LATAM Airlines Group SA (LTM) 2006 Q4 法說會逐字稿

Good morning, my name is Toni, and I'll be your conference operator today. At this time I would like to welcome everyone to the LAN Airlines Fourth Quarter 2006 Earnings Conference Call.

[OPERATOR INSTRUCTIONS]

It is now my pleasure to turn the floor over to Maria Barona. Ma'am, you may begin your conference.

Thank you, and good morning, and welcome to LAN Airlines fourth quarter conference call. We thank you very much for joining us today. Please note that there will be an audio webcast and presentation accompanying this conference call. To follow, please go to www.lan.com, and look under Investors. The LAN Airlines Earnings Release for the period was released yesterday, if you did not receive a copy of this release, please contact us in New York at 212-406-3690.

At this time I'd like to point out that certain statements regarding the company's business outlook and anticipated financial and operating results constitute forward-looking statements. These expectations are highly dependent on the economy, the airline industry, the international markets and therefore are subject to change.

At this time it is my pleasure to turn the call over to Mr. Alejandro de la Fuente, Chief Financial Officer of LAN Airlines. Mr. De la Fuente, please begin.

Thank you, Maria. I am Alejandro de la Fuente and with me are [Aneto Soleece] from our International Passenger business, [Jose Valeeches] from our Domestic Passenger business and Gisela Escobar from our Head of Investor Relations. [Cujen Viva] and [Serigo Sermani] from our Cargo business are also joining us on the phone from Miami. Today I will discuss our financial results for the quarter, review a few key developments and comment on our expectations for 2007 and 2008. Then we'll be pleased to answer your questions.

LAN earned $94 million net income for the fourth quarter, a significant improvement compared to 2005. Strong operating performance was the main driver this quarter as EBITDAR reached $210 million and EBITDAR margins reached 24.6%, 8 points above fourth quarter 2005. LAN benefited this quarter from a decrease in the price of jet fuel, which contributed three points to EBITDAR margins for the quarter. Our financial results were positively impacted by approximately $27 million in lower fuel costs. These lower costs were partially offset by lower fuel surcharges.

Despite this effect, yields increased in both Passenger and Cargo businesses, reflecting the strong traffic environment we have experienced throughout the second half of 2006. Higher yields in both the Cargo and Passenger businesses contributed 2.8 points to the consolidated EBITDAR margin. Higher load factors in the Passenger business contributed another 1.8 points. This performance highlights the strength of LAN's network and the success we have had dealing with increased competition in the region and with changing market conditions.

Passenger business. Passenger revenues grew 26% during the quarter on a 20% capacity increase and a 5% improvement in unit revenues. Market conditions remain positive across-the-board as demand keeps growing consistently while competitive activity has increased moderately. This has allowed for both higher load factors and higher yields during the quarter. The rise in yields was due to a combination of higher fares and active revenue management, offset by lower fuel surcharges.

Growth in International Operations and especially regional routes have been the main driver of Passenger revenue growth. The company permanently managed itineraries in response to dynamic market conditions. As a consequence, this quarter we transferred capacity from routes to Mexico to the Caribbean to routes to the United States, Europe and the South Pacific, as well as the regional routes. In the region our effort has been focused on strengthening our hub in Lima, as well as adding capacity on routes to Brazil.

Let me take this opportunity to give you an update on LAN Argentina. LAN Argentina has experienced a significant improvement in its operations, driven by regulatory changes in the domestic market and the start of its international operations in August 2006. We were very happy to see that the airline reached break even for the fourth quarter of 2006, although not overlooking the losses accumulated until September.

LAN Argentina's international destinations now include Miami, Sao Paulo, Santiago and the seasonal flight to Patagonia. It has also recently announced it will begin a daily flight to Salta, it's tenth domestic destination. LAN Argentina's domestic fleet has also recently incorporated its fifth Airbus 320.

Moving to Slide Number 7, you can see that Cargo revenues for the quarter grew 16.5%. This was due to a 7.4% expansion in capacity and an 8.5% rise in unit revenues. The latter resulted from a 9% increase in yield and a small 0.3 point decline in load factor. Growth in Cargo revenues remain primarily dependent pricing as the imbalance generated by strong inputs and weak export continues to restrict our ability to add capacity.

