Copa Holdings, S.A. (CPA) Q3 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you for standing by. Welcome to Copa Holdings Third Quarter 2011 Earnings Call. (Operator Instructions) As a reminder, this call is being webcast and recorded on November 9, 2011. Now I would like to turn the conference over to Joe Putaturo, Director of Investor Relations. Sir, you may begin.

Thank you very much, operator, and welcome, everyone, to our second quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings; and Victor Vial, our Chief Financial Officer. First, Pedro will open up with our third quarter highlights, followed by Victor who will discuss our financial results. Immediately after, we'll open up the call for questions from analysts. Copa Holdings' third quarter financial results have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss non-IFRS financial measures. A reconciliation of non-IFRS to IFRS financial measures can be found in our third quarter earnings release, which has been posted on the company's website, copaair.com. In addition, our discussion will contain forward-looking statements not limited to historical facts that reflect the company's current beliefs, expectations and intentions regarding future events and results. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions that are subject to change. Many of these risks and uncertainties are discussed in our annual report filed with the SEC. Now I'd like to turn the call over to our CEO, Pedro Heilbron.

Thank you, Joe, and good morning, everyone. I'm glad you could join us this morning for our third quarter earnings call. As always, my gratitude and recognition goes out to our co-workers for delivering another solid quarter, in which strong underlying demand together with a considerable capacity expansion led to outstanding revenue and earnings growth. Among the main highlights for the quarter, demand continued on a very positive trend with passenger traffic increasing 22% for the quarter. Our consolidated load factor came in at a very 77.1% even more so when you take into account our year-over-year capacity growth which was mere 20%. Operating revenues grew more than 30% driven by higher year-over-year load factors and yields in both our international and domestic markets. Our strong revenue performance along with slight year-over-year reduction in ex-fuel CASM allowed us to deliver outstanding third quarter revenues and earnings, as well as one of the best operating margins in the industry. On the operational front, we went through a full quarter operating under a new fixed bank hub structure and the results have been quite positive, both from an operational as well as from a product standpoint. The implementation of our 6-bank hub is allowing us not only to better utilize the Tocumen Airport infrastructure, personnel and equipment but it’s also allowing us to provide our passengers with more and better flight options through the addition of more destinations and frequencies as well as permitting significant schedule improvements throughout our network. We also marked the first full quarter since the launch of four new destinations last June 15. I am pleased to say that so far the performance of these new destinations, Toronto, Porto Alegre and Brasilia and Nassau have met or exceeded our original expectations. Next month we will continue to strengthen our Hub of the Americas, the leading hub for intra-Latin American travel by adding service to five new city. Chicago, the third largest city in the US, Monterrey, Mexico, an important business and industrial center, which hosts a large number of Mexican and multinational company that do business in our region. Asuncion, the largest city and capital of Paraguay, Montego Bay, Jamaica our 12th destination in the Caribbean, and Cucuta, an important commercial center with limited access to the region and our ninth city in Colombia. So, by year's end, our network will serve 59 cities in 28 countries in the Americas, by far the most complete and convenient network for intra-Latin American travel. Also, on the operational front, during the third quarter, we took delivery of five Boeing 737-800. As a result, our fleet at the end of the quarter stood at 71 aircrafts, 45 Boeing NG's and 26 Embraer-190s with an average age of less than five years. In addition, in October, we took delivery of our ninth 800 this year, and with one more delivery scheduled in November we expect to end the year with a fleet of 73 aircraft. For the quarter, Copa Holdings reported on-time performance of 91.3% and a flight-completion factor of 99.6%, which once again places us among the best in the industry. In short, we had a great quarter financially and operationally, and as you can see from our recently released October traffic figures where international traffic grew more than 20% year-over-year the main trends continue to be favorable in the fourth quarter. Our 2012 growth trends incorporate several new destinations. As we continue reinforcing what is currently the most complete and convenient intra-Latin American network. We will also keep working on product and cost initiative that would further improve our long term competitive position. Going forward we continue to growth through our operations will be facilitated by the conclusion of the Tocumen Airport north terminal expansion December of this year. As you know the north terminal will add 12 new jet bridges to an already superior airport infrastructure which along with our newly incremented 6-bank hub, will allow us to continue expanding without gate constraints for several years. We’re also working on several initiatives to improve our passenger experience and consolidate our leadership as the preferred airline for intra-Latin American travel. To mention a few, the introduction of the Boeing’s Sky Interior in all of our new deliveries this year we now have nine of these aircraft in our fleet. The opening of new Copa Clubs in Santo Domingo and more recently in Guatemala, the introduction of our mobile website and electronic boarding passes earlier this year, and our expected entrance into the Star Alliance by April 2012. On this front, we recently expanded our co-chair with United and are working on implementing co-chairs and frequent flyer reciprocity with other alliance members. On the economic front the prospects for Latin America, and for Panama in particular, continues to be very positive. As a whole, the region's GDP is expected to grow about 4% while Panama is expected to have another year of strong economic growth, and is expected to be the fastest growing country in Latin America during the next five years as the country consolidates itself as one of the most important business hubs in the region and benefits from strong public and private sector investment. Aside from achieving investment grade credit rating last year the US congress recently approved a long awaited trade promotion agreement with Panama which will strengthen the tie between both countries by promoting trade, consolidating access to goods and services and favoring private investment between both nations. As such, we believe the economic environment and demand both in Panama and the region continue to favor our medium term expansion plans. So to summarize, we are very pleased with our third quarter results and how our business model keeps delivering industry leading profit margins and growth throughout the business cycle. We continue to operate in a favorable demand environment where passenger traffic continues to grow. Our team continues to execute and deliver a world class product. We maintain an extremely competitive cost structure and last but not least, we are driving the necessary initiatives to maintain the loyalty and preference of our passengers. Thank you. Now, we will turn it over to Victor who will go over our third quarter results.

