatever the movement has done that has maybe made the debt higher in real terms, is maybe set by a faster pay down, is that -- are you deleveraging or paying down more debt quickly?

No. It's because of the other part of the equation which is cash flow and cash, if you will. In terms of expectations on cash flow and cash and also -- the main debt that's being amortized this year is not a dollar debt, it's a Brazilian real debt. So we have about BRL 1 billion of debentures, local currency debentures, BRL 400 million of which mature in October this year and BRL 600 million in October of next year. And so we plan on amortizing those. So those aren't affected. But the main reason is, what I would say, just summary-wise, is just, let's say, a better certainty on cash flow, cash flow generation, working capital, how we're financing other portions of our CapEx program as we -- where we are in the year now, we have much more visibility than we had at the beginning of the year on -- if we're going to be -- how we're going to be financing those. Those are generally engine maintenance, engine overhauls and WiFi retrofits, so it's a combination of those factors. But also, when we gave the preliminary guidance at the beginning of the year, it was indeed a bit more conservative as we were just starting the year, and now we have a firmer grip on that. So that's what I would comment on that.

Okay. Okay, that makes sense. And then when we think about the amount of debt that you have in foreign currency and now looking at the real at BRL 3.6, you mentioned a point that rates are the lowest in Brazil that they've been ever. And so maybe there's an opportunity to maybe swap into more real-denominated debt, although, I think a lot of it has to do with where you think the currency is going, and like you said earlier to Josh's question, we could be -- maybe we are at a low point with respect to the real versus the dollar and/or a high point as we've seen this recent surge in energy prices, so maybe that's not the right thing to do. But if you look out over the next year or 2 and maybe you are concerned that there could be further depreciation, are there steps that you're looking at maybe to kind of move away from U.S. dollar-denominated debt? And I realize it's probably baby steps, but are there things that you can do? And I realize there's probably 2 or 3 questions within that 1 question. So however you want to answer it.

That's fine. It's a good question. I mean, we -- the majority of our CapEx is dollar-denominated, I mean, the aircraft we buy, while they don't go into the financial statements in dollars, it's a dollar-linked asset. And so what we do is we match the assets and the liabilities on a currency basis. The problem is because our functional currency is Brazilian reais, when we buy the assets, they become denominated in reais and depreciated in reais and the debt is in dollars and you have that accounting exchange rate variation which is non-economic. And over the life of the asset, it's 0.

But having said that, the point that you're making, the Brazilian interest rates now are almost at the point where they could be competitive with our cost of funding in U.S. dollars with the problem being the tenor, the maturity. And so it's still more economic for us to finance the acquisition of our U.S. dollar assets with U.S. dollar liabilities and then just deal with the accounting exchange rate variation. Because the cost of hedging that, it makes it uneconomic. So we would actually be destroying value if we were to take our U.S. dollar debt and swap it back to reais. And remember, that while a secured cost of debt, I'm sorry, unsecured cost of debt -- the bonds we raised there have a 7% coupon -- our unsecured cost of funding on the secured assets, which is the majority of liabilities, is in the range of around 5% to 6% all-in blended cost of funds. And on a -- 12 year cost of money, 5% to 6% in dollars, it's still -- with the cost of a swap it's still not cost competitive.

But the only benefit we would get from that, we'd be eliminating the accounting exchange rate variation on the liabilities which is it's accounting, it's not economics. And we have -- you're starting to see now -- obviously, the cycle of the assets is up to a 12-year cycle. The first aircraft we received on our -- in our first order of NGs in a finance lease format was 2006, and so we're just now coming to the end of that cycle. And so you're starting to see, if you will, the capital gains of that investment come back. And those amounts obviously -- those aircraft are traded in dollars, as you know. And so these gains that we're realizing today are actually -- they're realized in dollars. They've always been latent in the portfolio and we can't mark-to-market the asset, we can't accrue unrealized gains, and so we're starting to realize those gains now.

So those also go into the calculation, but unfortunately, it's not cost effective to eliminate this accounting volatility earnings because of the dollar liability. So the short answer is no. We're not at a number yet where it makes sense for us to swap our -- but I also tell you, and you understand this, is as we look at the MAX aircraft, we're also -- the acquisition finance -- the secured financing for those aircraft -- we're also diversifying our liability base away from the U.S. market, meaning we are looking at funding opportunities now that exist in other markets to us, which also have the potential to diversify the liabilities and reduce the risk and the volatility.

And so I think next year, you'll start to see in our portfolio, in the aircraft business -- because keep in mind, you always have to keep in mind, in our business, we have 3 businesses. We have the aircraft acquisition and finance business, we've got the passenger transportation business and we've got the loyalty business and we manage those 3 businesses economically with different asset and liability profiles. But in the aircraft acquisition business, next year, we're really going to start to do some more secured financing and there's some interesting opportunities for us to do financings in other currencies which reduce the cost of borrowing, increase the diversification, kind of more like you've seen the larger -- in the larger international airlines. And so it's a long way of saying no to the answer to your question.