While exports of Latin America have declined due to strong local currencies and changes in product mixes, imports have continued to boom thanks to the appreciation of local currencies and weaker price elasticity. Considering this scenario, we have redesigned our aircraft [rotations] in order to increase northbound loads. This process has included adding stop overs to some non-stop return trips, offering Airbus from import destinations to different export markets. We have offset this through improved unit variance which have resulted from higher fares on [sell down] routes and active route management.

Operating cost. Average fuel prices decreased 12% in the fourth quarter 2006 as compared to the fourth quarter 2005. This decline in fuel prices led to $27 million in less fuel expense. Excluding this effect, unit costs, as measured in cost per ATK, rose 3.7% during the quarter. This was due to various reasons. First, higher percent cost per ATK per unit personnel expenses grew 4% year-over-year. This was mainly driven by higher expenses related to employee incentive provisions.

Second commercial costs, although this increased on a per ATK basis, commissions have actually decreased as a percentage of variance, mainly driven by lower commissions in the passenger business. Third, the company saw increased fleet related expenses per ATK of 3%. This includes aircraft rentals, wet leases depreciation and net interest expense. The increase is a result of a newer and therefore more expensive fleet considering both owned and leased aircraft.

We expect that fleet costs per ATK were decrease as utilization increases and the Boeing 737-200 seat is phased out. Finally [elevating] costs, which increase mainly due to higher landing and handling fees and sales related expenses. Overall, these elements accounted for the majority of the rise in its [fuel] unit costs that were partially mitigated by lower maintenance costs.

Year 2006 results, on an annual basis in 2006 LAN earned $241 million in net income for the year, a significant improvement compared to 2005. This was driven by both capacity growth and higher unit revenues in both Cargo and Passenger businesses. EBITDAR reached $583 million and EBITDAR margins reached 19.2%, four points above 2005.

Turning to Slide Number 11, I will now discuss certainly key developments. As you know, LAN has embarked on a significant fleet expansion program. During the fourth quarter we received two new Boeing 767 aircraft, one for the Passenger business and one dedicated freighter. This completes a total of 13 aircraft delivered in 2006, five Boeing and eight Airbus 319s.

In 2007, we will complete the phase-out of our short-haul fleet of Boeing 737-200s, replacing them with a common Airbus 320 family fleet. For 2007 there has been a change in our delivery schedule for the Airbus 318s. Five of these aircraft that were to be received during 2007 have been deferred to 2008. This means that in 2007 we will now receive five Airbus 318s and two Airbus 320s.

In 2008 we will receive 15 Airbus 318s and two Airbus 320s. Overall we'll be taking delivery of 11 aircraft in 2007 and 24 aircraft in 2008. This significant fleet expansion, together with the renewal of our short-haul fleet, are the necessary foundations for continued growth and increased efficiency in our Domestic, International and Cargo operations.

New business model. As you know, LAN has been working on a new business model for its short-haul operations. The objective of this model is to increase efficiency and improve margins in domestic and regional operations. During the fourth quarter LAN has implemented pilot projects to test this model in three domestic markets in Chile. We have been very pleased to see the outstanding results of the new model in the tested markets.

Demand has responded extremely well with the number of passengers increased by close to 30% in only two to three months of implementation. We have also seen significant increases in first time passengers, a positive signal of the demand stimulation that can be achieved with this new way of operating our domestic flights. In the coming months we will be advancing with the implementation of this new domestic model in our three domestic markets.

In Chile the nationwide launch will take place in April 2007. In Peru the new fare structure has been applied already to most domestic routes, and will be completed during this month. In Argentina implementation will be more gradual, and will be mainly focused on operational aspects such as common fleet, higher aircraft utilization, higher Internet sales and increased self check-in.

New Varig. LAN initiated discussions with New Varig shareholders in September 2006 to evaluate possible alternatives regarding the Brazilian market. As you know, LAN has provided a total of approximately $17.1 million in financing to the Brazilian airline. LAN has the option to convert these shares into a minority stake in New Varig. We are currently involved in negotiations with New Varig shareholders and continue to evaluate the possibility of acquiring a stake in that company.

No decision has been reached yet, and since we have a confidentiality agreement, there is no additional information we can provide at this time. We will take a decision once we have a clear perspective on the state of the operations of New Varig. In evaluating this decision, we are obviously considering the important size and the enormous potential of the Brazilian air traffic market, by far the largest in the region.

LAN continues to be interested in strengthening its position as the leading airline in Latin America, a regional strategy which has already shown its results in the successful development of LanPeru, LAN Ecuador and most recently of LAN Argentina. We continue to evaluate this opportunity in Brazil and will inform you in a timely manner of any further developments regarding our potential participation in New Varig.

