Azul [AZUL] Conference call transcript for 2022 q1
2022-05-09 14:57:05
Fiscal: 2022 q1
Operator: Hello, everyone, and welcome to Azul's First Quarter 2022 Results Conference Call. My name is Hannon, and I'll be your operator for today. This event has been recorded and all participants will be in a listen-only mode until we conduct a question-and-answer session following the Company's presentation. I would like to turn the presentation over to Thais Haberli, Investor Relations Manager. Please, proceed.
Thais Haberli: Thank you, Hannon, and welcome all to Azul's first quarter earnings call. The results that we announced this morning, the audio of this call, and the slides that we reference are available on our IR website. Presenting today will be David Neeleman, Azul's Founder and Chairman; and John Rodgerson, CEO. Alex Malfitani, our CFO; and Abhi Shah, our Chief Revenue Officer are also here for the Q&A session. Before I turn the call over to David, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the Company's future plans, objectives and expected performance constitute forward-looking statements. These statements are based on a range of assumptions that the Company believes are reasonable, but are subject to uncertainties and risks that are discussed in details in our CVM and SEC file. Also, during the course of the call, we will discuss non-IFRS performance measures, which should not be considered in isolation. With that, I will turn the call over to David. David?
David Neeleman: Thanks Thais. Welcome everyone and thanks for joining us for our first quarter 2022 earnings call. As always, I would like to start by expressing my gratitude and to recognize our passion in crew membership continue to take care each other and to provide our customers with the best travel experience in the industry. For example we were once again elected the best airline in Brazil according to next customer satisfaction ranking. In addition, Cirium reported Azul as the most on-time mainline carrier in the world. I spent the last week in Brazil, flying in Azul and we had a fantastic operation. We are seeing -- we are currently seeing the highest customer satisfaction scores in the past two years. As you can see on Slide 3, we continue to serve and connect Brazil like never before through our unique network and diversified fleet, reaching 151 destinations and impressive addition of more than 35 destinations compared to 2019. Excuse me -- in 1990, there was commercial service to 218 cities in Brazil. So, as you can see, we saw a lot more to add in the future. Over time, these and other new destinations will add considerable demand to our network for this supporting our growth trajectory. One of the competitive advantages of Azul is its breadth of network. While we may have lost some time during the pandemic, our belief has never been stronger that Brazil is and continues to be a growth market, and Azul brings the unique ingredients to enable that growth. I know a lot of you are concerned about the sustainability of the revenue environment. Let me remind you that Brazil is an enormous commodity economy, and many of these commodities have record prices. Brazil is the breadbasket for the world, and a big producer of iron ore and oil and many other things. Azul has a significant presence in all these commodity areas of Brazil, where producers are expanding rapidly to meet world demand and record high prices. Serving 151 destinations is not only key to our future, but it is also critical to the economic and social development of the regions we serve. We are especially proud of the social contributions of our business to Brazil, whether it is via our network where we deliver life-saving medicine, organs, vaccines, connecting Brazil like no other airlines, or in fact, or the fact that we have almost 3000 Azul crew members registered as volunteers doing good all around the country. I want to personally thank each one of them for representing the best of Azul. As I've said previously, our competitive advantages are not limited to our fleet or network. Our business units, Azul Cargo, TudoAzul, and Azul Viagens are key contributors as well, leveraging our network and operation to further expand our margins. As you can see, on Slide 4, our logistics business continues its outstanding performance. Cargo revenue triple compared to the first quarter of 2019, with revenues reaching almost 300 million in the quarter. Our mission to transform logistics in Brazil remains our focus, which with these rising commodity prices even gives us more advantages in this business. As we utilize our scheduled network together with our fleet of dedicated aircraft, we want to be the logistics platform for every business in Brazil, and we believe we have the end-o-end logistics capabilities, we can do that, so very exciting part of our business. On Slide 5, I want to again talk again about one of my favorite projects our vacations business, Azul Viagens. Azul Viagens can see used to do very well with strong leisure demand, combined with all the amazing natural beauty of Brazil has to offer. We are seeing record domestic sales, operating margins within this business, with bookings increasing more than 70% compared to 2019. To give you an idea how this business is growing in July, just in July, we will have over 900 dedicated flights for Azul Viagens more than double compared to 2019. Abhi and his team are now taking me more seriously, and when I say over and over again, I told you so. With that, I'll pass the words over to John to give you more details on our record first quarter results.