Okay. So instead of reais, maybe do like a [joco] deal, right, that's what it sounds like.

Yes. Japanese market, Chinese market, there's also a lot of other options in the leasing market. But basically, as Japan and China, they're complementing the U.S. As you know, the [objelco] market is 3% to 4% cost of funds, and potential to do in Yen also, and so we study a lot -- this is, in fact, economically our business in that business -- which is different from where the main focus always is which is on the sale of tickets and transport of passengers -- but on this asset side of the business, we have built up in the past, some substantial equity value in that business and we expect to continue to do so.

But that's kind of early days. I think that's not going to impact much our results this year but it will definitely be creating long-term value for our shareholders. We're excited about it, but I think you'll start to see it next year more in our results on the liability side. But I know this is kind of a controversial issue, but still the combination of the tenor locally combined with the swap cost, it's still more economic for us to finance the -- our U.S. dollar asset acquisition in U.S. dollars. That's still more competitive. And -- than -- especially on the secured side because, again, we're talking -- you have to look, you have to study, you have to look -- you see this in the financial statements, in the footnotes, but our funding costs on the secured financing are 4% to 5% long-term money in dollars.

It's hard to compete with that on a -- in the Brazilian real market, it's much harder to go, you can't really go much longer than 5 years. It's kind of a structural impediment for us when we think about our assets. The only other option, Michael, is we have to change our functional currency to dollars, which we'd also do not consider. But that would be the only other way to kind of, from an accounting perspective, flip that around, would be to change our functional currency to dollars, for example, like LATAM does, but we always come back to the conclusion that the right for us is a functional currency in reais, assets in dollars, liabilities in dollars.

The next question will come from Savi Syth of Raymond James.

On GOL, your top line execution is clearly very strong and you're demonstrating kind of willingness to adjust to the macro environment. Can you share what you are seeing from a competitive standpoint -- if you're seeing that similar discipline on a -- from competitors on a capacity or pricing front, both in the domestic and international markets?

Savi, Kaki here. The answer is yes, which is possibly the most positive outlook we can get at the moment. We do see a much more disciplined market with regard to capacity. And that's something that we are also somehow stimulating. Once we are clearly delivering, our guidance is showing that our first priority is really to keep a tight leash in our cost control, which reflects into our capacity discipline. So I believe that and I do expect that the market will continue to behave like this.

That's helpful. And if I might, either for Kaki or Rich, on the gains on sales, it was really helpful to kind of understand the monetization of the kind of equity built into those aircraft. But is it fair to say that you won't be giving all of that back in terms of operating lease payments and maybe return costs as you -- if you look across -- with the remaining part of the contract? Essentially, is there enough kind of monetization built in, that you're actually generating more than you're kind of borrowing from the future?

I'm not sure if I understood the question but -- maybe could you repeat the question? I don't think I understood which part of the...

Sure. So when you do these gains on sales and you're re-leasing back the aircraft, I'm guessing the lease payments might reflect the -- kind of the sale price, but I'm wondering if maybe it does...

No, no. I got your question there. I got your question there. I mean, in some limited cases, we would be doing a short-term leaseback. For example, the deals we did in the first quarter were like a very short-term lease, it was like 3 to 4 years leases. It's really just -- because we're bridging ourselves to the arrival of the MAX. I mean, our objective over the next 10 years is to eliminate the NG from the fleet.

And so in some cases, we would be doing a leaseback but -- for example, at the beginning of '16, the 9 aircraft we sold, left. I mean they were just sold to a -- they were sold to a fund that invests in aircraft and so -- but you can assume the way we do these deals, when we do a leaseback, we are minimizing the monthly lease payment. And so we're always minimizing the monthly lease payment and then if we do a sale leaseback, we minimize the monthly lease payment and then, if you will, the purchase price is kind of like the plug for that because we always focus on having the absolute minimum operating cost. So we're always minimizing the monthly lease payment. So there's no give-back, if you will, on a lease payment for us.

What I was trying to say before is that, in the case where we are returning an aircraft, there are -- aircraft are very expensive to return and so sometimes what you also have to look at is the return costs -- the company has spent $700 million over the last couple of years to return aircraft. Not just normal returns, but also the 29 aircraft reduction that we did in 2016. That's very expensive. And so another way you could potentially look at it is you could to take the gains on our monetizations and offset those against the costs.

For example, the aircraft we sold in the beginning of 2016, which generated around BRL 220 million of profit, the cost to return those aircraft was a little bit lower than BRL 200 million. But over the course of -- of the whole restructuring, if you will, in other words, the 9 aircraft that were sold effectively paid more than the return costs of all 29 aircraft that were taken out of the fleet. And so sometimes it's doing those calculations where we're financing other activities with these gains from a cash flow perspective.

