Copa Holdings, S.A. (CPA) Q1 2014 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 8, 2014. Now I will turn the conference call over to Rafael Arias, Director of Investor Relations. Sir, you may begin.

Thank you very much, Jonathan, and welcome, everyone, to our first 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 first 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' first 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 first 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 our 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 first quarter earnings call. I first want to congratulate all of my coworkers for another outstanding quarter. As you can see from our first quarter earnings release, we're off to a very good start for the year. Among our main highlights: available seat miles increased 9% year-over-year; passenger traffic grew 11%, improving our load factor by 1.2 percentage points to 78%, as a result of healthy demand trend throughout our network. This resulted in a positive revenue environment as yield and unit revenues, RASM, came in higher year-over-year. At the same time, our x fuel unit cost came in at a very competitive $0.066, which was in line with our expectations for the quarter. As a result, we've delivered an operating margin of 24.8%, representing a year-over-year and quarter-over-quarter margin expansion in what's seasonally one of our strongest quarters. On top of these strong financial results, we also continued delivering a world-class product, with system-wide on time performance for the quarter coming in above 92%, roughly 2 percentage points higher year-over-year and amongst the best in the industry. Our first quarter performance was quite strong, and the network is performing very well. Lower capacity growth year-over-year has been positive for unit revenues. Nevertheless, one must keep in mind that the first quarter results included strong Venezuela revenues, a market with higher average demand, and thus, higher yields than the network average. A large portion of these revenues were the result of forward sales made in the second half of 2013. Given that the economic situation in Venezuela is not improving and that the airline industry still owed approximately $3.9 billion, we have announced capacity reductions as of the second quarter. This rightsizing of capacity, which represents approximately a 40% reduction in fees, shall substantially reduce our exposure and minimize the accumulation of bolivars, going forward, while at the same time, continuing to serve the Venezuelan market with frequent and reliable service. Turning to the rest of the network. For this year, we expect capacity growth of 10%. We plan to receive 8 new 737-800 aircraft, of which 1 was already delivered late March and another 1 in early April. The capacity we're adding this year will include new destinations, having already announced 3 of them, starting service by July, and possibly more coming later in the year. Nonetheless, overall, the additional capacity will be more focused than additional frequency. As we announced earlier in the year, our expansion plan for the first half of 2014 includes 3 new destinations: Montreal, our second Canadian destination; Fort Lauderdale, our 10th city in the U.S., and Georgetown, Guyana, which will become the 30th country we serve. This market has very little connectivities to Latin America, and we're confident they will perform well and contribute to the strength of our network. In addition to these new frequencies and destinations, we will also add frequency to a number of cities, such as an 8 daily frequency to Panama, from Panama to Bogota, and a second daily to San Andres, Colombia. Mexico City will get a 5th daily flight, and Cancun, a 7th. In Ecuador, both Quito and Guayaquil will go from 3 to 4 daily frequencies, and Brasilia and Aruba will go from daily to twice-daily flights. I'm pleased to say that the Tocumen Airport south terminal expansion, which will add another 20 jet bridges to our connecting center in the second half of 2016, is progressing nicely and slightly ahead of schedule. The design has a capability of adding an additional 10 jet bridges in its following phase. This project will keep the Tocumen Airport at the forefront of airport capacity in our region, and will ensure that our hub has the necessary infrastructure to accommodate our future needs. Turning to the economic environment. We expect another year of steady growth for our region, with GDP for Latin America expected to expand approximately by 2.7%, driven mainly by Mexico and Brazil, which are expected to grow roughly 3% and 2% respectively. Countries such as Panama, Peru, Bolivia, Colombia, the Dominican Republic and Ecuador are leading the growth forecast for the region, and they are expected to surpass 4% growth. In fact, this year, Panama is again expected to be the fastest-growing economy in Latin America, with GDP forecast to expand about 7%. Panama's economy continues to be supported by large quality infrastructure project, a healthy and growing financial sector, as well as very strong domestic demand, which is being supported by a growing middle-class and expanding tourism industry and a large influx of multinational corporations, who are establishing their regional headquarters in Panama. So to summarize, we're very pleased by our first quarter results. Our team continues to deliver world-class operational performance. The regional economic environment remains healthy, which is evident in the strong demand trends we're seeing. We have taken steps to mitigate the Venezuelan currency risk, reducing capacity to the market, and expect to substantially reduce the accumulation of bolivars going forward. And in spite of our capacity reductions in Venezuela, we're confident in our business model and our team's ability to deliver another year of healthy growth and industry-leading results. Thank you. Now Jose will go over our financial results.

