Copa Holdings, S.A. (CPA) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings first quarter earnings call. [Operator Instructions] As a reminder, this call is being webcast and recorded on May 10, 2012. Now I will turn the conference call over to Joe Putaturo, Director of Investor Relations. Sir, you may begin.

Thank you very much, operator, and welcome to our first quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings; and Victor Vial, our Chief Financial Officer. First, Pedro will start with our first 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 first quarter results have been prepared in accordance with International Financial Reporting Standards. In today's call, we'll discuss non-IFRS financial measures. A reconciliation of non-IFRS to IFRS financial measures can be found in our first 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/or 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. Good morning to all, thank you for participating in our first quarter earnings call. First, let me once again congratulate our team for another outstanding quarter. Because of them, we continue to win, day in and day out, the presence of passengers through world-class service and operating performance. As you can see from our first quarter earnings release, we're off to a great start for the year. Among the main highlights for the quarter: capacity for the first quarter grew almost 23%, while passenger traffic increased more than 22% led by our international traffic, which expanded 28%. Strong demand resulted in a very healthy revenue environment. At unit revenues, RASM came in higher on a year-over-year and quarter-over-quarter basis. This favorable demand environment allowed us to offset a significant increase in the cost of jet fuel and register year-over-year operating earnings growth of 12% and an operating margin above 20%. Our first quarter performance looks even more impressive when we consider that last year's 22% capacity expansion included the launch of 9 new destinations, the most destinations we have launched in a single year. Our 2012 expansion plan represents another year of double-digit capacity growth. So far, we have announced 5 new destinations, which will start next June: Las Vegas, our seventh destination in the U.S.; Recife, also the seventh city we serve in Brazil; Liberia, our second destination in Costa Rica; Curacao, our 14th Caribbean destination; and Iquitos, our second city in Peru. With these new cities, our network will cover 64 destinations in 29 countries. By far, the most complete and convenient network for intra-Latin America travel. Additionally, as part of our expansion plan, we will continue increasing daily frequencies in important markets. For instance, in June, Medellin and Miami will grow from 4x to 5x daily. Cancun increases to 4x a day and Guayaquil, Iquito and Cartagena grow from 2 to 3 daily frequencies. Also, we will be increasing to daily service several recently launched markets such as Asuncion, Brasília, Porto Alegre and Santa Cruz, among others. Although our 2012 capacity expansion calls for another year of above 20% ASM growth, in terms of departures, we will be growing around 14%. In addition, most of the capacity for 2012, more than 60% will be the full-year effect of flights we added in 2011. So we are already flying most of the new capacity. And so far, demand is keeping up. Our 2012 growth will be made each year by last year's condition [ph] to a [indiscernible] hub and the opening of the North Terminal at Tocumen airport. We're pleased that this and previous governments value the competitive advantage that our network and regional connectivity brings to Panama as it consolidates itself as the leading regional business and logistics hub. As a result, the airport continues to expand to meet our needs, which has allowed us to expand and consolidate our network. And it seems our regional infrastructure advantage will continue as the government has already mentioned, that later this year, it will be tendering the bid for a new south terminal expansion at our Tocumen airport hub. On the Alliance front, there has been a short delay in our entrance into the Star alliance, which was originally scheduled for the end of April. Nevertheless, we are ready to join Star and expect to announce an official entry date very soon. On the economic front, we expect 2012 to be another good year for our region and for Panama. Latin America is expected to grow close to 4% for the year and Panama is expected to grow more than 8% after growing more than 10% in 2011. In fact, in January and February, Panama's economy grew about 9%, outpacing last year's growth during the same period. The main sectors driving this growth were shipping and transportation, communications, construction and tourism, among others. As you can see from our recently released April traffic figures, where international traffic grew 28%, continued strength in our regional economy and Panama in particular, is having a positive impact on the demand for our services as we continue to expand and strengthen even more, our network dominance for intra-Latin America travel. To summarize, we're very pleased with our first quarter results. Our network continues to grow, and we're implementing many initiatives to strengthen even more, our Hub of the Americas. Our team continues to deliver world-class operational performance, and the regional economic environment remains strong, which is evident in the strong demand trends we're seeing. With that said, we feel confident in our ability to take advantage of the opportunities ahead while continuing to deliver world-class operational and financial results. Thank you. Now I'll turn it over to Victor, who will go over our first quarter results.

