Gol Linhas Aereas Inteligentes SA (GOL) 2022 Q3 法說會逐字稿

Good day, and welcome to the GOL Airlines Third Quarter 2022 Results Conference Call. This morning, the company made available its results. After GOL's presentation, we will initiate the Q&A session for analysts and investors when further instructions will be provided. This event is also being broadcast live via webcast and may be accessed through the company website at www.voegol.com.br/ir and MZiQ platform at www.mziq.com. (Operator Instructions)

Before proceeding, we emphasize that the forward-looking statements are based on beliefs and assumptions of the company's management and on information currently available to GOL. They involve risks and uncertainties, given that they are related to future events and, therefore, depend on circumstances that may or may not occur. Investors and analysts should consider 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.

And at this time, I would like to hand the call over to Mr. Celso Ferrer. Please begin, sir.

Good morning, everyone, and thank you for your participation in this conference call. I would like to start by highlighting our most important results of the period, which were made possible by the trust we have obtained from our customers, investors, suppliers and especially from our Team of Eagles. The third quarter was characterized the impact of the highest jet fuel price per liter in the history of the Aviation industry. This resulted from the combined effect of increases in oil prices and devaluation of the Brazilian reals.

On the revenue side, we had a rational price environment among the industry players and the resumption of strong load factors after the slowdown of service in the end of second quarter. By acting assertively and managing capacity and improving productivity, we maintained the growth of our revenues and our operating results during this period, recording the highest quarterly revenue figures in the growth history, reaching BRL4 billion in third quarter, 109% and 80% above of 3Q '21 and 3Q '19 figures, respectively.

As we continue to see recovery in demand, we subsequently resumed more flights and expand our network. We served more than 200 markets and transported 6.9 million passengers in the quarter, 39% above last year and still 29% below the volume of third quarter '19 last year. Our supply measured by ASKs grew by 41% year-over-year. In part, this is due to the resumption in corporate demand as workers return to the office, less restrictions in international markets and strong VFR and leisure demand. It is also important to note the 51% growth in yield and 50.6% expansion in PRASK.

This yield is more than 42% higher than the pre-pandemic figures in Q3 2019. Our unit revenues grew 48% followed by an increase in forward bookings by 58%. Once again, GOL's ability to efficiently meet the increasing demand stems from the company's key differentiator, our strong and disciplined capacity management with a continuous focus in preserving profitability and liquidity. By 2023, we expect that our efficiency will be our main competitive advantage. This will be critical of winning the business of our customers and reduce our cash even further consolidating our cost advantage.

In order to partially offset the effects of the jet fuel price increase, our recurring unit cost ex-fuel decreased by 24% when compared to 3Q '21. When converted into U.S. dollars resulted in $0.036 or 4.5% lower than the same quarter in 2019, even considering a supply that was 23% lower than that period. The capacity was preserved over the first 9 months of 2022 and will be added in a balanced way in fourth quarter, our highest season. This figure clearly demonstrates how GOL is resuming its productivity and efficiency and we will further reduce the already lowest unit cost in the industry, its main competitive advantage to generate a faster recovery of its operating margins and adapt the company to the best efficiency indicators by the beginning of 2023.

Our growth factors and aircraft utilization continue to improve, and flight frequencies increased by 40% when compared to the fourth quarter last year. We expanded our presence in regional markets, notably through the implementation of a flight distribution centered in Bahia, which should reach 50 daily domestic flights by 2023. We will have connections [abroad] to our international partners and the launching of routes connecting Salvador to the main tourism destinations in the States. In the international markets, we strengthened our operations from Brazil to Florida.

We also launched two new routes to Miami that will be operated as of December from Manaus and Fortaleza. We also inaugurated our regular cargo network, which is operated with Boeing 737-800 freighter in partnership with Mercado Livre. We started with a route between Guarulhos and Fortaleza, and we will expand the network to six new cities, Teresina, Sao Luis, Joao Pessoa, Recife, Brasilia and Porto Alegre. The partnership between GOL and Mercado Livre provides an increase in unit revenue and lower costs associated with aircraft return since the aircraft operated by GOL in regular passenger transport are converting to freighters.

