Copa Holdings, S.A. (CPA) Q3 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Copa Holdings Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being webcast and recorded on November 13, 2013. Now we'll turn the conference call over to Rafael Arais, Director of Investor Relations. Sir, you may begin.

Thank you very much, Kevin, and welcome, everyone, to our third quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings; and Jose Montero, our Chief Financial Officer. First, Pedro will start with our third quarter highlights, followed by Jose, who will discuss our financial results. Immediately after, we will 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 the non-IFRS to IFRS financial measures can be found in our third quarter earnings release, which has been posted on the company's website, copa.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, Rafa. Good morning to all, and thank you for participating in our third quarter earnings call. Last night, we reported our third quarter results. And as always, I want to congratulate our team for another quarter of solid growth and industry-leading financial and operational results. Among our main highlights for the quarter: revenues grew a very healthy 15% on 12% capacity growth. Traffic grew over 15%, leading to a an almost 3-percentage-point year-over-year increase in load factors. While yields remained essentially flat year-over-year, despite a 7.5% increase in length of haul, unit revenues, or RASM, were up 2.8% for the quarter and were actually up 6.6% when adjusting for the increase in length of haul. On the cost front, unit costs, or CASM, decreased 0.3%, as a result of a lower all-in jet fuel price. As a result, we delivered a 21.8% operating margin, representing a 2.5-percentage-point year-over-year improvement. On top of these outstanding financial results, we continued delivering a world-class product, with consolidated on-time performance for the quarter coming in close to 87%. During the third quarter, Copa Airlines' capacity growth moderated to 11.6%, after expanding almost 19% during the first half of the year. We successfully absorbed this additional capacity due to strong demand, resulting in a higher load factor. And we were able to show a year-over-year improvement in unit revenues. This is even more significant when taking into account that during the last 2.5 years, we have added 15 new destinations and also that our average length of haul, year-over-year, has increased almost 8%. For the fourth quarter, we expect to grow year-over-year capacity by approximately 10%. Also expecting that a healthy demand environment and more modest growth levels would be positive for unit revenues. In terms of our expansion for 2013, during June and July, we added 1 new destination, Boston, which is performing very well, and we also increased frequencies to several markets. For December, we have announced new service to Tampa, Florida, our ninth destination in the U.S. with 4 weekly frequencies. In addition to Tampa, we will also add frequencies to a number of destinations in the fourth quarter, such as: an eighth daily flight to San Jose, Costa Rica; a sixth daily to Cancun; a fifth frequency to Punta Cana, Dominican Republic. In the U.S., we will add a third flight to JFK and a second to Las Vegas; also a second daily flight to Asuncion, Paraguay. We will add additional flights from Colombia to Panama, including a fifth Cali, a third Barranquilla and a second Pereira. And finally, we will also add frequencies to some markets which we serve less than daily. With the addition of Tampa in December, Copa Airlines will provide service to 66 cities in North, Central, South America and the Caribbean, strengthening its position as the most complete and convenient connecting point for intra-Latin America travel. With regards to infrastructure, I'm pleased to mention that the Tocumen Airport terminal expansion is underway and ahead of schedule. This expansion, which will add another 20 jet bridges to our connecting