Hello everyone, and welcome to Azul's First Quarter 2022 Results conference call. My name is Hannah, 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. Should any participant need assistance during this call, please press star zero to reach the operator. I would like to turn the presentation over to Thais Haberli, Investor Relations Manager. Please proceed.
Thank you, Hannah, and welcome all to Azul's Fourth 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 subjected to uncertainties and risks that are discussed in detail in our CVM and SEC filings.
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. Dave?
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 passionate crew members who continue to take care of 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 ANAC's customer satisfaction rankings. In addition, Cirium reported Azul as the most on-time mainline carrier in the world. I've spent the last week in Brazil flying Azul, and we have a fantastic operation. 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, an impressive addition of more than 35 destinations compared to 2019. Excuse me. In 1990, there was commercial service to 218 cities in Brazil. As you can see, we still have a lot more to add in the future. Over time, these and other new destinations will add considerable demand to our network, further 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 at 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 airline, or the fact that we have almost 3,000 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 continued its outstanding performance.
Cargo revenue tripled compared to the first quarter of 2019, with revenues reaching almost BRL 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. We believe we have the end-to-end logistics capabilities we can do that. 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 continues 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 when I say over and over again, I told you so. With that, I'll pass the word over to John to give you more details on our record first quarter results.
Thanks, David, we really appreciate your humility. I also wanna 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 1/3 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 BRL 3.2 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 BRL 593 million, representing a margin of 18.6% in the quarter. If we exclude the impact of Omicron, as I described, we estimate that EBITDA would have been BRL 900 million in the quarter. This gives you a clear indication as to the earnings 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 9 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 market's 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 helps 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. 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.
That means there's still more corporate revenue recovery to come, and it will come at 76% higher fares than 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 and 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 in sustaining this strong demand environment. On slide 10, you can see that TudoAzul maintained its strong growth pace and reached 14 million members at the end of this quarter, as more and more customers experience the value of our broad network. Mostly though, we have been positively surprised by the customer engagement. They 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, are 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 it over to Abhi.
Thanks, John. The record booked revenue at record average fares we are seeing means continued RASK 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 wanna show you on slide 12 how we stack up against some global benchmarks. Our capacity recovery is 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, and 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 turn it back over to John to talk further about our results.
Thanks, Abhi. Yes, fuel remains challenging. 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 a 39% depreciation of the real against the dollar, and three years of inflation on real denominated costs. If we adjust our CASK for fuel, FX, and cargo, which by their nature do not generate ASKs, 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 BRL 500 million in cash flow during the quarter. During the quarter, we also continued paying our leases, debt, deferrals, and CapEx. It's important to highlight that we ended the quarter with immediate liquidity of BRL 3.3 billion, well above first quarter 2019. We also raised BRL 200 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 BRL 3 billion compared to December 31, mainly due to a 15% appreciation of the real, which reduced our gross debt by BRL 3.2 billion.
In the quarter, we paid down BRL 1.1 billion in debt and leases. Looking to 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 BRL 4 billion of EBITDA this year and BRL 5.5 billion in 2023. When we went 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 on 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.
Ladies and gentlemen, thank you. We will now begin the question-and-answer session. If you have a question, please press the star key followed by the one key on your touchtone phone now. If at any time you would like to remove yourself from the questioning queue, press star two. For those following the call via webcast, you may post your questions on the platform, and they will be either answered during this call, or by the Azul investor relations team after the conference is finished. Please hold while we gather the query requests. Our first question comes from Savi Syth with Raymond James. Please go ahead.
Hey, good morning. Good afternoon. Can I ask on the corporate demand recovery, you know, what components have not yet recovered and, you know, what's the latest trend there as you kind of look forward here? Like, when could we see some of the other components recovering?
Thanks, Savi. Abhi here. Yeah, we have really positive components such as oil and gas, you know, 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 to 100% compared to 2019, but accelerating. If I compare finance to 2021, it's doing better than the average. Versus 2019, is worse than the average, which means that it had a later start and now it's catching up. 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. I think that's gonna change this year, especially as with the elections and all of the activity around that.
I would say finance and government are the two sectors that are still recovering, but they are accelerating because compared to 2021, they are above average.
That's helpful. Thank you. If I might, on the projections provided for 2022 and 2023, just curious what from a depreciation fuel price FX standpoint you're assuming there or any other kind of important considerations that you've kind of baked into the 2022 and 2023 outlooks.
Yeah. Savi, we basically have the forward curve, you know, both for fuel and FX.
Okay.
