Copa Holdings, S.A. (CPA) Q4 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings’ Fourth Quarter and Full Year 2011 Earnings Call. During the presentation, all participants will be on a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this call is being webcast and recorded on February 9, 2012. Now, I’ll turn the conference over to Joe Putaturo, Director of Investor Relations. Sir, you may begin.

Thank you very much, operator, and welcome, everyone, to our fourth quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings, and Victor Vial, our Chief Financial Officer. First, Pedro will start with our full year and fourth quarter highlights, followed by Victor, who will discuss our financial results. Immediately after, we’ll open up the call for questions from analysts. Copa Holdings fourth 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 fourth quarter earnings release, which has been posted on the company’s website, copaair.com. In addition, our discussion will contain forward-looking statements not limited to historical facts that reflect the company’s current beliefs, expectations and 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, Joe. Good morning to all and thank you for participating in our fourth quarter and full year 2011 earnings call. I would like to begin by congratulating our co-workers for their efforts in delivering a strong fourth quarter and a great year, one in which we delivered an operating margin of 21% and outstanding earnings growth. As always, our team began the year with an ambitious set of goals and objectives aimed at consolidating the competitive advantage of our hub as the best choice for intra-Latin American travel and improving the appeal of our products and our passengers’ travel experience, all while delivering world-class financial results. I’m happy to inform that with the support of a great team, our objectives were accomplished, and in many cases, surpassed. Among our main highlights for 2011, Copa Holdings delivered another year of strong growth with consolidated capacity increasing 22% and traffic not far behind, growing at a very healthy 21%. Strong demand trends and healthy yields led to exceptional revenue growth, which enable us to increase our unit revenues every quarter throughout the year. This along with the CASM ex-fuel fuel improvement led to operating margin expansion despite much higher fuel prices. In terms of our network expansion, 2011 was an outstanding year as Copa Airlines launched service to nine new cities. In June, we started service to Toronto, Brasilia, Porto Alegre and Nassau; and this past December to Chicago, Monterrey, Asunción, Montego Bay and Cúcuta. We’re pleased to say that these new routes are performing as expected and in many cases have exceeded our initial expectations. In June, Copa Airlines transitioned from a four to a six-bank hub structure. The implementation of the six-bank hub has been a huge success, which is allowing us to better utilize the Tocumen Airport infrastructure, personnel and equipment, as well as enabling us to provide our passengers with more and better flight options and significant schedule improvements. Also during the year, our team once again delivered excellent operational performance as Copa Airlines on-time performance came in at 90.4% and 89.5% on a consolidated basis. This, along with a flight completion factor of 99.6%, place us once again among the best and most reliable airlines in the industry. With regards to our fleet, we ended the year with a consolidated fleet of 73 aircraft. As Copa received 10 new 737-800s, most of which included a 2% fuel burn improvement. Other important highlights for 2011 include the introduction of the Boeing Sky Interior in our new aircraft, the opening of new Copa Clubs or VIP lounges in Santo Domingo and Guatemala, and introduction of our mobile website and electronic boarding passes. So we continue to deliver what our passengers expect from us – a superior network for intra-Latin American travel with more choices, better schedules and a world class product. Now, looking at the main highlights for our fourth quarter. Consolidated passenger traffic increased almost 16%, led by our international traffic which expanded 21%. Strong overall demand resulted in a healthy revenue environment as both yields and RASM came in higher on a year-over-year and quarter-over-quarter basis. This healthy revenue performance along with a year-over-year reduction in a fuel unit cost allowed us to report operating earnings of $106 million, which represented an operating margin of 21% for the quarter. This along with great operational performance as well as the launch of five new destinations in December marked a strong ending to an exceptional year. We’re also having a great start to 2012. As you can see from our recently released January traffic statistics, which show international traffic growth of 26%, strong demand trends continue this quarter, and hopefully, the rest of the year. Operationally, we are excited about our 2012 expansion plan. In fact, we have already announced four new destinations which will start next June. They are Las Vegas, our seventh destination in the United States; Recife, our seventh Brazilian City; Liberia, our second destination in Costa Rica; and Curaçao, our thirteenth Caribbean destination. With these new cities, our network will cover 63 destinations in 29 countries. By far, the most complete and convenient network for intra-Latin America travel. Additionally, as part of our expansion plan, we will continue increasing daily frequencies in important market. For instance, Medellin, Colombia increased to five times a day, Cancun goes from four times a day – goes up to four times a day, and Quito via (inaudible) Cartagena grow from two to three daily frequencies. Our growth to the new destination and frequencies will be made easier by last year’s transition to a six-bank hub and the soon-to-be-operational (inaudible) at Tocumen Airport. These initiatives, among others, will enable our future network expansion and will increase our hub dominance in the years to the come. Our expansion plans for 2012 call for another year of double-digit capacity growth as ASMs are growing 22% year-over-year. However, in terms of departures, we’re growing around 12%. Nevertheless, most of the additional capacity for 2012, more than 60%, will be the full year effect of flights we added in 2011. On the economic front, we expect 2012 to be another good year for our region and for Panama. Latin America is expected to grow close to 4% for the year and Panama is expected to grow close to 7%. This should have a positive impact on the demand for our services as we continue to expand and strengthen even more our network dominance for intra-Latin America travel. To summarize, we’re very pleased by our fourth quarter and full year results. Our network continues to grow and we’re implementing many initiatives to strengthen even more our Hub of the Americas. Our team continues to deliver world class operational performance. And the regional economic environment remains strong and we’re seeing a favorable demand environment. So we are well positioned strategically, financially, and operationally to take advantage of opportunities ahead, while continuing to deliver world-class results. Thank you. Now, I’ll turn it over to Victor who will go over our fourth quarter and full year results.