center in the next 3 to 4 years, will keep Tocumen at the forefront of airport capacity in our region and ensure that our hub has the necessary infrastructure to accommodate our future growth plans. Turning to the economic environment. The region's growth prospect has been cut back slightly, partly due to slower growth in Brazil and Mexico. Nevertheless, regional GDP is still projected to grow almost 3% this year, with Central America expected to grow close to 4%, while South America and the Caribbean are estimated to grow about 3% and 2%, respectively. Furthermore, for 2014, the region is expected to perform better with economic growth slightly higher than 3%. More importantly, traffic growth for the Latin America region remains healthy. In the third quarter, international traffic, as reported by IATA, outpaced capacity growth, which is positive for airline carriers since the competitive environment is, for the most part, rational, especially in the international market. With an expected GDP growth of almost 8% for 2013, Panama continues to have one of the fastest-growing and most promising economies in the region, performing remarkably well amidst the execution of large public investment infrastructure projects, ambitious private sector projects and very healthy domestic demand, which is being supported by higher employment and a growing middle class. For the long-term strength and growth prospects of Panama, economy should definitely benefit Copa in the coming years. While at the same time, our network and regional connectivity increasingly contributes to Panama's prosperity through job creation, new opportunities for intraregional commerce and trade, a growing tourist destination, as well as the attraction of a growing number of multinationals that are setting up regional headquarters in Panama. In general terms, we continue to see healthy regional demand trends and are confident of our expansion plan and the market's ability to assimilate our projected capacity growth, while we take the opportunity to continue consolidating and expanding our network. Our 2014 preliminary guidance, which Jose will discuss in more detail, calls for another year of double-digit capacity expansion, slightly stronger unit revenues and stable and competitive unit costs, which should result in another year of strong margins. In terms of our 2014 network expansion, our growth will be more focused on adding frequencies rather than new destinations. Keep in mind that as a result of our significant expansion in terms of destinations, currently, more than 40% of the cities we serve have daily or less-than-daily service. So there are a lot of growth opportunities as these markets continue to mature. In terms of fleet, we have modified our consolidated fleet plan to reflect the extension of 4 737-700 leases that were expiring next year. We now expect to end 2014 with a fleet of 98 aircraft, as a result of taking delivery of 8 new 737-800s during the course of the year. So to summarize. Our outlook and fundamentals for our business model continue to be very strong. We operate in growing and mostly underserved markets, where in most cases point-to-point service is not an option and markets can only be served efficiently through a hub. Our Panama airport has the best geographic location and infrastructure to serve the intra-Latin America market and accommodate our future growth. We're benefiting from favorable economic and demographic trends that will drive growth for the foreseeable future. We continue to implement the necessary initiatives to improve our passengers' experience, while maintaining very competitive costs. And most importantly, we have a very committed and dedicated team, who, day in and day out, win the preference of our passengers through world-class operational performance and customer service. With that said, we feel confident of the opportunities ahead and our ability to continue delivering industry-leading margins. Thank you. Now Jose will go over our third quarter results.