You know, which is roughly, you know, real, you know, slightly above five in that range. Fuel, you know, coming down slightly as you get into 2023, but still kind of above historical levels.
Yeah. Savi, just to add, you know, obviously, I think that's an important assumption, right? You know, fuel and FX. It's important to note that they are both very correlated and also correlated with fares, right? You know, I think we demonstrated or we had this exhibit, we showed it on Azul Day, we have it on our institutional deck. You know, if you take our 2019 EBITDA and you just adjust it for current fuel and FX, our BRL 3.6 billion EBITDA would go down to zero, right? We are very confident in a BRL 4 billion EBITDA this year. That shows that, you know, some of it is on the cost side, but the majority of it is on the fare side, right?
It's the ability of this business to operate under any kind of conditions for fuel and FX. You may have a different assumption for fuel and FX. We run sensitivities here all the time because obviously, you know, those variables are very volatile. It's important to also have an assumption for fare levels, and they are very highly correlated. You know, Abhi obviously does a tremendous job, but, you know, we can't necessarily affirm that fares would be at this level if the real wasn't at five, and oil wasn't at $100 a barrel.
Good point. Just on that, Alex, so could you remind us again what, like, depreciation should be doing in 2022 and 2023?
The depreciation of aircraft?
What's depreciation given the-
Yeah, the depreciation line.
... Some of the repayment on that.
Yeah, I think Q1 is probably more in line with what you're gonna see for the rest of the year. You know, full year. This is, I think you can consider Q1 as 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.
Perfect. Thank you.
Thank you. Our next question comes from Michael Linenberg with Deutsche Bank.
Oh, hey, it's actually Shannon Doherty on for Mike. Thank you for taking my questions. Maybe Alex, this one's for you. Can you provide us with more detail on your deleveraging strategy? I know you've stated that you'll begin to pay down some portion of deferred rents next year. Is that still the plan? I mean, if you could just give us an update on the numbers, that'd be great as well. Thanks.
Sure. Yeah, 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, you know, bank debt or capital markets debt. You know, after operating leases, you know, our biggest debt are our two bonds that we issued. The first one matures in October of 2024, the second one in June of 2026. They are a ways away in terms of maturing. We've been able to, you know, access the capital markets under much more difficult situations, you know, than what we currently have. You know, we're confident that we can continue accessing those sources of capital. The majority of the deleveraging will come from us getting back to our natural trend of EBITDA.
You know, if you look at that slide where we have, you know, our 2018, 2019 EBITDA, then you have the two years for the pandemic, and then you have our expectations for 2023 and 2024, you know, you can see that we're essentially just getting back on track with what we promised in our IPO. As we get back to that performance, which is sort of our natural delivery, you know, we'll be able to deliver on those leverage ratios that we provided to you.
Yeah, I just want to highlight a couple of things. If you take BRL 4 billion of EBITDA versus our current debt, that's a four, right, in terms of leverage. You know, we clearly feel confident even in the macro scenario to reaffirm the BRL 4 billion and talk about BRL 5.5 billion next year. As you talk about kind of repayment of past lease debt, we're constantly negotiating with our partners, right? That's just part of doing business. You know, we constantly negotiate with the operating lessors. You know, some of them have some trouble with aircraft that were supposed to go to Russia. You know, we're constantly looking at opportunities. You know, we stand by our commitments, but that's just, it's just normal course of doing business.
The deleveraging comes as the profitability comes back to the airline as we do BRL 4 billion this year and BRL 5.5 billion next year.
Well, that's great. Thank you. I know you mentioned that, you know, a majority of this EBITDA, the BRL 4 billion will come from, you know, the leverage with higher fares and increased revenue. You know, given your updated full year capacity outlook with total ASKs up 10% versus 2019, how should we be thinking about the efficiency in that and, you know, thinking about CASK ex- fuel for the rest of this year and possibly next? Thanks again for my questions.
Yeah, I wanna start, and then I'll pass it over to Alex. You know, we took aircraft through the pandemic, right? The ability for us, I mean, you know, we were looking at the numbers, we utilized you know, our aircraft only 8 hours a day in the first quarter. The operating leverage that we get by pushing the utilization back up to 9 hours, 10 hours a day, you know, is significant as we move forward. You know, this airline has the ability to produce much more ASKs than we're currently producing, and that's where it's coming from.