John Rodgerson: Thanks, David and we really appreciate your humility. I also want to thank our crew members for all their hard work during the past quarter. We started the year with the short-term operational challenges from Omicron, which during its peak resulted in almost one third of our crew members unavailable to fly for a period of time. As a result, we had to sharply adjust our operation in January and February to recover. As of March, the wave was clearly behind us. As you can see on Slide 6, even with these exceptional challenges, we reported an all -time first quarter record revenue of BRL3.2 billion, an increase of 75% compared to first quarter 2021 and almost 26% up compared to the same period in 2019. This was the second consecutive quarter with net revenues above pre-pandemic levels. The results were driven by the strong domestic demand environment in Azul's markets, which allowed us to raise fares to offset the rising fuel prices. Thanks to our margin expansion strategy, our ability to recapture revenue and reduce cost, our EBITDA reached BRL593 million representing a margin of 18.6% in the quarter. If we exclude the impact of Omicron, as I described, we estimate the EBITDA would have been 900 million in the quarter. This gives you a clear indication as to the earning strength of our airline and why we're so confident moving forward. David already mentioned to you about our leisure demand and I want to show you more on Slide 7. We ended March with nine consecutive months of leisure demand above 2019 levels, and it continues to improve. This clearly shows that this was not just pent up demand. This is the Brazilian markets ability to grow. This is more customers finding new and convenient schedules connections and more destinations within Azul's network, all of which giving them more reasons to travel. Whether it's pure leisure or work-from-anywhere, we're seeing a new and greater sustained pattern of demand and certainly bringing in 35 new cities help sustain this growth. In Brazil, we always said that the country only begins to work after carnival. This year it turned out to really be true. On Slide 8 shows you how corporate demand really improved in March and beyond compared to 2019. Corporate revenue recovered to more than 120% of 2019 levels while corporate volumes are still 29% below pre-pandemic levels. So that means there's still more corporate revenue recovered to come and it will come at 76% higher fares in 2019. Let me repeat that 76% higher fares than 2019 in the corporate segment. Strong bookings leads to strong flown revenue. We saw this clearly late last year, and with the trends I described to you now the same will happen this year. We can already see hockey-stick type flown RASK just between the months. On Slide 9 you can see how the strong booking trends result in a massive unit revenue improvement from February to April. Since the start of the war in Ukraine, Azul in the industry reacted quickly to adjust fares and capacity for the new reality. The proof is clearly seen on Slide 9. While David talked about cargo and vacations, I want to show you how loyalty is doing because we believe it will be an important driver and sustaining this strong demand environment. On Slide 10, you can see that total Azul maintained a strong growth pace and reached 14 million members at the end of this quarter, as more and more customers experienced the value of our broad network. Mostly though we have been positively surprised by the customer engagement, there are more active than ever. In the quarter active customers doubled compared to 2019. This engagement combined with the ability for customers to use points or a combination of points plus money, or additional tools and channels via which demand can continue to be strong. Great bookings leads to great flown revenue and that is exactly what we are seeing going forward. To give you more details on what that means for the second quarter, let me turn the time over to Abhi.