Thanks, Pedro, and good morning, everyone. Thank you for joining us. Let me join Pedro in thanking all of our coworkers for their efforts in running a world-class operation and delivering a very solid third quarter, one in which we grew capacity by 12%, increased revenues by 15% and maintained very competitive x fuel unit costs. Along with lower fuel prices, allowed us to deliver, once again, one of the strongest operating margins in the industry. Getting to our financial results. Reported net earnings for the quarter came in at $126 million or earnings per share of $2.84, compared to last year's net income of $111.9 million or earnings per share of $2.52. Excluding a fuel hedge mark-to-market gain of $9.8 million, underlying net income for the quarter came in at $116.2 million, or earnings per share of $2.62, compared to last year's third quarter underlying net income of $97.6 million, which excludes the fuel hedge mark-to-market gain of $14.3 million during that period. With respect to traffic. Revenue passenger miles increased 15% year-over-year, driving the load factor for the quarter to 78.1%, 2.6 percentage points increase compared to last year's third quarter load factor. This, combined with stable passenger yields, contributed to a 2.8% increase in unit revenues. And when adjusting for a 7.5% year-over-year increase in length of haul, yields for the quarter increased 3.6% and unit revenues, or RASM, increased by 6.6%. Operating revenues for the quarter came in at $677 million, for a 15% year-over-year increase, 12% capacity growth, a solid revenue performance even for a high season. On the expense side, third quarter operating expenses increased 11% year-over-year, while cost per available seat mile decreased 0.3%, a result of lower fuel prices. We also saw a 2.7% year-over-year increase in CASM x fuel, which came in at $0.068 for the quarter, mainly as a result of an increase in aircraft rentals, driven by the timing of some aircraft deliveries and also due to the increase in cost of sales primarily from the 15% increase in revenues. Moving on to operating earnings. Consolidated operating earnings for the quarter came in at $148 million, or 29% year-over-year, translating into an operating margin of 21.8%, well above last year's third quarter operating margin of 19.3%. In terms of nonoperating income and expense, third quarter results reflect a net nonoperating income of $6.3 million, consisting mainly of a net interest expense of $4.4 million and a $10.7 million gain on the other net line, mostly related to the mark-to-market of fuel hedge contracts. This quarter, we've also reported an income tax expense of $27.8 million, which is higher than the income tax expense that we have reported previously throughout the year. This increase is related to the timing of certain tax payments we make in Panama. For full year 2013, we expect our income tax rate to be in the range of 13%. We expect our effective tax rate for 2014 to be in the range of 11% to 13%. Turning to fuel hedges. We ended the third quarter with hedges for 37% of the projected volume for the fourth quarter, using crude oil and jet fuel swaps. 15% of our volume for this period is hedged in jet fuel at an average price of $2.83 per gallon, 22% in crude oil at an average of $89 a barrel. In addition, for 2014 and 2015, we had coverage of approximately 20% and 15%, respectively, similar prices and using the same instruments. In terms of fleet. During the quarter, we received 3 of our 7 scheduled aircraft deliveries for the year, which are all Boeing 737-800s. So we ended the quarter with a fleet of 89 aircraft, 45 737-800s, 18 737-700s and 26 Embraer-190s. During the fourth quarter, there was one scheduled delivery, which we already received in October. So our plan is to end the year with a fleet of 90 aircraft with an average age of approximately 5 years. Turning to our balance sheet. We continued to strengthen the company's position, as cash, short- and long-term investments at the end of the quarter totaled $1 billion, which represents more than 40% of the last 12 months' revenues. We also maintain a very favorable position in terms of leverage with a total debt-to-equity ratio of 0.6x, one of the strongest balance sheets in the airline industry. During our previous earnings call, we announced an increase to our dividend policy of -- to up to 40% of the previous year's consolidated net income. Additionally, we announced that our dividends will be paid on a quarterly basis instead of yearly, effective as of the third quarter. On December 15, we will pay our next quarterly dividend of $0.73 per share. So to recap. Demand for air travel in our region continues to expand, and our airline continues to attract a growing number of passengers. We had another quarter of solid capacity and revenue growth. We continue to be well positioned to achieve another year of strong earnings. We have one of the strongest balance sheets in the industry, and we continue to return value to our shareholders. In terms of our guidance for 2013. Given our performance, the economic outlook in the region and current trends, we're updating our full year guidance as follows: We're expecting our capacity growth in terms of ASMs to be at approximately 14%; load factor is expected to come in at plus or minus 76%; we're keeping our RASM guidance at plus or minus $0.136; we're maintaining our CASM x fuel guidance at plus or minus $0.067; we're also maintaining our effective fuel price assumption for the year, including into-plane and net of hedges at approximately $3.20 per gallon. As a result, we can now narrow our full year operating margin guidance to plus or minus 20%. Today, we're also providing preliminary guidance for next year, 2014, based on our operational plan and demand outlook for the year. As such, we expect another year of double-digit growth, as ASMs are expected to be 10% higher than this year, load factor is expected in the range of 77%. RASM is estimated to come in slightly higher at plus or minus $0.137. We expect CASM x fuel to come in at plus or minus $0.068. And with respect to fuel, we're assuming an effective price per gallon, including into-plane and net of hedges, of approximately $3.15. As a result, continue to expect strong operating margins in the range of 19% to 21%. Thank you. And with that, I'll turn it over to Pedro for closing remarks.