The other thing we do here be it on a capacity side, be it growth domestically, growth internationally, it all has to have a financing source operationally -- be it operating cash flow, or in the case of a sale of an aircraft. And sometimes the timing on that is not matched. And so that is something you can also do, because we do -- we have presented lease return conditions, but also provisions in our balance sheet in our footnotes and so that's something also that we could talk about offline if you want to understand it. But like I said, the gains are in excess of the lease return costs. If there's a sale leaseback involved, we are always focused on the lowest possible monthly rent.

And in fact, part of the reason why our leasing costs have been going down is we've been successful in negotiating good deals on these new rental contracts. Contract renegotiations as well as new contracts, we've been able to keep negotiating good deals on those. And so while you don't necessarily assume that a gain on the sale of a lease -- sale of a finance lease aircraft is a direct reduction in CASM, keep in mind that we also have these lease return costs which are being accounted for in the CASM. And so there is a partial credit [at least] that should be given for this, or you should exclude, perhaps exclude the lease return costs from your CASM calculation if you want to compare it apples-to-apples to other airlines, for example.

But obviously, we provide all this data, how you guys want to do it, just let us know. We can always -- -- we are always available to help kind of explain different ways so that you guys can come to the correct economic profit of the company. So that's what I would kind of just provide you information to the extent that you're looking at. The other point I was making with that, we are -- these 29 aircraft, I mean, we went from 31 to 29 aircraft in Q1. Over the next 4 years, just because of the maturities of these finance leases, we'll be disposing of these aircraft. So those 29 aircraft will go out. If we -- if they're an outright sale or we do a 3-year leaseback, that's always negotiated at the moment, and also how we deal with the lease return conditions.

And also, as you know, what we want to do is we also do with the leasing companies, the operating lessors. We can also trade slots with them in the Boeing factory, if we want to get a MAX sooner. So sometimes what we do in a deal is we'll trade a later delivery of a MAX for an earlier delivery of a MAX, and so we can accelerate the change of our fleet to the more fuel-efficient MAX. So it's a complex kind of calculation. And part of what I'm saying is that -- don't look just at 1 leg of a -- we have the gains, we have the lease rates, we have the MAX orders that are coming in and we also have our new finance lease portfolio that we're going to be starting to build up next year.

They all kind of go into a complex calculation that happens over a 12-year period, but it does create a lot of equity value for shareholders in GOL. It is a regular part of our business similar to what you would see in the other large 737 operators like Ryanair and Southwest. We're one of the top five 737 customers for Boeing. And so those economics, we're still a relatively young company when you talk about owned aircraft. Like I said the first aircraft -- the first finance lease we had was 2006, and the finance lease matured on that 2018.

And so we're like at the end of the first cycle that we did on our first order. But now we have kind of a regular operating procedure for that. And so I think you can start to think about how you would look at that in the value of GOL going forward, and we'll also try to explain how we approach that. I appreciate the question. I was just trying to take advantage of your question to kind of give a little bit more information as this is kind of a new part of our business that is showing up and help you guys understand it.

That is super helpful, Rich. If I might add just a quick clarification question. On your operating cash flow discussion, you mentioned some extension of payments related to accounts payables, just wondering what that was.

Related to what, sorry?

In the operating cash flow discussion, you talked about some extension of payments related to accounts payable.

I'm sorry, comps table? I didn't get the last word. Sorry.

Sorry, the accounts payable. There were some payment extensions...

Oh, accounts payable. No, no. That was just generally what we have been working on over the last 24 months. Like if you mine down into the cash flow, you'll see 2 things. Number one, the main source of improved operating cash flow has just been operating profit, but the second main source, and it's not very sexy, has been working capital, which is payment terms. So what we've been doing over the last, call it, I guess, 21 months now, is just a constant focus on getting to a new level of structural supplier terms. And so if you go back to like Q2 '16, we were around, say 25 days payment terms. Now we're around 40 days. And so every quarter, we are -- we're still working on some improvements, but we're more or less getting to kind of a structural maintenance level where our objective has been to zero out the effects of working capital on our business.

So when we say, of course, the Q1 is being compared to the Q1 of last year. And so we did have continued increase in payment terms by about 8 days in the quarter-over-quarter comparison. And that means that we're generating cash also on the working capital side of the equation, which is suppliers -- across-the-board, suppliers and accounts payable. That's what we mean when we talk about that.

The next question comes from Dan McKenzie of Buckingham Research.

Rich, I'd like to go back to the -- an earlier question, just on revenue recapture. It's been 100%, but I guess, you're telling us to think about it being more like 70%. And it seems like a pretty big shift from 1 quarter to the next. So the question is what is it that you're seeing to think more conservatively? And just to preface the question, Brazil is 2.5% GDP, it seems like business demand is pretty inelastic right now. So is the caution just simply because we're going into the seasonally-weaker part of the year? Is it a small step-up in domestic capacity, perhaps? Or are you sensing that pricing might be getting pushed here to the point where it might begin to affect demand. Just wonder if you could elaborate a little bit more on that.