Thank you Pedro and good morning everyone. Thanks again for joining us. First and foremost thanks again to our coworkers for the hard work and congratulations on another outstanding quarter. This morning we are reporting another quarter of strong growth for Copa Holdings as we expanded our fleet by adding five new aircraft, grew capacity in terms of ASS like more than 19% year-over-year. Increased revenues by more than 31% year-over-year and 11% on a quarter-over-quarter basis, and more importantly increased year-over-year underlying net income by 44%. Underlying net earnings for the quarter came in at $90.1 million of reported net income which includes a $19.8 million fuel hedge mark-to-market loss came in at $70.3 million versus last year’s reported net income of $71.5 million. Third quarter proved to be another quarter of strong traffic growth as the RPMs increased almost 22% year-over-year leading to a 1.6 percentage point increase in consolidated load factor, which came in at 77.1%. Strong demand also resulted in high yields as yields increased 9% year-over-year, driving unit revenues up by more than 10%. On the expense side, third quarter operating expenses increased 30% year-over-year while cost per available seat mile increased 8.8%. Excluding fuel, however, unit cost decreased close to 3% year-over-year to $0.066, mainly as a result of capacity growth and a 13% increase in average stage length. With respect to our main operating expenses compared to the third quarter of 2010, fuel expense increased 59% as a result of increased capacity and a 38% rise in the effective price per gallon of jet fuel. Salaries and benefit increased 21%, mainly due to additional headcounts driven by capacity growth. Passenger servicing increased 19%, mostly as a result of a 17% increase in international departures. Commissions increased 29% for the most part due to a higher passenger revenue base. Reservations and sales increased 23%, the main driver being an increase in passenger revenue. Maintenance, materials and repairs decreased 4%, mostly as a result of timing of engine maintenance event. Depreciation increased 17%, mainly due to additional aircraft and spares. Flight operations, landing fees and rentals increased 13% mainly as a result of additional departures and block hours, and other operating expenses increased approximately $400,000. Moving on to operating earnings. Consolidated operating earnings for the third quarter came in at $102.2 million, approximately 38% above Q3 2010. With our operating margin coming in at 21.4%, a 4 percentage point above last year's third quarter operating margin. Looking at non-operating income and expense, Q3 generated a net non-operating expense of $27.5 million, mainly consisting of a net interest expense of $6.3 million and a fuel hedge mark-to-market loss of $19.8 million. With respect to our fuel hedges, during the third quarter we had 24% of our volume covered, approximately one-third of which was through jet fuel swaps at an average of $1.83 per gallon and another two-thirds covered with crude oil swaps at an average of $87 a barrel. In addition, we currently have in place the following coverage: for the fourth quarter of this year, approximately 27%, a third of which was covered using jet fuel swaps at an average of $1.83 a gallon with the remainder covered using crude oil swaps at an average of $84 a barrel. And with respect to 2012 and 2013 we clearly have hedges for 20% and 10% of our projected consumption respectively using crude oil swaps at an average equivalent price of $86 a barrel for 2012 and $88 a barrel for 2013. Turning to our balance sheet. We ended the quarter with $2.9 billion in assets, owner’s equity reached $1.2 billion, and debt plus capitalized leases totaled approximately $1.4 billion. In terms of debt, we closed the quarter with $1.1 billion in bank debt, 58% of which is fixed rate debt, with a blended rate including fixed and floating rate debt, coming in at 3%. With respect to cash within the quarter we have $503 million in cash, short-term and long-term investments, which will be approximately 30% of last 12 month's revenues. So, in summary, we had another outstanding quarter both operationally as well as financially speaking. We are looking at another year of strong financial result and we continue to be well positioned for the future. In terms of our guidance for 2011 considering the strong performance of the company up to the third quarter we are updating our guidance as follows: we are maintaining our capacity forecast a plus or minus 21%; we're increasing our load factor guidance from plus or minus 75% to plus or minus 76%; we are maintaining our RASM guidance as plus or minus $0.137; we're keeping our CASM ex-fuel guidance as plus or minus $0.067; with respect to fuel, we're reducing the effective price per gallon for the year from $3.25 to $3.11; and in terms of our operating margin, we are now narrowing our guidance from a range of 19% to 21% to approximately 21%. In addition to that we are also providing preliminary guidance for 2012 based on our operational plan and demand outlook for the year. As such we expect another year of strong growth as they are expected to increase a plus or minus 20% year-over-year. Load factor is expected to come in at plus or minus 74%. We are currently projecting a RASM decrease of approximately 7% to plus or minus $0.129 driven by a 4% increase in length of haul. We expect ex-fuel CASM to decrease by 3% to $0.065 cents mostly as a result of economies of scale driven by 20 percentage ASM growth, based on current fuel costs we are assuming a year-over-year drop in the effective price of jet fuel from $3.11 to $3.05 and we’re expecting operating margins to come in between 18% to 20%. Thank you very much and with that I'll turn it over to Pedro for closing remarks.