And we'll generate approximately BRL100 million potential incremental revenue to GOLLOG. We maintain the pace of our program to accelerate the transformation of the fleet to a new more efficient equipment aligned with the company (inaudible). This quarter, Group took delivery of three new 737 MAX aircrafts, and we returned two 737-NGs. By the end of the year, we expect to have 44, 737 MAX aircrafts, representing about 30% of the total fleet. And our goal is to have 50% of the total fleet composed by 737 MAX by 2025. Turning to our loyalty program, the SMILES customer base surpassed the 20 million mark and revenues reached BRL1.2 billion this quarter, 26% higher than the previous quarter and practically double when compared to third quarter '19.

The customer base that Clube Smiles records consecutive increase demonstrating its potential while GOL expand its operations. Synergies were generated from tax management and fixed inventory, important levers that optimize those working capital and liquidity. We also recorded an year-over-year improvement of 5 percentage points in our NPS, Net Promoter Score, alongside imported advances to improve the customer experience and strengthening our presence in the high added value corporate segment.

I'll now turn the floor over to Richard, who will present some financial highlights.

Perhaps you're muted, Mr. Lark?

You are correct. Yes. I apologize for that. Good morning, everyone. Thanks, Celso. Our detailed financial analysis for the quarter was shared in the earnings release and in the presentation made available on the webcast platform as well as on the GOL IR website. I'll go through some of the highlights here, after which we'll turn over for a Q&A session. Our liquidity remained relatively stable at BRL3.7 billion, with BRL869 million of short-term debt at the end of the quarter. The management of our working capital, together with the increase in accounts receivable and the advanced sales of miles and advanced sales of tickets has enabled us to maintain a pace of growth necessary to operate our high season with a greater dilution of unit costs at the same time with the maintenance of very healthy fare levels.

As Celso mentioned, the transformation of the GOL fleet to the Boeing MAX has a fundamental role in our operating strategy, which is in part, guided by increased and enhanced productivity and reduced unit costs. We estimate that in the next few years, about 50% to 60% of the new aircraft delivered to GOL will be financed under finance lease formats. Our ASK and RPK in the quarter increased compared to the third quarter of 2021 and reached around 77% of 2019 pre-pandemic year levels. Yield in RASK showed increases of 51% and 48%, respectively, over the same period, reaching BRL0.45 and BRL0.39, respectively.

Our recurring EBIT and EBITDA margins reached 6.5% and 17.3% respectively and our EBITDA totaled BRL1.7 billion in the first 9 months of the year. We obtained an increase in the average fare sold, demonstrating our ability and experience in managing variations in fuel prices and the foreign exchange rates. We achieved approximately 6% growth in our recurring cash measured in dollars compared to the third quarter of 2021. We continue to be impacted by higher oil prices, which increased in the range of 30% compared to the third quarter of 2021, which drove consequently an increase of 91.3% in the Brazilian price of jet fuel over the same -- growth over the same period.

Regarding our cash flow, in the quarter, we had BRL4.8 billion of operational inflows, which, although impacted by the fuel price increase generated an operating cash flow of BRL1.1 billion, excluding interest expense. The company's successful liability management during the pandemic, as we've highlighted to you throughout the pandemic has put us in a leading position with the lowest short-term debt ratios among our peers. We've updated our financial outlook for the year 2022 to take you through the end of the year, taking into account the increases in jet fuel and also the results of the first 9 months of the year.

Celso, back over to you.

I would like to conclude by again thanking our Team of Eagles as well as our customers, investors and suppliers who continuously show confidence in the company's business model and management. Through your support, we are confident that we not only have the champion business model, but also that we are prepared to overcome the market challenge and continue to play a leading role in the recovery of the airline industry in the next phase of growth.

Operator, you may initiate the Q&A session.

(Operator Instructions) The first question will come from Dan McKenzie with Seaport Global.

Congrats on the revenue generation this morning. So I'd like to put on the slide this morning, I thought there was some interesting slides in there. I just would like to put a finer point on them. Slides 11 and 12, profitability resumption and underpinning that is better utilization. So it looks like 11 hours today versus 12.6 in the third quarter of '19, can you get back to '19 utilization levels, say, in the fourth quarter or the first quarter? And does that imply profitability or maybe what does the path back to full profitability look like? And if I'm reading the guide correctly this morning, it looks like you might be expecting a small profit here in the fourth quarter.

We have been managing capacity very carefully by adding more aircraft into our network as we also increased aircraft utilization. By the end of the fourth quarter, we will be flying at the levels we used to fly pre-pandemic in the utilization of the aircraft we are operating. We still have some planes on the ground, and we consider this idle capacity, and we want to address this over the next months, next year. But what we call the operating fleet, we'll be flying at 12-plus hours per day as we always did in the GOL's history.

