Copa Holdings, S.A. (CPA) Q1 2017 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 11, 2017. Now I'll turn the conference call over to Raul Pascual, Director of Investor Relations. Sir, you may begin.

Thank you, Sandra, and welcome, everyone, to our first quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings; and Jose Montero, our CFO. 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 the non-IFRS to IFRS financial measures can be found in the 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/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, Raul. Good morning to all, and thank you for participating in our first quarter earnings call. First of all, I want to congratulate all of our coworkers for a very solid quarter. Their dedication and commitment keeps us at the forefront of Latin American aviation. As you can tell from our first quarter earnings release, we're off to a good start in 2017. Thanks to recovering economies and strong commercial execution, we were able to deliver high load factors and improving yields. More importantly, we're encouraged by forward-looking demand. But at the same time, we remain very cautious and disciplined about capacity deployment and focused on maintaining our industry-leading unit cost. Among our main highlights for the quarter: Passenger traffic grew by 9.9% year-over-year while we increased capacity only 4.3%, resulting in a strong 81.5% load factor, 4 percentage points higher than Q1 2016. Yields increased 1% year-over-year despite having the Easter holiday travel all in April. After adjusting for length of haul, our yields increased 2.4% year-over-year. As a result of our higher load factor and yields, unit revenues or RASM improved 6% year-over-year to $0.106. And adjusted for length of haul, RASM improved 7.5%. On the cost side, we delivered x fuel unit cost of $0.062 for the quarter, amongst the lowest for a full-service airline. As a result, our operating margin came in at 19.1%, up more than 2 percentage points from the first quarter of 2016. On the operational front, Copa Airlines delivered on-time performance of 89.1% and a completion factor of 99.9%, placing us again among the best in the industry. We continue working on several important projects that should contribute significantly to our results over the next couple of years, including upgrading our reservation system, which will eventually enable further ancillary opportunities; migrating to a new unified MRO solution, which will allow us to more efficiently manage our maintenance program for both the Boeing and Embraer fleet; and a company-wide project to realize $50 million in recurring savings, about half of which we - were already achieved in 2016. Finally, I'm happy to highlight that Wingo, although a very small percentage of our revenues, is doing better than expected both operationally and commercially. So overall, a very solid quarter and a good start for the year. Turning now to the rest of 2017. We're seeing a continuation of strengthening demand patterns into the second quarter and expect the air travel demand environment to remain healthy during the rest of the year. With that in mind, we're planning fewer seasonal cancellations. And as a result, we are now expecting to grow capacity by 7% year-over-year instead of our previous guidance of 6%. In terms of fleet, we already received 2 737-800s during the first quarter and expect to return one leased Embraer-190 in the second half of the year, ending the year with 100 aircraft, one more than at the end of 2016. In regards to our network, we recently announced Denver, which will be our 13th destination in the U.S., and it will start operating in December 2017. To summarize, we expect to continue seeing a healthy demand environment during 2017 while maintaining very proactive, comprehensive and disciplined approach to capacity. Our team continues to deliver world-class operational performance while achieving industry-leading unit costs. We're focused on executing several cost and revenue initiatives that are aimed at increasing our margins. And lastly, we are confident as ever in our business model and our financial position. We have the strongest network for travel within the Americas, an extremely flexible fleet plan, the lowest unit cost, a very strong liquidity position with low leverage and a highly committed team. Now I'll turn it over to Jose who will go over our financial results in more detail.