Thank you, Victor. Now we will open up the call for some questions.

(Operator Instructions) Our first question is from Luiz Campos from Credit Suisse. Luiz Campos – Credit Suisse: Hi, good morning everyone. I have a question related to the October traffic data. I just wanted to have your view whether you think that the – let’s say deceleration in growth we saw in October could put at risk your guidance that you are giving for 2012. So if there is any risk at all that the 15% growth in RPKs slows down even further towards the end of the fourth quarter, maybe with a weaker economy. And also how you are seeing your – if the booking starts year end and beginning of next year.

Okay, this is Pedro. Well, first of all you should say that we are giving preliminary 2012 guidance after obviously having October under our belt and being very aware of our projections. So that guidance reflects everything we know as of today. So we are comfortable with it. I should also say that international traffic in October for Copa Holdings grew 21%. So of this 21% traffic growth it’s quite significant and quite healthy and advance bookings look pretty good right now. So we are confident that we are giving you as of today the best guidance we can.

Luiz, this is Victor. Let me just add to that. Also when you look at the economic data out there for our region, the region is expected to have pretty decent economic growth in 2012. In fact I think Pedro mentioned during his scripts, it is expected to grow at 4% average, and Panama is expected to have another great year in terms of GDP growth. Panama this year is growing at a pace of 8% to 9%, and next year it’s expected to be up there again, and probably the fastest growing economy in the region. And obviously that all is conducive towards healthy traffic environment and we expect to benefit from this. So just to reiterate what Pedro is saying, we feel pretty comfortable about the guidance we are giving for the rest of this year and for next year. Luiz Campos – Credit Suisse: Okay, thanks.