Thank you, Pedro, and good morning, everyone. Thanks again for joining us. First, congratulations again to the entire team for another strong quarter. And as always, thanks for the hard work. I'm pleased to report that we're off to a great start for the year as we expanded capacity year-over-year by close to 23%, added 4 new aircraft to our fleet, increased revenue by almost 30% and continued strengthening our hub as well as the financial position of the company. In terms of financial results, net earnings for the quarter came in at $95.9 million or EPS of $2.16 compared to last year's first quarter net income of $94.4 million or EPS of $2.14. Excluding a few hedged mark-to-market gain of $5.3 million, underlying net income for the quarter came in at $90.6 million more than 10% year-over-year increase compared to last year's first quarter, underlying net income of $82 million. With respect to traffic, we continue to see strong demand for air travel throughout our network as revenue passenger miles increased 22% year-over-year, driving the consolidated load factor for the quarter to 77%. Yield too in the quarter also remained strong, showing a year-over-year increase of 7% contributing to a rise in unit revenues or RASM of more than 5%. Operating revenue for this quarter came in at $543 million, or a 29% year-over-year increase on 23% capacity growth, a very strong revenue performance especially in light of the fact that during the course of the last 12 months or so, we've added 9 new destinations to our network. On the expense side, first quarter operating expenses increased 35% year-over-year while cost per available seat mile increased approximately 10%, the main driver being a 19% year-over-year increase in fuel prices. Cap and excluding fuel came it $0.068 or a 4% year-over-year increase. The main drivers being passenger related cost due to a 16% year-over-year increase in length of haul in addition to an increase in the mix of international passengers as we scale back domestic capacity in Columbia. Secondly, maintenance expense mainly driven by provisions related to operating lease return conditions. And thirdly, aircraft rentals, as we added 7 operating leases to our fleet during the course of the past year, increasing the mix of operating leases versus financial leases in our fleet from 25% in Q1 '11 to 30% in Q1 '12. Moving on to operating earnings, consolidated operating earnings for the quarter came in at $112 million or a 12% year-over-year increase, which translates to an operating margin of 20.5% despite significantly higher jet fuel prices. In terms of nonoperating income and expense, first quarter results reflected net nonoperating expense of approximately $800,000, consisting mainly of a net interest expense of $5.7 million and a $5.3 million fuel hedge mark-to-market gain. With respect to fuel hedges, we currently have coverage for 22% of the protected volume for the year using crude oil swaps at an average price of $87 a barrel. In addition for next year, we have approximately 10% covered at an average of $89 a barrel. Turning to our balance sheet, we continue to strengthen the company's balance sheet as assets at the end of the quarter reached $3.2 billion. Cash and cash equivalents totaled $648 million, which represents approximately 33% of last 12 months revenue. All this equity totaled approximately $1.5 billion and total debt amounted to $1.1 billion with the company's debt-to-equity ratio reaching a very solid 0.7x at the end of the quarter. In terms of fleet, we received 4 new Boeing 737-800s during the quarter, 2 operating leases and 2 financial leases. To end the quarter, we got a fleet of 77 aircraft, 31 737-800s, 20 700s and 26 Embraer-190s. In terms of future aircraft deliveries, during the remainder of the year, there are 9 scheduled deliveries. Four in the second quarter, 2 of which were already delivered in April. Three in the third quarter, and 2 in the fourth quarter. We'll also be returning 3 operating leases to the source, 2 737-700s in the second quarter and 1 737-800 in the fourth quarter. [indiscernible] there will be a net increase of 10 aircraft for the year, to end the year with a fleet of 83 aircraft with an average age of approximately 5 years. So we're making the necessary investment to sustain our growth while maintaining our perfect view [ph] field and the fuel maintenance efficiency of our fleet. To recap, the network sale [ph] in our region is solid, Avianca [ph] continues to be positive. We had another quarter of very strong capacity and revenue growth. Our financial position continues to strengthen, and we're well-positioned for what should be another year of strong earnings. In terms of our guidance for 2012, given our performance during the first quarter of the outputs for [indiscernible] in the region, we are updating our guidance [indiscernible], we're increasing our year-over-year ASM growth from plus or minus 22% to plus or minus 23%. We're increasing our load factor guidance from plus or minus 74% to plus or minus 75%. We're also raising our RASM guidance from plus or minus $0.132 to plus or minus $0.138. We are raising our CASM ex-fuel guidance from plus or minus $0.065 to plus or minus $0.067 to reflect mainly higher inflation and higher passenger-related expenses due to our increased load factor assumption. With respect to fuel, we're now assuming for the year expected price per gallon including into plane and net of hedges of approximately $3.40 compared to our previous guidance of $3.25 per gallon. And with respect to our operating margin, we are maintaining our guidance in the range of between 18% to 20%. Thank you, 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 in queue comes from Daniel Spilberg with Barclays.

