Earnings Call: Q1 2018

May 10, 2018

Hello, everyone, and welcome to Agil's First Quarter 2018 Results Conference Call. My name is Havinia, and I will be your operator for today. This event is being 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 Andrea Butcher, Investor Relations Manager. Please proceed. Thank you, Robin, and welcome everyone to our Q3 earnings call. The results that we announced this morning, the audio of this call and the slides that we'll reference are available on our IR website. Presenting today will be David Milliman, Agro's Founder and Chairman and John Robertson, CEO Alex Mokitani, our CFO and Avi Shah, our Chief Revenue Officer, all to hear for the Q and 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 that are subject to uncertainties and risks that are discussed in detail in our CDM and SEC filings. Also during the course of the call, we'll discuss non IFRS performance measures, which should not be considered in isolation. With that, I turn the call over to David. David? Great. Thank you, Andrea. Thank you, everybody, for joining us on the call today, and good afternoon. First of all, as I always do, I need to thank our crew members for just an outstanding quarter. I mean, obviously, we couldn't do this without them and not just from the operations side, but just taking such great care of our customers so that they come back and they love Azul more than ever. Just recently, TripAdvisor announced that we again remain the number one airline in South America probably in the Americas and top 10 in the whole world. So we're very proud of them. And obviously, having a great airline, it really helps revenue. And our revenue has really never been stronger than it is now. So thank you again to them. So obviously, what's on everyone's mind today is the FX rate spike in the fuel prices that we've had and what effect they're having on ZUL and kind of as we go forward to the end of the year. Our commercial team and Avi is on the phone, he'll talk to this with her later and John are working hard to recapture and we're working that. And we are getting a significant amount of recapture. But obviously, with the spike as it comes up quickly, it's a little harder in the very short term, but we're confident that we'll be able to do a lot of that recapture of revenue as the year moves on. We're also doubling down on costs and making sure that every single bit of cost of the company is out. And so John is working really hard with Alex multiple times to make sure that happens. I think what's important to know is that this company is almost 10 years old. We'll have our 10 year anniversary in this coming December. And we've seen this before. We've had much higher fuel prices. We've got much weaker currency than we're seeing today. And we're never we're really have never been more prepared for this spike than we are today. Our balance sheet is strong. We have a strong tax position as you saw in our release. And regardless if this is the new normal or if it's just a spike when we go back, we are prepared for it. And we're going to continue to look towards the future and drive our plan. What we told you when we were on the roadshow over a year ago that we're going to this is a margin expansion story. And so John will talk a little bit about projection for this year and we're to keep the margin guidance intact. But the reason that I'm so bullish on the company and the reason that I'm not obviously, we're always concerned when you see a spike. But our plan is, as you know, we're moving in A320s and they're doing spectacularly well. We've got 14 flying now. Avi has got the next 30 airplanes already programmed. And as you know with that airplane, it's pretty much a very similar trip cost to the airplane we have today, but we're picking up 56 extra seats. So that's really driving our margin expansion story. Those are working very well. Revenues on those airplanes are actually up year over year, even though we've added that extra capacity, which is really helping to balance our network. So that's very exciting. And then the second exciting thing is the E-two is starting to arrive next year. That's the new generation Embraer airplane. And that airplane has lower fuel costs, which obviously, this is going to be normal with fuel prices, obviously, is important as well as the NEOs on the 320. We have lower maintenance costs and we have lower ownership costs and we have more seats. So we're very excited about those airplanes. And so I've asked the team kind of just investors becoming myself and its founder. Look, why don't we let's pro form a of what the airline looks like if we had all E2s and we had all A320s and the numbers are really astonishing. And so obviously, if it's the new normal, then we're prepared for it because we're coming in with fuel efficient airplanes, lower cost airplanes and a lower CASM, which is something that I feel very, very good about. So we're going to continue to thrive. And just in summary, before