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

[Operator Instructions] Our first question comes from Jim Parker with Raymond James. James D. Parker - Raymond James & Associates, Inc., Research Division: I'm a bit worried about the $392 million that you have in Venezuela that has not been repatriated. And I guess I'm worried that it -- some it might be -- there are some bizarre things, as you know, going on in Venezuela. And it has risen, I think, over the past year it was like $220 million, so you're now $392 million. What can you tell me that might allay my fears? Or should I? Or maybe my fears are well placed?

Well, Jim, this is Jose. First thing that we have to say is that the government in Venezuela has been paying or repatriating our cash that we have there. As a matter of fact, the last payment that we received from the Venezuelan government was around 3 weeks ago. And the point there is that the government has been honoring the exchange rate at which we have sold our tickets, even after the valuation that occurred in February. They have been honoring the exchange rate at which we sold our tickets even previous to that. And so -- so what they've been paying, they've been paying recently up to now.

The only thing I would add to that, Jim, is that, oddly, even with that money stuck in Venezuela, our cash position is still very strong. And we know we're going to get it out eventually, but it's taking a while. It's taking almost 11, 12 months to get the money out. James D. Parker - Raymond James & Associates, Inc., Research Division: Yes. It appears that over the past year, though, it's perhaps risen more than 50%. And have your revenues -- is that in line with your revenue growth in that country? Or -- something might be a little odd there it seems.

Well, yes, it's a combination of factors. The delay in paying used to be 6 to 7 months. It's now almost twice that. So number one is that the authorization to repatriate the fund, it takes longer now. I mean, we have a backlog that's longer. And revenues have increased, so a little bit more revenue. But again, we went from 6 to 7 months' delay to 12 months, where we are right now. James D. Parker - Raymond James & Associates, Inc., Research Division: Okay. All right. My second question, on your CASM x -- excluding fuel, you have a blip, it appears, in the third quarter, up 3% year-to-year. And that follows several quarters of declines. Is there something unusual about the third quarter, your nonfuel costs rising so much?

So, Jim, this is Jose again. As we've mentioned in previous calls that we've had, there was some timing of events that were coming in, in the second half of the year, and so what we're seeing there is that. Specifically in the third quarter, there were some aircraft rental expenses due to timing of deliveries during the quarter. Another portion of it is related to our higher revenues. And so, therefore, our distribution costs on an ASM basis moved up slightly. And our full year guidance is still for $0.067 on an x fuel basis.

Our next question comes from Hunter Keay with Wolfe Research.

This is Jared Shojaian in for Hunter. So just to follow up real quickly on that CASM guidance into 2014. So we're seeing an uptick really into next year as well, but we really haven't seen it in quite some time. So first, I guess, what's driving that? And last quarter, you talked about kind of a flattish CASM x for next year. So just curious, really, what's changed since then.

Yes, again, this is Jose. Still with the -- still are very preliminary guidance. We're still in the middle of our budgeting process for 2014. And it's just not one thing. There are a couple of items that are in there. One of them, I would say, is a little bit of the revenue mix that we're seeing for the year, and it's driving a portion of our cost of sales slightly upward. And also, in reality, there have been some inflationary pressures in some other operational costs that we've seen in -- starting -- throughout 2013 in airports and in more flight seats [ph] in the region that also have driven this slightly upwards.

Okay. And is your stage length going to be flattish next year? Is that part of the reason why CASM x is a little bit higher? Or how is stage length trending?

Yes, it's probably going to be flattish to slightly up. I mean, our stage length is going up next year by about 3%. So it's probably going to be flattish, yes.

Okay, great. And then just lastly, I was hoping you could shed some light on this 2014 EBIT margin guidance. You talked about the demand environment being healthy. Your fuel guidance is lower. Capacity growth is decelerating and really geared more towards this higher-margin frequency growth rather than new markets. So I'm really curious as to why you're assuming flattish-type EBIT margins in 2014. Is this just more of a conservative approach? Or what exactly is going on here?

Well, this is Pedro here. I think what's going on is that we're guiding again to some of the highest margins in the industry. And I don't know if it's -- in our aviation industry, margins can be a lot better than that. So we feel we're still guiding to very strong margins. And, again, it's preliminary, as Jose mentioned, but we think those are pretty strong and pretty healthy margins.

Okay. Great. Yes, no doubt that margins are undeniably high. Just curious as to really more just flattish from this year on really some perceived tailwinds going into next year.

The next question comes from Mike Linenberg with Deutsche Bank.