Growth. LAN's solid operation performance in 2006 and the attractive conditions in the markets where we operate, provide an encouraging starting point for the expansion we have planned for the coming years. In the Passenger business we believe that we have a number of attractive opportunities to expand our operations and, as a consequence, our current plan is to grow total passenger capacity by between 19 and 21% for full year 2007 and by 18 to 20% in 2008.

2007 will be a unique year in terms of capacity expansion in the Passenger business. Only half of our estimated ASK growth is due to new aircraft. Approximately 7% capacity growth will be achieved due to higher utilization, mainly in short-haul operations. In addition, another 2% will result from increased densification of the fleet, increase the number of seats per aircraft.

International profit growth will come for the most part from growth in Argentina's international operations and strengthening the Lima hub with certain additional frequencies. In addition, in April LanPeru will begin offering daily flights from Lima to [inaudible-highly accented language] and to Bolivia, increasing our presence in this regional market.

ATK growth. On the Cargo side we expect capacity growth to be around 5% for the coming years, driven mainly by growth of the passenger fleet. The focus in the Cargo business will be on an efficient and profitable selection of routes and on growing fully owned capacity rather than wet-lease capacity, which is more expensive and less efficient.

EBITDAR projections. In addition to capacity growth in the Passenger and Cargo business, we plan to expand margins through cost reduction initiatives. These initiatives include projects to enhance efficiency on short-haul operations, as we have already mentioned, as well as a long-haul operation to reduce commercial expenses. Efficiency in International operations is expected to come from a dilution of our fixed cost base as growth for 2007 should not come with a proportional increase in costs.

Efficiencies in Cargo will come from a more profitable route mix and the replacement of wet lease capacity with owned freighters or bellies [space]. Overall, our expectations for 2007 allow us to target EBITDAR margins that are up to three points higher than 2006 levels, in other words, in the range of 21 to 22%.

And finally, we believe that our performance during the fourth quarter and full year 2006 was positive as we successfully dealt with higher fuel prices and dynamic competitive environment and prepared the grounds for major improvements in the future. As a consequence, we believe we are in a good position to continue growing revenues, expanding margins and creating value for shareholders.

Now we'll be pleased to answer your questions.

Thank you.

[OPERATOR INSTRUCTIONS]

Our first question is coming from Ray Neidl of Calyon Securities. Please go ahead.

Well congratulations, these are very good results and keep up the good work. Basically the Brazil situation does interest me for a couple of reasons. One, it looks like it could be a good growth market for LAN if you could break into that closed environment there, and number two, just from an outside perspective, could you tell us what's happening there with the air traffic control system? Is that causing problems that you can see? And is that going to cause a slowdown in growth in that part of South America?

In regard to the ATC problem, actually we didn't have any problem, it was more a local situation. As you see our number for the [route] that we're flying to Brazil, our load factors were very, very, very strong so actually we didn't have any problem with ATC problems.

Great. And though they deny it, there has been stories that GOL may be thinking about starting an Argentine operation. Do you see that as a threat to your operation in Argentina if was to come about?

We have listened some rumors about the idea that GOL is going to start in Argentina, actually we don't see any threat about that. We have close to 20% of the domestic market, in 2007 we'll increase a lot our long-haul fleet from Buenos Aires as Alejandro said, we are flying at this moment to Brazil, to Santiago and Miami.

Sure [we will] probably will want to put more offers to other destinations in 2007. We think if GOL is going to enter to the Argentina market is going [to be] huge competition for LAN Argentina. I think we have the right fleet in Argentina, we have the right connection with our long-haul, so to us it's not really a big issue.

Great. And even though you've reached break even for your Argentine operations, you're moving in the right direction, should we look for profitability going forward here now?

Yes we reached breakeven during the last quarter and we expect to be profitable this year.

Okay great. And finally the Uruguay airline is being reorganized, do you see any opportunities for LAN in Uruguay, even though it's a very small market?

No we are not reorganizing with the [airline fleet from Gann], they have this new operation with [Airbus] coming with this [inaudible], probably going to take advantage of the good connection between the long-haul and short-haul flights. But we do not see in the short term some kind of significant impact in our operations. [And I will tell you] [inaudible] they always have previously more market, actually we are increasing our offer in March between Santiago [inaudible] flight to night flights. So we think we have very strong routes and flights between these destinations.