I turn it over to John, we have exclusive markets with no competition in 71% of our markets, which allows us to do a greater job of recapturing future bright. And for that reason, I haven't sold a single pair of stock and because I haven't because I'm convinced that this is a great value and a great investment for me personally going forward. So with that, I'll turn the time over to John and he'll give you more details on the quarter and talk a little bit more how we're doing with the rest of the year. John? Great. Thanks, David, and welcome, everyone. I also want to thank our crew members for the solid results we had in the Q1. We're very excited. Taking a look at the slides, as you can see on Slide 4, we started the year with a record performance for our Q1 with a net income of 211,000,000 and an operating profit of $276,000,000 Even with a 21% increase in WTI during the period, we delivered an operating margin of 12.5% and an EBITDAR margin of 31%, one of the highest in the industry. We grew capacity by 12% in the Q1 while also expanding our top line by 18% and grew RASK by 5 The volatility in fuel and currency has been persistent since the last quarter. The volatility in fuel and currency has been persistent since the Q4. As you can see from the margins in these last two quarters and from our revenue performance, Abhi and his team have done a great job in recapturing this extra cost in revenue. Our decision to replace over planes with more fuel efficient aircraft makes even more sense in the current environment. The A220neos represented only 22% of our Q1 capacity and will account for more than 30% by the time we get to the 4th quarter. Moving on to the revenue performance slide on Slide 5. Both our domestic and international markets are doing well. Pras grew 5.1% in the Q1. This is even more impressive considering that our stage length went up 15%, and we grew capacity by over 12%. Adjusting for the longer stage length, our PRAC increased 12.5% year over year. Our network advantage allowed us to increase our average fares by 19% while at the same time increasing load factor by roughly 1 percentage point. Once again, we increased capacity, yield and load factor at the same time. This shows the strength of our network. Moving on to Slide 6. Our loyalty program, TutorAzul, maintained a strong growth pace during the Q1, reaching more than 9,000,000 members. This represents an addition of 2,000,000 members over the last 12 months. Gross billings, excluding Azul, went up 48% year over year with the majority of this increase coming from sales to our banking partners and from our 2 Azul club, further increasing our share of the Brazilian loyalty market. We now have a 17% gross billing share, up from 13% just 1 year ago, and we still are well below our fair market share for TudoAzul. Unlike other airlines, in Brazil, TudoAzul is 100% owned by the company. This means that we have no tax inefficiency and benefit 100% from the cash flow generated by this high growth, high margin business. On the right hand side of the slide, you can see that our cargo business is also performing very well. Revenue increased 61% year over year, mostly driven by the larger cargo compartment for the A320 and the growth of our international capacity. Moving on to the balance sheet on Slide 7. I'm proud to report that we ended the quarter with a solid liquidity position of over R3.4 billion representing 42 percent of last 12 months revenue. We repaid R141 $1,000,000 of debt in the quarter and ended with a leverage ratio of 3.9 compared to 5.1 in Q1 of 2017. We used the industry standard of adjusted net debt to EBITDAR, which capitalizes all of our leases at 7x and includes all of our debt. We also invested $188,000,000 in spare parts in the quarter, which will help us reduce future maintenance expenses. In addition to having one of the lowest leverage ratios in the region, you can see on Slide 8 that we have much lower exposure to foreign currency. Only 35% of our balance sheet is denominated in U. S. Dollars and virtually all of our working capital debt is denominated in local currency. As we mentioned during our last call, Alex hedged both the principal and interest of the $400,000,000 unsecured bond we issued in October. This hedge resulted in an all in interest rate in local currency below the risk free rate, which is currently about 6.5%. Additionally, as you can see on the right side of the slide, we continue to be long dollar. Our assets are now homidated in foreign currency, namely our cash, our deposits and maintenance reserves abroad and our investment in TAP surpassed our dollar denominated liability. And that's excluding our aircraft, engines and spare parts, which are not restated every quarter, but are also priced in dollars. For this reason, in times of weakening currency, we are not nearly as impacted as our competition. This reaffirms our position as the airline with the strongest balance sheet in Brazil. As we move on to Slide 9, we