That's a good question. It's about 80% of everything you said. Meaning, first point is that, this -- I mean, we like to help people like simplify the modeling so you don't have to mine down into what we're doing on yield management or hedging management. What we kind of say is that, if you take statistics and apply logic, you can basically assume that for your modeling purposes, use the 70% recapture and assume a negative 1 correlation between WTI and Brazilian currency and use WTI as a proxy for oil prices. And if you do that over any period of time, you would always get it right.

Of course, we have the -- you have the dislocations that can happen over a 3-month to 6-month period, but generally, they don't last much longer than that. So those are just numbers that we're kind of sharing our experience with you to try to give you an approach. But in the short-term micro, a couple of factors. Number one is that, yes, there is still decent pricing power. Yes, right now, April, May is kind of a low seasonality time of the year and so there's just much less demand in Brazil. It's because of the reduction in the nonbusiness traffic and so on. And so what we do there is we try to manage our capacity, where we're scheduling our structural maintenances on aircraft during those time periods to try to better match. But there is a weakness that happens.

And then what affects that, is when we did a rapid run-up in currency which is -- which goes into the jet fuel equation. We generally are forward sold up to 90 days. And so 30 days out -- we do the yield management -- but 30 days out, 60 days out, we've already sold a fair amount of tickets at old prices. And so we get a quick runup like we got here in March, April, the ability to recover, for example, May, is much more limited. And so when you get a quick runup, it squeezes a little bit there.

And the final point I would say, is you hit on it, which is Brazil is in a mode now where you do have demand growing, let's say, almost at twice the rate of capacity increase on average, which gives us good pricing power. But we also are trying to stimulate the other segments of the market, VFR traffic, for example. And so it's important for us also not to lose sight of the forest for the trees, meaning not lose sight of stimulating demand and creating passenger traffic in the nonbusiness segment versus just a focus on squeezing every cent we can out of a short-term dynamic.

I mean, we provide a public service, right. We have to provide passenger transportation to the Brazilian market, we're the largest company in Brazil. So we have an obligation to basically be providing an inventory of seats that is going to serve demand. And so we have to balance all those factors, the pressure on short-term results versus improving our overall business. And so we also want to make sure we have an inventory of seats that is available at demand-stimulating fares which is also in -- it's a combination of that.

But obviously, we're doing optimized yield management. As you've seen over the last, now, almost 24 months, we've been running at pretty close to a 10% year-over-year annual unit revenue increase which is well in excess of inflation, and it's been absorbed in the market. But we have to keep our eye not just on the business component, but also stimulating demand to the market. And of course, everything I'm talking about here is the logic and the answers I'm giving you are in the context of the domestic market. Obviously, the international market is much more impacted short-term, based on a big increase in currency because it's a much more leisure, especially for a Brazilian company like us, it's much more leisure-based so it's much more sensitive to fare increases and much more sensitive to the dollar side of the equation because those ticket prices are denominated in dollars and the impact is almost -- a big chunk of them are denominated in dollars. And so the impact is immediate.

I just want to say, because everything I was just responding to you, think about it in the context of the domestic market. Obviously, that's the key driver of our profitability, but are we being conservative? Always, we're always being conservative, in terms of what we're guiding there. Is it stretched now with the current level of currency? Yes, there's a lot of pressure on the currency side. But again, most of the impact there is not coming out of stuff happening here in Brazil economically, it's coming because of the external scenario, principally U.S. interest rates and what's going on with that dynamic that's impacting the currency and there's a little bit of election volatility in there.

Also in an election year, which we are starting now pretty soon, generally we see an increase in passenger traffic, so that will be in there also. But just to kind of step back, obviously, Q2 is a down quarter for us seasonally anyway. There's more pressure now on kind of the March, sorry -- the May, June just because of the quick runup, but obviously we're managing that. But we do see a pretty good back half of the year at this point in terms of bookings and our ability to adjust fares. And so I think if there's any pressure, it happens now in the Q2 just given that really sharp runup in kind of April, which doesn't match with how yield management works, which is generally you're working kind of on a 90-day forward booking cycle. Of course, everything I'm saying applies to Brazil. It's different in the U.S. It's different in Spanish-speaking countries. I think the ability to extrapolate to other markets should be cautioned against.

That's really comprehensive. Just kind of elaborating on that point even a little bit more. Is there kind of a crude, just using negative correlation of 1, is there a crude FX scenario where, in your view, it might put -- start to worry you from kind of a stress point on the business? Or is just the economic backdrop strong enough to just power through? You kind of point out election year volatility with respect to FX. Do we think -- how can we power through that?

