Alberto Valerio

Alberto Valerio asked for a breakdown of traffic increase expectations for Mexico and Jamaica within GAP's guidance, an update on the recovery from Hurricane Melissa in Jamaica, and the anticipated impact of the World Cup in Mexico.

Answer

CEO Raúl Revuelta stated that the overall traffic guidance projects an increase of 2-5%. For Jamaica, he noted a continuous recovery of hotel capacity in Montego Bay, expecting a -2% to 0% passenger increase for the year. He highlighted a significant impact on the spring season due to hotel room availability, with full hotel capacity recovery anticipated by the winter season. The World Cup impact in Mexico was previously addressed, with positive outlooks for Guadalajara.

Alberto Valerio from UBS requested a detailed breakdown of GAP's traffic increase expectations for Mexico and Jamaica within its guidance, specifically addressing the recovery trajectory from Hurricane Melissa in Jamaica and the anticipated impact of the World Cup in Mexico.

Answer

CEO Raúl Revuelta projected a 2-5% overall traffic increase, specifying that Jamaica's Montego Bay is expected to see a -2% to 0% passenger increase by year-end, with full hotel capacity recovery anticipated by the winter season. He noted the spring season would still experience significant impact from reduced hotel availability.

Alberto Valerio of UBS Group AG questioned the Q1 CapEx level, asking if spending would accelerate to meet the new Master Development Program (MDP) goals, and inquired about labor force availability for the projects.

Answer

Executive Raul Musalem explained that the start of a new five-year master plan typically involves a slower ramp-up in the initial months as projects are mobilized. He expressed confidence that the company will meet its full-year CapEx commitment of approximately MXN 13 billion, as major construction projects are now underway.

Alberto Valerio from UBS inquired about the status of negotiations with airlines regarding the significant tariff increases and asked about GAP's M&A appetite for other assets in the Caribbean and South America.

Answer

Executive Raul Musalem clarified that tariff changes are not a direct negotiation but a regulatory procedure. However, he noted that GAP negotiates discount packages with airlines to support new routes, balancing the tariff increase. Regarding M&A, he confirmed GAP continuously evaluates opportunities in the region with a strict discipline of only pursuing accretive deals.

Alberto Valerio asked for details on revenue impacts from FX on international traffic, further details on maintenance costs and how to forecast them given their significance in the new MDP, and inquired about any impact from recent regional violence on airport operations or routes.

Answer

CFO Rufino Pérez Pliego estimated an MXN 50 million-MXN 60 million negative impact on revenue in Q4 2025 due to an 8% peso appreciation against the dollar, affecting international passenger charges, VIP lounges, duty-free, and industrial park. He reiterated that the full-year major maintenance provisioning for 2026 is expected to be around MXN 400 million, with future years depending on construction costs and long-term interest rates. He also confirmed that all 13 airports are operating normally, with only minor, temporary cancellations observed due to recent events, not expected to impact overall numbers.

Alberto Valerio requested more details on the impact of foreign exchange rates on revenues, particularly international traffic, and further information on maintenance costs, including their portion in the MDP and future forecasting. He also asked about any impact from recent violence on OMA's airports or routes.

Answer

CFO Rufino Pérez Pliego estimated the FX impact from peso appreciation in Q4 2025 to be between MXN 50 million-MXN 60 million, primarily affecting international passenger charges, VIP lounges, duty-free, and industrial park revenues. He reiterated the full-year major maintenance provisioning for 2026 would be around MXN 400 million. He confirmed all 13 airports are operating normally, with only minor, temporary cancellations observed during a recent event, not expected to impact overall numbers.

Alberto Valerio of UBS Group AG asked for more detail on the new MDP tariff, questioning if the expected increase would be uniform across all airports or if there would be significant divergence among them.

Answer

CEO Ricardo Dueñas Espriu clarified that the anticipated maximum tariff increase is in the low single digits in real terms, not high single digits. He added that while specifics are still being negotiated with authorities, they do not expect a tariff decrease at any airport.

Alberto Valerio asked about a project in Brazil to suspend Law 400, which could reduce consumer lawsuits against airlines. He inquired if Copa has seen any positive impact on its liabilities from Brazilian consumers and the potential upside if the resolution is approved.