Thank you, Pedro, and good morning, everyone. Thanks again for joining us. I also want to congratulate our entire team for their efforts. We had a very strong first quarter. We were off to a good start for the year, as we expand the capacity by 9% and revenues by 11%. We're able to maintain very competitive unit costs and continue strengthening our company's financial position. Major financial results. Net earnings for the quarter came in at $151.4 million or earnings per share of $3.41 compared to last year's first quarter net income of $113.8 million or earnings per share of $2.56. However, excluding a fuel hedge mark-to-market loss of $3.4 million and a $1.2 million gain related to evaluation of Venezuelan's capital run rate at the close of March, underlying net income for the quarter came in at $153.6 million or earnings per share of $3.46, close to a 24% year-over-year increase compared to last year's first quarter underlying net income, $124.4 million or adjusted earnings per share of $2.80. With respect the traffic, we continue to see strong demand for air travel throughout our network, as revenue passenger miles increased 11% year-over-year, and a 9.3% capacity expansion. As a result, we delivered a very healthy load factor of 78.1% for the quarter. The strong demand allowed us to improve our yields 0.5% year-to-year. With regards to unit revenues, PRASM increased 2.1% year-over-year, and adjusting for a 3.7% increase in length of haul, PRASM actually increased nearly 4% over 2013. Operating revenues for the quarter came in at almost $714 million or 11.3% year-over-year increase, continuing our strong earnings performance. On the expense side, we also have solid results. First quarter operating expenses increased approximately 7.6% year-over-year. Cost per available seat mile decreased roughly 1.5%. CASM, excluding fuel, came in at $0.066, representing a slight increase year-over-year and in line with expectations. Keep in mind that even though our first quarter CASM ex fuel came in lower than guidance and the previous quarter, there's some timing consideration, which will impact some of the cost lines later in the year. So we are keeping our CASM guidance unchanged for the year. With regards to operating earnings, as a result of lower unit costs and higher unit revenues, consolidated operating earnings for the quarter came in at $177 billion or a 24% year-over-year increase. This translates to an operating margin of 24.8%, almost 3 points higher year-over-year. In terms of nonoperating income and expense, first quarter results reflect a net non-operating expense to approximately $3.3 million, consisting mainly of net interest expense of $3.4 million and in other net nonoperating gain of $21 million, which includes the $3.4 million fuel hedge mark-to-market loss, and the $1.2 million gain related to the revaluation in Venezuela. With respect to fuel hedges, we ended the first quarter with hedges for 25% of the projected volume for the year, which include oil swaps for 50% of our projected volume and an average price of $90 per barrel, and jet fuel swaps were 10% of our projected volume at an average equivalent price of $2.81 per gallon. In addition, for 2015, we have approximately 14% cover, mainly with jet fuel swaps at slightly lower prices. Turning to our balance sheet. We can report that cash and cash equivalents at the end of the quarter totaled $1.1 billion, represents 41% of last 12 months revenues. Even excluding cash in Venezuela, cash and cash equivalents represent a healthy 23% of the last 12 months revenues. As Pedro mentioned, we anticipated that the capacity reductions in Venezuela will substantially mitigate our Venezuelan bolivar exposure, going forward, by reducing the accumulation of bolivars to a minimum as of the third quarter of this year. We also maintained a very favorable position in terms of leverage, with a total debt to equity ratio of 0.5x. In terms of debt, we closed the quarter with approximately $1 billion in bank debt, approximately half of which is fixed rate debt, with a blended rate including fixed and floating rate debt coming in close to 2.4%. Additionally, we have already secured our financing needs for 2014 to a sale leaseback of 4 737-800s, which were direct orders from Boeing, and we have mandated financing for the remaining 4 737-800s via Japanese Operating Leases with Call Options or JOLCO. In terms of fleet, during the quarter, we received 1 of our 8 scheduled 737 deliveries. So we ended the quarter with a fleet of 91 aircraft: 47 737-800s, 18 737-700s, and 26 Embraer-190s. Turning to our future aircraft deliveries. During the remainder of the year, we have 7 scheduled during the second quarter, one of which was already delivered in April, 3 in the third quarter, and 2 in the fourth quarter. We will end the year with a fleet of 98 aircraft, with an average age of approximately 6 years. We're also pleased to mention that all deliveries this year will be equipped with the new Split Scimitar Winglets, which will reduce fuel burn on these aircraft by approximately 1.7% versus our current Blended Winglets. Aside from these aircraft, we expect to retrofit these new winglets on a number of 737s already in our fleet. We should continue to improve our fleet's overall fuel consumption. As you can see, we're making the necessary investments to sustain our growth and the overall cost efficiency of our fleet. So to recap, we had another quarter of strong capacity and revenue growth. Our financial position is very solid, and will position for what should be another year of strong earnings. In terms of our guidance for 2014, general performance during the first quarter, the economic outlook in the region, current demand trends and the situation in Venezuela, we're maintaining our guidance as follows. We're maintaining our capacity growth in terms of air times at plus or minus 10%. Load factor is expected to come in at plus or minus 77%. We're maintaining our RASM guidance at $0.137. We're maintaining our CASM ex fuel guidance at plus or minus $0.068. We're maintaining our fuel price assumption for the year at an effective price per gallon, including inter-plane and net of hedges of approximately $3.15. And with respect to our operating margin, it's still early in the year and given that what we know today, we are inline with our guidance of 19% to 21% for the year. Keep in mind that under the current scenario, we expect the passenger reductions in Venezuela to have an impact on our margins of no more than 1 percentage point for the year. However, we should still be within our operating margin guidance. 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 the line of Helane Becker from Cowen.