Thank you. Our next question comes from Michael Linenberg from Deutsche Bank. Catherine O’Brien – Deutsche Bank: Hi, this is actually Catherine O’Brien filling in for Michael Linenberg. I just had a couple of questions. Actually a follow-up on the October monthly traffic. We notice that your loads are off by about five points yet you raised your 2011 load factor guidance by about a point. We are just wondering if October is looking like maybe an anomaly or do you think there is like a greater trend of customers trying to push back again, fare increases in the phase of rising which oil.

Well, I think first of all when you look at October year-over-year, October last year was kind of neutrally high. So you have a tough comp there. Secondly, when you look at October this year in terms of growth, first in September you have an additional five percentage in growth, and certainly to answer your question in terms of whether we are seeing customers pushing back, not really. I mean again like Pedro you are having 21% growth in the international routes, had very healthy yield when you look at the yield year-over-year this year they are extremely, higher than last year despite the fact that length of haul is higher by 13%. So we don’t see anything out there that will be indicative of any push back or any inflation point in terms of demand decreasing or pushing back. Actually we see it the other way around. We see pretty healthy demand out there and forward-looking bookings are looking very healthy. So we should have a vey healthy fourth quarter and hopefully carry that over for next year. Catherine O’Brien – Deutsche Bank: Okay, if I could just ask one more on your 2012 guidance. Looks like it implies a 10% decrease year-over-year in RASM and I know you guys started capacity growth in 2012 that’s kind of the factor that, but in 2011 your capacity grew by about similar amount and RASM rather looks like it’s going to be up around 6% this year. We are just kind of ordering if you are worried about the macro back drop going to 2012, maybe some competitive capacity coming in, and on the competitive capacity if you could just give us a little more color on where you might see some of that growing or by how much, that will be great.

Let me address the first part and then I’ll turn over to Pedro. In terms of what we are assuming for next year, I think first of all we need to keep in mind that we are projecting full year in the fourth quarter of 2011 we are trying to project full year 2012, so that makes it kind of difficult. We have limited visibility. As we mentioned in previous call we won't tend to be a little bit on the conservative side when we are generating or providing the market with preliminary guidance for the following year is early on. And I think you saw that back in the fourth quarter of 2010 when we were looking at 2011 and then we adjusted as we executed our plan through out the year. I'm not saying that we are going to see the same increase in RASM every time we have an earnings call next year every quarter, but if the question is if there is an upside, I think that’s a fair statement. There could be upside as we get closer to the year and we see advanced booking coming in and we have more visibility into 2012. And again, as I mentioned in the previous question the good news is that everything out there indicates that it should be a healthy year in terms of demand, because the economies are doing quite well especially Panama.

I’ll address competition. And as you say also we have length of haul issues, not issues, but as we grow into longer haul destination it’s always going to be affecting our yields and our RASMs. But we are not projecting or expecting any significant changes from what has been going on lately in terms of competition. I think everybody is being pretty rationale and there is growth, but there is also lot of growth in Latin America, and Latin American growth is providing a market for everybody to benefit from. So we don’t see anybody putting irrational capacity or more capacity than what the market can take. So, no, we are not factoring any major changes from the standpoint of competition. Catherine O’Brien – Deutsche Bank: Okay, so kind of an under promise over deliver on the 2012 guidance.

You said that. Catherine O’Brien – Deutsche Bank: Okay, great. Thanks, great quarter guys.

Thank you.

Thank you. Our next question comes from Jim Parker from Raymond James. Jim Parker – Raymond James: Good morning gentlemen.

Good morning Jim. Jim Parker – Raymond James: I still don’t understand why load factor in October is up 3.9 points. And you have had strong capacity growth for like the past six months. And actually you’ve been showing increases in 1load factor for most of them. So there is a little bit of mystery, and I wonder if again on this competing seat issue, if more seats are coming into your markets from Bogota and Lima. But I don’t understand why load factor is up almost 4 points all of a sudden in October?