Thank you, Pedro, and good morning, everyone. Thanks again for joining us. First, let me begin by joining Pedro in congratulating the entire team for another outstanding year. So in 2011, we expanded capacity by more than 20%, increased revenues by close to 30%, lowered its fuel unit costs by more than 4% and further strengthened our balance sheet to continue funding our growth. Clearly, all these would have been impossible to achieve without the hard work and the dedication of the more than 7,000 co-workers at Copa Airlines. To each and every one of them, thank you and, again, congratulations on a job well done. Strong economic growth in Panama and the region led to another year of strong earnings as net earnings for 2011 came in at $310.4 million or $6.98 in earnings per share, a 27% year-over-year increase. Excluding our $3.6 million fuel hedge mark-to-market loss for the year, underlying net income came in at $314.1 million or EPS of $7.06 for a 27% year-over-year increase. Looking at the fourth quarter, we had another quarter of strong growth with capacity in terms of ASM increasing close to 22% year-over-year as we added five new destinations to the network as well as frequencies to several cities. In terms of traffic, we continued to see strong demand for air travel as revenue passenger miles increased approximately 16% year-over-year, driving to a consolidated load factor of 74.9%. This, together with high yields drove unit revenue (inaudible) higher year-over-year by approximately 2%, resulting in strong revenue growth as fourth quarter operating revenues climbed 23% year-over-year to $505 million. On the expense side, fourth quarter operating expenses increased 26% year-over-year, while cost per available seat mile increased 3%. On the other hand, excluding fuel, unit costs decreased about 5% year-over-year to $0.069 mainly as a result of capacity growth and a 13% increase in average stage length. Now, looking at our main operating expenses compared to the fourth quarter of 2010, fuel expense increased 46%, mainly as a result of increased capacity and a 25% rise in effective price per gallon of jet fuel. Salaries and benefits increased 16%, for the most part due to additional head count to support capacity growth. Passenger service increased 26%, mainly driven by an increase in international operations. Commissions increased 18%, mainly due to an increase in passenger revenue. Reservation and sales increased 16%, the main driver being an increase in passenger revenue as well. Maintenance, materials and repairs increased 16%, mostly driven by increased capacity. Depreciation increased 16%, mainly due to additional aircraft and spares. Flight operations, landing fees and rentals increased 19% as a result of additional departures and additional aircraft rentals. And other operating expenses decreased $2 million. Moving on to operating earnings, consolidated operating earnings for the fourth quarter came in at $106 million for a 13% year-over-year increase, with our operating margin coming in at 21%, despite significantly higher jet fuel prices. Looking at non-operating income and expense, fourth quarter generated a net non-operating gain of $10.4 million, mainly consisting of a net interest expense of $6.7 million and a $19.1 million fuel hedge mark-to-market gains. With respect to fuel hedges, we continue to work under the same fuel hedge policy and currently have in place the following coverage. For 2012, 20% of our projected volume with crude oil swaps at an average of $86 a barrel. For next year, 10% also with crude oil swaps at an average of $88 a barrel. Turning to the balance sheet, we continued to strengthen the balance sheet of the company as assets reached $3.1 billion at the end of the year. Owners’ equity totaled approximately $1.4 billion. Debt plus capitalized leases totaled $1.4 billion and our debt-to-equity reached 0.8 times, the lowest in our peer group and one of the best in the industry. In terms of debt, we closed the quarter with approximately $1.1 billion from bank debt, 62% of which is fixed rate debt, with a blended rate including fixed and floating rate debt coming in at 3.1%. With respect to cash, we closed the year with $611 million in cash, short-term and long-term investments, which represent approximately 33% of last 12-month revenue – ample cash to continue with our expansion plans. So, to summarize, we continued to see strong economic growth in Panama as well as the region in general, driving higher demand for air travel throughout our network. Healthy load factors and high yields resulted in strong revenue growth for the quarter and the year. We have the balance sheet and liquidity to continue funding our growth. And thanks to the efforts of our team, we continue delivering to our passengers a world class product. In terms of our guidance for 2012, as in past years, last November, we provided preliminary guidance for the year ahead. Given our performance during the fourth quarter, the economic outlook in the region and demand trends we’re seeing, we’re updating our guidance as follows. We’re adjusting our capacity growth forecast from plus or minus 20% to plus or minus 22%. We’re maintaining our load factor guidance at plus or minus 74%. We are raising our RASM guidance from plus or minus $0.129 to plus or minus $0.132. We’re maintaining our CASM ex-fuel guidance at plus or minus $0.065. With respect to fuel, we’re now assuming for the year an effective price per gallon including into-plane and net of hedges of approximately $3.25 compared to our previous guidance of $3.05 per gallon. And with respect to our operating margin, we continue to expect another strong year, with operating margins in the range of 18% to 20% as we indicated in our preliminary guidance. Thank you. And with that, I’ll turn it over to Pedro for closing remarks.