Yeah, for you to kind of forecast, you know, what CASK is going to do the rest of the year and next year, you know, it's important to note that, you know, there's a lot going on in CASK, right? On one hand, there is a lot of, you know, cost reductions that we have implemented over the last three years. You know, we were able to get to a lot higher productivity than we had in 2019, you know, by upgauging, you know, by using more automation and technology. You know, the fuel burn, you know, is coming down significantly as we transform our fleet, right? That's why we don't like to talk about CASK ex-fuel, you know, because the fuel burn reduction is a significant driver of CASK reduction.
At the same time, you know, there's a lot of noise too, right? You have the real devaluation since 2019. You know, fuel prices in dollars are up 75%. Also you have, you know, when we compare to 2019, you're talking about three years of inflation, plus, you know, our cargo business, which has grown a lot. Obviously, it generates a lot of cash contribution. It's much more profitable than the group, you know, the average margin for the group. It does help RASK and hurt CASK, right? We provided you with some, you know, visibility now as to how much in our-
Ladies and gentlemen, please hold.
It's Alex again. Sorry about that. I don't know when you lost me, but one thing that's also worth noting on the CASK modeling, you know, as we increase ASKs, you will see our operational leverage kicking in and our CASK continuing to drop, all else equal, right? Controlling for fuel effects, inflation, and cargo. It's worth noting that the growth in ASKs for this year is much higher in the first half than in the second half.
Hold on. Can we ask?
Yeah, Barry's telling us. Okay.
Thank you. Our next question comes from Alejandro Zamacona with Credit Suisse.
Hi. Thank you for taking my question. For the second quarter, you are expecting all-time highs for revenue on RASK. I'm just wondering what's behind, or what's the driver for this guidance, and what can we expect for profitability for the second quarter?
For the second quarter.
Hey, Alejandro. On the RASK side, it is the disciplined capacity environment and the disciplined fare environment. You know, just for example, our fares from February to April alone are up over 40%. We are seeing very, very strong bookings right now. That is gonna lead to 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. 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. Our capacity from March to June is flat. It's gonna be flat again from July to October.
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. We are taking advantage of a strong leisure environment and a rapidly accelerating corporate recovery. The record bookings that we are seeing will result in record unit RASK unit revenue in second quarter.
Yeah, in terms of profitability, you know, normally you have seasonality that drives profitability down from Q1 into Q2, but this Q2 we have a couple of, you know, very good sources of tailwinds for us. One is, as Abhi said, the RASK, right? That, you know, having record RASK, historical record RASK. He's 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. Also, we're not gonna have the Omicron impact, right? That, as we said, Omicron, we estimate, was about BRL 300 million in terms of EBITDA for us in the first quarter, right?
You can expect maybe something, you know, 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.
Okay. Thank you, John. Thank you, Abhi. My second question, if I may, do you have any updates on the potential deal with LATAM?
Yeah, really, Alejandro, we're not really talking about LATAM. You know, I think that's something that's not on our radar right now. I think they're going through their process. You know, we're very confident in the standalone Azul business, as you could see from what Abhi's been able to do on the revenue side. You know, we'll respect their process. I think they have, you know, to deal with the creditors and get out. You know, we're very confident with what we're doing here in Brazil and focusing on our core business.
Yeah, it's also good. You know, it's a good reminder, Alejandro, that all of the numbers that we provided, the BRL 4 billion in 2022 and the BRL 5.5 billion in 2023, those are for Azul standalone with no upside from, you know, any kind of codeshare, joint venture, any kind of consolidation. You know, if any of that happens, there will be upside to our forecast.
Sure. Okay. Thank you very much.
Thank you.
Thank you. Our next question comes from Pablo Monsivais with Barclays.
Hi. Good morning, and thanks for taking my question. 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. My second question will be on the price sensitivity. I mean, you have done an excellent job on in increasing fares, but is there still more upside, I don't know, thinking in a 12-month basis, or do you think that the consumer is reaching to a certain peak? Thank you.
Hi. Hey, Pablo. Abhi here. You know, one thing that's really changed, and it's very interesting, is seasonality. 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. When we first got to 100% leisure recovery last year, and we said, "You know what? It's coming back very, very strong. You know, is it pent-up demand? Is it not pent-up demand? Is it just booking for the summer peak?" If I compare our weekend 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. There is no peak summer ahead of us.
There is no sort of, you know, potential pent-up demand, right? It is a new level of sustained demand. 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. 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. I think seasonality is something that has changed. The leisure demand, the work from anywhere demand, is now flatter than it used to be at a higher level.