Just some question. I noticed the other day that there was a big change in the election and in the government, and I'm wondering how that affects you, if at all -- your business, if at all?

Okay, this is Pedro here, Helene. Well, first of all, it would not affect us in the sense that all 3 of the leading candidates were pro-business, has kind of the same economic plan and would have executed in a very similar way. So there was never a worry of the change of directions for the country. And I should also highlight something that we think is very special about our elections in that over 75% of the population votes, the post closed at 4 p.m. and minutes after that, we're seeing live from TV the results coming in. By 7:30 p.m., a winner is declared. By 8 p.m., the other candidate accept the results, and there isn't a single incident of violence or anything like it throughout the whole day. So it was really a great day for Panama, and again, the winning candidate which is from an opposition party, is going to continue doing the same kind of pro-business quality that we're accustomed to. So no changes in that respect.

Okay. And then is there anything else we should be concerned about in any place else in Latin America or South America where there's currency issues or no? Are we okay with all the other markets you guys fly in and out of?

Yes. We don't have any special concern right now other than what we already know, what we're already dealing with. No new surprises.

Our next question comes from the line of Hunter Keay from Wolfe Research.

So when you think about planning for things like aircraft financing, cash deployment, whether it's dividend or repurchases, can you just assume that you're not going to get any of that cash back from Venezuela? And if I will also -- sort of related to that question, if I see your Venezuela cash built by about $200 million over the course of the year, should I just subtract that out to get a good, like, sort of realistic free cash flow number that you guys expect to sort of plan on as sort of a baseline for your cash going forward?

I'll take the first 2. This is Pedro. I'll take the first part of the question, but we have a strong cash, a very strong cash position, is and still a strong position even if we discount the Venezuela, what's in Venezuelan bolivars. However, I mean, in theory, we can continue with our plans and investments just with what is outside of Venezuela. However, we do expect to get paid and at one point, we will get paid. So we're being patient and that's our money. We just need the authorization to exchange it into dollars, and that will have to happen. We know sooner or later. So that's still our expectation. That hasn't changed.

Yes, Hunter. And in terms of the way that we do our planning for cash deployment, et cetera, we take into account -- we like to stress test our balance sheet, and understand how all the decisions that we make affect this even without having necessarily, at least in immediate term, the Venezuela funds. But nevertheless, as Pedro mentioned, we fully expect to get our cash out of there at sort of one point.

Okay, great. And can you give me your updated thoughts just sort of where -- you guys have always preferred dividends. You've been very clear about that. Just sort of philosophically, sort of given the volatility, your stock price in the last 6 months, can you give us sort of an updated take, Pedro, on, say, philosophically how you think about the existence of a share buyback program?