My question is that historically, the company has been able to offset fuel prices with yield increases and also in smart capacity management. Now, I think in your guidance, you are already -- you are 18% to 20% operating margin. You are already factoring in cost per gallon of $3.40. So my question would be if fuel prices retrace to the previous level or even below, how should we think about your yields and your margins?

If fuel goes back to the previous guidance, you mean?

Yes. To the previous guidance or even below that level?

Right, we are not a -- our fuel guidance is not far up the curve, the way we see the curve right now, even though it might be higher than the spot price today. So it's really hard for us to get if fuel goes back to the previous guidance or even below, what will happen to yields and margins? Usually, margins benefit from lower fuel and usually yield comes down at a slower pace than fuel. So that's what usually happens, but I don't want to speculate because it's too early.

And let me just add to that, Daniel. If you look at our operating cost structure and you try to measure extensive TDD [ph] in terms of operating expenses of movement in fuel prices, for every $1 of movement of WTI, the impact on the annual expense is roughly $7 million or so. So that could give you an idea on what the impact could be on the operating expense side of the equation as fuel goes up or down looking forward. And then on the demand side, I would just add to what Pedro said is that right now, we are looking at very solid demand and very strong yields. So if fuel prices do come down, so much the better.

The next question in queue comes from Helane Becker with Dahlman Rose.

Just on other revenues, I see they came down from the fourth quarter to the first quarter, right? From $24 million to $19 million. Is that a timing thing or is there something else happening there?

Well most -- hi Helane, this is Victor. Most of that is cargo related. So what –- you’ll see that, it will fluctuate depending on seasonality so I wouldn’t consider that any leading indicator with respect to how you should expect cargo mail and others to behave looking forward. So it'll be during in the fourth quarter and the first quarter of the year, you will see some fluctuation in demand on the cargo side but it's really season driven.

Okay. And then just one clarification question Victor, on financial leases being at I think 30% now, up from 25%. So is that something we should consider going forward like a new ratio? Because I sort of thought it would -- might be less expensive to own your aircraft.

Well, we've traditionally favored financial leases versus operating leases, but we do value having a good mix as a result of when you have operating leases and you stagger the expiration dates of those operating leases, you do get some flexibility in terms of fleet planning and capacity planning. If we look at the past couple of years, we've been very heavy on the financial lease side. We're trying to balance it more. Having said that, it's not a level [ph] to 50-50 anytime soon. But you should expect to have a mix of at least 2/3 financial leases and 1/3 operating leases going forward for the next few years.

Our next question in queue comes from Jim Parker with Raymond James.

Okay, your business seems to be pretty strong throughout LatAm. I'm curious with what's going on in Brazil, though the economy is a bit soft and currency has weakened considerably there and it shows up in the domestic numbers for airlines in Brazil and I think the weaker currency might impact international travel for Brazilians. Can you tell us how much of your revenue comes from Brazil and are you seeing any softness in your Brazilian traffic?