I would say, obviously, it depends on how much time we have to work on the yield management. With this quick runup we had now, it's kind of at a -- it's at a high pressure point, meaning the market needs time to absorb these current levels. But I think the probability of us seeing this -- this is -- you have to go, over the last 15, 20 years, there's only been 3 points in time in Brazil where we had jet fuel at these levels. And they were just peaks that lasted for about 30 to 60 days. And so I think we need to keep that in -- but I think the point there that would be the scenarios would be what's going to happen with the U.S. interest rates and that's part of the dynamic.

I think the Brazilian election dynamic should not be unexpected for anyone. We did expect to see some higher volatility there in this period of time given the lack of leadership on that issue, so that shouldn't be scaring anybody. I think the issue of U.S. interest rates, it's a little bit harder to, say, figure out for the entire market, not just the Brazil, not just the emerging market, for the entire world right now is going through that. But yes, where we are right now on these levels, it is going to take a couple of months for the market to absorb. And so that's a big pressure, it's a big pressure right now, it's kind of at the limit of, let's say, what the market could absorb in the short-term, with what? With -- in other words, if fares were to increase substantially above certain levels, it could potentially have a dampening effect on demand.

But against the backdrop of 2% to 3% GDP growth in Brazil this and then next year and the reinitiation of economic activity which is, in Brazil, as you know, we only have 2 ways to travel long distances, it's either by air or by buses. And corporate travelers are not traveling by buses for their business activities, they are traveling by air. And so when you see, in the Brazilian system, these load factors at the 80% level, you definitely should read into that, that demand -- and with the unit revenue increases, that we're getting very healthy demand and profitable demand at those levels of load factors which are in favor of -- continuous of this good supply/demand balance and good pricing power and things like that, including potentially addition of capacity to meet this demand.

We revised down the capacity a bit this year because in our way of managing the business, we effectively can pay for higher cost with reduction in capacity. And so it's one of our tools in there is when FX or fuel or a combination of the both hit certain levels, we also work with the capacity tool. But none of that should be read into here, I mean, we are having very solid demand, really rational capacity, and I think there's more arguments than not for, at some point, perhaps it's beyond the election cycle, meaning once there is just kind of a more immediate confidence on what's happening, that we should just go back to this -- what was, I think, kind of boiled into people's expectations, say, 3 months or 4 months ago.

The next question will come from Rogério Araújo of UBS.

I have a couple of follow-up questions regarding the guidance that was released. The first one is on the cargo and other revenue line. The guidance says BRL 1.2 billion and this is 11% of the revenue. But in the first quarter '18, it was delivered 5.5%, half of it. And this is related to the new accounting. So my question is what is going to be the sustainable level in upcoming quarters? Can we rely on this 11%? Or is it more towards the 5.5% we saw in first Q, that's the first question.

You should be using the numbers we provide in the guidance. There was an accounting change across the board, basically, where the revenue recognition component has changed. You saw this in our Smiles business as well. So use the numbers in our guidance.

In a prolific market approach, the trends are pretty positive. As Rich had mentioned before, this exchange rate volatility is much more related to the United States' new financial structure than any kind of Brazilian market cooling down. So I'd say that the cargo, just mentioning one of this year's revenues that you had mentioned, is performing quite positively. So the changes are pretty much related to the accounting method.

When -- because when we did the previous, we didn't have 100% visibility on a couple of components in the accounting. Obviously, the main impact there is not cargo. The main -- because cargo is about, it's about 25% of that number. The main impact was on the loyalty program and then some of the other things that we -- the revenue recognition moment change. And so that's really what's driving that. It is not related to business or economy or exchange rates. Those businesses tend to be more domestically focused than our cargo business. We provide in our monthly traffic stats, and I encourage you to look at it, we provide our volumes on the cargo business, which tends to be a leading indicator for overall economic activity, and also the sale of tickets. And so we've been providing that number now for a while. As you can see, kind of the growth trend in the cargo business, using those numbers, and then of course, you have the full disclosure on the Smiles number. We continue -- we're getting healthy revenues from our -- from the other components there and -- such as excess baggage. But remember, just to make clear, just in case people don't understand what the accounting changes are, a portion of those other revenues are now accounted for -- as of 2018, a portion of what, was previously accounted for as cargo and other has moved up to passenger revenue. So it's just a transferral from that line to the other line. It has no impact on the RASM for the most part. It was just a geography issue moving from other revenues to PRASMs. And this affected the whole world. In other words, so today, all airlines in the world are comparable apples-to-apples on a PRASM basis because of these changes. So a portion of what was previously in the other revenues moved up. The only thing that was left over -- well, anyway, I'll just leave it at that. And all of our numbers now are -- on a quarterly basis are restated on this new IFRS 15 which -- so the first quarter numbers you're seeing there, the first quarter of 2017 is also restated on that basis.

Okay. Sounds clear. The second question, just a confirmation here, does GOL guidance include this additional increase in the ticket fares versus the current level? And by how much?