We are bringing back the fleet and bringing back utilization as we are confident that we are going to be continuing to improve also the unit revenue. We don't want to dilute unit revenue so we postponed our growth to the fourth quarter when we see demand -- strong demand from all the segments, not only VFR leisure but also corporate demand for fourth quarter and first quarter next year. Also, in the international markets where we find longest (inaudible) with the MAX, for example, to Florida and other cities here in South America. So with that, we are going to achieve even further CASK ex-fuel reductions and will be benefited by increasing our margins.

Yeah. Very good Celso. Second question here, slides 15 and 16, Richard, it looks to me like liquidity roadmap as we think about 2023. And is the message this morning that there's enough cash coming in from, say, advanced ticket sales, smiles to bridge the working capital needs through next year. And I guess I'm just wondering if you can elaborate a little bit more on that. Are there any operating outputs or that worry you about -- that worry you over the coming 6 months, whether it be, I don't know, CapEx, maintenance, returns, purchase deposits, anything like that? I'm just wondering like if you can elaborate a little bit more on that.

Sure Dan. No, the working capital management and the CapEx management is going to continue to be the same as you've been seeing not just throughout the pandemic but pre-pandemic, where the way we describe it to you is matching assets and liabilities, matching inflows and outflows, and that will continue. A couple of points of difference in complementing a little bit what Celso responded to your first question. One of the key differences, a lot of you guys kind of look at the comparisons of pre-pandemic 2019.

But in our company, GOL significant structural differences that during the pandemic, we completed the take-in or the minority interest of the loyalty program, SMILES. And that makes -- so there's a significant increase in the retention of earnings and cash flow that's generated buyback business. If you were to kind of compare it on a 2019 basis down to bottom line, it's around BRL500 million of additional cash flow. If you want to kind of back that into an EBITDA margin equivalent, it's about 400 basis points to 500 basis points on that.

And so when you're comparing margins, cash flow generation or EBITDA margins, profitability and cash flow today, where GOL is going forward to 2019, you need to account for that. And so it's a much more robust EBITDA. The other component that I want to highlight there that I think is often missed, especially when looking at a company like GOL, which has very low fixed costs is the leverage component. And so as we recover to high productivity, which for us, as you know, is 12 hours of aircraft utilization a day across the entire fleet, which we expect to get gradually evolve back to in the coming quarters.

The benefit of the operating leverage really kicks in. And when you combine that with the work that we've done on the yield management side of the equation to deal with the variations in oil prices, it puts us in a good position to generate incremental as you were saying earnings, but more importantly, incremental cash flow. And that's gradual. We've taken a very conservative posture with respect to capacity management, as you know, keeping it at the low end of the possible to conserve cash. And so we continue to be in that mode, meaning for more conservative capacity as opposed to more -- for more cash conservation as opposed tomorrow.

When you translate into liquidity, which is part of your question, you've seen whether the structural liquidity goals kind of settled in to this number of BRL3.6 billion, BRL3.7 billion, which is how we're going to be -- continue to be managing the business going forward. And if there's any adjustments we need to make, it's going to be on the capacity side in terms of how things are balancing out. And so to the next couple of quarters, I think you're going to see more of the same in terms of working capital management. We do need to reduce our days payable to something more sustainable.

We've got a very large amount of support during the pandemic across our entire value chain. If you sum it all together, over the course of the roughly 30 months of the pandemic, we generated about $3 billion of additional cash resources that came in from everything from the very top part of the balance sheet with suppliers all the way down to the very bottom part with shareholders across the board. So all of -- and we didn't get any significant government support like you saw in the U.S. and so that $3 billion helped us get to where we've got now in the pandemic.

And over the next couple of quarters, we need to reduce stays payable to something more sustainable. That will be matched. When I say something more sustainable, our normal, if you've got our pre-pandemic working capital management, we were roughly 50 to 60 days receivable, 50 to 60 days payable. So on the payable side that needs to come down, on the receivable side as we continue to recover in the corporate demand as well as overall recovery to pre-pandemic levels, that accounts receivable level will come up, and those will match out.

And on the investment side, on the CapEx side, as you know, we've been able to do a pretty good job of pretty much 100% financing, all of our CapEx needs, the most important of which is MAX aircraft. And we have the appropriate mechanisms lined up to 100% finance, any needs that we have on the new aircraft out of the equation. And then on the maintenance side of the equation, which continues to be a challenge, we're calibrating the returns of the NGs with our ability to get financing for such. And so for example, the deal you saw -- you guys saw recently on the spare engines that we were acquiring.