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

Thank you. (Operator Instructions) Our first question is Michael Linenberg of Deutsche Bank. Your question, please. Mike Linenberg – Deutsche Bank: Yeah. Hey, everyone. Two questions here. I guess, just first on the capacity, it was 20% before, you picked it up to 22%, what’s behind that? Is there change of plans or does it have to do with the base in 2011, maybe coming in a little bit lighter? And can you maybe give us a breakout by quarter, a feel for how that 22% plays after the year?

Sure. Hi, Mike. This is Victor. Mike Linenberg – Deutsche Bank: Hi, Victor.

When we gave guidance for capacity for 2012 back in November, it was still preliminary. We did make some adjustments. At the end of the day, when you look at the capacity this year versus what we had expected in November, we made some changes with respect to some gates in some routes. Mike Linenberg – Deutsche Bank: Okay.

Yes. We added some additional frequencies. And that’s basically what’s driving the additional 2%. So there’s nothing significantly different. It’s just some tweaking in the operational plan. Mike Linenberg – Deutsche Bank: Okay. And then quarterly?

Yes. By quarter, if you look at the first half of this year, on a year-over-year basis, we’re going to be growing in terms of ASMs in the range of 20%. And then in the second half of the year, you’re going to be closer to 24% or so. Mike Linenberg – Deutsche Bank: Okay.

So that will take you then to the 22% that we’re guiding towards. Mike Linenberg – Deutsche Bank: Okay, perfect. And then my second question to Pedro. Just in regards to the facility, I know you characterized it as soon-to-be-operational and I know it was going to come online originally, I think, at one point in June and then October, November. We’re now in February. Can you give us the update and what’s going on there? And is there any additional cost that you have to carry or that you’re incurring because of the delay? Any color on that would be great? Thanks.