Again, we don't manage the business focused on any one particular line item. We focus on operating profit; that's how we manage our business, that's how the employees make their profit sharing. And so the focus is on that. So where we end up on a fare decision, on a cost decision, on a fleet decision, they're all related to that. And so how we're going to be managing our fares is based on market, based on demand, based on capacity, based on revenue management. And so it's complex, and we have a million fares in the system as we speak. So it's a complex management that's happening. So there's no way I can answer a question of saying what's reflected in a future fare increase or not; it's not possible. Because we're doing an active management every day on that. And so our focus -- another way to say it is that, is the management of what we can do reflected in the EBIT margin? The answer is yes. Is that -- what we expect to be doing on a revenue management from here now to the end of the year is reflected in that number. But that could change. For example, if we have a 30% decrease -- if we had a 30% appreciation in Brazilian currency over the next 6 months, that would have a downward pressure on fares. In terms of the modeling, we would only keep 70% of the upside. We would not assume to retain 100% of the upside, because of the very high correlation with the currency rate. And so that will also depend on what happens with the currency through the rest of the year. And as we get into the back half where the demand is stronger, our capacity is higher. But in the short-term, another way of answering your question, I would say is yes, we are very focused on trying to keep the historical recapture on cost pressures through the revenue line such that we maintain our annual targets for EBIT margin. But as I was saying before on a previous question, there is pressure in Q2, especially April, May just given the very quick runup vis-a-vis the forward-looking curve. But kind of June going forward, it's a more balanced approach. So the pressure is really in the context of a year, feels like it's going to be over a 2-month period. But we don't -- like I said, we don't have visibility all the way through the end of the year, so we're going to have to see what happens on the jet fuel side of the equation as well as the currency. But obviously the oil price component has the larger effect on the operating margin vis-à-vis the currency. And you have to look at the correlations. I mean, it would be very abnormal to see oil staying at $70 and currency staying at 3.50 for the next 6 months. That would be a very significant deviation from -- in other words, you'd have to bet significantly against statistics and logic to win that bet if you were going to do that. So but I don't know, it's possible, because there's a lot of uncertainty now with interest rates coming out of the U.S. and a little bit of uncertainty about who's going to be the next executive of Brazil, but like for the most part, the economic management is solid, it's in the right hands. Our sector is doing quite well. And so -- but that's -- all this planning is in the numbers that you're seeing there -- from the management of this company.

The next question comes from Petr Grishchenko of Barclays.

Just a lot of them were answered, of course. Just wanted to understand a little better your -- given your exposure -- customer exposure, particularly to the business segments, it's fairly sensitive to the economy, too, of course. How do you think your market share in Brazil would evolve this year? And if you can also touch on the international routes. We saw about last year, most players were ramping up flights to Europe and the U.S., and how you think the recent devaluation would affect those plans?

Okay, we don't see any reason to believe that our market share would go below the current level -- the market share. We are holding 36% of the market, and I think that is a pretty defensible position. We could go even higher in our business segment share, considering the product improvement we have just deployed. You know that we are around 90 from -- the number of the current 120 aircraft have been already available serving the routes fully, as reputed. Up to the end of the fourth quarter, we have 100% of the customers in every route experience the new GOL product and service which is likely to further improve our business travelers market share. This is what we do expect. And finally, the demand, as Rich has already said, the short-term demand for international airline tickets, they are supposed to be affected considering the current exchange rate volatility. Typically, in this kind of rally, you do see a short-term customers' behavior change. But that's nothing that would seem to affect us, considering we are going to launch -- we are going to start our United States operations by November. I mean, beginning off the Brazilian high season. So we are not concerned about that. And we could also equally make some minor adjustments in the international capacity considering that this is one of our most valuable assets. Operating any sort of freight, we could easily reallocate the aircraft to serve a more demanding domestic route, which is also likely to happen. Whenever you have this kind of reduction in the international flight as [the season shifts] usually, the customer shifts to a domestic flight. This is what happened, what we had experimented in 2015. So this is nothing that should tremendously affect our sales performance.

Got it. And then just to clarify maybe briefly on the outlook. Do you say you assume BRL 3.5 for this year? Or -- I'm assuming it's from that point?

Assuming what?

The BRL rate you assume in the revised guidance, was that 3.5?

No, we did not...

You don't see currency or oil in the table we provided of our guidance. You don't see that there.

And last, if I may, the constant EBITDA margin that you project for this year, I think you mentioned some reasons for that, like productivity improvements. Are there any specific cost items you expect to reduce? Or it's just broadly like labor and maintenance?