believe that Brazil has a lot more room to grow. Over the last decade, we have gone through several periods of macro volatility, and the Brazilian aviation market still doubled in size. Brazilians are traveling significantly less than other Latin American countries, which makes us confident the market will keep growing over the next few years. While everyone is focused on the exchange rate headlines, please remember that GDP is expected to grow around 3% in 2018 with one of the lowest levels of interest rates and inflation seen in decades. We believe we are best positioned to continue growing our business over the next few years while delivering superior operating and financial results. In summary, as David had mentioned, we have the largest network in the country and are the only carrier in 71% of the routes we serve. We have a multiyear margin expansion plan, the backbone of which consists of transforming our fleet into next generation aircraft, A320neos and Embraer E2s. We have a strong balance sheet with high liquidity and the lowest leverage ratio and lowest exposure to FX in the country. We also have strategic assets, including TutorAzul, our investment in TAP and $1,300,000,000 in cash deposits held in dollars for maintenance reserves. The revenue environment is robust and the strongest we've seen in years. And although we're facing some macro headwinds, we continue to be very excited about the future. Taking a careful look at capacity in the context of the macro environment, and we've made and will continue to make adjustments as needed. We are also, as David mentioned, aggressively looking at other cost reduction opportunities. And for that reason, we feel confident about our 2018 guidance range presented earlier this year. With that, we'd like to open it up for Q and A, and I'll turn it back over to Ravi. Thank you very much. Ladies and gentlemen, thank you. We will now begin the question and answer session. Our first question comes from Savanti Syth with Raymond James. I just wanted to ask on the margin guidance as we look at it and given the current fuel and currency, clearly, as you mentioned, it is a question for investors. Just outside of looking for areas to improve on the cost side, would you need demand to hold so that you can push through the pay increases? Or would you need kind of an acceleration in current demand trends? Yes. So Savi, we're in the weakest quarter of the year, Q2, and we're seeing robust demand. I'll let Avi kind of talk to that. But we have a plan in place that we believe we're going to deliver the margin guidance that we provided. Obviously, it always gets harder when fuel and currency are up. But I think we've identified a lot of cost saving opportunities to go after. And when things happen like this, it gives us the opportunity to demand curve. Yes. Savi, so looking at the fundamentals of the market right now, you have 3 really good things happening at the same time. The first is macro demand is strong. It's significantly better than last year. There's no question about that. Close in corporate demand is good. Our close in corporate for the Q1 far outpaced our capacity growth, and that's really helped push the RAC up. So the macro demand environment is strong. We are in 2nd quarter, and typically this market gets better in the 3rd and 4th quarters. And I do expect that to happen this year. Again, that's in the seasonality for the last number of years. So I think that we're at a good demand environment now, and I think it's going to get better as we go July and into the second half of the year. You look at fare discipline, we're seeing really strong discipline across all the players in terms of public affairs and private fares. And capacity discipline is very, very strong as well. I think airlines, as I've said many, many times before, are playing where they're strong, they're focusing on their markets. So I think that the industry overall is set to recapture as much of this cost increase as possible. We're shooting for 100%. And Azul has other advantages like not having overlap, so we can react to a lot quicker than our competitors can. There's no need for us to wait for competitors to match our fares. Ancillary revenue is an opportunity that everyone is pushing quite strongly in the market in terms of charging for things like anticipate your flight and seat assignments and things like that. So I think the demand environment is good and it's going to get better as we get into the second half of the year. I think the industry is very well disciplined to recapture this. And I think we have specific advantages like our network and the A320s, which are still very much in the process of ramping up. So that's what kind of gives us the confidence that we can still hit our guidance for the year. That's super helpful. If I might ask just this chart ratio, Brazil demand in general may be growing about 10% over the next few years. Is that the rate that we should kind of think Azul grow capacity