Thank you, Pedro. Good morning, everyone, and thanks again for joining us. First and foremost, as always, let me begin by joining Pedro in congratulating the entire team for all your efforts and achievements during this first part of the year. Among our highlights for the quarter. We grew capacity by 4.3% year-over-year while revenue passenger miles increased close to 10% year-over-year, which resulted in a consolidated load factor of 81.5%, a 4.1 percentage point increase versus Q1 2016. Furthermore, passenger yields came in about 1% higher year-over-year, which, combined with a higher load factor, resulted in a unit revenue increase of 6% from $0.10 in Q1 2016 to $0.106 in Q1 2017. Consolidated revenues increased almost 10.6% to over $616 million. On the expense side, our first quarter operating expenses increased 7.8% year-over-year, and our cost per available seat mile increased 3.3% to $0.086. So our effective all in fuel price increased 9% from $1.68 per gallon in Q1 2016 to $1.84 per gallon in Q1 2017. The cost per available seat mile, excluding fuel, x fuel CASM, increased 1.6% to $0.062 due to the increased passenger traffic and the timing of certain expenses. Consolidated operating earnings for the quarter came in at 24% higher year-over-year at $117.5 million, resulting in an operating margin of 19.1% compared to 16.9% for the first quarter of 2016. And turning to net results. Net earnings for the quarter came in at $102.3 million or earnings per share of $2.41. Excluding extraordinary items, underlying net income for the quarter came in at $103.2 million or earnings per share of $2.43, a 48% increase compared to last year's first quarter underlying net income of $69.9 million or adjusted earnings per share of $1.66. Looking at non-operating income and expense. First quarter generated a net non-operating expense of $4.2 million, mainly driven by interest expense related to aircraft debt compared to a non-operating income of $32.4 million in the first quarter of 2016, which is mainly a result of the mark-to-market of unrealized fuel hedge contracts. Turning to the balance sheet. Closed the quarter with a very strong financial position as assets totaled $3.9 billion for an increase of over $100 million versus the end of 2016. Owner's equity totaled close to $2 billion. Debt plus capitalized leases totaled approximately $2 billion, and our adjusted net debt-to-EBITDA ratio came in at a very strong 2.0x. By far, the lowest in our peer group. We closed the quarter with approximately $1.2 billion in bank debt, about 60% of which is fixed rate, with a blended rate including fixed- and floating-rate debt of approximately 2.7%. In regards to cash, short- and long-term investments, we closed the quarter with $841 million, $25 million more than at the end of the fourth quarter of 2016 and representing approximately 37% of last 12 months' revenues. Turning now to our fleet. During the first quarter of 2017, we received 2 737-800s, and we expect to return one Embraer-190 upon its lease expiration in the third quarter for an expected net increase of one aircraft for the year. Finally, on this upcoming 15th of June, we'll pay out our first quarterly dividend in the amount of $0.51 per share to all shareholders of record as of May 31, 2017. So going back to our results and to summarize. Demand for air travel in our region is expected to remain healthy during 2017. We continue to proactively manage capacity in an effort to improve unit revenues while selectively capturing market opportunities. We have implemented a series of revenue and cost initiatives that should contribute to our results during the coming years. We have one of the strongest balance sheets in the industry, and we continue to return value to our shareholders. Today, we're also updating our guidance for 2017 based on our operating plan and expectations for air travel demand for the year. Keep in mind that our visibility for the full year is still limited. As such, we are increasing our capacity growth in terms of ASMs to plus or minus 7%. Based on increased aircraft utilization and since we still have limited visibility into the second half of the year, we are maintaining our operating margin range of 15% to 17%. However, we now expect to come in at the high end of the range. Our 2017 full year guidance is based on the following assumptions: load factor of approximately 81%; RASM of approximately $0.104; CASM x fuel of approximately $0.064; and effective fuel price per gallon, including into-plane and net of hedges, of approximately $1.75. Finally, I'd like to remind you that the company will host its 11th Annual Investor Day at the New York Stock Exchange on June 1, 2017. This event, held for analysts and institutional investors, will feature presentations by the company's senior management team. If you like to register for the event, please visit the Investor Relations section of our website, copa.com. Thank you. And with that, we'll open the call to some questions.

[Operator Instructions] Our first question comes from the line of Josh Milberg with Morgan Stanley. Your line is now open.

Good day, everyone. Thank you very much for the call. I was just hoping you could give some additional color on your cost performance in the quarter. It looked like sales and distribution containment was a big factor behind your low CAS x fuel growth. I'm just hoping you could give a little more perspective on what went on and also just update us on your different cost initiative.