Well, it's really across the board because as we have gone back close to 12 hours of aircraft utilization, and that also as we transfer to the MAX, the bigger effect is next year, there's a huge productivity improvement. I mean, on an annual basis, it's about 3% to 4% -- on a unit cost basis, it's about 3% to 4%. And in addition to that, we also have greater revenue productivity out of the aircraft because the aircraft, going forward, would be a little bit larger. And so while we're having 0 increase in the overall fleet, for example this year, the structural changes promote about a 3% or 4% improvement on the cost side as well as a 3% improvement on the unit revenue side. Another way of saying it, it is operating leverage, the very high level of operating leverage that's in our model -- that's in our business model. And so that's -- obviously, it's harder to appreciate if you don't have a good feel for airline operations. But it's really present in our operations because we're a high utilization airline. And so this 12 hours of utilization on a narrow-body shorthaul business basically means we have a -- we're squeezing the -- we're working the aircraft 24 hours a day. And that's been a gradual process of recovery for us over the last 2 years post restructuring of the fleet, where we kind of rebalanced the capacity and demand here. But this 3% to 4% annual unit cost dilution is structural. I mean, it relates just to us incorporating the MAX aircraft into the fleet along the fleet plan that we provided you. But in addition to that, don't forget the improving revenue productivity as well because the slightly-larger aircraft and the slightly-higher stage link and the slightly-higher utilization basically means that our stores, our factories are producing more units that are generating those revenues with the same fixed cost base. But that's really what's in there but it's a couple of points of operating margin that is in there. And it's structural to us, it's a competitive advantage that we believe we have.

The next question will come from Soummo Mukherjee of Mizuho.

Just assuming -- I know that you mentioned many times that you don't think the current levels of FX and oil prices are sustainable, but just considering a stress case, then just if we perpetuate the current rates to the rest of the year, we're talking about the BRL average that's currently at 3.24, averaging 3.40, if it's kind of at 3.50 for the remaining months, or 3.45 if it's 3.60 for the remaining months. Would you have levers to play with in order to still maintain your guidance? Or could we then expect a revised guidance in terms of leverage, especially?

Those numbers you just cited there, they wouldn't be any reason to have any change of guidance whatsoever. At the numbers you just cited. But the levers for us are, again, capacity management, revenue management and hedging. Now we have about 10% of our fuel consumption hedged at the low 50s for the rest of the year. That's a minor component. The major component is yield management. So it's just how we're working on, doing the dynamic revenue management we do, but then you've seen what we've done on capacity management. I mean, that's not insignificant. And so those are the levers, those are the levers you have in an airline business, right? But at the numbers you described there, I mean, those aren't anything that would change much there in that, at those numbers that you just cited.

The next question comes from [Wallid Ballaha] of JSS Asset Management.

I just had a quick couple of questions I think which are kind of a follow-up to what has been discussed before. So Q1 was sort of an exceptional quarter in terms of margin when we look at it. I think there is a gain from the aircraft, there is also maybe the fact that you had a higher proportion of hedge for fuel, more than 20%, whereby for the rest of the year, we are below the 10%. So I just want to understand how confident you are in your price adjustments and the ability to do price adjustments because in terms of hedging fuel, it's relatively limited. How confident that you're able to adjust the prices and without affecting demand? And my second question was regarding some of the restatements that you've done year-on-year. So I noticed that a few key indicators like the average fare, like the net yield, have been restated up for Q1 '17. Just wanted to understand if you could clarify the reasons behind this restatement.

Yes. IFRS 15 changed a couple of points, one is revenue recognition, the point where you recognize ancillary revenue. The other effect was that every -- certain revenues that were previously reported, and this is all airlines in the world, this is not GOL, are now included in passenger revenues, okay? Cargo is not included in passenger revenues and other certain additional charges are not. But the majority of ancillary revenues now are included in passenger revenues, but that's the main difference. So the details are in the footnotes of the financial statements, which you have there. And starting in Q1 '18, every quarter will be presented in that fashion, and so what you'll see is RASM -- total RASM doesn't change that much, but PRASM will go up a bit. This is for all airlines in the whole world. In terms of your first question, Wallid, I don't know how to answer that question other than how we already answered it. I mean, we have active management of capacity and yields and fares and hedging as well. And so are we confident in our ability to keep managing the business proactively, to keep focusing on delivering results for our investors? 100% confident. But we are not in charge of the Brazilian economy. And so I think the -- in Brazil, what we have is we're about 6 months now in front of an election in Brazil. Generally, across the possibilities, we don't see a scenario that would alter the economic management of this country, which I think was what everybody in business should be most concerned about. And on the U.S. side, it seems like we're going to have to deal with this uncertainty for a while, right, that's affecting geopolitically interest rates. And U.S. growth rate is also affecting that dynamic of the carrytrade between U.S. and Brazil, and then you have the potential oil price component, which is, obviously, we spend a lot of time on all these factors from a risk management perspective. But in the Brazilian market, the key factors you need to focus on are disciplined capacity management across the board and then how that's reflecting into -- but we do yield management. And so yield management is always about maximizing your profitability for a given demand set. And if you have balanced capacity, you have a good chance of doing that. The issues end up being about the quick runups, right? As I was saying on the previous couple of questions, there's been a quick runup in the currency. Oil prices have not run up much different than expectations, maybe $2, $3. But currency has had this big runup because of these international effects. And so that takes a while to get absorbed, right? And so that takes a while to get absorbed in many businesses across the board. But I can't respond in any other way. But are we confident in our ability to keep managing the business to maximize our delivery? 100%.