Yes, Hunter, this is Jose here. So as you know, we have -- last year, we moved from 30% dividend payout to a 40% dividend payout, and we're constantly looking at alternatives to return value to our shareholders. And so -- and certainly, that is one of them, and we're in that process of evaluating what is the best for our shareholders. So we'll certainly keep you abreast of this as it moves on.

Our next question comes from the line of Eduardo Couto from Morgan Stanley.

2 questions from my side. First, regarding your threading capacity in Venezuela, so what routes are you adding capacity to offset this lower capacity in Venezuela and still grow the 10% guidance for this year?

Well, the -- it's Pedro here. It's hard to give you a specific route because what -- we have released more or less 1.5 aircraft, plus we have downgauged the aircraft. So obviously, the aircraft, the slightly larger aircraft we're taking out of Venezuela are going to go to markets where we have a higher demand. And then the 1.5 aircraft we're releasing are going to be adding frequency again in markets where we have higher demand. But these are frequency increases that are throughout the network. So it's hard to -- I mean, we have new aircraft coming in, which we're already -- we're also adding frequencies with. So it's hard to pinpoint which one is with the Venezuelan aircraft, which one is with a new aircraft. So they're all going to add new frequencies or updating aircraft in our high demand route. And believe me, we have plenty of those. And that's why the negative impact in our margins is probably not as large as many people would what have expected.

In that sense, Pedro, regarding the -- if we do the reverse math now, you kept the guidance of 19% to 21% margin this year, and you did around 25% in the first quarter. So that would imply 17% to 20% EBIT margin for the remaining quarters of the year, which would be only including half of your previous exposure to Venezuela. So my point is, can we assume that you know you can still do almost 20% EBIT margin even with a much lower exposure to Venezuela? Does this math make sense or no?

So what I can tell you is what's in our guidance. So we have maintained our operating margin guidance of between 19% and 21%. And we have said that the Venezuela capacity reductions, seat reduction, which is equivalent to 40%, more or less, will impact us less than 1 percentage point of operating margin, but we still feel that we're going to fall within range. So that's kind of where we are.

For next year, you don't see a big change in the margins as well?

Not really. I mean from what we're saying is that we believe that our 19% to 21% market guidance for the year is still accurate, Eduardo.

Okay. Even when we think about the -- like a full year with half the operation in Venezuela?

Right, exactly. We're actually -- the reductions are going to -- seat reductions, which are coming in, in May, June and July so it's not all at the same time, are going to basically impact 7 months of the year more or less, but it did not start in January. So it's going to be like 7 months of the year. So whatever impact, is equivalent to that time period, and I should also add that what we're also doing is reducing the amount that we're going to be accumulating in Venezuela, but only where we feel is going to be totally manageable. And then we only have the old stuff to worry about, and we'll just lobby that until that's sold.

With that Venezuela, is going to be less than 10% of your revenues, right, Pedro, with that after the capacity reduction?

Yes, it should be around less than 10%, I would say, yes. Exactly.

Our next question comes from the line of Duane Pfennigwerth from Evercore.

At the risk of being banished to Caracas here, as you joked on the last call, just a couple of more. Can you talk about the demand environments in Venezuela specifically and any changes that you're seeing now versus kind of the very strong demand in the fourth quarter because, I guess, the nature of my question is this, if there really hasn't been a change, these capacity reductions may, in fact, really boost your RASM and really increase your yields. So is this response to weaker demand that you're seeing or is this simply a response to not getting paid?

Okay. So it's a response to not getting paid. The demand is as strong as before. So the demand is very strong, but what we're trying to do is instead of flying at capacity where we're not getting paid, deploy that capacity where we do get paid, where we don't have those issues even if it's a slightly lower margin, in markets or routes. So it's about getting paid. And in terms of RASM, we will not expect the reduction in capacity to have the kind of effect you're referring to in RASM, a positive effect, because at the same time, we're trying to stimulate more dollar sales. So we're not playing the game of just a tight capacity, higher RASM and higher bolivar sales. So no, we don't think there's going to be an impact there, a significant impact.

Okay. And then have there been -- I assume no or you would have stated it, but have there been any repatriations yet this year?

No, Duane, it's Jose here. The last thing that we had was in October 2013. There are some airlines that have gotten January 2014 repatriations, but it's not the -- it's just simply, I think they're ongoing for partial repatriations going on. And so we continue to work with the airline association there to ensure that this is retaken as soon as possible.