Yes. It’s not a huge deal. Yeah, it is delayed by a couple of months at least. And I think it has to do mainly with the, I would call it, supplementary equipment, chairs and counters and stuff like that that is coming in late. So they haven’t been able to open those terminals. It’s not really affecting us. We are operating from remote positions and our hub is operating efficiently and we don’t have this problem. We’re not incurring into additional cost. It’s just – maybe passenger comfort could be affected somewhat, but it’s not material. It’s not significant. And we are hoping that in less than two months, it will be operational. Mike Linenberg – Deutsche Bank: Okay. Very good. Good year. Thank you.

Thank you, Mike.

Thank you. Our next question is from Ray Neidl of Maxim. Your question please. Ray Neidl – Maxim: Yes. With all the expansion that we had last year, was there any delay in generating additional revenues or there is a revenue shortfall in some of these new routes? And with the increase in the fuel prices, were you able to pass through all the fuel price increases?

Okay. Ray, this is Pedro. I will take the first call and I’ll let – first question and I will let Victor answer the second one. As I mentioned in my segment, the new – the nine new destinations we opened last year have all operated or performed either at or above target. And in fact, of those nine, Porto Alegre, which we started with four frequencies, it’s already up to daily less than a year later. Brasilia, which we started in June of 2011 with four frequencies, in June, 2012, it’s going up to daily. And Asuncion, Paraguay that we started only in December with four frequencies is going to daily in June 2012 also. In Nassau, Bahamas, we’ve also increased from four to six frequencies. So I think that’s a good signal of how well they are doing.

And Ray, this is Victor to take your second question. We continue to see a pretty resilient yield environment. No doubt a result of the economic growth we’re seeing in Panama and the rest of the region. So the short answer is yes. We’ve been very successful at compensating the rise in fuel prices with fuel surcharges and adjustment to our base fares, basically compensating for the most part the additional costs. So if the economies continue performing as they have, we should be able to continue doing that in the year to come. But so far, yields have been very resilient. Ray Neidl – Maxim: Okay, great. And the two things tied to another question is that, (inaudible) cities to expand to and will future growth be more – putting in more frequencies, the new cities after 2012, because I think at some point about two years down the road, you said you might go from six to eight banks?

I guess, it’s all of the above, what we’re going to do. We’re not going to run out of new cities. Latin America, it’s a large and still underserved continent. North America, it’s also underserved. We think of all the large cities that have no connectivity with our part of the world. So we see plenty of opportunities going forward. And what we have seen in the past is that Latin America grows as trade and tourism between the North and the South expands. Cities that at one point did not look very attractive become attractive in the future. So we also expect cities that are not in the map right now to be potential destinations in the years to come. But we will also increase frequencies. We have lots of opportunities to increase. There are many destinations that we fly now daily. Many are just one or two frequencies per day. So we can move all of those to six – at least six frequencies per day. And, yes, there will be opportunities to grow in terms of times in the future, so we’re comfortable that we have a lot of opportunities ahead of us. Ray Neidl – Maxim: Great. Thank you, gentlemen.

Thanks, Ray.

Thank you. Our next question is from Stephen Trent of Citi. Your question, please? Stephen Trent – Citi: Hi. Good morning, gentlemen, and thank you as always for the time. Two questions for me actually. And my first question to a degree is a follow-up on Ray Neidl’s question. In the case of Mexico, you highlighted that Monterrey was one of the new routes you launched in December. As you look at that market, maybe Mexicana is never coming back, maybe they’re going to come back fraction of the size they used to be. You have other carriers in that market that probably aren’t coming back. And I am wondering how you are thinking about the medium-term outlook for Mexico? And my second question is with respect to an update on your pending Star Alliance membership. Any update on timelines and what we could expect vis-à-vis incremental revenue generation from your membership in that alliance? And that’s it. Thanks, guys.

Thank you, Stephen. It’s Pedro. In terms of Mexico, we have a unique product and we have a unique offering to our passengers, which obviously is based on our Hub of the Americas in Panama and the connectivity we bring to markets such as Monterrey or Mexico City or Guadalajara and some of the other cities we serve. And that has never been tied to what our Mexican competitors or what do Mexican airlines do. We have our own unique model and it works well in spite of their action. So we’re confident that we will continue to be successful in such an important market. And again, when we were planning to go into Monterrey, it had nothing to do with Mexicana being out of service. So we don’t see that as a huge factor affecting us in Mexico. In terms of Star, I’ll let Victor talk about the revenue part. But in terms of timing, we’re on track for an April joining date.