be growing? And then is it that 71% mix? Does that change over the next few years? Yes, Avi. So I think that our domestic capacity, yes, I think it's going to be in the 8% to 10% range over the next couple of years. I think last year was probably a little bit lower than that. I think this year will be 8% to 10%. Next year will be 10%. So yes, I think that is the right range to think about in terms of domestic capacity. In terms of the In terms of the 71% overlap, I don't really see it changing that much, to be honest. Again, as we've said many times before, we're focusing our A320neos in our markets, in our network because we're really seeing the benefits of increased connectivity between our hubs, within our hubs and focus cities and just having the 56 extra seats, as David said, for the same trip costs. So I don't really expect that 71 to change materially. And I think that's going to continue for next couple of years, yes. Our next question comes from Michael Lindbergh with Deutsche Bank. John, I want to go back to just in the press release, you talked about your ability to recapture most, if not all, the fluctuations, obviously fuel and FX. And I know you were talking about historically, maybe the last quarter or 2. And then I think David talked about recapture going forward. And I guess just given the rapidity in some of those input changes of late that maybe it's more difficult to capture all. Can you give us a sense like how you're either measuring it or have you been able to recapture, call it, 100% or maybe more than 100% the last quarter or 2? And as we look into the June quarter, understandably, that is seasonally your low point for the year and the fact that there is a lag in revenue catching up to costs. How should we think about the recapture in the June quarter and maybe as we move through 2018? And I realize there's probably a philosophical element in how you think about this and how quickly you can change revenues to offset that? And maybe Avi has some views on that as well. Yes, Mike, let me start. And I want to remind everybody that Azul is more profitable today with the exchange rate at 3.40, 3.50, 3.60 than we were when it was at 2:1, okay? So what makes up for the exchange rate differential is a good demand environment. Now as you mentioned, it moves quickly. We understand that it moves quickly in the Q2 and already had some revenue on the books. And so maybe Abi took some revenue early on when the exchange rate was a little bit lower than it is today, and that's natural. But we want everybody focused on we're going to deliver our full year results. That's what we have committed to. This is a multiyear margin expansion story. And so it's not linear. There's going to be times when we don't get all of it back inside of the same quarter. But if you're taking a 12 to 24 month look at Azul, we're executing on our plan. This is the 5th quarter that we've had calls with all of you and I hope that we're building credibility slowly over time. But this is an airline that we're thinking of 2019, 2020, as David mentioned, cycling through all of these old aircraft, bringing in all these fuel efficient aircraft. And our competitive position, Mike, only gets better as we move forward, right? It's not only just the 71% advantage that we have on our route, but it's also the fact that we are going to have the fastest next generation fleet way ahead of anybody else. And that's a significant advantage in these environments. And believe it or not, demand is good. I'll let Andy kind of talk the specifics of the revenue recapture. But of course, there's timing differences, but we're very, very focused on continuing to execute on our plan. Mike. So yes, I mean in the shorter term, the actions that we take are sort of things that give immediate impact. So things like ancillary has very, very fast impact, if you will, almost instant gratification. So that's a button that we're pushing aggressively right now to mitigate some of the short term impact. Of course, we're looking at fares. Because we're alone in many markets, we're able to take fare increases much faster than our competition, and we're absolutely doing that. Things like fuel surcharges as well also have some instant gratification. So we're doing everything we can to mitigate in sort of the immediate term, if you will. But we're just focused on the year. I think the last two quarters, we have recaptured 100% or even more, and that's absolutely our target. It's absolutely our target for this year and for 2019 and beyond. And of course, a key part of this other than fares, ancillary, surcharges and things like that is capacity, right? I mean we're taking a hard look at capacity. Nothing is off the table. And our capacity guidance for the year is 17 to 20. Previously, we would have thought to have been in the high end of that range. But now looking at this macro situation, we're going to be at the low end of that range with those changes coming in, in the next 2, 3, 4, 5 in