Our next question comes from the line of Savi Syth from Raymond James. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Just if you look at the -- on the non-fuel cost side as you look out further out, are there pilots and flight attendant contracts that will be coming up over the next few years?

We have -- flight attendants, this year, flight attendants will be negotiated this year. Mechanics already was already negotiated. That was early -- earlier this year. That was closed already. General workers was the end of last year. That was already negotiated. So we're in -- we have flight attendants right now, and then pilots, not until 2016. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Got it. And then just on the -- the capacity cuts in Venezuela, I just want to understand, in May, you're downgauging 5 of the 800s to 700s. And then in June, you're downgauging one of the 120 190. I wonder what you're doing in July?

In July, we are reducing. Well, actually, in June, we're also reducing frequencies from Colombia to Venezuela. And then in July, we're also reducing frequencies from Panama to Venezuela. So July, mostly some frequency reductions. Savanthi Syth - Raymond James & Associates, Inc., Research Division: So how many flights available you have after all the cuts?

We'll still have a significant service in the sense that -- let me try to add it up.

I think...

To Caracas, we will still have 16 flights per week. We'll have daily to Maracaibo, daily to Valencia. From Bogota, we will still have more than daily, from Bogota and Caracas. So we'll keep a good service level to the market. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Understood. And is there anything you can do about the fact that some airlines are getting paid while others aren't or it's just another continuing to negotiate?

I think that it is simply an issue of -- they're just simply getting to it as they can. There's no real major issue that we've seen that some are and some aren't. It's just simply. It's just taking them, I think, time to get the process in place. It's not -- we have not had any indication that it's anything related to.

And no one has been paid in any significant way, so nothing material. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Okay. And then if I might ask one last question, a more shorter term. So you're heading into the seasonally weaker period and you're having currency weaknesses everywhere. So I mean, how do you see the yields progressing in the second quarter?

Well, actually, from what we're seeing, I mean, in month of April and May, we're not really seeing any significant changes in terms of the yield versus last year. I mean we're -- we, of course, are increasing our capacity year-over-year and -- but we're basically seeing flattish pricing yield environment.

Our next question comes from the line of Michael Linenberg from Deutsche Bank.

This is actually Catherine O'Brien, filling in for Mike. With regard to the high demand markets, you're reallocating capacity to from Venezuela. Are there any regions you're spilling a lot of traffic to the high demand or you're really seeing strength uniformly throughout your network?

It's Pedro here, and yes, we'll not pinpoint a specific region but throughout our network, we have a market of high demand, where we can add frequencies and upgrade aircraft. So yes, I mean, I will not -- it will be hard to just mention 1 single market. It's -- in every region we have more than a few markets where we can add capacity. And actually, we have no problem with redeploying the capacity. We have more choices than aircraft.

That's great. And then just quickly, would you mind giving us an update on your fleet planning strategy? I believe in the past, you've mentioned a target of getting to 50% owned versus 50% leased. Where do you stand today and where do you see that going forward?

So as of now, we stand on basically about 2/3 of our fleet is owned, and about 1/3 is leased. And historically, as you know, we've been bringing down or balancing our percent of lease versus owned, and we believe that we are [Audio Gap] we're going to be for the next foreseeable future basically, the 2/3, 1/3 proportion.

Our next question comes from the line of Bernardo Beleck [ph] from GBM [ph].

I was wondering how much of this $496 million [ph] in Venezuela is denominated at the previous rate of around VEF 6 per dollars?

Yes, well $488 million is at the VEF 6.30 exchange rate.

Okay, great. And can we say that after July, will Copa continue reducing its capacity in Venezuela or can we say that after July, that's the capacity we should continue expecting moving forward?

Well, this is Pedro here. We have or we will reduce capacity to a point where we can still serve the market in a proper way with multiple daily frequencies and a good service level, and at the same time, reduce the accumulation of bolivars to a minimum amount. So we feel that's like the sweet spot, the perfect balance. However, if even after being at that minimum amount of bolivars, we don't get paid, then we will reconsider but we think we're taking capacity to a sweet point, to a sweet spot.

Our next question comes from the line of Dan Mackenzie from Buckingham Research.