Hi, Jim. This is Pedro first, and I'll let Victor give you some more specific numbers. So far, we have not seen a softening of our demand in Brazil. Our Brazil flights continue to do very well. And I think what I would say that there has not been, in the recent past, enough capacity to serve the Brazilian market. So I would say that even if demand was to soften a little, there's still more demand than capacity. So we're not seeing an impact there. Obviously, a lot will depend on what continues to happen with its currency. But their currency, even though has devaluated somewhat this year, I would say that it's still a strong currency especially in our region. So again, we have not seen a softening of our demand originating in Brazil. Victor, do you want to add?

The only thing I would add to that, Jim, and I confirm what Pedro just said, we're not seeing anything, advance bookings that would indicate that there is any pullback in demand out of Brazil and when you look at Brazil in terms of the impact to the top line, obviously, is important. Roughly 12% to 15% of our sales are in Brazil. For again, the other 85% is also well diversified. So we're not seeing any impact right now and demand remains strong, we're very well diversified also in the region.

Okay. And Victor, in your fuel guidance on the cost per gallon of $3.40, what WTI level and crack price are you assuming?

That would take you -- well that $3.40 includes into plane and is net of current hedges. So when you back that out, that takes you to around $3.06, $3.08 or so, which could take you to WTI in the range of $95 and probably attract a crack somewhere in the range of $30 to $32.

[Operator Instructions] Our next question comes from Michael Linenberg with Deutsche Bank.

This is actually Richa Talwar filling in for Mike. Just a few questions here. First, on your yield performance. We were pretty impressed by how high your yields were despite such a sharp increase in capacity, definitely not something we see all the time in this business, and I was hoping you could flesh out a little bit more of what you attribute to that level of stellar performance, maybe by market, new markets that are doing better than expected? And also on that point, it looks like if we were to continue to move or if you were to continue to move on a similar trajectory, your RASM guidance for the year is pretty conservative as it implies about a 1% increase or so on yields so there may be some risk to the upside there, is that a fair assessment?

The first question, it's Pedro. I would say that in general, Latin America has been growing healthy. The economies of Latin America and air-traffic in particular. So we're benefiting from that and that's why in spite of the additional capacity, we're seeing better yields. I should add also that due to higher fuel, it's been easier to implement price increases. It's been easier to get other airlines to follow when everybody is being affected by the higher fuel. So that combination of higher fuel and very healthy economies in Latin America has contributed to the strength of our yields.

And just to add to that, when you look at growth in Panama, Panama again, is having another great year just with GDP growth. Last year, the company grew at over 10% and this year, estimates are now anywhere between 7% or 8%, and some estimates are actually in the range of 9% to 10%. So again, it's another year of very strong economic growth, which results in very strong demand for air travel. And that’s Panama specific and if you look at the rest of the region, it should be a healthy economic environment for 2012, which should also result in good demand for air travel. So we'll keep managing RASM as we always have. Again we're not an airline that's just looking at load factors and trying to fill every seat. We will manage RASM and we'll be focused on healthy yields. But I think the message here is that the environment is such that it's allowing us to really manage very effectively, have very healthy yields and as well, we raise our RASM guidance from $0.132 to $0.138.

Okay, great. And do you think it was a fair assessment to say that there's some risk there to the upside for the RASM guidance just given that it implies a lower increase than you saw in the first quarter?

I think you have to look at in the context of the capacity that will be flowing in the remainder of the year. When you look at ASMs in the first quarter versus the second quarter of this year, they're pretty similar. There's not much additional ASM growth or capacity growth in the second quarter versus the first quarter. But when you look at the third quarter, you're looking at a quarter-over-quarter growth of at least 11% or so. And then you're adding another 5% on top of that in the fourth quarter. That's a lot of capacity that is growing. So the guidance we provided takes that into account so we'll see how it goes. But I think the good news is again, we're looking at a very favorable economic environment. So maybe there is upside.

Okay great. And just on my second question, this is more of a clarification I know that you talked about the impact of the CASM ex-fuel this year, that the items that should be impacting that, maybe some cost pressure you might be seeing there. Can you just clarify again and maybe flesh that out a little bit more, what cost pressures you might be seeing and if those are more transitory in nature?