Abhi Shah: Thanks, John. The record booked revenue at record average fares we are seeing means continued rapid expansion compared to 2019. While the average 1Q RASK expansion was 15%, our exit rate in March was much higher. As you can see on Slide 11, the second quarter consolidates that trend with significantly higher RASK compared to 2019. In fact, what is amazing is that even in what is usually the weakest quarter seasonally, we are expecting an all-time record unit revenue and all-time record flown revenue. This is a direct result of the competitive advantages of our business as well as the overall industry discipline in the market today. We also want to show you on Slide 12, how we stack up against some global benchmarks. Our capacity recoveries healthy and our unit revenue recovery is industry leading. In the end that really is our main focus. We know that with the macro challenges such as fuel, currency inflation, we need to be laser focused on what is important. Metrics such as market share or load factor are less important. Our objective is to deploy our capacity in a disciplined manner that supports and extends our competitive advantages directly resulting in high quality revenue. With that, I'll turn it back over to John to talk further about our results.
John Rodgerson: Thanks, Abhi and yes, fuel remains challenging. But in the past two years, we have focused on our long-term cost structure, rebuilding Azul into an even more efficient airline. On the cost side, as you can see on Slide 13, CASK in the quarter was $0.34, up 30% compared to first quarter 2019, mainly due to a 75% increase in fuel prices and as 39% depreciation of the real against the dollar, and three years of inflation on real denominated costs. If we adjust our CASK for fuel effects in cargo, which by their nature do not generate ASK, our CASK compared to 2019 was essentially flat, an impressive achievement given the more than 20% accumulated inflation over that same time period. We are truly emerging as a more efficient airline. As you can see, on Slide 14, our operation generated BRL500 million in cash flow during the quarter. During the quarter, we also continue paying our leases, debt deferrals and CapEx. It's important to highlight that we ended the quarter with immediate liquidity of BRL3.3 billion well above first quarter 2019. We also raised BRL200 million, reinforcing our ability to access credit lines as needed. As a reminder, we have no significant debt repayments over the next two years and no restricted cash. Moving on to Slide 15, gross debt decreased 13% or almost BRL3 billion compared to December 31st, mainly due to a 15% appreciation of the real, which reduced our gross debt by 3.2 billion. In the quarter we paid down 1.1 billion in debt and leases. Looking into the future, we are so excited about the potential of our business. Slide 16 shows how we expect to grow our earnings this year and next. I'm proud to say that even with all the challenges we expect to generate 4 billion of EBITDA this year, and 5.5 billion in 2023. When public back in 2017, we told the market we would grow and grow profitably. With this 2023 forecast, we will actually triple our EBITDA compared to our pre-IPO levels. On Slide 17, you can see how our leverage is improving as our earnings grow. Our forecast now shows consistent and significant reduction in leverage this year 2023 and beyond, all powered by strong and growing earnings generation. To wrap up on Slide 18, I couldn't be prouder of the entire Azul team. During the pandemic, we focused on our liquidity and our cost reduction. Now with our unique competitive advantage, we turn our attention to earnings. We remain confident about the future of the Brazilian aviation market and our ability to continue to grow this business profitably, all while creating the best experience for our crew members and our customers. With that, David, Alex, Abhi, and I will answer your questions and I'll turn the call over to the operator.
Operator: Our first question comes from Savi Syth with Raymond James. Please go ahead.
Savi Syth: Can I ask on the corporate demand recovery, what components have not yet recovered? And what's the latest trend there as you kind of relook forward here? And when, can we see some of the other components recovering?
Abhi Shah: Savi, Abhi here. Yes. So, we have really positive components such as oil and gas has recovered very well. Services, obviously, agro that David talked about, has recovered well over the average. What hasn't recovered fully yet is finance, not 200% compared 2019, but accelerating. If I compare finance to 2021 is doing better than the average versus 2019 is worse than the average, which means that it's at a later start and now it's catching up. Our government, actually the federal government is not flying as much as it used to. And it's actually a large provider of travel demand to all Brazilian airlines. And I think that's going to change this year, especially as with the elections and all of the activity around that. So I would say, finance and government are the two the two sectors that are still recovering, but they are accelerating because compared to 2021, they are above average.
Savi Syth: So, that's helpful. Thank you. And if I might on the projection slide for '22 and 2023, just curious what from the depreciation fuel price effects standpoint you're assuming there or are any other kind of important considerations that you kind of baked into the 2022 and 2023 outlook?