Just a couple of questions here. I guess if we could just talk about the size of your Colombian domestic operation. I mean, that -- it looks like that's been shrinking at a pretty rapid clip. In fact, it looks like it's actually accelerated over the past couple of months. And I'm just curious what the maybe longer-term plan -- is it just to maybe move out of the Colombian domestic market and focus on tying the Colombian cities into Panama [indiscernible] to sort of 1A, 1B, would be? Are you able to backfill a lot of the domestic service with a codeshare with your fellow Star Alliance carrier, Avianca? And how's that going, if that's the case?

This is Pedro, Mike. I thought you were Cancun, but that's okay.

No, in a few days.

Okay. But, yes, you're right. We have as we've mentioned before, we have reduced our domestic presence with Copa Colombia, and have focused more on feeding our hub, flying from different Colombian cities into our hub in Panama. And also some niche international flying out of Bogota mainly, and some out of Medellin. We -- I cannot really comment on where that's going in the future. We don't -- we're not going to grow domestic. Will we shrink it further? It depends on how the market behaves and what other opportunities we have in the international markets. The domestic market in Colombia is extremely competitive, and we see better opportunities flying both to the hub and also to some of the niche international markets I mentioned before. So we'll look at what makes the most sense for the business, and we'll make that decision when time comes.

Pedro, but are you codesharing with Avianca in the domestic markets? Because you do have that historical presence there, and so my sense that you can still...

So you're right. So you're right -- that's -- I think that's an important comment. We codeshare with them in some markets, and we have frequent flier reciprocity, which is even more important than codesharing in every market. So yes, we fill that gap by our relationship with Avianca.

Okay. And then just, second question. Is there anything on the horizon as you look at competitive capacity? I mean, you're adding a decent amount of capacity. I shouldn't say -- not decent -- you're actually decelerating. But I'm just look at some additional frequencies here and there. Is there anything that you see out there? I mean, I know we're seeing some additional service by maybe some of the Mexican carriers into Central America. It does seem like you're going to get a benefit from the year-over-year pull-down by Avianca of the San Jose-Costa Rica hub. Anything out there competitively over the next 6 months that you see or in your markets?

Okay, so my comment is based on what I can see today. And as we know from this industry, tomorrow could be completely different. So one never knows. But up to today and what we've seen in the recent past, is very rational behavior from the main group, the main competitors, in our region. So everybody's growing, but growing in a rational way, growing mainly in the markets that make the most sense to them, which airline. And yes, there are some other regional airlines from other -- from different countries that are adding service, but nothing really significant, I would say, in the kind of big picture of the region. So I do not see any of that changing in the future 12 months or so.

Your next question comes from Duane Pfennigwerth from Evercore.

Not to come back to your guidance, but I did want to just try and understand maybe some of the assumptions underlying the RASM guidance. If I look at just the last 2 quarters as an example, I think in the second quarter, you grew 18% on an ASM basis. Third quarter, you grew 12%. So a big step-down in the growth rate, yet your total revenue growth was pretty similar, 2Q to 3Q, at about 15% year-to-year. So if you're growing top line, forget the airline metrics for a second, but just revenue is growing 15%. It looks like your RASM guidance calls for about 11% next year. It feels like you're assuming something gets worse in the environment than what you see today. So could you just add some detail there?

This is Pedro, Duane. As Jose mentioned, it's a preliminary guidance. We don't want to tag it with being conservative, being aggressive or anything in between. It's kind of what we have right now. In the next earnings call, we will update the guidance. I'm not saying that, that's going to change. It might remain the same. But it's not that we're seeing anything different to what we've seen before, what we have experienced up to now. We're not seeing anything different. There can always be positive surprises, but that's not guaranteed. So it's in line with capacity. And again, it's what we're seeing right now.

Okay. I guess maybe just coming at it a different way. If you think about new market growth, new dots on the map and sort of the revenue growth opportunity associated with that versus maybe revenue managing for higher yields with less growth, is there any reason that less growth and higher yields should lead to lower revenue growth?

I mean -- again, going back to that, it's still preliminary, we're still finalizing our top line budget. So it could be precisely that we go and do a -- come back and find opportunities and somehow our revenue figures become a little bit more higher based upon our growth for next year. But for now, I think that our top line guidance is what we have, and I think we're comfortable with the way that it is. And that's the way we see it.