That was a way effectively of financing -- keeping the NGs flying longer such that we can also preserve cash as it relates to future returns of NGs, which the main cash outflow relates to the engine overhauls. And so we're going to continue to match that definitionally, that's going to have to be pretty close to 100% LTV on all the new assets coming in, which is going to create long-term equity value with the new MAXs coming in, but we have to avoid short-term cash outflows.

But just to kind of finalize it this is kind of part of your question, just given where the markets are right now, the company really doesn't have a currency today for any new external capital raising. And so we're going to have to continue levering heavily on our working capital management and our ability to finance the transition of the fleet from NGs to MAXs. So hopefully, that gives you a little bit broader context of how we're going to be managing the business going forward.

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

This is actually Matt on for Savi. Rich, I have a question about ABRA, as we look forward to when that is approved, what are some of the key steps involved that GOL needs to do to implement the partnership in order to drive the value there? Is there anything that we should be mindful of in the next year, the timing of that?

Maybe you could -- I'm not sure if I understand your question is to focus on GOL and GOL earnings. I wonder if you could rephrase your question.

That's fair. So basically, I'm looking at when the partnership is put in place, are there any investments that GOL needs to make in-house or costs related to that such as integrating systems, what that could entail or there are things associated with lining loyalty programs, et cetera, something along those ones.

Sorry, sorry, I didn't catch your name. I got you work with Savi.

Matt.

Matt. Sorry, yeah, if you want, you can close up later, and we can -- I mean, we're not -- this call is not about that today. So I appreciate if you could stick to GOL.

Okay, certainly. Maybe I'll switch over on the aircraft deliveries, if you could talk maybe about your comfort level there on your -- on just the timing with Boeing referred to industry commentary that there are concerns about the order books so maybe your thoughts there? And I think in the last question, you said 100% financing was in place for all those deliveries upcoming in the New Year? Did I misunderstand that?

Yeah, I'll make a comment and Celso you can complement on there. Obviously, Boeing continues to have production, which is much below the pre-pandemic levels. We've been able to, for the most part, meet our targets on the transition from NGs to MAXs as we described. We're still targeting to finish this year with 44 MAXs in the fleet. And of course, all of this is within the context of what has happened over the last three or four years because the -- if you take the last three or four years, from a capacity perspective, we have some pretty significant impairment events on that plan. One was the grounding of the MAX globally as well as our actions taken in Brazil.

Second was the Avianca Brasil exit from the market, which put a lot of strains on capacity. And then in our particular case in GOL was the pickle fork problem we had with NGs towards the end of 2019. And all that was pre-pandemic. And sometimes, all the focus tends to be on what's happening. The world is kind of -- as the world began in March 2020. But when the pandemic hit, obviously, we had to pivot to a different type of management where it probably became a little bit of an advantage the situation that we entered the pandemic in, which was a fleet primarily almost -- we only had 8 MAXs in the fleet at the time, all operating leases because we had monetized all of our -- our owned NGs.

And that, combined with the compensation agreement that we negotiated with Boeing and other things we were able to do, became a huge asset for us kind of managing through the pandemic. As we've been highlighting in the last couple of quarters, we've been accelerating and pivoting our transition to the MAX. Obviously, part of that will come on for order book with Boeing and then another part will come from aircraft that are available in the whitetail market. And we're having success. I mean we're getting what we need. And we're also able to 100% finance that as we said. As you know, we've lined up, obviously, if it's a sale leaseback, there's a 100% financing there with the upfront cash generated. And we've -- since the end of 2021, we lined up some other mechanisms to be able to do finance leases with pretty much the same economics, meaning a generation of upfront cash based on our purchase prices versus what we can finance.

In fact, you look at the mechanisms we've lined up to do finance leases and we did four in the first quarter of this year, and we're going to do another six over the next two quarters with the six MAXs that are coming in. We have a 100% LTVs in the finance lease format, which also generates the upfront cash that we need to pay for the engine overhauls to return the NGs. Having said that, we have, as you've seen, if you compare our consecutive revisions to the fleet plan over the last couple of years, we have consistently and gradually revised down the portion of the fleet for the next couple of years that will be in MAXs.