Jim again, I don’t think – I mean October was a month where we – you are talking about October obviously, where international traffic grew 21% which is not insignificant and you cannot judge a year or a future by one month and again it’s a month of 21% growth which is significant. And we – but I should also say that we do not manage load factor on a month to month basis even on a year-to-year basis. We’re managing RASM and we’re managing bottom-line resource, we are managing EPA more than load factors alone. So I would not make a big deal out of a month where we grow 21% in traffic but load factors drop somewhat.

And just so I could add Jim. Again we’re estimating operating margin to come in at 21%. Next year’s expectation for operative margin is to be where we’ve been in the past five years, 18% to 20%. So, given all the information that’s out there and factors that we’re seeing, so like Pedro said, I would not take October make a bigger deal than it is especially when you grew traffic 21% in the international markets. Jim Parker – Raymond James: Okay. Regarding the competing seats issue, I don’t know, would your bookings give you any indication of what’s going on in the first quarter, because it appears that there are substantial increases in competing seats from Bogota and Lima coming into markets that are in line with or north of Panama. So I’m curious, does your first quarter – are you able – do they tell you anything, bookings tell you anything about the first quarter or what is the competitive seating, have you done that analysis to see what’s coming into your markets from Bogota and Lima?

I could say two things. In terms of bookings directionally I could say that it all looks fine. We have no warning signs and nothing looks out of sight, so it looks perfectly fine. And the competitive seats into our markets, I would not call them significant. I don’t think there is anything significant, for sure there is nothing irrational, and there's nothing there that the market cannot absorb, and we have a strong enough network that we have options and we’re growing ourselves because we see an opportunity. So there is nothing out there that raises alarm bells, at least not in our routes. Jim Parker – Raymond James: Okay, thank you.

Thanks, Jim.

Thank you. Our next question comes from Eduardo Couto from Goldman Sachs. Eduardo Couto – Goldman Sachs: Hi, good afternoon guys. My question is the also on the guidance for next year, especially in terms of the youth, basically you guys are assuming that youths will go down (inaudible) but you said that there is the fact of the longer haul. So, if we exclude this impact, what sort of view they’re expecting versus – next year versus this year. Can you mention that yields will remain flat, will go down less than this 3% to 4% that is being implied under guidance? The second question is, if we saw – if we see higher fuel cost next year considering the second year of strong capacity additions, do you still believe that the you’re going to be able to offset that through higher yields, that’s pretty much the question.

Yeah. Hi Eduardo, this is Victor. I’ll take the first part of the question and then I’ll ask Pedro for the second part. The short answer to your question about yields and how they go for next year if you take out the difference in length of haul. The short answer is they’re pretty steady, they’re basically flat. So the yield decrease that you see year-over-year is driven by and large by the difference in stage length or length of haul which is about 4% to 5%. So otherwise they will be pretty flat.

In terms of covering higher fuel prices next year, if that would happen, it’s not what we are projecting, we’re actually projecting fuel prices to be slightly lower, sort of the current fuel curves. But it’s hard to say exactly if fuel goes in the opposite direction, if it goes up. In the slides we have been able to cover the difference, we’ve been able to do it this year again. 1and I would hope that we will be able to do it next year. And if fuel goes up, it means that the economies are probably doing very well and that should allow us to cover that, but it’s too early to tell. Eduardo Couto – Goldman Sachs: Okay. And just on regression guys, in relation to the CASM ex-fuel, because the yields is going down because of the – its just that mostly because of the longer haul, but the CASM ex-fuel is pretty much, it’s going to I would say last for next year. Is there any reason for that?

Actually it is going down, it’s going down for another 6.7, 6.5 ex-fuel CASM. So the question is why does it go down, why doesn’t it go down more. Next year we are returning three aircraft, we leave three aircraft. So you incur a little bit of higher maintenance cost on a year-over-year basis. That’s probably the biggest reason why you wouldn't see that 6.5, 6.4 or something like that. So, but otherwise when you look at a 6.5 ex-fuel CASM number that we report and you compare that to other carriers out there you talking about an ex-fuel CASM that’s approaching or much in line with low cost carriers. So, extremely efficient, extremely competitive and despite the fact that we are a full service product airline. Eduardo Couto – Goldman Sachs: Okay, thank you guys. Congratulations on the results.