Abhi Shah: Yes, so Savi, we basically have the forward curve, both for fuel and FX. And so which is roughly real slightly above five in that range and fuel coming down slightly as you get into 2023, but still kind of above historical levels.
Alex Malfitani: Yes. And Savi just to add, obviously, I think that's an important assumption, right? They don't fuel and FX, but it's important to know that they are both very correlated and also correlated with fares, right. I think we demonstrated our -- we had this exhibit, we showed it on us all day, we have it on our institutional deck. If you take our 2019 EBITDA and you just adjust it for current fuel and FX, our 3.6 billion EBITDA would go down to zero, right. And we are very confident in a 4 billion EBITDA this year. That shows that some of it is on the cost side, but the majority of it is on the fair side, right, is the ability of this business to operate under any kind of conditions for fuel and FX. So you may have a different assumption for fuel and FX. We run sensitivities here all the time, because obviously those variables are very volatile, but it's important to also have an assumption for fair levels and they are very highly correlated. Abhi obviously does a tremendous job, but we don't know -- we can't necessarily affirm the affairs would be at this level, if the real wasn't at 5 and oil wasn't at $100 a barrel.
Savi Syth: And just on that Alex, so can you remind us again, what like depreciation should be doing in 2022 and 2023?
Alex Malfitani: The depreciation of aircraft?
Savi Syth: Yes. Just what depreciation given the…
Alex Malfitani: Yes, the deprecation line. I think Q1 is probably more in line with what you're going to see for the rest of the year. So, full year -- yes, so this is I think you can consider Q1 to sort of a regular quarter in terms of depreciation both because of the increase in the fleet and also because of the new accounting policy for engine redeliveries.
Operator: Our next question comes from Michael Linenberg with Deutsche Bank.
Shannon Doherty: It's actually Shannon Doherty on for Mike. Maybe Alex, this one is for you. Can you guys -- can you provide us with more detail on your deleveraging strategy? I know, you've stated that you will begin to pay down some portion of deferred rents next year. Is that still the plan? And I mean, if you could just give us an update on the numbers, that'd be great as well?
Alex Malfitani: Sure. It's important to talk about what is our debt, right. The vast majority of our debt is capitalized leases because of IFRS 16. We don't have a lot of kind of bank debt or capital markets debt. After operating leases, our biggest debts are two bonds that we issued. The first one matures in October of 2024, the second one in June of 2026. So, they are a ways away in terms of maturing, and we've been able to access the capital markets under much more difficult situations than what we currently have. So, we're confident that we can continue accessing those sources of capital. So, the majority of the deal averaging will come from us getting back to our natural trend of EBITDA. If you look at that slide where we have our 2018, 2019 EBITDA then you have the two years for the pandemic and then you have our expectations for '23 and '24. Now, you can see that we're essentially just getting back on track with what we promised in our IPO. And as we get back to that performance which is sort of our natural delivery, we'll be able to deliver on those leverage ratios that we provided to you.
John Rodgerson: I just want to highlight a couple things. If you take a 4 billion of EBITDA versus our current debt, that's a 4, right, in terms of leverage. And we clearly feel confident even in the macro scenario to reaffirm the 4 billion and talked about 5.5 billion next year. And as you talked about kind of repayment of past lease debt, we're constantly negotiating with our partners, right? That's just part of doing business. And so, we constantly negotiate with the operating lessors, some of them have some trouble with aircraft they were supposed to go to Russia. So, we're constantly looking at opportunities. And so, we stand by our commitments, but that's just -- it's just normal course of doing business. But the deleveraging comes as the profitability comes back to the airlines as we do 4 billion this year and 5.5 billion next year.
Shannon Doherty: And you've mentioned that a majority of this EBITDA, the BRL4 million will come from the leverage with higher fares and increased revenue, but given your updated full year capacity outlook with total ASK up 10% versus '19. How should we be thinking about the efficiency in that and thinking about CASK fuel for the rest of this year and possibly next? Thanks again for my questions.