Yes, a couple of questions here, I guess, following up on the revenue risk from reduced flying into Venezuela. Thanks for quantifying that. I guess I'm just trying to reconcile. The 20th painted a pretty dire picture, but you've obviously come up with a pretty effective strategy to close that hole. So I'm just wondering if you can help, maybe just kind of peel back the onion. I wondered if you'd be willing, pardon me, to peel back the onion a little bit. Is it just that the new flying, is that compelling? Is it that the plan to offset the lost revenue can be made up with flying across other parts of your system? Is it that perhaps you found cost savings elsewhere to close that operating margin gap?

It's mostly about redeploying that capacity to our most profitable and higher demand markets. So -- and it's less profitable, of course, than Venezuela because we are guiding to a operating margin reduction of less than 1 percentage points for a 7 month period. So it has an impact. But it's not a significant impact, maybe not as significant as some thought. And it has to do again with redeploying that capacity to the better markets we have out there. And kind of what I said before is that we have enough of those options of high demand, good profitability market where to redeploy capacity.

Very good. And then on a different topic, I'm wondering if you can perhaps come back at us once again with the right liquidity or what the right liquidity, pardon me, should be for determining surplus liquidity. And I guess what I'm wondering is, if the level of liquidity that Copa has historically targeted still makes sense, just given the normalization of the global economic environment, and I guess, what we're seeing as U.S. Airlines lowered that bar, and I'm wondering if it makes sense to revisit what that bar should be for Copa.

Yes, we're -- as I mentioned previously, we are in that process as we speak. And if it's here via additional dividends or a share repurchase program, that's something that is under consideration right now by us. The one thing that we have to mention, of course, is we're very cognizant that this is the airline industry. So we are, of course, very -- we understand the value of having a strong balance sheet as well in this industry.

[Operator Instructions] Our next question comes from the line of Stephen Trent from Citigroup.

This is Kevin Kaznica, stepping in for Stephen Trent. I guess like most of our questions have been covered. I mean, obviously, a lot of questions about Venezuela. We saw there's a very big year-over-year rise in short-term investments. Now is this related to a more aggressive cash management strategy? Maybe you could go a little bit more into the cash management strategy that you have for Venezuela, minimizing its impact on your balance sheet?

Yes, so part of what we have it's a -- we are, as I mentioned earlier, we do stress test our balance sheet, and part of our investment strategy is related to the fact that we have aircraft coming in, and so it's all related to our continued business. So in all honesty, we continue taking care of our balance sheet in a way that we try to provide value to our shareholders, and at the same time keeping -- taking care of the whole business so...

Okay, very helpful. I guess, maybe, if you want to help -- I don't know if you mentioned it. Sorry, maybe I missed it in the release. But what I guess, is the major portion of those short-term investment rises?

Excuse me? Can you say that again, Stephen?

I guess, what was -- I guess, what comprises the majority of those loss, short-term investments of the rise year-over-year?

Okay. Yes, part of the Venezuela cash infused accounting treatment of part of the swap cash is treated as short-term investments. It's simply -- and so therefore, a part of that cash is in that line as well. So that's essentially what that is.

Our next question comes from the line of Pedro Balcão from Santander. Pedro Balcão Reis - Santander, Equity Research: This is Pedro Balcão from Santander. 2 questions. First one, you said that the impact on the margin this year of cutting capacity in Venezuela by around 40% will be, say, 1%. My question is it fair, therefore, to expect another, not 1%, but close to 1% impact also next year when we will have the full year impact of this cut in capacity? My second question is regarding the cash position in Venezuela. I really wanted to understand better if it's correct to explain the fact that you effectively -- I mean the fact that the cash position in Venezuela did not increase this quarter because, effectively, you didn't generate any cash flow in Panama this quarter due to the change in the ticket sales policy that effectively implies a strong investment in working capital?

Okay. I'll address the first question. Okay, so sorry, I was trying to -- okay so your first question, what we're saying is that for, let's say, a 7 month period, this year, 2013, where we would have a cut seat, cut capacity, the impact will be less than 1 percentage points in operating margin. So next year, we will have -- if the capacity is not put back, so if the status quo continues in Venezuela, we will know that yet. But if you were to assume that, then those capacity cuts will remain for 12 months instead of 7. So an impact of less than 1 percentage points could be slightly more than 1 percentage point for the whole year, for the 12 month period. However, there are other things that we can do the market where that capacity has been redeployed. We will probably grow. We'll probably do better, and there will be other actions we can take to mitigate the impact on the operating margin. But if you do a straight line analysis then, yes, you could extrapolate from 7 months to 12, and calculate what that impact would be.