Answer

CEO Pedro Heilbron noted that the project would be welcomed by the industry, as a significant majority of global passenger lawsuits originate from Brazil. He expects cost savings if the law passes, making the situation fairer for airlines. Mr. Heilbron was not fully familiar with the specifics of its current suspension status but acknowledged its potential positive impact.

Alberto Valerio asked about a project to suspend Law 400 in Brazil, inquiring if Copa has seen any positive impact on liabilities from Brazilian consumers and the potential upside if the resolution is approved.

Answer

CEO Pedro Heilbron acknowledged that a significant portion of global passenger lawsuits originate from Brazil (around 90%). He stated that if the law passes, it would be welcomed by the industry, resulting in cost savings and being fairer, though he was not deeply familiar with the specifics of its current suspension status.

Alberto Valerio asked about yield expectations for the fourth quarter and next year, questioning if the guidance is conservative, and sought Copa's perspective on the competitive landscape in Latin America, including recent IPOs and Azul's comeback.

Answer

Pedro Heilbron, CEO of Copa Holdings, reiterated the narrowed operating margin guidance for Q4 2025 to 22%-23%, representing the upper end of previous guidance, and expressed comfort with this range, declining to provide quarterly yield guidance. On competition, Heilbron stated Copa consistently focuses on strengthening its competitive advantages (product, unit cost, network). He noted that recent IPOs are companies returning to public status after bankruptcy, contrasting this with Copa's steady operational approach.

Alberto Valerio asked about yield expectations for the current and next quarter, noting that the market might have anticipated a higher revision, and if there's any specific conservatism in the guidance.

Answer

CEO Pedro Heilbron reiterated the narrowed operating margin guidance for 2025 (22%-23%), which is at the upper end of previous guidance, but did not provide specific quarterly yield guidance. Alberto also inquired about the competitive landscape in the region, referencing IPOs in Mexico and Latin America, and Azul's comeback.

Alberto Valerio of UBS Group AG inquired about the competitive landscape given rising industry capacity and asked for an update on the codeshare partnership with Volaris.

Answer

CEO Pedro Heilbron stated that despite significant industry capacity growth, Copa has competed successfully by leveraging its strong product and low unit costs. Regarding the partnership, he described the Volaris codeshare as a key initiative to connect the large Mexican market with Copa's network, noting it will continue to be developed and expanded.

Alberto Valerio asked if potential Boeing delivery delays for other carriers could create an opportunity for Copa to accelerate its own 737 MAX deliveries.

Answer

CEO Pedro Heilbron stated that they do not see an opportunity to accelerate their aircraft deliveries. He relayed that information from Boeing indicates their delivery schedule remains firm, with no significant pull-forwards expected.

Alberto Valerio questioned if the full-year traffic guidance was conservative given strong January results and asked about the post-pandemic change in passenger mix, specifically the proportion of U.S. travelers.

Answer

CEO Pedro Heilbron explained that January's high ASM growth was an anomaly due to the comparison with the MAX grounding in January 2024. He affirmed the 7-8% full-year growth guidance is based on the back-loaded aircraft delivery schedule. He also confirmed that post-pandemic, there is more U.S. traffic, but yields are now back to 2019 levels, though margins are much stronger due to lower unit costs.

Alberto Valerio asked if a potential 23% operating margin in 2025 would be feasible and recurring, and also inquired about the company's plans for its presence in Argentina.

Answer

CEO Pedro Heilbron declined to provide specific 2025 margin guidance but expressed confidence in consistently delivering industry-leading results. CFO Jose Montero added that the company's low unit cost base makes it fundamentally more efficient and able to sustain strong margins. Regarding Argentina, Heilbron stated it remains a strong, well-covered market, and the company is satisfied with its current capacity deployment there.

Alberto Valerio inquired about the higher-than-expected financial expenses, asking if they were related to the $12.6 million 'offer of EVs inside' seen in cash flows. He also asked about the recurring nature of the $12.2 million in non-controlled interest, which was also higher than anticipated.