Great. Thank you, very much, and congratulations again.

Thank you, Ray.

Thank you. Our next question is coming from Mike Linenberg of Merrill Lynch. Please go ahead.

Yes good morning, I guess a couple questions. You know recently the FAA has changed some of the rules on how far twin engine airplanes can fly, basically it looks like the ETOPS rules have now been expanded or even maybe eliminated. And I'm curious, as you start flying to some of these longer-haul markets, currently your A340 is the long-haul aircraft of choice, are we at a point where now we can maybe look at some of the other airplanes, especially over some of your ultra long hauls?

You're quite right, actually we are in the process to study -- a long-term study of the fleet that we have. As you know we have a Boeing 767 and Airbus 340, and our main operation in long haul is basically Europe and Australia with Airbus 340. At this moment we haven't decided what should be the right configuration of the fleet for the next five years, but we understand the different position that we have. And probably at the half of this year we are going to change our position what is going to be the long-haul plane that we're going to buy.

Okay good. And my second question, I was somewhat surprised by your forecast for Cargo ATK growth, it is a lot lower than what it's been historically, it's a lot less than Passenger. I realize that you know, as you highlighted in the press release and on the call, that there is imbalance in the marketplace today. I guess my question is do you anticipate that that imbalance will be in place for the next couple years?

And given the long-term growth prospects for Cargo between Latin America and the rest of the world, if for some reason we saw that imbalance go away, how quickly can you get new airplanes? And I know you do have a history of being able to wet lease aircraft, but we are hearing that the cargo aircraft market is becoming tighter. Can you give us a sense on the ability to tap that market and maybe your implied view of cargo trends out over the next year or two?

Well effectively, we are focusing in the more profitable routes in Latin America. And with some of the problems with production in San Juan, we are facing some problems in order to fill the northbound flights. But we are putting our aircraft in the northbound in Ecuador and Columbia because they have a lot of [flyers] and northbound traffic from these countries to US. And if we can see a different environment in the next months or years in order to increase the demand of [falman] or northbound traffic from Chile or Argentina, we can contract again some aircraft from third parties in order to fly some wet leases.

Okay.

Or we have employed some orders in Boeing in order to take some 767s in 2008 and we are analyzing the new fleet for 2009.

Okay great. And just if I could fit in one last one, and this is more of a competition question, we've now seen LAN Argentina operate for a little bit of time between GOL on the Buenos Aires/Sao Paolo route and I believe LAN Argentina and LAN Chile compete with GOL between Santiago and Buenos Aires. And I'm just curious, it's still early in the competition here, any early takeaways or thoughts that you can tell us about the marketplace?

Actually we are competing in five routes, yesterday GOL started flying from Santiago to Lima, Lima to Santiago where we are flying also. Now at this moment we are competing in five routes. I think basically the highlight is we're doing very well, as you know, we move ahead before GOL entered into these markets so we put more capacity, especially [since we have higher risk] Santiago/Lima, Santiago/Brazil taking advantage when [very fall down during] that year.

So I think we have very strong capacity in order to try to in some way [differentiate] our position. [From] Lima, Buenos Aires and the States, Buenos Aires/Sao Paolo and Lima/Sao Paulo is a little tougher for us, because as you know GOL have a more strong presence in the Brazil [distribution] channel and the [fuel] prices are regulated, so it is difficult to create volume when you can't put the price down.

So I would say in these four months that we're competing with GOL we have been very I would say successful in order to maintain our profitability, but also considering that we put more ASK. So in some way it's obvious that we reduce our yield, the load factor I think responds to a huge increase in the demand, the average the demand increased close to 25 30% in this market.

So it's important to also wait what is going to happen starting March because at this moment we're in the high season, January/February here in South America, so most of the planes for us and GOL and TAM they are full. So probably March is going to really be tougher for everybody because we're going to be competing for a smaller people that are going to fly.

Okay, very good, and nice quarter.

Thank you, Mike.

Thank you. Our next question is coming from Felipe Mercado of Santander Investment. Please go ahead.

Good morning, two brief questions. Considering the moderation in Passenger yield expansion in the quarter, which I believe is rational, could we expect yields in 2007 to maintain in the neighborhood of the $0.093 per ATK? The next one, if it's possible for you to provide us some guidance on the CapEx expansion plan from 2008 onward?