Sure, Josh. Yes. Let me start by saying that indeed, there - we are very, very focused on our cost in this quarter. I think that the 6.2 CASM that we delivered was in line with that. I'd focus probably on our multiyear plan to achieve our $50 million in savings. I think that we're about halfway done with that. We feel that going forward and kind of in the medium term, there are continued opportunities in distribution and the areas of maintenance and our supply negotiations. Another aspect that we're focusing quite a bit is in fuel conservation itself, which, though doesn't become part of x fuel CASM, is still very important. And going forward, I think that the MAX next year should also be very accretive to our cost lines. But yes, we have been still very focused on the recovery in containing our costs in - across all lines.

Just specifically on the sales and distribution, you had highlighted lower travel agency expenses. Where are you in your efforts to kind of I think distribute a lot of your volume through the Internet versus depending on agencies?

So yes, I think that that's coming as an ongoing effort. I wouldn't say necessarily that there is a concerted effort at this stage, but we're in the process. I think we're obviously fortifying our copa.com website. It's something that we can invest over the last 12 months, and it's something that has been, I think, pretty successful thus far.

Okay, great. And then maybe if you could just actually comment, just provide a quick update on ConnectMiles. In your Investor Day last year, you had talked about that maybe being a source, I think, of about 100 bps of EBIT margin upside next year.

Yes. That's still in line for that. We are - the program is going according to what we had planned. I think in the 2018 time frame, we still have a - very much a - in the plan for it to be accretive by 1 percentage point in operating margin in 2018 time frame from an accounting perspective, of course, given how our loyalty accounting works.

Okay, thank you very much.

Yeah.

Thank you. And our next question comes from the line of Savi Syth with Raymond James. Your line is now open.

Hey guys. If I could - I think, Pedro, you mentioned that you're seeing strengthening demand in 2Q. It's usually the low season. I'm just wondering if you're kind of thinking about it on a year-over-year basis or if things are kind of improving even versus what you've seen in 1Q. And just on that point, is there a benefit to Copa or your kind of RASM in 2Q from the timing of Easter? It's definitely something we've seen on the U.S. side.

Yes. Savi, so yes, I'm referring to year-over-year. So I'm thinking of Q2 compared to Q2 2016. The second quarter is our lowest season quarter. And the first quarter, together with the third quarter, it's one of our highest - our 2 highest, even though the first quarter is usually right behind. So - and it's a lower quarter, the second, so strengthening demand is compared to the same quarter a year before. And the Easter shift - the Easter holiday shift, of course, is a plus for the second quarter, and we're seeing that. And we should be showing in the next few days the - our traffic figures for April, and that should show some of the impact from the Easter shift.

Are you able to kind to quantify the Easter shift, Pedro? Is there RASM percentage point term or kind of value?

Savi, this is Jose here. I wouldn't necessarily ascribe it surely to the Easter shift. But I'd say in general terms, our PRASM for the second quarter should see a mid-single-digit improvement year-over-year. That's kind of what we're seeing. Maybe slightly higher than mid-single digits.

Okay. That's helpful. And if I may, I know Wingo is still kind of a smaller portion of the overall business, and it's very early stages. Just so I can appreciate that. Just wondering, so your expectation - any thoughts on - I know the right - in the near term, the expectation is for Wingo to lose less money. Any thoughts on if we might even see that break even or when we might see that break even and maybe start to contribute?

Right. So yes. So Wingo is probably around 3% of our total revenues, and it is already losing less money than what we were doing before, operating that same network under Copa Colombia. So it's losing less, and that should be the result for this year. We would expect it to break even and then make - eventually make money. Otherwise, why do it? So that will probably take a few years.

Okay, got. Alright, very helpful. Thanks guys.

Thanks Savanthi.

Thank you. And our next question comes from the line of Helane Becker with Cowen and Company. Your line is now open.

Hey guys. It's actually Conor in for Helane. There have been a couple of press reports about your pilots. Can you just talk about where you're at in terms of the negotiation process and maybe any big sticking points you had there?

Okay. So I'm not going to talk much about it because we're negotiating, so it will not be wise for me to do so. But I would say that this is something that happens every 4 years. It's a very kind of formal process here in Panama. It happens every 4 years. Today, with social media and the like, it's kind of our better-known or get outside your borders, but there's nothing new to this, and it should be another month or so that the timeline - the timeline is set by the Ministry of Labor. That's how it works. And at the end of the day, if we cannot reach an agreement directly between the 2 parties. Then the Ministry of Labor can force arbitration, which is what they always do, and we end up in arbitration. But what we have next, that has never happened. We always reach an agreement directly with the pilots, and I'm hoping that will be the same this time so we can avoid arbitration.