Okay, I think what I wanted to clarify really is whether you have noticed any change in the trend for the bookings over the past month. Have you seen maybe lower number of bookings or you're seeing...

No. We're not seeing any, let's say, normal softness in demand or anything like that. I mean, demand continues really good. The issue is, like what I was saying before, is that in our business, like today right now, we have forward sales, right? So my ability to change the profitability of tomorrow's seats is pretty low because I'm 90% sold for tomorrow. So there's nothing we can do to change the profitability on tomorrow's flights or next week's flights or this month's flights. And so that's the squeeze that happens with this quick runup that -- we do have a little bit of a benefit as there is a more muted increase in our fuel price because Brazilian fuel prices are calculated once a month based on the average international jet 54 plus currency. And so it's not as quick of an impact on oil. There is kind of a 1-month lag on the jet fuel prices. But on the exchange rate, it's immediate, right? And so then you have your management there and there's been a huge runup. I mean, everything has been down 40% over the last 3 weeks, right? That's a big chunk to absorb quickly. But like I said, over time, over a 90-day cycle, we've been -- -- we're confident that we can absorb that. And so I think, as I was saying before, the pressure on us and I think the whole sector is really just kind of April, May, tough time period, just where we are in that cycle. Same thing happened in May of last year, I mean, we hit 3.7 on the currency in May of last year. Nothing new here. This is just the reality of our business.

The next question will come from Matthew Berland of Gramercy.

I was just wondering if you can give us a refresher on your hedging policy. I know a lot of it's based on the negative correlation between the BRL and WTI, but given what we've seen recently, have you thought about maybe exploring different alternatives? Or maybe increasing your FX hedge because it seems to be what has historically gotten the company in trouble if you look back at 2015 and 2016 where you see that margin erosion?

Back then you had a misbalance of capacity way in excess of demand. I mean, the way we manage the business, again, just kind of repeating what was already said, is the first equation is a very disciplined capacity management, which is based on very sophisticated process. And then revenue optimization through revenue management. And then we complement that with hedging. On hedging specifically, no. When you get runs up in oil prices and -- or currency, you don't start running after them by doing hedging. That's the exact moment where you should not be doing hedging. How we approach it is that we have very sophisticated policy and procedures where based on where we have -- where we are in capacity and revenue management and pricing power, we then set hedge ratio targets and price targets and manage that very dynamically. I mean, I think the best way to describe things is kind of just look at our historical. If you look at Q4, right? If you look at Q4, you look at Q1, you can see how we kind of have managed it there. And so we have triggers actively set on our -- for fuel hedging as well as currency. And so to the extent we hit those triggers, we would put on those hedges, taking advantage of the volatility in the market, on backwardation and so on. But again, for us, just to kind of go back, we are focused on managing this business for operating profit targets. So everything we do is kind of focused on that. It's not on any one particular leg. We don't do, say, for what a U.S. airlines does, is try to lock in fuel price per liter, things like that. I mean, it's very specific to our business and our Brazilian business. Over the last 15 years, you've had about 6 times or 7 times where there's been a crisis. Crisis, all correlations go to 1, and so at that moment in time, either you're ready or you're not. And if you go back -- when you go back to the end of 2015, you have to look at what was going on in these other dynamics. There was a huge excess capacity in the Brazilian market. There had been a 7% -- there was a 7% run rate economic contraction in the Brazilian market at the same time that we had an annual, almost a 15% demand contraction. All those things were kind of happening at the same time, which is a very, very different environment than we have today. Very different. Very different.

Could you remind us on your interest and principal hedging policies? If I recall correctly, you said you weren't going to hedge any interest and principal for the...

How we do it on currency is we go out 24 months, and we hedge what we call our medium-term obligations. We don't hedge balance sheet from an accounting perspective, but we go out as far as 24 months both on oil prices -- on oil exposure as well as currency. And all that goes into the bucket. Operating expenses, interest expenses as well as maturities in dollars, all go into the bucket in terms of how we monitor our risk, and in terms of how we manage that.

So we were able to, today, with this new format that we're using, we were able to get through 12 very detailed Q&As, 11 sell-side to 1 buy-side over this period. And we were able to meet 100% of the requests for questions on this call. And so I appreciate everybody that participated and hopefully this new format is working where we basically are posting the videos on the website which basically give you what we would normally present on the webcast and then that gives us much more time for Q&A. And so today, we were able to get through 12 sell-side and buy-side, got through the full list, everybody's questions were answered. And so I would say, hopefully this new format is working, but if you guys have any other questions, we can improve this format or we can also treat them offline. So with that, we're going to end, so we can go to our next event today which is our call in Portuguese to our local market folks. So with that, we'll go to the closing of the call.

This concludes the GOL Airlines conference call for today. Thank you very much for your participation, and have a nice day.