That's great. I appreciate that detail. And then just on capacity generally, the 10% that you've outlined, is there any optionality there? In other words, could that be higher or lower? Or how should we be thinking about that 10%?

For next year, it won't change much. It's going to be in the range of 10%. That's what we get by taking delivery of 8 new 737-800s, and that's not really going to change at this point. In future years, we expect growth to be in that range, in the low teens. But we always have the flexibility to lease in aircraft and grow faster like we did in 2011 and 2012. A few years before 2011 and 2012, we were projecting slower growth. But we saw the opportunity. We took in additional leases and grew a lot faster. So that can happen going forward if we see that opportunity, but not for 2014. 2014 is 8 aircraft, and it's going to be around 10% ASM growth.

If you look at -- Duane, if you look kind of at our growth rate over the last 5, 6 years, taking out kind of a 2011, 2012 as outliers, you see that precisely -- our growth rate has been precisely between 10% and 14% on average.

The next question comes from Helane Becker with Cowen.

I guess I have a question about your thought process with respect to owned versus leased. With the cash balance that you have, are you thinking about owning more aircraft outright versus leasing more aircraft? Or can you kind of talk about your thoughts with respect to that, please?

Well, we always want to have a balance between owned and leased aircraft. And as a matter fact, over the last 2 years, our portfolio of aircraft has -- of leased aircraft as a proportion of the total has gone up slightly. Right now, we have about 1/3 of our aircraft are leased and about 2/3 are owned. And our thought process is basically just simply managing the risk of the equipment and just managing our balance sheet in the best way possible. And the other thing that's very important for us in our fleet plan is flexibility in our fleet plan. So we always have the option to pursue additional leased aircraft if that capacity were to be required as we mentioned previously, or dispose of aircraft if things in a moment in the future might not work out. So we're -- we always want to keep that capacity flexibility, and that's kind of our thought process in our aircraft portfolio management.

Helane, many times -- it's Pedro here. Many times we be leasing aircraft to accelerate growth. Lessors usually have inventory available on shorter notice. So we've taken advantage of that. And right now, we're also looking at the fact that the NGs, the 737 next generations, are going to replaced by the 737 MAXes. So having more flexibility with leases, with lease expirations in the future, will maybe allow us at one point to refleet if needed. So the flexibility that Jose mentioned also plays into the decision.

Okay. And then, can I just ask a question about the fleet? I think you said, or Jose said, that you'll end the year with 90 aircraft. And then you're taking, what is it, 8 for next year? So what will the net number be? Are there any aircraft retirements scheduled for next year that we should know about?

So we recently extended 4 737-700 leases that we had expiring in 2014. So we've extended 2 of them for 1 year and 2 of them for 2 years. And so therefore, next year our net aircraft growth is going to be 8 aircraft.

Okay. And then just one last follow-up question, please, on the tax rate. I think you said 11% to 13% for next year. As you grow and add more service to cities in the U.S., should -- or increase your frequencies in the U.S., should we be -- will that do anything to change your tax rate? I guess, are you growing in high-tax jurisdictions? Or how should we think about that 11% -- that range that you're giving us?

Yes, it should not have an effect. Our tax rate mostly is influenced by the proportion of traffic that we have in -- as a Panama origin destination basis. And so that's kind of where our estimate for next year and our range of next year is, between 11% and 13%. And flying additional flights into the U.S. should not have an effect on our effective tax rate.

[Operator Instructions] The next question comes from Ricardo Alves of Morgan Stanley.

Would you mind sharing with us your views for the fourth quarter this year? We saw some traffic slow down in October, I guess, high-single digits, if I'm not mistaken. Do you have any views on November already? And December, do you think load factor could go back to the levels we saw this quarter? Any color for the next couple of months, that would be helpful.

Yes. So fourth quarter is never as strong as the third quarter. This is Jose, again, by the way. Our fourth quarter for this year, we expect it to be coming stronger than fourth quarter that we had last year. During the fourth quarter, as we've mentioned previously, there is still some timing of expenses that come in to the latter part of the year. Still, we're guiding for very strong margins for the year at 20%, which we believe are encouraging [ph].