Okay. And just to be clear, this isn't in your CASM x guidance for 2017? Correct.

It's in our guidance.

Oh okay. Okay. Perfect. And then in terms of just capacity in the market. So when I look at the scheduled data for industry capacity in the second half of the year, it appears to be ramping a little bit. Can you guys just talk a little bit about your fleet flexibility at Copa, how much you could potentially flex up if demand continues to improve or flex down if things were to take a downturn at all?

Yes. So the increasing capacity that we have guided to, it's all utilization, and it has less low season cancellations. So it's not that we were adding that much flying during the high season versus what we had projected at the beginning of the year. We're just canceling less during the low season, and that's obviously a reflection of stronger demand patterns. We are planning to remain cautious this year. Even though Latin America has recuperated quite a bit, we're not going to go crazy with capacity, and we don't want to kind of overturn that improvement by just putting out too many ASMs out there. In terms of flexibility, we have a lot of - I mean, we have enough aircraft on order, and we also have enough aircraft with lease expirations at the same time. So we can play with those who. We can renew leases and grow at a faster pace or return leased aircraft and grow very little or nothing. So we remain with quite a bit of flexibility for next year and the year after and therefore.

And just one quick follow-up. This may not impact you at all, but in terms of the 737 MAX. I mean, obviously, there are some engine issues the other day. Can - have you talked to Boeing at all about any delays there that would impact your schedule at all? My guess is that it probably isn't much, but any comments will be great.

We have talked about Boeing and GE, and our first deliveries are in August of next year, and they are not expecting that we will be affected. It seems to be a manufacturing issue with a batch of spare parts or engines. And they feel that can be - they can figure it out and fix it shortly. So we're not expected to be affected.

Alright, thanks for the time.

Perfect.

Thank you. And our next question comes from the line of Michael Linenberg with Deutsche Bank. Your line is now open.

Hey, good morning, everybody. Hey, Pedro and Jose, the capacity growth for the year, the 7%, I guess, first quarter, you're what? I think you came in just over 4%. Like, how does that - what's the cadence of that as we move through the year? Does that pick up? And is your fourth quarter your biggest year-over-year increase? Or is it the middle part of the year? Can you maybe even give us some guidance on what the June quarter looks like right now from a capacity perspective?

Mike, this is Jose here. So I think that it's mostly backloaded in that part - latter part of the year. So I think that's kind of where it goes, mostly in the third and fourth quarter. And again, most of the growth that we're seeing this year is related to capacity in the off-peak periods, right? So we're kind of putting flights back during the off-peak period without incremental aircraft or anything like that. So I think that more than anything, it's a second half of the year. That's how it's loaded. It's...

Okay. And then is - it's, like you said, putting capacity back, adding some frequencies back during off-peak period. So I guess, from that, we should assume that maybe Denver is going to be the only new city in 2017? Or are we going to get maybe some additional announcements this year?

We will get additional announcements, but it's most likely for new flying in the fourth quarter, same as Denver. So that will not have much of an effect on our growth for the year.

Okay. And then just lastly. Pedro, you talked about - you - it was your words where you said Latin America has recuperated quite a bit. And yet we still hear that, in that part of the world, there are some areas that still are somewhat challenging from a demand perspective. I'm curious where you sit. Is this flow traffic connecting over Panama between Latin America to Latin America or Latin America to the U.S.? Or is it the fact that Panama is going to do quite well this year? Is it just also - is the strength more in just some of the local traffic where like, say, Latin America to Panama and sort of back and forth? Like, where is the strength? What markets are you seeing it in?