Okay in regard to the yield question, in fact as you said, before in 2006 we had a huge yield affect basically because we took advantage of the demand that we are boosting. So we increased normally our price, but also we had these key policies that we started implementing in September 2005. So in some way you need to compare at the base because in 2005 we didn't have the [Q], that was a fund driver in order to create the yield.

For 2007 we think it is going to be a little tougher because we at this moment are close to $0.078 of dollar in the International Passenger business, so we don't see too much room in order to increase yield. As Alejandro said before, most of the revenue stream and margin changes are going to come from ATK, so we are going to be more aggressive in order to [positively] more offer more capacity in order to reach our target in April 2007.

Regarding the CapEx plan for going forward for 2007, what we have estimated is around $590 million related to our fleet expansion, and for 2008 around $770 million. All of the aircraft that are arriving will be owned aircraft and they've all been financed with very attractive financing rates, sub LIBOR. And going forward for after 2008 we're still in the process of firming up our aircraft orders, so it will depend on what our fleet expansion plan for 2009 is, which we still haven't defined completely.

Okay thanks a lot and congratulations.

Thanks.

Thank you. Our next question is coming [Leonardo Voles] of Santander Bank. Please go ahead.

Actually it's Daniela Bretthauer here with Santander as well. A question on your recent agreement with New Varig in Brazil, how soon will the due diligence finish? And also what can we expect in terms of the strategic partnership? Will LAN basically pick up the long-haul flights for Varig and also you make a stop over in Brazil, benefiting from the Fifth Freedom Agreement and transport those passengers and then basically New Varig will redistribute your passengers domestically, can you give us a little bit more color on the timing, number one? And on the contents of your strategy with New Varig?

Okay in terms of timing, we don't have a target, we have some specialists working on trying to understand the situation at the New Varig, and probably we will have first reports soon. But we don't expect to take a position very soon. And we're analyzing different strategies in terms of the LAN point of view because, as we mentioned, Brazil is a very attractive market.

Yes. Going to the commercial side, yes. As you know, the commercial Brazil is just close to $9 billion, which is the highest in the region. We are analyzing the different ways in order to try to synergize our current business. But this is quite similar to what we did in LanPeru and LAN Argentina, it's clear that we move ahead with this project we are going to take advantage of the domestic flights from Varig in order to connect with our long-haul flights not only Passenger but also in the freight business.

We know that is close to [inaudible] of 1 million people in Brazil and the country, geographically speaking, is really far away so there is a lot of opportunity to be there. So where we have had a green light in order to move ahead, I think probably we are going to try to take advantage of our key competitive advantages, which is basically our long-haul business, freight business and business [carrier].

Okay thank you.

Thank you. Our next question is coming from [Alal Perea] of BCI. Please go ahead.

Good morning, I have two very brief questions. One is regarding the travel agent fees that you reduced, could we expect that these are in full effect throughout 2007? And another question that I have is regarding some news article that came out in the Chilean local newspaper regarding a group of politicians in Peru taking a look at some of the fees that had to be charged or something like that. That would be my question.

Thanks. Yes going to your first question actually starting February 1 in Chile the commissions were reduced from 6% to 1% in economy class and 26% in the business class. Going to Peru we've tried to do something similar and the baseline in Peru was 8%. But we're going to do I would say a gradual reduction in the commissions in Peru, so we are expecting that we are going to receive the full benefit of the commission reduction in the second semester of 2007.

So I would say, going to your second question, you are right, we are in this moment in conversations with the Peru government in order just to clarify the position that we have in this moment. The next week is going to be [important linking] between Chile and Peru where we will be present, but I think it will not be any [inaudible-highly accented language] in our long-haul and short-haul operations that we have in Peru.

Thank you, very much.

You're welcome.

Thank you. Our next question is coming from [Margaret Kalvar] of Harding Loevner Management. Please go ahead.

Yes hi, thank you. Basically my questions pertain to the Varig strategy and they've been pretty much already asked and covered. So I thank you.

Okay thank you.

Thank you. Our next question Cristina Acle of Larrain Vial. Please go ahead.

Hi everyone, congratulations. First of all, Alejandro, should we expect further provisions related to the 737 coming in the next quarters? Or are they all in the fourth quarter?

For the first quarter? Yes.

Provisions related to the 737, the 8 million is all? Or should we expect further provisions?

No just small provisions, but I think everything is almost provided. So probably a couple of million maybe, but practically everything is included in 2006.

Okay. And can we reverse those provisions if the planes are sold in a good price? Or it's unprobable?

That's just -- [probably].