Thank you. (Operator Instructions) Our next question comes from Dan McKenzie from Rodman & Renshaw. Dan McKenzie – Rodman & Renshaw: Good morning guys. Couple of questions here. What percent of your market do you have fewer than 20 passengers per day? If I'm not mistaken I believe that stat is moving around a little as you continue to add new flights.

Hi, this is Victor. Yeah, I think the question is what percentage of the markets we move 20 passengers or less each way per day something like that right so. Dan McKenzie - Rodman & Renshaw: Yeah, exactly thank you.

The number has been above 70%, closer to 75% for (inaudible) five years, and this year it’s around 74% or so. So it hasn’t changed much. Dan McKenzie – Rodman & Renshaw: Okay, very good. And then Pedro, I know you are very well plugged into the local business community, and I am wondering if you can help us peel back the onion on what the new free trade agreement really means. And it obviously it sounds great at 30,000 feet, but beyond what exists today what scuttle if any, are you getting on more businesses opening up shop, opening up shop in Panama as a result of the free trade agreement. And then I guess related to this if we are not seeing anything today that really stands out as Panama becomes more attractive place to do business, is it simply a question of timing?

Yeah, I think Panama as you will know it’s booming right now, it’s running on all cylinders and it’s set to become the premier business center in Latin America, home to many regional offices of multinational companies. There is large public and private investment, the Panama Canal expansion, the ports are expanding, there is a new metro system, a subway system being built. So the free trade agreement, the trade promotion agreement with US it’s another piece in a very successful puzzle called Panama. I won’t say we are going to see immediate report which shows Panama is not an export, an industrial exporting country that services economy, but when you think of a canal that’s expanding, a country that’s right in the middle of the Americas and it’s a major business centre this treaty not only adds to the prestige and image of Panama, but it could allow companies for example that has goods transiting the canals from Asia to the U.S. for example, do part of the work here in Panama, do part of the assembly, take advantage of the treaty with the U.S. and I think it just fits the economic model of Panama very well. And even though maybe we won't see specific immediate results, Panama is growing around 10% this year and again it’s just part of a winning formula that’s going to make sure that Panama keeps on growing and keeps on this very successful path that it’s on right now. Dan McKenzie – Rodman & Renshaw: Yeah, thanks Pedro. I wonder if I could just follow up on that a little bit. Do we by any chance know what percent of the Fortune 500 companies do business in Panama today or are domicile of the Panama. And I guess kind of what I'm getting at is, is there some way to benchmark this corporate activity that should grow incrementally as a result of this agreement.

Yeah, we don’t have that figure. We could probably get it, but there are more than a 120 multinationals that have their regional base in Panama. It’s some like Procter & Gamble have more than 700 expatriate executives. They moved offices from three different countries here in Panama. You have Caterpillar, you have Dell, I mean you have all the main big worldwide multinationals here. And again this trade promotion agreement might make a difference for some of them, it may attract other companies that are not doing major business in Panama today will be attracted and they may setup shop here. But again it’s a piece in a winning formula for the whole country, more than I think a single initiative that’s going to have a great impact. Dan McKenzie – Rodman & Renshaw: Okay. Thanks very much. I appreciate that.

Thank you. Our next question comes from line of Duane Pfennigwerth from Evercore Partners.

Hi, this is actually Stephen Lee (ph) filling in for Duane. I just have one quick question. Just curious on what the foreign currency impact was on a resin growth for the third quarter and what your outlook is specifically for 4Q?

Yeah for the third quarter there wasn’t anything significant. I mean, you know, when you look at the currency versus the second quarter they didn’t change much. On a year-over-year basis you did have the Colombian Peso came down a little bit (inaudible) if you want the change on a quarter to quarter basis wasn’t significant until (inaudible).

Great, and can you make any commentary on 4Q at all?