And so we are keeping the NGs. If you were to roll back all the way back to, say, 2017, '18 with our fleet plan with the MAX, we would have had a little over 60 MAXs in the fleet at the end of this year, and we're targeting 44. And all that, roughly almost, I'd say, 16 to 20 MAX is the difference in the effect that happened because of those items that I mentioned over the last couple of years. Having said that, that has obviously been useful in the context of managing capacity to the low-end in the context of the pandemic and the increase -- the massive increase in oil prices this year and those other things.

And so that had turned out to be, I think, a hidden asset for us. And so what you've seen on that is we've always been gradually revising down the forward delivery schedule of MAXs based on all these factors kind of rolled in. Having said that, over the next couple of years, we do expect to catch up. And obviously, we're going to do it on economics that make sense for us. It's important for maintaining the competitive cost advantage. Celso, I don't know if you want to complement anything there?

Rich, your answer was completed. I just want to highlight that we are receiving the aircraft at a lower pace than we were expecting. But the whitetails that means the aircraft already produced are being the main tool for us to have access to the capacity on the new technology we need. So that's why we're going to take another six until the end of the year now. And this is for us was a way to accelerate -- really accelerate the fleet while other manufacturers and the whole aviation industry is facing hurdles in the deliveries of the planes. We were successfully being reached -- we are successful by reaching now the regional fleet plan that we had even pre-grounding on the MAX.

Okay. Better, just before going to the next sell-side analyst on the call, as you know, we like to work in questions that we get from the platform in here, some of which come from the buy side. So I'm just going to work in two questions here now just to make sure we address those who have put in the questions on the platform and are waiting, the questionnaires. What do you think will be your indicators after GOL reach normalization by Q4 of '22? Could you give us some trend indicators on how you expect will be the behavior on yields, CASK ex-fuel and margins and run rates for '23?

Well, I think the main headline for this quarter is that GOL converged its efficiency, almost back to pre-pandemic levels. At the 11 hours of utilization, we still need to squeeze another 1 hour a day out of the aircraft, and we expect to start or be in the first quarter -- towards the end of the first quarter '23 with improved above this, getting back to that full peak productivity. Yields going forward are expected to have a more flat behavior versus '22, I think we've highlighted that they're at record levels and shares are very high, which have been necessary just to almost breakeven operationally given the level of oil prices. But we plan to invest in incremental additional capacity at lower fares to stimulate demand. And additionally, we still have around a 20% capacity lag versus 2019.

And so as you've seen the revenues, we've revised -- since we've revised up our revenues run rate for this year with 20% lower capacity. And so when you combine both of those effects with the capacity coming up, plus the expected yield behavior, yields, we expect at this point would be flat next year versus this year. On CASK ex-fuel, as you saw in U.S. dollars, when you convert it to U.S. dollars, it's already lower than in the third quarter of '19, and we expect to see further improvements as we get back to full productivity into Q1.

And so expect to see that better than the [3.6] in dollars that it is now expect to see that in the [3.5] range. So there should be some further improvements on that. We also have implemented several fixed cost reduction initiatives. As an example, with the natural turnover that's happened in the business during the pandemic, just the natural turnover in operations, mainly in things like airports and other areas, we'll end 2022 with almost 2,000 employees less than our pre-pandemic levels. And so our productivity has adjusted there.

Now, what I'm going to add, there's another question here, which I think is worth adding on to because it's a little bit like the question we got from the Raymond James first and it's also I'll flip to see what the question is regarding the MAX. Sorry, I just flipped off my screen here. Let me go back to the question just popped off here. Pressed the wrong button. One second -- and it's basically the -- to talk about the additional purchase order for the incremental 18 aircraft with Boeing. What's the rationale behind that and the financing of such? And so I think, Celso, you could respond -- complement obviously, it's a little bit of a complement to the previous question.

Yeah. Okay, Rich. So this transaction was a continuation of acceleration program with Boeing that was already publicly disclosed in January this year. We now -- we have completed the remaining six aircraft with Boeing to complete the 44 MAXs that we expect to have by the end of this year. Those are whitetails with attractive price conditions. Those are all MAX 8 aircraft, and we may finance those planes in the same credit lines that we disclosed in January this year. The additional 12 months then there to be delivered between 2027 and 2030. And we want to secure those positions. We -- the MAX 10 will be really, really important for us to reduce even further our cash.