Yes. Okay. Thank you, and congratulations again.

Thank you, Cristina.

Thank you.

[OPERATOR INSTRUCTIONS]

Our next question is coming from Rodrigo Goes of UBS [AG]. Please go ahead.

Good morning. Just a couple of questions, the first one just looking at your January operating stats in terms of your capacity growth, both on the Passenger and the Cargo side, it looks like the numbers were a bit below what you're anticipating for the year as a whole.

If I'm not mistaken you're guiding us towards a capacity growth of around 24% or so on the Passenger side, and January was around 19% growth. And on the Cargo side I think we're talking about 5 to 6 and I think January you had about a 1% growth year-over-year. Obviously one month doesn't make a trend, but are you sticking to your guidance regarding capacity growth on those two fronts?

The guidance we've adjusted somewhat the numbers that we're providing for 2007 and today what we're estimating on the Passenger side is ASK growth of around 20% and on the Cargo side of approximately 5%.

Fine okay. Okay perfect, I didn't catch that. All right, separately on Varig again, I'm just curious, is it possible to use your cargo subsidiary in Brazil as a vehicle to buy Varig outright the same way MatlinPatterson did through VarigLog? In other words, can you get away the maximum foreign ownership limitation by utilizing a vehicle in which you already own 20% of the voting shares to buy a company outright?

No because the maximum that we can buy foreign investors 20% of the control is voting share, that's the amount that we can target. But the law right now, they are starting regulation in Brazil for the foreign companies will be allowed to [technical difficulty]. But depending if it's 20 or 29 the idea is to enter according, and I'm talking with the regulators in Brazil and as LAN Airline as possible.

Thank you. Our next question is coming from Steve Trent of Citigroup. Please go ahead.

Good morning all and congratulations on the very strong quarter. Just one or two quick questions for me, and forgive me if these were already repeated. I actually had to come on a little bit late. With respect to competition in 2007, it looks like you have knocked down your expected ASK growth a little bit. I'm wondering with respect to some of the international markets in which you serve, or should I say markets outside of Chile, from which carriers are you seeing the strongest competition or do you expect the strongest competition; whether that's GOL doing Santiago to Lima, Peru on Fifth Freedom Traffic Rights or whether it's [Fluna] potentially retooling with foreign investment and attacking the Argentine market? Thank you.

Thank you. Yes basically we have, I would say, in International Passenger four markets, there is the US market, the Europe market, the Australian market and the [Regional] market. If you see the first three markets, we don't anticipate more stronger competition, we have a very, very strong position in the Australian market with our joint venture with Qantas.

In the Europe side, after Air Madrid fall down, AirPlus is [trying] to recover the capacity, but clearly this is a market where more capacity is necessary. Unfortunately for us we don't have the planes in order to pull more capacity so we don't see more strong competition for any carrier for Europe. In the US market it's I would say a different situation, probably the US carrier more [crossing between] the local market in terms of more how they can reduce cost, probably Continental and Delta could be a little more aggressive flying to South America. But I don't see any important competition in sight from US.

You are right when you say that in the Regional market probably with this GOL increased capacity going to market where LAN is present, also [Taca] is present, probably there is going to be more concentration and more competition on this side. As you know, GOL is going to start flying to Lima, from Lima is going to fly to Santiago and Sao Paolo and they are planning to fly from Lima to Mexico in the second semester 2007.

As you see the response from LAN and Taca, Taca is starting to increase capacity in the [half in] Lima, also Taca is competing with Copa in Central America. So I would say for us the regional market is going to be a little tougher with more presence from GOL, probably Taca is going to increase capacity especially in Lima. Also we are [close] looking what is Copa doing because we think probably Copa is going to have connections in Panama, so probably they're going to increase capacity to South America in the second semester.

Okay. Very thorough, thank you very much for that.

You're welcome.

Thank you. Our next question is coming from Carlos Martins of Credit Suisse. Please go ahead.

[OPERATOR INSTRUCTIONS]

Our next question is coming from Gabriela Clivio of BBVA. Please go ahead.

Hi guys, my question has already been answered, I was going to ask you if you feel comfortable with 20% of stake that you have in New Varig and it has been already answered.

Thank you. There appear to be no further questions at this time. I would like to turn the floor back over that management for any further or closing remarks.

Okay. Thank you again for joining us today. Please feel free to contact our Investor Relations department if you have any additional questions. We look forward to speaking with you again soon. Thank you, very much. Goodbye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.