John Rodgerson: Yes, I want to start and then I'll pass it over to Alex, but we took aircraft through the pandemic, right. And so, the ability for us and we're looking at the numbers, we utilized our aircraft only 8 hours a day in the first quarter. And so, the operating leverage that we get by pushing the utilization back up to 9, 10 hours a day is significant as we move forward. And so, this airline has the ability to produce much more ASK than we're currently producing, and that's where it's coming from.
Alex Malfitani: Yes, and for you to kind of forecast, what CASK is going to do the rest of the year and next year? It's important to note that there's a lot going on in CASK, right. So, on one hand, there is a lot of cost reductions that we have implemented over the last three years. We were able to get to a lot higher productivity than we had in 2019 by upgauging, by using more automation and technology. The fuel burn, it's coming down significantly as we transform our fleet, right. That's why we don't like to talk about CASK fuel, because the fuel burn reduction is a significant driver of CASK production. But at the same time, there's a lot of noise to ride you have, the reality evaluation since 2019. Fuel prices in dollars are up 75%. And also you have -- when we compare to 2019, you're talking about three years of inflation plus our cargo business which has grown a lot obviously generates a lot of cash contribution, it's much more profitable then the group -- the average margin for the group, but it does help RASK and hurt CASK right. So, we provided you with some visibility now as to how much in our…
Operator: Ladies and gentlemen, please hold. Ladies and gentlemen, you may now proceed. Ladies and gentlemen, please hold while we'll reconnect the speakers. Ladies and gentlemen, please hold.
Alex Malfitani: So, I don't know when you lost me, but one thing that's also worth noting on the CASK modeling. As we increase as ASKs, you will see our operational leverage kicking in and our CASK continuing to drop, all else equal, right, so controlling for fuel FX, inflation and cargo. But it's worth noting that the growth in ASKs for this year is much higher in the first half and in the second half.
Operator: Thank you. Our next question comes from Alejandro Zamacona with Credit Suisse.
Alejandro Zamacona: For the second quarter, you're expecting more downside to revenue in RASK. So, I'm just wondering, what's behind -- what's the driver for these guys and what can we expect for profitability for the second quarter?
Abhi Shah: On the RASK side, it is the discipline capacity environment and the discipline fair environment. Just for example, our fares from February to April alone are up over 40%. So, we are seeing very, very strong bookings right now. That is going to lead to a very strong flown revenue in second quarter. We had record booking days, all-time record booking day in March, another all-time record booking day in April. Last week was a record booking week. And so, the combination of very strong bookings with very high average fares the highest for us in our history. And I'm sure the industry as well, combined with the capacity discipline. So our capacity from March to June is flat, it's going to be flat again from July to October. So, I think the industry has done a very good job, as John said, in responding to the war, the fuel crisis and things like that. And we are taking advantage of strong lease environment and rapidly accelerating corporate recovery. And so, the record bookings that we are seeing will result in record unit RASK, unit revenue in second quarter.
John Rodgerson: Yes, and in terms of profitability, normally you have seasonality that drives profitability down from Q1 into Q2, but this Q2, we have a couple of very good sources of path tailwind for us. So one is, as Abhi said the RASK, right, that having record RASK, historical record RASK, he is not talking about record RASK for the second quarter. It's historical record RASK for any quarter in Azul's history, which should help us to have a more profitable Q2 than normal. And also we're not going to have the Omicron impact, right, that as we said Omicron, we estimate was about BRL300 million of bad guy in terms of EBITDA for us in the first quarter. So you can expect maybe something higher than Q1 but most of our profitability for seasonal reasons is in the second half of the year, particularly in the fourth quarter, right. On a normal year, our best quarter is the fourth quarter.
Alejandro Zamacona: And then, my second question is if I may, do you have any updates on the potential deals with LATAM?
John Rodgerson: Yes, really, we're not really talking about LATAM. I think that's something that's not on our radar right now. I think they're going through their process. And we're very confident in the standalone Azul business, as you could see from what Abhi has been able to do on the revenue side. And so, we'll respect their process. I think they have to deal with the creditors and get out, but we're very confident with what we're doing here in Brazil and focusing on our core business.