the second half of the year. So we're looking at capacity very aggressively. I think we'll end the year at the low end of our capacity range, and that's going to help us second half of the year and kind of beyond. So I think there are things that we can do to deliver some instant results to help in the short term. But I think the longer term, capacity is going to come down a little bit. The A320s keep ramping up. It's going to be critical for us. And more important than anything, it's a good revenue environment with really good industry discipline. And that's just really good fundamentals to have. And Mike, this is Alex here. If I can just let in. I think clearly, the recapture is a big part of how we are planning to face this volatility and FX in fuel. But cost is a big part as well, right? Not just cost from reducing CASK from implementing the next generation aircraft, but there are opportunities that are available to us now that weren't available in the past, right? We had to rent a lot of stuff and we had to pay for a lot of stuff that today we can buy. With the lower cost of capital, with the deleveraging, we have the ability to invest in scrap bars, which is something that we did in this quarter. And we're going to look at every opportunity that we have to take advantage of this low cost of capital to reduce operating expenses by insourcing some activities or by investing in ground equipment and things like that. So like Abi said, nothing is off the table on capacity, nothing is off the table on cost either. We're being very disciplined and very diligent about looking at every opportunity that we can to both on revenue and cost get to our guidance for the year. Thanks for that, guys. And just switching gears, moving over to on the cargo side and the opportunity there. I just I noticed you highlighted the number of stores. Presumably, I guess, those are storefronts that you have throughout the country. What is how should we think about the growth of those storefronts on one hand? And can you just update us on your conversations with the JV, with the Postal Service? And then also anything that you can share with some of the, I guess, reports that we saw about you maybe being Amazon's distribution partner in Brazil, which when I saw that the fact that you fly to all these cities that nobody else goes to, like you said 71% of your network has no competition, would seem very natural somebody like Amazon wanting to piggyback off of your footprint to seeing better penetration into parts of the country that are difficult to get to. So that made sense to me. Anything and I realize maybe there's it's sort of a 2 or 3 part question. However you can answer that would be great. Yes, Mike. I appreciate the question. Just I've lived in Brazil now for 10 years, and Brazil is not the place that you stick a package on your doorstep like it is in the United States. And so the point of having 200 stores around the country is getting close to our customers, right? And so what we do is we deliver packages to those stores and we are getting closer to the customer. So as you think of an Amazon type model, having points of delivery and points of contact for our customers all throughout the country is very, very important. And there are points of sale for us, right? People that want to send packages, receive packages. So it's a little bit of a different model. We're very excited about the joint venture with the Brazilian post office. Still needs to get it approved through regulatory here in Brazil with antitrust. We should be fine with the authorities this week. And so we need to let them go through that process. As for the news report that came out, obviously, we can't comment on any of that. But what I will tell you is we have the best logistics solution in the country by far, okay? We are serving more than 100 different cities in Brazil. We serve them with small aircraft like our ATRs. We serve them with medium sized aircraft with our E Jets and we serve them with our A320s and we just got 737s to serve on our trunk routes, right? And so as you look at many of our potential customers in the country, we have a logistics solution for all of them, and the world is changing. And so we're pretty excited to be able to take advantage of those opportunities. John, just one follow on the 737s. I know that doesn't show up on your fleet information. At least I don't think it does. I know there are leases. What how is that going to show up? Or is it in the subsequent quarters? Yes. So it hasn't arrived yet, Michael. We should get one in June, start flying it in the July timeframe. And so and just to remind everybody, these are roughly $100 a month leases for 5 years and it frees up our A330s that we're flying domestically for cargo and it provides us with a lot more flexibility. And so, Avi is starting a second flight to Lisbon at the end of June. And one of the ways that he was able to do that is that we have achieved cargo aircraft that's flying to Manaus