Stephen, with respect to the revenue part, I think we talked about it couple of quarters ago. This year, since we’re starting in April, we’re not reflecting any incremental revenue in our guidance. So I would say, let’s wait and see for 2013 how we see things – I would just add to that. We already have a very longstanding relationship with Continental United now. So we’re already reflecting in our financial results that relationship in terms of code sharing and all other aspects of the alliance. So sure, there will be incremental revenue. A lot of it’s already in our P&L from the United Continental relationship. And whatever else shows up, we’ll look at it probably in next year’s results. Stephen Trent – Citi: Okay. Very clear. Thanks, guys. I’ll let someone else ask the question.

Thank you.

Thank you. Our next question is from Jim Parker of Raymond James. Your question please? James Parker – Raymond James: Good morning to all.

Good Morning, Jim. James Parker – Raymond James: Would you provide some preliminary thinking regarding capacity growth in 2013? I know that you have seven aircraft coming and you had ten for 2011/2012, so what might the ASM growth be in 2013?

Hi, Jim. This is Victor. We haven’t really given guidance for capacity growth in 2013, but we have spoken directionally about what you can expect. And when you take into account the full year impact of what we’re doing this year by adding those four, five new destinations we’ll be adding to our network this year to take it from 59 destinations to 64, and the frequencies we are adding, plus whatever we’re doing next year, you should come out with ASM growth in the range of 12% or so, 10% to 12%. But obviously, we will be working on the operational plan. And as we get closer to third quarter, fourth quarter, we’ll give you an update. But right now, that’s the way it’s looking. James Parker – Raymond James: Okay. You’ve had a rather large increase in trip length this year. Would that – what do you think that will be next year? I think it’s double digit this year. How would next year look?

Yeah, stage length. Yeah, we’ve seen over the past couple of years, the stage length increased significantly and this year will be no different. We should see the stage length go up year-over-year, at least 5%, 6%. However, when you look at the length of haul, with a bit more passenger journey, that’s more in the range of 10% to 12% year-over-year increase as a result of a connectivity that we’re generating, especially from long-haul destinations that we’ve added through the network over the past couple of years. So we’ll see again another year of longer stage length, higher length of haul. James Parker – Raymond James: Okay. And can you comment on the profitability of Colombia? Obviously, it has to be far better than what it’s been for the past few years. You’ve changed your mix there. I guess, half of your Colombian capacity is now international. And we witnessed the experience of (inaudible) there, not – actually so far not being a good one. What’s – how is Copa doing in Colombia?

This is Victor again. Copa Colombia is doing pretty well since we’ve been down-sizing the domestic operation. And actually when you look at the numbers, on a year-over-year basis, we cut back capacity in domestic Colombia around 134%. So it is significant what we’ve pulled out and, obviously, reallocating those assets to international operations. And the company is making a nice profit. So (inaudible) contributing to the bottom line of Copa Holdings. We don’t do segment financial reporting any more for Colombia. So I wouldn’t be able to tell you exactly if it was a segment how much it is. But I can tell you that it is profitable and they have decent margins. James Parker – Raymond James: And the game plan, Victor, going forward as far as capacity growth within Colombia, international and/or domestic?

This is Pedro. Jim, we do not expect major changes in our Colombian operations. We will continue to strengthen our Hub of the Americas in Panama, adding service from cities in Colombia to Panama, which are mostly flown my Copa Colombia. But we do not expect major changes in Colombia domestic or international, flying out of Colombia, other than flying to our hub in Panama City. James Parker – Raymond James: Okay. Thank you.

Thank you.

Thank you. Our next question is from Duane Pfennigwerth of Evercore Partners. Your question please? Duane Pfennigwerth – Evercore Partners: Hey, good morning. Just on ex-fuel cost, it was a little higher than what we were looking for in the fourth quarter. Was there anything that impacted fourth quarter ex-fuel relative to your guidance for the full year?