That's very, very encouraging for us to see. On the pricing side, we continue to see strength, going forward. You know, 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. We're not seeing any resistance at this point from the customer. The overall industry is disciplined. As I said, our capacity is gonna be disciplined as well, July through the end of the year, you know, ahead of the peak summer season. You're not gonna have any short-term, medium-term shocks in terms of capacity. It's pretty visible to all of the players involved.
From what we can see in the booking curve, it looks pretty solid as far as we can see.
You know, just to add, you know, we also went broader. There's 35 new cities with pockets of demand that are coming in. David mentioned, you know, the ag business in Brazil, the breadbasket of the world is Brazil. You know, 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. 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's country, right? You know, that is where we do really well. That's where we've dedicated our assets.
You know, I've talked a lot about kind of being out of the triangle, Rio, São Paulo, Brasília, and that's really what we've done and what we've built our network over the last decade.
Fantastic. Thank you very much. Thank you. Our next question comes from Bruno Amorim with Goldman Sachs.
Hello, everybody. Thank you for taking my question. I have two, actually. The first one, just wanted to validate my interpretation of your guidance. 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% above the respective quarter in 2019, meaning in the fourth quarter, you should deliver ASK 15%-20% above the first quarter. Just wanted to validate this rationale. The second question is around, you know, your fleet size or flexibility. 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, you know, 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 fares. I just wanted to understand how do you know, think about and manage capacity vis-à-vis the evolution of jet fuel cost. Thank you very much.
Hey, Bruno. Regarding the sort of quarter-by-quarter evolution, remember in 2019 we had Avianca Brasil, which stopped flying April, May, June. We picked up some of their aircraft towards the end of 2019. We also had some of the first E2 deliveries. With 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. Our absolute capacity from July to the end of the year will be actually pretty steady, but it is the comparison of 2019 that will change.
Above average for 2Q, and then much closer to average in 3Q and 4Q. In regards to, you know, capacity, like I said, you know, we're taking it very slow. I'll give you an example. You know, 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.
Even domestically, you know, March to June, we were very steady in our capacity in July to the end of the year as well. 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. You know, we have no major changes until the end of the year in terms of deliveries or anything like that. It's gonna be a slow, disciplined rollout very much tied to revenue performance and overall discipline in the market.
Hey, Bruno, just to kind of respond on the flexibility that the fleet has. I mean, we converted six E1s into cargo aircraft, right? It shows you the flexibility that we have in working with our partners, with the leasing community and the OEMs. I think the fact that we can deploy, you know, ATRs, E-Jets, 320s, 321s, put our A330s flying domestically or flying internationally just with cargo. You know, we have tools in our toolkit that others don't have. I think that, you know, our fleet has been our greatest strength, you know, over the last two years to bring things back online.
You know, we have, you know, 900 flights a day, and our next closest competitor is about 550 flights a day, 'cause we can do things that they can't, and I think that that's a huge strategic advantage for us.
Thank you very much. Very clear.
Thank you. Our next question comes from Stephen Trent with Citi.
Hey, good afternoon, everybody, and thanks very much for taking my questions. Just one or two for me. I was wondering if you could give us a little color, you know, what are your thoughts with your agreement with United Airlines, I believe expiring next month? Could you remind me as well, and apologies if I missed it, you know, how much fuel you're actually hedging for the second quarter itself? Thank you.
Yes. Our agreement with United expires June 26th. They've been a great partner of ours and, you know, we're talking to them about the potential for an extension and, you know, kind of keeping it open, right? As one would in this market. We really don't have any details to share further to that, Steve.
Yeah. Steve, on the hedging, you know, like we said, we have about 17% for the next 12 months. It is front loaded, right? Because we try to tie the hedging to sort of the percentage of seats that have actually been sold, right? Brazilians tend to book fairly close in. You know, what we talked about in terms of the ability to pass through cost increases to fares, you know, normally Brazilian airlines have a lower need to hedge, you know, oil exposure because the booking curve is so much shorter, right? You know, if I had sold 100% of my inventory, you know, for the next year, then I probably would need to hedge 100% of my oil exposure for the next year.
Because the booking curve is fairly short in Brazil, we don't have to hedge a lot. You know, in general, you know, you can assume that the second quarter hedge is a little bit higher than the 17%, and that kind of trails off as we get, you know, farther into the 12 months.
Okay. Super helpful. Thanks, John, Alex, and regards to everybody.
Ladies and gentlemen, thank you. Please hold.
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 fixed next time. We appreciate your time. Feel free to reach out to Thais, Alex, Abhi, myself. We look forward to seeing you at conferences, and we look forward to delivering further results. Thank you.
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.