Abhi Shah: Yes, and it's also good, it's a good reminder Alejandro that all of the numbers that we provided the 4 billion in '22 and 5.5 billion in '23. Those are for Azul standalone with no website from any kind of co-chair joint venture maybe kind of consolidation. If any of that happens, there'll be upside to our forecast.
Operator: Our next question comes from Pablo Monsivais with Barclays.
Pablo Monsivais: I am very curious to pick your brain on what has changed structurally in the Brazilian market in terms of the demand going into leisure markets going forward? What do you think it has changed on the clients? Why they are either taking more vacations, working from anywhere? And especially if you think that I don't know in one year or two years from now, that leisure demand will be reduced? That will be my first question. And my second question will be on the price sensitivity. I mean, you have done an excellent job on increasing fares. But is there still more upside, I don't know, thinking 12-month basis, or do you think that the consumer is reaching to a certain peak? Thank you.
Abhi Sha: Hey, hey, Pablo, Abhi, here. So you know, one thing that really changed and it's very interesting is seasonality. And let me give you an example. One way to measure the level of leisure demand is to look at the bookings on weekends, right. Because bookings, you don't have travel agencies, you don't have corporate guys booking on weekends. And when we first got to 100% leisure recovery last year, and we said you know what it's coming back very, very strong. Is it pent up demand? Is it not pent up demand? Is it just booking for the summer peak? So if I compare our weekend bookings, bookings on Saturdays and Sundays versus what we had last year, in September, October, November, the revenue we are seeing, this last weekend, for example, is the same And there is no peak summer ahead of us. There is no sort of potential pent up demand, right. It is a new level of sustained demand. So, one thing that has changed is actually seasonality. It's gotten more flat, which for someone like us is actually pretty good because we tend to be less seasonal because of the nature of our network and the fact that we have so many destinations, which tend to be more corporate. And so seasonality has changed. And it's almost like in the U.S., if you tell an airline, your bookings in September will be the same as your bookings in May, right. They've never experienced that. And so, I think seasonality is something that has changed. And the leisure demand work-from-anywhere demand is now flatter than it used to be at a higher level. And so that's very, very encouraging for us to see. And on the pricing side, we continue to see strength going forward. We look at our booking curves, out to June, July, even August. And frankly, we are seeing more opportunities to increase prices than we are seeing for the need to have volume in our booking curve. And so, we're not seeing any resistance at this point from the customer. The overall industry is disciplined. As I said, our capacity is going to be disciplined as well, July to the end of the year, ahead of the peak summer season. And so, you're not going to have any short-term, medium-term shocks in terms of capacity. It's pretty visible to all of the players involved. And from what we can see the booking curve, it looks pretty solid as far as we can see.
John Rodgerson: Just to add, we also went broader, there's 35 new cities, there's 35 new cities with pockets of demand that are coming in. And David mentioned, the ag business in Brazil, the breadbasket of the world is Brazil. There's -- with commodity prices, where they are today, there's a lot more people that are traveling all around Brazil, because they're making more money than they've ever made before. And so, I think that that's really important to understand Azul's network is very broad. We fly all throughout Brazil. The midwest of Brazil is Azul country, right? And that is where we do really, really well that's where we've dedicated our assets. And I've talked a lot about kind of being out of the triangle Rio, São Paulo and Brasilia. And that's really what we've done and what we built our network over the last decade.
Operator: Our next question comes from Bruno Amorim with Goldman Sachs.
Bruno Amorim: I have two, actually the first one, just wanted to validate my interpretation of your guidance. So you're saying ASKs will be 10% above 2019 this year. In the first quarter, you were close to that 9% or so. Meaning throughout the year, you should be 10%, double the respective quarter in 2019. Meaning in the fourth quarter, you should add delver ASK 15% to 20% above the first quarter? So just wanted to validate this rationale. And the second question is around your fleet-size flexibility. So, how should we think about it? How much flexibility do you have? And how do you think about ASK growth vis-à-vis where jet fuel prices are, I guess that you know the higher jet fuel prices, the lower, the propensity to grow in the short-term, even though of course, long-term all the cost pressures tend to be passed on to fairs. Just wanted to understand how do you think about and manage capacity vis-à-vis the evolution of jet fuel costs?