Hi, Duane. This is Victor again. Well, the only thing that would be kind of out of the ordinary is the fact we adjusted our accruals for aircraft that will be departing our fleet, leased aircraft expirations over the next few years. That we mentioned in the last call. We’re returning three aircraft this year and we’ll be returning more aircraft the following year. So we did some adjustment to that and that was around $5 million or so. And the other thing that probably pops up when you look at the P&L is starting the servicing. We did see an increase there. And that’s basically driven by the fact that we’re having a lot more international operations in our mix as we, again, down-size the domestic operation in Colombia and that implies higher costs in terms of onboard passengers and also some higher costs in airport operations. However, we did come in pretty close to our guidance, I think, and we’re looking at 2012 further reducing our ex-fuel CASM to $0.065, so the company continues to be more efficient and more competitive on that cost basis. Duane Pfennigwerth – Evercore Partners: Very fair. And then, Victor, just with regard to your commentary around yield improvement or continued yield improvement, so you’re seeing flattish loads and yields are still improving. So when would you expect RASM to decline? I understand your RASM guidance was actually upgraded a bit, but it doesn’t feel like we’re going to see that level decline here in the first quarter?

Well, actually I think what I said was that we see the yield environment very resilient. So not necessarily higher or even higher than what we’ve seen in the past year. What we’re seeing more or less is pretty steady yield, which is what’s basic to the guidance that we’re providing. So what’s driving the RASM throughout year-over-year? When you look at this increase in length of haul and you adjust RASM for that, actually RASM is coming in pretty flattish compared to last year. That’s what driving down RASM. So whatever decrease in RASM or – yeah, decrease in RASM as a result of lower load factor is compensated by the higher length of haul adjusted yield. Duane Pfennigwerth – Evercore Partners: Okay. Thanks. And then just lastly, your dividend policy, I think, last year you paid out 30% of previous year’s net income. Any thoughts on how we should be thinking about that in 2012?

Yes. This is Victor. Well, over the past two years, we’ve reviewed our policy twice and we usually review the policy around April, May before the Board declares dividend. So we’ll wait and see then. But we always consider the competitive environment, the price of fuel and the investment the company has to make going forward and the interest of shareholders. So I think, in the past, we’ve shown that we are not shy of making adjustments, but we need to consider what’s going on at a given point in time. Duane Pfennigwerth – Evercore Partners: Okay. Thanks very much.

Thank you.

Thank you, Duane.

Thank you. Our next question is from Eduardo Couto of Goldman Sachs. Your question please? Eduardo Couto – Goldman Sachs: Hi. Good morning, Pedro, Victor and Joe. Just getting back, guys, a little bit to the guidance and the traffic numbers of January. The load factor was quite good in January, flat year-on-year. Could you comment a little bit about the yield, because looking at your guidance for the year, it’s flat and the load factor is declining. But considering that January was much better in terms of load, I was just wondering if the yield in January was more or less in line versus last year or if there was a decline, so could you comment a little bit on the yield on January? That would be helpful.

This is Victor and then I’ll let Pedro pitch in. We are off to a great start, but that’s one month. What’s difficult in this game is trying to forecast the other 11 months looking forward. So, yeah, we are off to a great start, but we do have 22% growth in ASMs. We do have five more destinations that are being added to the network. At the end of the day, we do manage RASM. So I wouldn’t focus so much on our 74% guidance for load factor for the year. I would focus more on the RASM guidance, which, as I mentioned earlier, when you adjust for length of haul, we’re assuming it’s going to be flattish against 2011. So we’ll see how the year shapes up, but all the elements are there to have another great year. Eduardo Couto – Goldman Sachs: Yeah, but...

Go ahead. Go ahead, Pedro.

No, I was (inaudible) saying the same that we are in a good position to take advantage of a continent that’s still growing, with currencies that are strong. And so we’re seeing increased travel demand and we think we’re in a good position to take advantage of that. And again, as Victor said, we’ll manage RASM, we’ll manage capacity, we’ll manage yields, and we’ll try to improve total revenues. Eduardo Couto – Goldman Sachs: Just one point, Victor, you mentioned that the RASM is basically going down because of the change in the stage of length. But when we look at your guidance, actually the yield is flat and the load is the main reason for the lower RASM. So at least in my view, the load factor doesn’t have any relationship with the stage of length. So my point is, shouldn’t be – the yield may be lower and the load factor should be more or less stable versus last year to give a lower RASM in the case that you have mentioned that the main reason is really the stage of length.