And in terms of the cash accumulation during the first quarter, part of what occurred is that there were -- some of the sales that were performed last year corresponded to the first quarter of this year. In addition, we were -- we placed restrictions in our sales in Venezuela that allow us to reduce the accumulation of bolivars and we also shifted some of the sales to other areas. So that's, I think, the reason why we have not accumulated as much during the first quarter of the year.

Sorry, just a follow-up. But you did invest some money on the working capital in Venezuela, and that's at least part of the reason why you did not accumulate cash this quarter, right?

No, no, no. The reality is that there is -- just basically, the cash total is the same. The only thing is that in the balance sheet, part of it is shown as investment just simply because of accounting lies. But the entire funds are sitting in our bank accounts in Venezuela.

Our next question is a follow-up question from the line of Hunter Keay from Wolfe Research.

Two quick follow-ups. Jose, how should we think about -- you said some of the sales, the cash flow, which was from sales from 2013, how should we think about the sort of tempo at which this burns off? Like, I mean, how much -- what's sort of the average booking curve in Venezuela and how should we think about that burning off throughout the course of the year as capacity comes down?

Yes, so I would say that approximately about 1/3 or slightly less than 1/3 of our 2014 first quarter sales were performed during the latter part of last year. So that's kind of how it was.

That's helpful. Yes, I got you, okay. And then, Pedro, a little more on the political situation. I mean, we saw President [indiscernible] talk about investing in Panama's infrastructure, which is obviously good and consistent with Martinelli's policy. But he's also talked about price controls on staple items, which I don't think is very good. So we know President Martinelli has been very supportive of Copa over the years. Can you give us a sense of any kind of policy changes that you might be thinking about with regard to price controls on the airline industry? And more importantly, some of the expansion that you alluded to in your prepared remarks talking about the jet bridges, you have 10 more that could happen beyond this current expansion of 20. Do you expect the current administration or the incoming administration to be just as committed to that type of infrastructure investment?

Correct. I explained the current administration to be as supportive, if not, more supportive. So we have fewer worries. They're just as committed, and the current -- the elected President was the Vice President of the country, and he was part of some of the major decisions that were made under Martinelli's government. So we're not expecting any changes. We're not expecting any price controls. We're not expecting -- I mean, the business environment will be just as healthy, and the infrastructure projects will continue. We also expect that the next phase of expansion for the airport will probably be approved before the South Terminal is completed, and that will be our expectation. So before 2016, when we expect that to be inaugurated, we feel that the next phase will already have been awarded. So that's not a reality that's right now, but we think it's what's going to happen. So no, we see a bright future for Panama and for our business right now.

Our final question comes from the line of Stephen Trent from Citigroup.

Sorry guys, Kevin again. Just have one quick follow-up. Now in the first -- and now I'm looking at '14, a couple has actually owned the airline not through the expense capacity in Venezuela exactly. So as a result, how did the carriers international market sort of changed and what, I guess, are you generally feeling in what Conviasa has been doing over at their side?

What's -- exactly what's the question, Stephen? Like what from the -- what has Conviasa has been doing in terms of capacity?

Yes, I was just wondering what, I guess, maybe if you have a feeling what Conviasa's doing. And also on how did, I guess, your international market share changed over the quarter, given that you weren't reducing capacity as aggressively as other airlines?

Right. We -- well, we don't see them doing anything really. I mean, not in our markets. No changes from the quarter before. So we haven't seen any changes there. And I mean, we will reduce capacity that might have an effect in market share. It's really not something that we have -- we worry about. It's not -- it's like not the issue right now. What we're doing is kind of solving the Venezuela issue because we're taking the accumulation of bolivars to a point where it should not be an issue. We are maintaining our high margins. And then we won't -- I mean, we're worried about the accumulated cash, of course, it's significant. But going forward, Venezuela should be under control, and should not be a big concern like it has been recently.

This does conclude the question-and-answer session of today's program. I'd like to hand this program back to management for any closing comments.

Okay, thank you. Thank you, all. This concludes our first quarter earnings call. Thank you for being with us, and thank you for your continued support. I would like to also remind you that we're holding an investor luncheon in New York on Friday, May 30. So if you would like to join us, please register in our Investor Relations website on copa.com or contact Rafael Arias. So we hope to see you there. Have a great day.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.