Yes. This is Victor again. There are 2 main items, I would say. One of them I think it’s not a surprise to anybody. When you've seen very strong economic growth at some point, you will see some inflation. We're seeing some inflation in Panama, and we're seeing inflation in the region. So probably, it's inflation related and the other part is we did raise our load factor guidance so there will be more variable costs related to passengers transported and that's why we've decided to take the guidance up from $0.065 to $0.067. Those are the 2 main items I will highlight.

Our next question comes from Duane Pfennigwerth with Evercore Partners.

I wondered if you could just -- I'll echo the comments, right? 7% yield growth on a 16% length of haul is very strong and pretty rare. How much of that is currency related?

How much is currency related? Currency related -- when you look at the currency in the first quarter, actually, the real, actually the value went down on a year-over-year basis. And the Colombian peso actually was stronger slightly on a year-over-year basis. So I would say that the yield increase is not significantly being affected by currencies. I mean as we saw some very overall strong demand because it's throughout the network. It's not a -- it's like a national [ph] type of gain that you're seeing.

And there's a fuel cost impact there also, obviously.

Can you talk about, I know you don't report the segments anymore, but Colombia in terms of revenue improvement in the Colombia domestic market and maybe yield improvement that you're seeing there? Is it similar to what you're seeing on a system-level or better?

For Colombia, we've been scaling back domestic capacity and that's working quite well. In the sense that it’s, I would say, enhancing overall earnings for the company. This strategy of reallocating capacities from domestic to international market is yielding good results, I would say. Generally speaking, the environment in Colombia is more open for yielding better results because fares have recovered since last year as there were changes in the competitive dynamics when [indiscernible] was acquired by [indiscernible], so there were some capacity rationing and sersak [ph] have improved some. And that's the domestic market. Having said that, again domestic is now a small part of the total capacity in Copa, Columbia.

So yes. So even though yields did improve, domestic Colombia is not having a great impact. I think, it's less than 8% of total ASMs, Colombia domestic flight.

That's great. And then just lastly Victor, your interest expense, your gross interest expense was flat year-to-year. Is this a reasonable expectation for the rest of the year? And could you just remind us how much of your debt is fixed rate debt?

Yes. Fixed rate debt it's roughly half. I mean we're pretty balanced right now because of variable rate debt and fixed rate debt. By the end of the year, we expect to be more or less at the same -- with the same mix of 50-50 and we'll see how LIBOR behaves from now until then. But in the past couple of quarters, it’s been pretty stable so I won’t expect any big changes in terms of interest expense going forward, except for the fact that we are bringing additional financial leases on board, but on the rate side, we'll have to see how LIBOR behaves going forward. We haven't seen any big changes in the past couple of quarters.

Our next question comes from Hunter Keay from Trahan.

So you guys have competition on a city fare [ph] basis from what I can tell, about 40% of your routes. But did you have any idea what that is on an OMD basis, given the amount of traffic obviously that connects through Tocumen?

I'm not sure if we have in -- yes?

If you look -- I mean obviously, a lot of your markets have less than 20 for dues [ph] and I wouldn't assume what is that? 70-somewhat percent? I would assume that the majority of those, is -- do you have no nonstop -- no competition on them even on a connecting basis, right? So is it fair for me to assume that north of 75% of your markets, you do not have any direct competition or any competition at all for that matter? Is that a reasonable conclusion?

I think it's a little bit less than that. You mentioned -- well, based on OMDs what percent of our OMDs do not face a lot of competition or what percentage of our OMDs we have higher than let's say, 70% or 75% market share and the number is around 50%. In around 50% of our OMD we'll have better in a 70% or 75% market share. So maybe that gives you strong direction in trying to answer your question.

Okay, Pedro, that's useful. And maybe Victor, one for you. Looking at the fuel efficiencies as measured by ASMs per gallon, it got a little worse on a year-over-year basis, which is a little surprising I mean, given what happened with your stage length. So A, what happened there? And B, how should we think about sort of modeling in your fuel efficiency trending throughout the year given the puts and takes that we're going to have with your stage length changes?