I can’t comment on your numbers. But what I can tell you is when we look at our models, what’s driving down RASM, obviously, everything else being equal, we have a higher load factor, then the RASM will be even higher. But really when you adjust for stage length, the RASM – it’s not stage length, length of haul. And there is a difference between the year-over-year increase in stage length versus length of haul. Maybe that’s what’s throwing you up. As I mentioned earlier, the increase year-over-year in length of haul is about 10% to 12% and stage length is around 6%. So there is a passenger mix there – passenger mix element that should be considered there. But in our model, when you consider the change in length of haul, everything else being equal, the RASM year-over-year will be pretty much even with last year. But I can’t comment on your numbers obviously. Eduardo Couto – Goldman Sachs: Okay. Okay, guys, congratulations on the results. Thank you.

Thank you, Eduardo.

Thank you. (Operator Instructions) Our next question is from (inaudible) of Barclays Capital. Your question, please?

Good afternoon, Pedro and Victor and Joseph. Thanks for the time. I just have two questions. The first would be on the revenue side related to the RASM. Even though your load factor had decreased 4 percentage point year-over-year in the first quarter, you were able to improve RASM both year-over-year and quarterly. In addition to that, length of haul has increased, and thus then we could have expected some decrease in RASM. So just could you give us any color and the reason behind these RASM improvements even though length of haul has increased?

I missed the last part of your question. Could you repeat it again, sorry?

Just wanted to understand – any color from you why RASM has improved, while length of haul has increased because when length of haul increases, we could expect some decrease in RASM? And year-over-year, RASM has slightly increased.

Yes, okay. I got it. Thank you. And this is Victor. For us, it was, I guess, a pleasant surprise because earlier in the year, if you go back, we had not expected that. Actually when we were guiding 2011, we had expected that with all those ASMs, we would see some RASM dilution and actually things were not that way. And I think it has to do with a very healthy demand environment we’re seeing in Panama and the region as a whole and role that our hub is playing, connecting passengers into LatAm and also to North America. And when you have a strong demand environment, it’s pretty amazing what you can do in terms of yield management and we saw very, very healthy yield environment in 2011. And that allows us to obviously then manage RASM accordingly. And hopefully, we will continue to see that. But it’s all driven by all the strong demand we’re seeing out there.

And I should add that the lower load factor is not necessarily a reflection of the demand environment because our revenue management team is again managing RASM, not managing just load factor. So we could have had a much higher load factor at much lower yields. So at the end, they did a great job in improving our RASM during the quarter.

Thanks, guys. Now, on the other hand, we have the cargo business falling year-over-year, falling, I think, by 1% year-over-year – 4% actually – 1%. So just want to understand what the reasons behind is. Is there any deterioration in macroeconomic scenario, crisis or any thoughts on this would be great?

Yes. Victor again. There are two reasons behind that. One reason is the fact that we have cut back capacity in domestic Colombia. So that has driven a decrease in the cargo business. And then the other reason, when you try to tie increase or growth in ASMs to what you should see in cargo, sometimes that’s distorting, in the sense that a lot of the ASMs that we’ve been adding has been to long haul destinations, which not necessarily result in higher revenues in cargo because fuel in some of these routes are restricted vis-à-vis how much cargo you can take. And that’s when you start (inaudible) managing passengers versus cargo. So growing 22% in ASM, for example, this year will not necessarily result in a 22% increase in cargo revenue unfortunately. That’s just part of the business – of our business model.

Okay. And what we could expect for 2012?

For 2012, in terms of cargo, you could expect somebody on – something on a year-over-year basis similar to what you saw in 2011.

Okay. Thanks, guys.

Sure.

Thank you. Our next question is from Dan McKenzie of Rodman & Renshaw. Your question please? Daniel McKenzie – Rodman and Renshaw: Good morning, guys.

Good morning, Dan. Daniel McKenzie – Rodman and Renshaw: Of the 6.7 million passengers that travelled in 2011, what percent roughly would you estimate were first time flyers versus frequent flyers? And I guess what I am really trying to get at is, to what extent are rising living standards contributing exactly to your passenger – to the demand that you folks keep referencing?