Alex Malfitani: Hey, Bruno. So, regarding the sort of quarter-by-quarter revolution, remember 2019, we had Avianca Brazil which stopped flying April, May, June. And so, we picked up some of their aircraft towards the end of 2019. We also had some of the first E2 deliveries. So regards to the average, 2Q will be above average, and then 3Q and 4Q, and 4Q will come down, much closer to the average only because the comparison of 2019. We had a lot more growth towards the end of that year because of aircraft deliveries A320s and the E2s as well. So, our absolute capacity from July to the end of the year will be actually pretty steady, but it is the comparison of 2019 that average for 2Q, and then much closer to average in 3Q and 4Q. And regards to capacity, like I said, we're taking it very slow. And so, I'll give an example. Internationally, for example, we are not even flying daily to the U.S. right now, and many of our competitors are. We'll only be daily, just in July, for example. And even a domestically March to June, we were very steady in our capacity in July to end of UB as well. So, obviously, it depends on demand, demand continues to be strong, but it's important to make sure that we keep it that way. And we keep the rationalized discipline in the market. So, we have no major changes until the end of the year in terms of deliveries or anything like that. And so, it's going to be a slow discipline rollout, very much tied to revenue performance and overall discipline in the market.
John Rodgerson: Hey, Bruno, just to kind of respond on the flexibility that the fleet has, I mean, we converted six E1s into cargo aircraft, right, and shows you the flexibility that we have and working with our partners with the leasing community and the OEMs. And so, I think the fact that we can deploy, ATRs, just 3200, 321, put our A330 is flying domestically or flying internationally, just with cargo. We have tools in our toolkit that others don't have. And I think that, our fleet has been our greatest strength over the last two years to bring things back online. We have 900 flights a day and our next closest competitors, about 550 flights a day, because we can do things that they can't, and I think that's a huge strategic advantage for us.
Operator: Our next question comes from Stephen Trent with Citi.
Stephen Trent: Just one or two for me. I was wondering if you could give us a little color. What are your thoughts with your agreement with United Airlines, I believe expiring next month? And could you remind me as well, and apologies if I missed it, how much fuel you're actually heading for the second quarter itself? Thank you.
John Rodgerson: Yes, our agreement with United expires June 26th. They've been a great partner of ours. And we're talking to them about the potential for an extension and kind of keeping it open, right, as one would in this market. And so, we really don't have any details to share further to that, Steve.
Abhi Shah: Yes. And Steve, on the hedging, like we said, we have about 17% for the next 12 months it is front loaded because we try to tie the hedging to sort of the percentage of seats that have actually been sold, right, and Brazilians tend to book fairly close in. So, what we talked about in terms of the ability to pass through cost increases to fares. Normally Brazilian airlines have lower need to hedge oil exposure because the booking curve is so much shorter, right? And so, if I had sold 100% of my inventory for the next year then I probably wouldn't need to hedge 100% of my oil exposure for the next year. But because the looking curve is fairly short in Brazil, we don't have to hedge a lot. But in general, we can assume that the second quarter hedge is a little bit higher than the 17 and that's kind of trails off as we get farther into the 12 months.
Operator: Ladies and gentlemen, thank you. Please hold.
John Rodgerson: If there's no further questions, we'd like to thank everybody for participating in the call. Apologize for the telephone issues. We'll get that fix next time. We appreciate your time. Feel free to reach out to Thais, Alex, Abhi myself additional we look forward to seeing you at conferences and we look forward to delivering on further results. Thank you.
Operator: Ladies and gentlemen, that does conclude the Azul's audio conference for today. Thank you very much for your participation and have a good day.