We expect to have the first MAX 10 by 2025, and those incrementals will be to have the right number of MAX 10 in the fleet mix we designed for the company in five years from now. So it will not change the short-term plans of the company. We are not changing the fleet plan. It's just execution of the plan as we go into this first third delivery schedule. Like I said, we don't have the same availability of production that we used to have. So we are trying to find good deals, being very pragmatic on the aircrafts we are bringing to the fleet with the right price and right financing, and this is what we are going to do with the six additional MAX 8.

Okay. I'm going to -- operator, I'm just going to slide in one more question here from the platform and then we can go back to the analysts in the queue. This next question here is what is the plan to mitigate the volatility of oil prices? Are you planning to rebuild hedge protection for oil? What about FX? Well, GOL utilizes instrument today, this is probably a question that other people have as well. Today, the position that GOL has with instruments we have protection for 25% over the next 12 months exposure at around $85 a barrel.

And if oil gets over $100, that the way we've designed the instrument that goes to 50% protection. Obviously, we've been doing our hedging. We have been -- as you know, we came into the pandemic very well hedged, and that created an asset for us. We had about BRL1.5 billion of an asset that we use to help pay for a lot of the needs in 2020. But we monetized most of those hedge positions. And in the last couple of quarters, we have been gradually rebuilding.

And so today that what we have in terms of we've been doing it in a way where we use minimum amounts of cash. But today, what we've built basically gives us about 25% hedged for the next 12 months at around $85. And the way it's designed, it would cover us -- it would be about -- make us about 50% hedged if oil prices reach more than $100. Now -- and about -- anyway, so that's basically, I think the important point -- and a big chunk of those positions are not exposed to mark-to-markets.

And then on the FX side, we continue to do low levels of FX hedging, but just given the volatility, a lot of those hedges get done and come off and get monetized intra-quarter as any time we get some interesting gains, there's the competition to take those gains and use those for paying expenses and so on. And so with that, operator, we'll turn it back over to the queue, please.

The next question will come from Alejandro Zamacona with Credit Suisse.

Just a quick question on capital allocation. Do you have any plans to improve the balance sheet? I know this call is specifically for GOL but I think that could be also interested to have some information regarding ABRA's potential capital increase in GOL. If you have any color on that, I would be appreciated.

No, no. On that point, I mean, if and when ABRA wants to announce anything there, that would be made the case. So we pride ourselves on not providing NPI to investors and so on and so this will not be the appropriate format to do that, Alejandro. So please, if you could just please keep your questions and any questions you might have on helping you understand what we just disclosed in terms of Q3. Also, as you know, like we have a pretty detailed guidance through the end of this year. We're not talking specifically about guidance for 2023 yet. We're not -- we'll provide that at the appropriate time but if you could focus your questions on that, I think that will be most productive.

Yeah, sure. Sure. Then my second question is on expectations of full recovery. And if you can comment on -- I know you mentioned some early expectations for 2023, but if you can also mention in terms of capacity, what are you expecting and also the latest trends on the corporate demand?

Alejandro, I will -- I have received all the questions regarding the demand scenario as well. So I'll try to answer your question also addressing other points that came along the call here. I mean, demand is coming, but not at once. We are seeing demand improving quarter after quarter as domestic market is proving really to be resilient even in this high cost environment. And GOL protected liquidity and design growth to happen in a way that cash and value would be maximized to the company.

Both of our main competitors, they -- what happened is that they really added capacity in the beginning of the year, while we are waiting, we are waiting for the, let's say, more healthy season of the year to bring back the network. If you compare our growth for the fourth quarter will be around 11%, while they're going to be almost flat comparing to the third quarter. That is -- for the first time, we're going to see more rationality right now.

And we -- the price environment is more rational, but we see -- we still see some inconsistence if we go to the, let's say, route level or the hub level. We can see that some competitors are adding a lot of capacity in Guarulhos, for example, just as an example that creates a kind of a challenge for the price environment. But overall, we are really confident that we -- all the capacity we are deploying right now, which is even less than what we had in 2019, very carefully, we are going to be able to expand the RASK, the unit revenue and while growing fourth quarter.

And what do we want? We want to really start 2023 at the high level of unit revenue, but also at the high level of utilization and with the whole network and schedule already deployed. Of course, we are going to navigate through the seasonality of next year, but we want to start 2023 by having the, let's say, the levels of productivity at least compared to the -- what we had in 2019. So with that, we are going to offer an even lower CASK ex-fuel and fuel because of the fleet renewal program.

The next question will come from Hillary Cacanando with Deutsche Bank.