Yes. I should add to that, that I did say that Latin America has recuperated quite a bit, but I also said that we're going be very cautious. We're going to remain very cautious in terms of capacity. We're not going to think that everything is over, and then everything will be fine from now on, so we're going to be careful and cautious. There's - the recuperation is not in every market, but it's in most markets, including some of the larger markets like Brazil, of course, and it has to do a lot with the currencies having, on one part, strengthened from their worst point in 2015 and also stabilized where there haven't been the same fluctuations we were having 1.5 years or 2 years ago, okay? So that gives confidence and the purchasing power improved, et cetera. But I will not say that it's just - it's Panama traffic or - as a matter fact, Panama has one of the fastest economic growth rate, GDP growth rates, but we haven't seen a big increase or improvement in Panama traffic. It's mostly overall. It's kind of the same thing, bumped up a little bit with some exceptions.

Okay, that's very helpful. Thank you

Thanks Mike.

Thank you. And our next question comes from the line of Dan McKenzie with Buckingham Research. Your line is now open.

Hey good morning. Thanks guys. Pedro, what's the RASM contribution from your partners? 1 percentage point, 2 percentage points to RASM? It seems to me this is a - potentially, a revenue and margin opportunity that wasn't contemplated at the Investor Day and the plan to march back to 18% to 20% margins. But maybe you can just help clarify that.

Yes. We - I don't think we - we haven't disclosed that in the past. And so I would say that we're not ready to disclose it right now. We're going to think about it, however. And I would say that it has slightly improved year-over-year. When we look at an - our interline revenues, they're slightly up from last year.

Actually, the hub has received more capacity from partner flights, right? But I think we haven't...

So to understand probably the - probably a year old or so. But we'll think about if we want to share more details of how much our partners contribute.

Understood. I guess, where I was really going with that is, as we think about peak operating margins in the cycle, I know you're targeting 18% to 20% again, and there are some good guys. It seems like on the cost side, you're halfway there. The revenue initiative, it seems like they're yet to come. But also you have some changes economically that are going on in the regions. So as we think that they're very different than the conditions that existed at the Investor Day. So as we think about peak margins, as we look ahead, it seems like since we're early in the economic recovery there, it seems like they should be potentially even higher than the 19% that you're targeting. But any perspective you can share would be helpful.

Well, the only one thing that I'd say, Dan, is that as part of our profitability recovery plan, we also included an effort in similar revenues, and that's something that will come in line in the 2018 to 2019 time frame. And there we ascribe about 2 to 3 percentage point accretion to our EBIT margins at that stage. So that's, I think, an opportunity. We're working on it in terms of IT capabilities, and that project is - should be starting to reap results during 2018.

And we'll make sure we bring you some updated information for our upcoming Investor Day in a few weeks.

Thanks guys.

Thank you. And our next question comes from the line of Stephen Trent with Citi. Your line is now open.

Yes, good morning, gentlemen and thank you very much for the time. Just two or three quick ones for me. I guess, first off is we're aware that there is a Mexican airport operator out there that's made a bid for a bunch of Colombian airports. And I'm just curious, from your experience there, kind of what are your kind of broad thoughts on the traffic flow and competition as well as the adequacy or lack thereof of the infrastructure, noting, for example, that you guys had been drawing down your Colombia exposure. That's my first question.

Well, the infrastructure, it's okay in most airports where we operate in Colombia. The airport that's has been most congested traditionally has been Bogota, but a lot has been done there, and that has improved. And the other airports are not so busy so we don't really have a major infrastructure. But I mean, there are things here and there, of course, and there's things they're working on. But we don't think it's going to be like a huge change from the new - from the Mexican operator if they end up - I'm not sure if they already closed the deal or not for a number of Colombian airport.

Very helpful, Pedro. And I'm also curious, when we think about ancillary revenue in the quarter, it did look like it was a little bit light in terms of a percentage of total revenue and how should we, in that context, how should we think about revenue from your loyalty program and other ancillary revenues splitting up?

Jose here. It might be a little bit of an issue there. The other operating revenue line is not necessarily ancillary earnings and such, as it shows in our P&L. It includes other items that are kind of non-passenger related in nature. It might be maintenance part loans and other items that are kind not directly related to the passenger operation. In terms of ancillaries, I think that last year, in our Investor Day, we reported that we were on track to get about $10 million in revenues related to ancillaries for this year, in 2017 and I think we're on track for that's. But most of the effect, as I mentioned just previously, it's coming in the 2018 and 2019 timeframe after we complete our IT work.