Okay. Another quick one, regarding the other revenue such as cargo, for example, is still relatively weak or weak-ish on a year-over-year basis. Just wondering what's in here. Or what are your expectations for this -- I know it's relatively small, but just a review on the other revenue, that would be helpful as well, going forward.

Do we have cargo -- yes, for the third quarter? You mean third quarter, right?

Yes. Well, so basically, what's going on and what's your view for the near term or next couple of months, what should we expect. Maybe even next year, what's your view on the development of this line, if it's going to improve or not? Because it seems it's relatively weak-ish.

It was a little bit weak in the third quarter mainly due to lower cargo revenues. But we don't have -- we have only narrow bodies. So the cargo we move is when there is space available in the belly. And when load factors are higher, there's less space for cargo. Plus we have seen some softness in cargo yields and cargo volumes out of Panama. It's kind of specific to certain market. There's also more -- I mean lower yield from all cargo carriers. But again, it's not a big part of our business. And when load factors are up, like in the third quarter, we have less space to move cargo in our narrow body. Fourth quarter, we're expecting basically normal revenues in the other revenue line. End of year, usually volumes go up, and it should not be as soft as the third quarter. And for next year, we're expecting that line to be normal again. Nothing different to what we've seen in the past.

Our last question comes from Stephen Trent with Citi.

Just 2 quick follow-ups. I know time's going here. The first is actually kind of a follow-up on Mike Linenberg's question. I saw recently there's some smallish news out of El Salvador and Costa Rica that, I guess, 2 entities want to try and launch low-cost carriers, which it seems to me route density-wise, there might be a smallish opportunity to do northbound out of those locations. But I was wondering if you had any view on that, or as -- these are just flies on the wall at the moment. But was wondering if you had any view on that, as a first question.

Yes. We don't really know a lot more than what we've read, which is probably the same information you have. So we don't have a lot to add. We do not underestimate anybody. We take everybody seriously and compete seriously against everyone. Whatever they -- if they do anything north of Central America, it doesn't really have much of an effect on us. And intra-Central America, I can say that the markets are -- the market is thin, so there's not a lot of room there to do much. And we will compete aggressively against anyone, and we have plenty of capacity. So there's nothing that worries me or worries us right now. But again, we don't underestimate anyone.

Very helpful, Pedro. And the last question also -- again, kind of a follow-up on Helane Becker's question on leasing versus owning. If my memory serves me correctly, several years ago, you guys used to own almost all of your fleet. And now, leasing has been growing in the mix. As we go forward, could we see the -- is that correct, first? And two, could we see lease increase as a percentage of the portfolio maybe modestly from here?

Yes. This is Jose again, Steve. And as I've mentioned, part of the reason where we're at today, we -- as I mentioned before, we have about 1/3 of our portfolio of aircraft that's leased. And there are a couple of reasons. One, as Pedro mentioned before, we have seen opportunities in the last couple of years for growth. And so we have placed this capacity, via leased aircraft, we have gone to a leased market and brought in these aircraft kind of on a quick notice to be able to take the opportunities that we saw during 2011 and 2012. And then the other thing is that going forward, is that we are balancing, as Pedro mentioned also, our -- we want to balance our aircraft portfolio given that, eventually, we know that the 737 MAX is going to come to the market and we're -- we might have some timing of aircraft lease departures, and eventually, we could replace those potentially with MAX aircraft.

And, Stephen, we have done some sale leaseback this year and next year, which we hadn't done before. And that was -- we did that thinking of the flexibility that Jose just mentioned. And we also got very competitive cost, which made it attractive for us.

Very helpful, guys. And just to be clear. A few years ago, you guys were almost 100% owned versus leased.

Yes. Well, true...

Well, there were still -- there was always a couple of leased aircraft in there in the portfolio. But...

Yes, maybe 80% or something like that.

I'm not showing any further questions at this time. I want to turn the call back over to Pedro for closing remarks.

Okay, thank you. Thank you, all. This concludes our third quarter earnings call. Thank you for being with us, and thank you for your continued support. We will see you next time. Have a great day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.