You're probably looking at the fact that we grew ASMs by 23.2% and so on -- or 22.8% and then gallons grew by 23.2%, something like that. So the 1 got kind of a disconnect between gallons plus 2 in that ASM growth. I would say there's 2 main reasons for that. One is we have been using more APU than usual, auxiliary power units, at our hub operation as the result of the additional gates that we're expecting to be using already which have been somewhat delayed. So we're using more remote positions and we'll be using more remote positions as expected probably for another month or 2. So that's having an impact and then the other thing is we're seeing some disruptions out of Bogota as a response to a constraint the operation has -- the airport operation has vis-à-vis airspace, and that's what's impacting some -- the construction as well.

Okay. So maybe as we trend through the year, it can get a little bit better?

Yes.

Our next question in queue comes from Stephen Trent with Citi.

Just 2 questions, to some extent, a follow-up. I'm just also looking at this very strong RASM guidance. Is it fair to say that as you look to increase the RASM guidance, that very little of this came from what you're seeing on an underlying competition front? So for example, we can kind of write off let's say, American Airlines, American Eagle pulling back in parts of the Caribbean, this kind of thing. Is that fair to say that competition was a small factor in the RASM adjustment?

Probably a non-factor. So you're correct.

Fair enough. Great, Pedro. And just one other very quick question also relating to competition. Looking at Colombia, you guys have done a nice job of scaling back there and redeploying the capacity. Given the airport slot constraints in Bogota, the fuel burn from the high altitude runway, et cetera, are you hearing anything further about these Viva Colombia guys that have been trying to put something together?

We understand they're going to start flying sometime this month of May towards the end of the month. They're based in Medellin but again, we have reduced our domestic capacity quite a bit in Colombia. So we do not expect to be greatly impacted by their service or by this new competitor in domestic Colombia.

The next question comes from Pedro Bakal [ph] with Santander.

My question is regarding your operating margin guidance. You kept it at 18% to 20% although you delivered a 20.5% in the first quarter and frankly on my numbers, it does seem you could very well end the year above or at least in line with the upper limit of that range. Can you please give us some color on this and why do you expect it to fall over the rest of the year?

Hi Pedro, it's Victor. I find myself in the odd position of having to ask for excuses or tell excuses about 18% to 20% operating margin guidance. I don't think there are too many airlines out there giving that kind of guidance. But I'll do it anyway. Well, I think first, you're seeing a higher fuel price assumption. So just mathematically, when you have a higher fuel cost, even if you're covering dollar for dollar, each additional dollar expense in fuel, you're going to have that huge margin so that's part of it. Two, I think if you look at the margins for this company in the past 5 years, we have been in that range, from 18% to 20%. So it is consistent with what we've been delivering with the business model in times of high fuel prices and low fuel prices. And to me, again, I will highlight what I said earlier in the call that we are deploying a lot of additional capacity going forward. So if you look at the capacity growth again in the third quarter or the second quarter, 11%, 12% growth on a quarter-over-quarter basis. So we would expect that would have an impact on the RASM and that's why RASM is not going even higher than the 13.8% guidance we provided. So I will say that, that's where we see it. If fuel prices come down and GDP growth stays the same and demand remain strong, you could see it even higher. But right now, that's the way we see it.

The next question comes from Augusto Ensiki with Morgan Stanley.

First question. I noticed you changed a little bit your positions on your fuel hedges. Could you tell us what the average strike prices are for, well, I guess, the rest of the year and for the 2013 portion as well? And secondly, I apologize, I missed a little bit of the beginning where you talked about the government will be tendering bids for the Tocumen expansion later this year. What is the work -- or could you remind me what the expansion that, that project is going to be for or rather what that project will add to the airport?

So this is Pedro. I'll answer the second question first, and then I'll let Victor answer the fuel question. So Tocumen airport recently expanded by 12 gates from 22 to 34 by building a North concourse, a new North concourse. What's coming next is a new terminal that's going to be connected to the current terminal. It's going to be a new terminal built to the south. The bid’s going to come out probably in a couple of months and it will take around 2 to 3 years to complete. And we have not seen the final plans yet. We have seen a draft and we've seen the master plan, but we haven't seen the final package. But it's going to be somewhere around 20 to 30 additional gates. At least in the first phase, which has been -- we believe it's been tendered for bid at the right time because by the time it's delivered, let's say 3 years from now, we will most likely have a use for those additional 20 gates. So we are very pleased that our government is kind of keeping pace with our expansion needs and developing the infrastructure at Tocumen airport.