Well, it’s very hard for us to know who are the first time flyers. We don’t really keep track of that. So if I give you an answer, I am making it up and I would rather not make it up. There are a lot of first time travelers, of course, as the economies of South America grow. We see that mainly in our leisure business, which has improved, especially from South America to the Caribbean. And then frequent travelers are holding steady. Do we have the numbers here?

In the range of 30% or something.

Yeah. It’s in the 20% plus – it’s between 20% and 30%, the percentage of frequent flyer. That keeps improving, the percent of frequent flyers on board our aircraft. There have not been significant changes from one year, two year. It just steadily improved as businesses expand in Panama and in our region. Daniel McKenzie – Rodman and Renshaw: Okay. No, I understand. Okay. And then, I guess, maybe I could come at the growth a little differently. I’m wondering if you can share what percent of the revenues were generated from same-store sales versus new markets and does that mix change looking ahead in 2012?

Yeah. We’re trying to see if we have here with us something that was – I don’t know if we have it broken down that way here. Daniel McKenzie – Rodman and Renshaw: But if you don’t have it, maybe – it’s okay. I might – I could circle back.

Yes. We’re trying to see what we have here and it would have to be sales from additional frequencies or new destinations to cause them – we would have to deduct those to consider same-store sales.

Joe is pointing out something – this is Victor – that maybe gives you a framework to think about it and then we can follow-up. But when you look at capacity in 2012, more than 60% of capacity is simply what we put in place in 2011. So – and 28% of the growth in 2012 is as a result of new destinations. That’s in terms of capacity. Obviously, it’s not one to one when you try to relate capacities to top line, to revenue. If that gives you an idea and then we can always follow-up to see what data we have. Daniel McKenzie – Rodman and Renshaw: Okay, I appreciate it. Thanks, guys.

Thanks, Dan.

Thank you.

Thank you. Our next question is from Stephen Trent of Citi. Your question, please? Stephen Trent – Citi: Thank you, gentlemen. Once again, I had two follow-up questions. One has already been answered. And I was wondering on the second one, looking at the fleet growth that we’ve seen, the capacity growth in 2011, could you give us any broad color as to what your free cash flow picture looks like, let’s say, in 4Q or around 4Q out of curiosity?

Let me step back a little bit. When you look at the company’s CapEx for the year, for 2012, you’re looking at approximately $350 million in CapEx. Now, when you consider how much is being financed and also reimbursements of deposits for deliveries, cash CapEx for the year is roughly in the range of $50 million or so. That’s just to give you some data points. And the company generates cash from operations in the range of around $400 million or so. So that should give you an idea. Stephen Trent – Citi: Very, very clear. And appreciate that additional color.

Thank you.

Thank you. Our next question is from Augusto Ensiki of Morgan Stanley. Your question please? Augusto Ensiki – Morgan Stanley: Hi. Good morning, gentlemen. Just a quick question – and I apologize if it’s already been touched on. Could you give us the current situation of your hedges on a quarterly basis for 2012?

Sure. Yeah, we are 20% hedged for the full year and using crude oil swaps. And when you look at it on a quarterly basis, in the third quarter, you have 25% of your volume hedged; in the second, 21%; in the third, it’s about 18%; and the fourth, it’s about 17%. So that should take you to 20% for the year. And then, for next year, we have 10% and it’s evenly spread in every quarter, 10% each quarter. Augusto Ensiki – Morgan Stanley: Understood. And I guess, (inaudible), but is there like an average price for the year or for the quarters?

Yeah. Well, for 2012, the average price for the year is $86 and it doesn’t really vary much between quarters. It’s a little bit higher in the first quarter from $88. But then in subsequent quarters, it goes down to $85 or so. And then for next year, it’s even. It’s $88 every quarter. Augusto Ensiki – Morgan Stanley: $88. 10% at $88, great.

Yes. And that’s using WTI. Augusto Ensiki – Morgan Stanley: Perfect. Thank you very much.

Thanks.

Okay. Thank you. Thank you all. This concludes our fourth 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, thank you for your participation. That concludes the presentation. You may disconnect and have a wonderful day.