I think you have 25 MAX 10 on order. And I was wondering if you have the option to shift to another MAX variant in the event that MAX 10s are not certified because Boeing's out there saying that if they can get the extension, then they'll just crap over MAX 7 and MAX 10 convenience. I was just wondering if you have the option -- if you have the flexibility to switch to like MAX 8s or what your plans would be if you don't have that?

Good morning, Hillary. We have the flexibility -- it's Celso also speaking. And yes, we have flexibility to convert those MAX 10s to other MAX aircraft. And even if one day, Boeing launch a new variant market aircraft, we also have the right to convert. We believe that the MAX 10 will be certified. That's the assumption we have on our plan. But we -- of course, we are protected by the contract if we need to convert those to 8s or 9 or whatever we need to. But the MAX 10, our first MAX 10 will be -- is scheduled to be delivered in 2025. So we don't see major risks that it could change.

Okay. That's great. That's great to hear. And then I just wanted to -- with just the global economy kind of slowing with high interest rates and global inflation and things like that. Are you seeing any pressure on pricing? And what's your confidence level in terms of being able to keep your pricing where you want them to be in the current environment?

Yeah. We are in a high-cost environment overall, Hillary here. And we -- in Brazil, especially now in the second half of the year, inflation is getting forward. We also have deflation in the next -- in the last couple of months, which is good news. But overall, we see for the industry, a challenge ahead, decline on interest rates and also inflation. We think that fuel is going to continue to be high. I mean, that's not only for -- to offset the fuel costs, but also FX and U.S. inflation. I don't know, Richard, if you want to add something?

No. No, I was just going to say, operator, we're going to -- I'm going to insert a question from the platform and then we can go back to the queue. The question here is -- and I think I'll send this one to you Celso to respond. Can you discuss the competitive landscape? Are you disciplined capacity additions from competitors? How does your CASK compared to competition on similar routes and (inaudible)?

Okay, Rich, what we're seeing from now on is more rational, more rationality in the market as competitors start to flat their capacity while the comparing what they did before. I mean, they grew the capacity in the second quarter and third quarter, in our view, more than needed. And now, I'm seeing that they are flatting their capacity to address fourth quarter demand and first quarter demand last year. So our view is that we're going to be seeing a healthy environment on yields for at least the next six months.

And we are, of course, expanding the network now on the most -- on the core of our network. So what we did before at the beginning of the year, we brought back the whole -- the number of destinations we have, we concentrated the frequencies on the hubs. And from now on, we are expanding frequencies to the high frequencies and business markets. So in that sense, yields should continue to improve. Also, the yields we had sold for the next months are also much higher than before.

We have our (inaudible) more than BRL1.5 billion higher for the fourth quarter. So which means that we have been planning the revenue for the next quarter and by already knowing that we would be facing a more even higher cost environment but also a rational behavior from the competitors. We are focused on the CASK ex-fuel, the CASK advantage we have. Today, we have 10% against one of the competitors and 30% advantage against other competitors. And we want to keep improving this gap.

Okay. I'm going to slide in because we're getting some good questions on the platform. I'm going to do two more questions, and then we can flip back to the queue because I think we have we've got another 10 minutes here we can do. Next question is how is jet fuel trending in Q4? Your guidance complies higher jet fuel expense in Q4, is that correct? Well, after the all-time record peak in July and August, because again, remember, in Brazil, there's a lag between what you guys see with international oil prices and how that works its way into our costs in Brazil. It's kind of upwards of almost a 45-day lag.

Now -- so there was a big -- a big peak in July and August, there was a 10% reduction in September, October, but there's going to be a new increase in November based on what's going on. Now that obviously gives us a slight advantage if we need to take some actions in hedging. But the other phenomenon that's very different from, for example, pre-pandemic numbers is what's been going on with the crack spread. So WTI and brent are more stable, the crack spread is significantly higher. And also, there's the FX component because we pay for our jet fuel in Brazilian real.

And so the (inaudible) that comes through the monopoly provider, it's basically the average of what happened in the previous months in WTI brent jet $54, then there was a crack spread component and the FX component. The FX has now gotten back to $5.3, $5.4. And so I already talked about what we've been able to do in terms of forward hedging, which gives us a moderate degree of protection. And that's what's reflected in the guidance based on what we're seeing that's going on with international prices.