Okay. That's very helpful Jose. And sorry if I had missed that piece that you mentioned earlier, but I'll leave it at that.

Yeah, yeah, thanks.

Thank you. And our next question comes from the line of Pablo Zaldivar with GBM. Your line is now open.

Hello, good morning. Congratulations on the results. I just have a couple of questions. The first one, it's kind of a follow-up to the ancillary revenue questions. The Sabre implementation, when should that process be finalized? I guess that - seems you're expecting most of the benefits for next year. Are you expecting this for the end of this year?

We - yes, it's Pedro here. Thank you. We delayed the Sabre implementation but are upgrading our current HP shares. Now they have a new name - DXJ system. So we're upgrading our system. That we expect - we expected to have ready towards the end of this year. It might happen early 2018. That's probably a good possibility right now. So - but by early 2018, we will have an upgraded system, a passenger service reservation system, which will allow us to do a lot more in terms of ancillary. We're working on a few initiatives, which we think we can implement even before the system being functional. But most of the benefits will come once the new - the upgraded system is working early 2018.

Okay. And another one just regarding your cost containment initiatives. On the Investor Day, you said that you were aiming for around $50 million of recurring savings throughout the 2016-2018 period. Could you share with us approximately how much of these benefits has been achieved and what should we expect for this year?

Yes. Pablo, so we - I think - so the beginning of the year, we have achieved slightly more than half of the savings already. So we're pretty confident as to the pursuit of the rest, and we expect to conclude the process or, at least, this formal part of the process by the latter part of this year to achieve the full 50.

Thank you very much.

Thank you. And our next question comes from the line of Duane Pfennigwerth with Evercore. Your line is now open.

Hey, guys, thank you. Jose, can you quantify the currency impact to revenue in the March quarter, how big of a tailwind it was? And how do you think about that for the rest of the year as we proceed into 2Q, 3Q?

Well, I think that if you consider a couple of the markets where we were, it was positive, I'd say, in the double-digit range both in Brazil and in Colombia. So I'd say that - I'd highlight both of those as specific markets where we saw double-digit unit revenue improvements on a year-over-year basis. And I think I'd make it both as a combination of both ASM and capacity containment and, at the same time, related to currency strengthening.

But to be clear, it's purchasing power.

Yes.

It's the strength of demand because we sell in dollars at the end of the day.

Yes. Right.

Understood. And then with respect to - you've guided capacity a bit higher. I think you've mentioned, it's mainly aircraft utilization yet I don't think your CASM x guidance has changed. And I would think that utilization would be very enhancing to that. So why not improve the CASM guidance?

Yes. I think it's still early in the year, but we're working, I think, hard. There's some items around that always provide headwinds in terms of CASM. Specifically, I'd highlight over flight fees in some other countries where we operate in. And of course, your aspect is that you're carrying higher load factor bases, so that also kind of increase your CASM x somewhat.

Okay. I mean, I don't know that the load factor outlook has changed materially. But I appreciate those comments. Alright, thanks guys.

Yeah, absolutely.

Thank you. And our next question comes from the line of Marcio Prado with Goldman Sachs. Your line is now open. Márcio Prado: Hi Jose. Thank you for the call. Also, a question on your guidance. I know that, as you guys mentioned, it's still a bit early to change that. But just like some comments like when I think of Copa's recovery to normalized margins back to 20% plus, we see that there was a trough in terms of like demand yields somewhere between 4Q '15 versus Q1. Since then, load factor, when similarly adjusted and yields have been recovering. But when I look at the first quarter results and the guidance for the year, we see that the current guidance implies that the recovery should have reached a pause in the sense that we don't see - in spite of like first quarter being seasonally strong. Even adjusting for that, the current guidance would imply that in terms of load factor and yields, we would have reached today a short-term peak. Also, when I look at the U.S. carriers' yields for the region, we had seen that the year-over-year growth has been a bit higher than Copa. So I would just like to hear from you guys, like from now onwards, when you guys are balancing load factor and yield and demand has pretty much like recovered to peak levels. If you continue to give more and more weight on demand than on having a stronger recovery on yields to previous levels that we observed in the past.