into the Sisi for our bigger cargo contracts. And so we'll start to layer those in into our fleet plan as we move forward. But we want to make sure that we have the ability to kind of talk to the market appropriately and make everybody aware as to what we're doing. But there's 2 aircraft that we should have in the fleet by the end of Q3. Our next question comes from Peter Farris with Barclays. You may proceed. Good morning and thanks for taking my question. First, can you please clarify on Slide 8, you're talking about your current exposure. I'm just wondering this non aircraft debt, that's mostly 99% in the BRL. What was that? Is that operating leases or something else? So on Slide 8, this is total debt and non aircraft debt. It doesn't include leases. But practically, the only dollar denominated debt that we have on our balance sheet is aircraft debt, right? So there's a small sliver here of 1% debt that the only single source is about 5,000,000 dollars in debt that we have that's dollar denominated. Everything else is either real denominated or hedged into reais, right? So the only debt that we have that's already denominated in any practical term is aircraft debt, which has an aircraft against it, which is an asset that is priced in dollars, right? So that's why we believe that we have the by far the best balance sheet in terms of FX exposure because we borrow all of our working capital needs in reals. Does that make sense? Okay. I guess what I'm trying to get to, from leverage perspective, 70% of your debt is on balance sheet and that's operating leases and those are all denominated in USB, is that right? Correct. That's already in our leverage calculation that we provided. So when we give you the adjusted net debt to EBITDAR, that 3.9 capitalizes all those leases at 7x. I think what we're trying to highlight here on this slide, in Slide 8, I mean, a lot of people forget, but we've prepaid for maintenance. And on the balance sheet today, it's BRL1.3 billion, right? It's a U. S. Dollar denominated asset that's ours. We do not get to count that against cash, but it's essentially cash flow that will not go out of the company going forward. So if you take our $3,400,000,000 you can add another $1,300,000,000 for maintenance reserves and deposits that we have on the balance sheet, but we're not considering as part of our liquidity profile today. Got it. And another question on your fuel exposure. Can you share how much of this fuel consumption this year is hedged? And that will be helpful. Sure. Yes. So for the remainder of the year, we have about our quality is to hedge up to 30% of the year roughly. It's a little bit more front loaded in the near quarters and a little bit lower on the far quarters. And out of this, we're at about a third of that maximum today. So about 10% for the year is what we've hedged. But there are three lines of defense that we consider when we talk about both fuel and FX, right? First line of defense is just the correlation between fuel and FX, which over the medium to long run is very strong and negative, right? Obviously, it's not what's happening right now, but it is certainly what has happened over the majority of the last 10 or 15 years. The second line of defense is our hedging policy as we talked about and that we have implemented. But then the third is really our network, right? As Ravi mentioned, the fact that we're alone in 71% of our routes allows us to attempt to recapture investors a lot more easily with a lot less cost and a lot less risk than the competition. And in the long run, if fuel artifacts have a long move, a big move and they stay there, your hedge is only going to buy you time, right? The hedge is only a short term solution. In the long run, you need to have a robust business model and a robust network that allows you to start operating under this new cross reality. Got it. And another question, I wanted to understand a little better the working capital swing this quarter seems much higher than last quarter, at the same quarter last year. So I was just wondering if there's any more color on you expect to maybe get back from that cash or spend with capital? Sure. Yes. So John mentioned, I think, a couple of the big drivers here. We paid down $141,000,000 debt, and we invested $188,000,000 in Starkeline. So those are 2 big numbers that they need to consider. Our receivable balance went up, right? We have plenty of cash. And in the past, we used to advance receivables. It's very easy to advance receivables in Brazil, but it costs you some money. It's not terribly expensive, but it does cost something. And so we have advanced fewer receivables this year this quarter. So there's about BRL250 1,000,000 of essentially an increase in receivable balance, which we could have advanced if we had maintained the same policy as in the past, but which we chose not to because we didn't need the cash and so we didn't have to spend that interest. And then seasonally, this is a quarter where