And we do expect there will be another increase in November. And so based on what's going on with the prices here in October. And then one other question. I wanted to pull in here. The question is the following. I'll just read it as we are heading into the travel season liquidity sources are something, and it's something we're all watching in addition to bond maturities coming up. I guess he's referring to the next bond maturity, which is July of 2024. Can you talk a little bit about the travel season and how that will impact cash generation and liquidity? So maybe I'll flip that to you Celso.

Yeah. I mean travel season is starting right now. I mean, the winter IATA season is our summer here. We are growing by 11% to capacity on the fourth quarter compared to the third quarter. So that represents, of course, an additional -- additional seats to be sold. So it tends to be working capital positive this period for us, and that will continue until February next year, which we consider the high season in Brazil.

We are, during this period, increased utilization focus the network to the main airports in Brazil, also launching new point-to-point routes to the most important leisure destinations here in opening up new destinations in international markets. Like I said, Miami and Fortaleza to Miami, strengthening our partnership with American in Miami, which is now a key advantage for us on the U.S. market. And yes, I mean, we are entering into the best season for us now.

The next question will come from Pablo Monsivais.

I have just one simple question in your press release about the financial flexibility that you're saying with the new credit facility. (inaudible) a little bit of guidance on the size and the cost is very helpful. And I guess that my previous question was already answered about the competitive environment for next year. But any further color would be appreciated.

Yes, I think what you're talking about is the engine facility we announced for the 9 spare engines that were going to be acquiring direct from CFM. The flexibility there is what I mentioned before, is that, that will allow us to keep some of our NGs flying (inaudible) and with avoiding the cash outflows that are required to do engine overhauls, which are very expensive. And so that's what we mean by the flexibility. So it's basically fully financed. Those new engines can be used in operations, which will allow us to also manage our capacity effectively through the high season.

As I kind of been trying to -- obviously, you have to look at how we're managing the company today reflects -- I guess you could probably go all the way back to 2016 with the 2015, '16, '17 where GDP contracted 7% over two years. But pre-pandemic, we had the MAX grounding, the Avianca Brasil bankruptcy, the pickle fork problem, all of which kept NGs, the NG portfolio and the engines flying much longer than we expected, and the company not able to start transitioning earlier to the MAXs with the brand new engines and the maintenance holiday and all that.

And so what you see in that is -- and then the flexibility component is exactly that. It is -- it gives us operational flexibility, especially now through the high season to keep NGs flying longer and it's fully financed. Celso maybe you want to complement that because I think it's an important point, which might not be obvious for maybe some of you guys haven't been following GOL fully over the last cycle or maybe less familiar with airlines that might be helpful to give a little bit more information on that Celso.

Hi Rich, can you repeat the question, please?

Yeah. His question was what do you mean by flexibility with the -- he's referring about the new financing mechanism that we announced related to the spare engines that are coming in.

Yeah. We are really focused on the instruments to finance the CapEx of the company. So we now have this financing of the engines of also the financing of the MAX. And now the focus is to finance the CapEx, especially engine overhauls that it's going to be key for us to deliver the capacity of next year. And so we're pretty much focusing I mean just the right level of investment and finance over the CapEx through financial mechanism that is now available in the market with the suppliers. And we are confident that we will be able to finance most of the CapEx for next year.

Just one second, operator. We'll conclude the call, but the there was one additional question that came in that specifically asked us to answer the questions from Matt, which I think was the Raymond James analyst. And I'll just repeat out of -- more out of courtesy, the information that's been provided on what ABRA'S doing has already been provided. There's no additional information. I was just trying to be polite when I said to Matt, if he wants to give -- send us an e-mail without those questions or call us, but you would get the same answer as I'm providing here. There's no additional information to be provided with respect to that.

All the information that GOL provides as a public company is provided simultaneously to everyone. One of the reasons why we provide like that super detailed guidance to all you guys, which spoke about 20 different metrics because it allows us to basically tell you how we're thinking and talk to you about numbers. In theory, if we didn't provide that level of guidance, we wouldn't be able to have conversations with sell side and buy side about what GOL is doing. But all the information that's available and they can be provided with respect to what ABRA is doing has already been provided. There is no new information that is available to be provided. So with that operator, you can conclude the call.

Yes, sir. This concludes today's question-and-answer session. I would like to invite Mr. Celso to proceed with any closing remarks. Please go ahead, sir.

Thank you all and I hope you're enjoying today's webcast. Our investor relations and communication teams are available to speak with you as needed. Thank you very much.

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