Well, 4Q what we’re seeing is the currency strengthening slightly from what we saw in the late part of the third quarter and for 2012 it’s difficult to say. We’ve seen some volatility in some of currencies in the region. But I don’t think anybody is right now expecting any significant change with what we are seeing in the 2010, 2011 year.

Great. Thank you for your time.

Thank you. Our next question comes from Steven Kirk (ph) from Citi.

Hi, good morning everybody. Just a couple of quick questions from me. Looking at I guess this noise on the October 2011 load, it is fair to say that the year ago comp September, October 2010 was somewhat a unusual comp given what I-raze (ph) was doing in the Colombian market and that’s my first question.

I think that’s fair to say. When you look at October 2010 load factor came in if I'm not mistaken about 81% or so. So you’re comparing again load factor last year that’s unusually high. So, I think that’s part of the reason. And again, like Pedro mentioned, in our business model to focus strictly or overly focus on load factor is not prudent, because at the end of the day we manage RASM, and we reaffirmed our RASM guidance for this year and actually we are providing RASM guidance for next year that puts RASM about the same level this year when you adjust for length of haul. So I think to give too much importance to October’s load factor we got to take into account all the other factors, so that’s not the best way to look at October.

And you are right Steven at this stage, that’s why we have been emphasizing the international traffic growth of 21%. Because in effect Colombia had all kinds of promotions in October of 2010, which increase load factors to really not normal levels provided October in the Colombian domestic market. This year shares are much better, but yeah looks like we were slightly down.

That’s fair enough guys and that seems consistent with what we are seeing on this end. And just two more questions if I may, one, as we look into 2012 any sense as to what could be the opportunity for incremental revenue generation as you fully join the Star Alliance, and any sense as to what we get feed or even if you are incorporating any incremental revenue generation in the year 2012 guidance.

Right, we only expect revenue increments form Star Alliance and it’s one of the main reasons why we joined a major global alliance. We usually don’t work into our numbers those expectations, and at first it takes time for that to pull up and materialize, and we are going to do in April. So we are not building into our numbers any significant revenue increase from the Star Alliance, but we would expect something throughout the year.

It’s fair enough and thanks Pedro. Just one more question and I will let somebody else ask. When I think about the Tocumen Airport hub, any color roughly speaking as to what percentage of your passengers either have Panama as the point of embarkation or the point of disembarkation versus let’s say the Colombia Domestic and your insurance of passengers.

Well, in terms of this hub in a broad way we are talking 50:50.

Perfect. That’s it from me guys and thanks again.

Thank you. And our final question for today comes from Bob McAdoo from Avondale Partners.

Hi guys, congratulations on a nice quarter. I'm just curious about how the Toronto service is doing because it is your first shot in Canada. And ask you, when do you start Chicago and obviously that is with the co-chair, did you say the co-chair is already in place for United so that when you start Chicago you’ve got the ability to feed for the northern part of the United States into that Chicago flight.

Toronto is doing fine. Actually a little bit better than we had expected. So we are very pleased with the service and we are looking forward to eventually increasing frequencies to Toronto. So that’s a flight that’s actually doing pretty well. In terms of when Chicago is starting that’s in the fourth quarter in December, on the 15th of December and that’s another flight that we are looking forward to do quite well. It’s not easy to get to Chicago from the region so that should be a good flight, and yes we announced recently the co-chair with Continental United, so all that helps.

So the United, the technology to make the United Co-chair go into place on the day you start the Chicago services that technology is up and running and not a problem?

Yeah, I mean, the co-chair is already implemented. So, we (inaudible) in our website or United website you can actually book that flight under the United code or the COPA code, either one. Bob McAdoo – Avondale Partners: Okay, thank you, that’s great, Just curios.

Thank you. I'm showing no further questions at this time.

Okay, so this concludes our third quarter earnings call. As always thank you for your continued support. As I mentioned before we have good expectations for the fourth quarter and still we are very well positioned to continue delivering industry leading operational and financial results in 2012. So thank you all for being with us and have a great day.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes our program for today. You may now disconnect and have a wonderful day.