deferred revenue goes up. So there's about another BRL80 1,000,000 of deferred revenue because of the seasonality, which over time kind of offsets itself, but in Q1, does take away cash. So those are kind of the four main numbers that you need to think about. Our next question comes from Leandro Fontanes with Bradesco BPI. You may proceed. Hi, good afternoon. Thank you for the call. You commented about the domestic market. I would appreciate if you could comment a little bit on international market. So if you could comment how the profitability of the flights you're launching? Also, how do you see the competitive scenario, given that some airlines have added back capacity? And finally, you gave us a little bit of view of what could be the domestic capacity growth for the following years, if you could give us the same kind of figure for international. Yes. Leandro. So overall, International did well in the quarter. We saw obviously a big capacity increase, but we also had a very healthy RASK increase as well. It was in the teens, the RASK increase. So it was a nice increase in unit revenue even with a large increase in capacity. So we were quite happy with the international performance. As you mentioned, we launched a couple of new routes in December. We launched Bella Horizonte Orlando, and we launched Bella and Fort Lauderdale with the A320, both of which are doing well, both of which are exactly within our network plans for international, which is to fly from where we are strong in Brazil, where we have great local strength, where we're dominant in our hubs and we have good connectivity. And we also have good connectivity with our partners in Fort Lauderdale. So very happy with the results for international in the first quarter. Revenue improvement in the high teens even with a large capacity increase. So we were quite happy with that. Going forward, clearly, the FX is going to have an impact. So far, bookings have been stable. I'm not concerned with international performance in the short term, but it is something that we need to manage going forward. And I think it's all of the players in the market have to manage that. Clearly, there is a relationship between currency and Brazil point of sale. But there are ways to manage that and mitigate those effects. For example, we're working very aggressively in the U. S. Point of sale. Our U. S. Flights, for example, we're now seeing point of sale from the U. S. Where customers buy in U. S. Dollars upwards of 25% to 30%, right? So that's one strategy that we've implemented as a result of this the currency increase is to shift more and more bookings over to the U. S. Our European network, which is 2 daily Lisbon flights, it's fifty-fifty between Brazil point of sale and European point of sale. So that's something that certainly can help mitigate the impact of the higher currency. And of course, we will look at capacity and as we're looking at capacity across our entire network. And we'll make adjustments. And we've already made some adjustments, but we're going to look at that. But performance in the Q1 was strong for international. And our bookings have been stable, but obviously, we're managing the effects as we are with any other route in our network. It's a great time to come to Brazil. The eVisa, you can fly in one of the best airlines in the world, top 10 in the world, best business class in Latin America. So all of you on the call that haven't visited us yet, we'd love to have you. And it's an exciting time to be down here. Yes. And the last part of your question was about international capacity growth. So our international capacity growth in terms of percentages will be higher than domestic only because of a much smaller base. But in terms of what we're doing in terms of market, it's quite conservative. As John mentioned, we're adding a second Lisbon daily flight starting in June. We were starting today, in fact, HCC to Fort Lauderdale. And so our international expansion is going to be connecting dots. It's going to be increasing some frequencies. We have no new international cities planned for this year. And so it's going to be very conservative, and it's going to be based on where we're strong in Brazil with great connectivity to where our partners are strong in the U. S. Or in Europe. And I also think a lot of people thought we'd be flying to New York by now, but we're flying somewhere we're strong to where our partners are strong. And so we're taking a cautious approach to it and we're going to do what makes money. And so it's sexy to fly to New York, but in this environment, it's better that we strengthen our hubs in Caspinas, Philippines and Our next question comes from Natalia Syracin with Citibank. You may proceed. Hi, thanks for taking my question. I just have one quick question actually. Do you have an estimate regarding how much tax you can avoid a result to continue to 100% of your loyalty program path? Yes. I mean, we do. We know this number very well. We don't