On the fuel hedges, just to give you more color on that, I said that for the year, we have 22% cover. The strike price is at $87 but we see a hike. And it doesn't really vary much by quarter. The fourth quarter is a little bit lower, it’s in the $85 range but the other 2 quarters, second or third quarter, is like $87, $88. And then for the next year, it's 10% for the year and it's pretty even by quarter and the strike price is between $88 and $90. Again, it doesn't really vary much by quarter.

The next question in queue comes from Daniel Spilberg with Barclays.

As a follow-up of the previous questions about demands, could you elaborate specifically on the maturation of the 9 new routes you recently opened and how they've been performing relative to the normal maturation period you saw in previous years when you also launched new routes?

Okay. I think they've done -- Pedro here again. I think they've done very well and the proof of that is that routes that we opened last year such as Brasilia, Porto Alegre and Asuncion, all of which we opened with 4 weekly frequencies are going up to daily service now in the month of June. So a year or less since those cities were launched, we're already increasing frequencies. So I think that's a bit proof of how well they're doing. And in general, I think all 9 launches were successful.

And I show a follow-up question in queue from Hunter Keay with Trahan.

Just 2 more quick ones for you guys. Pedro, I wonder if you can give us your thoughts on sort of the appetite for liberalization from other Latin American countries and just kind of give me your sense for maybe how, given changes in the political landscape, do you see any other risk within the region of other airlines maybe gaining fixed freedom rights, which is obviously a huge building block for some of your success and maybe talk about your thoughts on that maybe over the next, not just 1 or 2 years but over the next 5 to 10 years? I'd love to hear your thoughts.

Okay. What we have seen over the past, let's say 10 years, is gradual liberalization of air markets in Latin America. But it's very gradual and as that happens, we always have some countries that go back and become more restricted than what they were at any given time. And others that do continue to liberalize and we see that -- I see that continuing over the next 5, 8 to 10 years. So in general, the trend is towards a more open market. But there will be countries that will be, from time to time, due to political issues, different government that will be tougher from time to time. But again, in the overall, they're becoming more open and that's actually good for us. And we actually -- we support open skies throughout our region. We know that won't happen tomorrow, that would take decades probably. But usually, open skies do not really give you more in terms of fares [ph] or -- I mean, they give you fixed freedom but that's not what we're looking for and you welcome [ph] mentioned, we operate our hub that depends on just having route rights. These fixed freedoms come automatically from having the route rights. So we benefit from the availability of route rights. And our competitors have pretty much the same access to routes as we have because we're all competing based on hubs, not as much in point-to-point service. So today, they have pretty much the same route rights we have. So we don't think it's going to be a disadvantage if there are more liberal or open skies in our region and we think we will benefit the way we operate.

And maybe one more while I have time is, you mentioned the delay in joining Star, obviously, but how should we think about the benefits that you're getting now from any antitrust immunity? Because I think you do still have antitrust immunity with United. But can you maybe verify that if that's true and how the Star Alliance membership might provide benefits just beyond simple code-share but maybe sort of a ramped-up partnership through the antitrust immunity? If that makes any sense. So I guess the question is, are you getting any antitrust immunized benefits now and how much can it go once you join the Star crew [ph]?

You're certainly right. We have antitrust immunity with United and we have as broad a commercial alliance as you can have. So Star is not going to change our relationship with United. It's already as strong as it can be. Again, including antitrust immunity. So even though we will get additional benefits from joining Star through mainly frequent flyer reciprocity with all 26 or 27 Star members, our main alliance is United, that's already in place. So a 1- or 2-month delay joining Star does not really have a material impact in our performance this year.

And I show that is all the questions that we have for today's call. I would like to turn the program back to our presenters for any concluding remarks.

Okay, that's it. Thank you, all. This concludes our first quarter earnings call. Thank you for being with us and thank you for your continued support. We hope to see you next time. So have a great day, have a great weekend.

Ladies and gentlemen, thank you for joining today's conference. This does conclude the presentation. You may disconnect, and have a wonderful day.