Marcio, this is Jose here. So there are a couple of things to highlight at least in the first quarter. One of them is that our length of haul for the first quarter still increased. So actually, if you look at our yields on a length-of-haul-adjusted basis, they actually went up about 2.5% and our PRASM, actually for the first quarter, it went up almost 8% year-on-year, and that's without the Easter shift. So we do see that the first quarter's performance in terms of the top line was relatively strong. The other aspect there is, of course, second half of the year, we still don't have the full visibility for it and so reflecting that's part of the reason why we are still going to get better view on that in determining how we will act throughout the year. Having said that, I think that we are pretty confident that we're going to be at the high end of our operating margin range, given what we've seen up to now and what we are seeing going forward in the second quarter. Márcio Prado: And thank you, Jose. And just a follow-up. Like, can you comment given your current jet fuel guidance, like, which includes the in-plane costs, and tax at 175, how this compares to current spot price jet fuel around 140 how your current guidance compare to current market price?

Yes. The current guidance is a little bit higher than spot because spot, I think, has been - it's been kind of on this downswing in the last couple of weeks. So it's been - vary a little bit. So it's still - I think it's assuming about a $53 brent in terms of crude. And remember, it's whole year as well, right? So it has also what we already delivered in the first quarter and its full year fuel guidance.

Thank you. And our next question comes from the line of Felipe Vinagre with Credit Suisse. Your line is now open.

Hi, good morning to all. I have two questions. The first, on how the demand revenue environments on a per-market basis. You already commented on Brazil and Colombia with double-digit growth in RASMs in the first quarter. So just if you could give us color on Panama, Venezuela and the U.S., how is it behaving? And second question, on competition. Just wondering if there was any relevant change on the competitors' stance focusing on Avianca. So Avianca, in the process of the deal and also negotiations. If this - if they saw any impact on how the company behaves on the competition environment?

This is Pedro. I'll address the second one and then let Jose talk about your first question. But no, we have not seen much change in any of our competitors. I think we're all acting in a rational way, and I would say that the competitive environment right now is very similar to the one we saw 3 months ago or at the end of that year. And we're not expecting a lot of change in the coming months.

Yes. And in terms of the countries, I think overall, we're seeing a positive trend for the second quarter and very positive trends in the second quarter. I'd say, again, led by Brazil and Colombia, but they're major countries in the U.S., Argentina, et cetera, that are all also in the block. I'd say that Venezuela is probably flattish on a year-over-year basis, maybe slightly down.

Okay, thank you.

Thank you. And our last question comes from the line of Renato Salomone with Itau BBA. Your line is now open.

Yes. Thanks for taking my question. Pedro, with an increase in capacity for the year, how much use of remote positions will you need for 2018? And if there is an eventual delay in the delivery of the South Terminal, what impact could we see either in terms of constraining your growth plans or increasing aircraft turnaround?

Yes. Well, the - most of our - I'll start with the second question. Most of our - well, yes, most of our deliveries and especially our net growth in terms of aircraft for next year happens in the second half of the year - actually, towards the end of 2018 - which gives ample time for the South Terminal or T2 to be ready, even accounting for further delay. So we think we should be fine there. There's a number of remote positions that have been activated already from the new terminal, 8 remote positions, so we could use those also. So we think we'll be fine due to the timing I just explained. I'm not sure if I got exactly the first question what you're asking.

No. No. The question was more on the first part, if you're comfortable with the infrastructure that you have in the airports until you reach the entry into service of...

Right. Yes. So I would say we need - yes, we need the new terminal and the new infrastructure. There are a number of other investments that are going on right now - infrastructure investments, which are also important with taxi ways and runway access, et cetera. They're all very important, and we needed all. It happens that the timing in terms of when we're getting the MAX 9s and the additional aircraft versus that work is such that we should be fine even with some further delays.

Perfect. Thank you.

Thank you. And that does conclude today's Q&A session. I would now like to turn the call back over to Mr. Pedro Heilbron for any closing remarks.

Okay. Perfect. Thank you all. And this concludes our first quarter earnings call. Thank you for being with us. Thank you for your continued support, and I hope to see most of you during our upcoming Investor Day in New York City. So have a great day.

Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may disconnect, and have a wonderful day.