provide a lot of information in terms of individual Turazo margin because obviously Turazo is not a spun off company. We've managed it as a spun off company. But for Azul shareholders, the numbers that matter in terms of total Azul is our gross billings, right? And the fact that our gross billings are growing 30% to 40% year over year, and this is a high margin business, obviously. And but you can sort of get to a ballpark figure by just looking at the gross billings number, right, which is in those BRL 700,000,000 to BRL 800,000,000. You can kind of extrapolate that from the information that we give on gross billings share. And if you assume, you can essentially set the margin of your loyalty program where you want it to be based on the transfer price. But if you assume an average margin and then you assume what the 34% tax rate would be on that, you're talking about tens of 1,000,000 of reais a year of factors that we don't say by keeping all of this in house. Now we don't we're still growing and getting to our fair share by managing it as a separate company. We have autonomy where it's required in terms of IT, in terms of sales force, in terms of pricing. But as we're all working here on behalf of the Azul shareholder, right, we work to maximize the profitability of both the airline and the loyalty program for the Azul shareholder. And certainly, keeping it in house allows us to save a lot and impact this, especially as long as we have NOLs in the air. Area. One day in the future, we may run out of NOLs, and then we may take another look at this decision. But for now, the right decision for the usual shareholders to keep this announced. Our next question comes from Lucas Badosa with UBS. You may proceed. Good afternoon. Congratulations for the results. Just a follow-up on the international routes discussion. Or given that you have less competition in international routes, you haven't been seeing that going in Q2 and bookings forward? Thank you very much. Yes. Thanks, Lucas, for the question. Yes. So our international network is definitely more isolated than our competitors. In terms of head to head competition, we have very little to almost none in terms of these international routes. And so that's something that obviously we're it's working for us, and it allows us to maintain the yields and maintain the volumes when you have local currency weakening. We also have great connectivity, right? So because we have 55 destinations in BCP, We have 40 destinations in Confluence and 30 in Recife. We're able to use those connections to maintain the volumes and the yields if we're seeing local market kind of getting weaker. And also, VCP local market, Copa, for example, has a great, great connecting complex in Panama that we have the same in VCP, but we have great local demand in BCP. The catchment area is more than 6,000,000 within 40 miles, 70 kilometers. So that's something that it comes to our advantage. We're alone in those routes. So as I said, clearly, it would not be fair for me to say there's no impact. Clearly, as the EEA weakens, there will be a longer term impact on Brazil point of sale. We have the tools to manage it in terms of our network, in terms of our connections, in terms of shifting point of sale from Brazil to the U. S. Or to Europe. And we're also going to be looking at capacity and making those adjustments as needed. So for me, I'm very comfortable with the way it is. I feel good about the bookings and the revenue, and we have the tools to manage this macro situation as needed. Ladies and gentlemen, this concludes today's question and answer session. I would like to invite David to consider his closing statements. Please go ahead, sir. Great. Well, thank you all for joining us on the call. I just want to congratulate our management team as well for really the work they're doing, Abidjan and Alex and everyone else for reacting. And then as I said earlier, we've seen this before. We're new to this. We've been doing this for 10 years. We've seen higher currency. We've seen higher fuel. And one of the things that I just wanted to highlight is the obviously GDP growth in Brazil has a lot to do with the growing market in Brazil as well, regardless of what currency is. And Brazil GDP does better when fuel prices are higher. So that is another hedge that we have. So we're moving forward. We're excited for the future. And I'm going to keep beating on the team to see if we can expedite some of this switch to these new generation airplanes because as I mentioned in my opening comments, it really is it makes a huge difference for us kind of as we move this old fleet out, move it in for them. So we'll talk to you next quarter and we'll keep our heads going down. Hey, David, just to remind everybody, we're going to be in New York next week and at our Azul Bay and we're hitting up a conference detail conference next week. So we look forward to seeing a lot of you and going through in further detail and talk about our futures.