Answer

CFO Antonio Carlos Garcia explained that the higher net financial results were primarily due to a market-to-market obligation for long-term incentives, which takes a hit when the share price increases. Regarding non-controlled interest, he stated it was a temporary positive impact for other shareholders because Eve's market-to-market was positive in Q3, but this credit is likely to revert as Eve's value increases in Q4.

Alberto Valerio, Executive Director at UBS, inquired about the recurring and non-recurring items impacting Embraer's bottom line. He specifically asked about the higher-than-expected financial expenses, questioning if the $12.6 million 'offer of EVs inside cash flows' was a factor, and sought clarification on the recurring nature of the $12.2 million in non-controlled interest.

Answer

CFO Antonio Carlos Garcia explained that the net financial result was impacted by market-to-market obligations for long-term incentives due to an increase in share price. He clarified that the non-controlled interest was positive in Q3 because Eve's market-to-market valuation was positive, generating a temporary benefit for other shareholders, which he expects to revert as Eve's value likely increases in Q4.

Alberto Valerio of UBS Group AG asked if new business jet orders are being priced higher to mitigate tariffs, if there are negotiations on the existing backlog, and if airlines are requesting financial support from Embraer for tariff costs.

Answer

CEO Francisco Neto clarified that commercial jet prices are not being increased, as tariffs are paid by the customer. For business jets, Embraer will maintain competitive pricing to support growth. He stressed that the full-year tariff impact is already included in the guidance and the primary goal is to restore the zero-tariff rule.

Alberto Valerio of UBS asked about the book-to-bill assumption underlying the free cash flow guidance and questioned if Embraer is approaching its maximum production capacity.

Answer

CFO Antonio Garcia confirmed the 2025 plan assumes a book-to-bill ratio of 1:1. CEO Francisco Neto addressed capacity, stating that while they are ramping up production across all divisions, they still have room to grow. He noted they are making disciplined investments to expand capacity for commercial, executive, and defense aircraft in line with their growing backlog.

Alberto Valerio asked about commercial aircraft pricing dynamics and queried the strong year-over-year margin in Executive Aviation, which occurred despite what seemed to be a less favorable delivery mix.

Answer

President and CEO Francisco Gomes Neto attributed the Executive Aviation margin strength to a favorable product mix, particularly the high dollar contribution from Praetor jet sales. He stated this should help the division achieve a double-digit EBIT margin for the year, as the absolute dollar value from premium jets boosts overall profitability.

Alberto Valerio from UBS Group AG inquired about Volaris's flexibility to shift capacity between domestic and international routes and asked if the new policy of unbundling airport fees has altered consumer behavior regarding airport choice.

Answer

EVP Holger Blankenstein highlighted that network flexibility is a key competitive advantage, allowing capacity to be deployed to the most profitable routes. He also explained that unbundling airport fees has been a 'net positive,' stimulating demand by showcasing low base fares, with 25-30% of customers opting to pay the fee later.

Alberto Valerio of UBS Group AG asked about Volaris's flexibility to shift capacity between domestic and international routes and inquired about any observed changes in consumer behavior resulting from the unbundling of airport fees from the ticket price.

Answer

Holger Blankenstein, EVP of Airline Commercial & Operations, emphasized that Volaris's guiding principle is deploying capacity to the most profitable routes, giving them flexibility between markets. He noted that unbundling airport fees has been a net positive, stimulating demand with lower visible base fares, with 25-30% of customers choosing to pay the fee closer to their check-in date.

Alberto Valerio inquired about negotiations with airports regarding fees amidst declining yields and asked for an update on discussions to increase slots at Mexico City Airport (MEX).

Answer

Airline Executive Vice President Holger Blankenstein stated that Volaris advocates for fair airport fees that do not exceed inflation. President and CEO Enrique Beltranena commented on MEX slots, saying there is 'nothing concrete' on an increase, but noted that Volaris's own slot position has improved significantly since 2019.

Alberto Valerio requested details on the performance and rebalancing in Colombia and Puerto Rico and asked how traffic at the new Tulum airport has been performing relative to initial expectations.

Answer

Executive Adolfo Castro Rivas praised the performance of both markets, highlighting Puerto Rico's surprising resilience and Colombia's successful recovery after two local carriers ceased operations in 2023. He expects both markets to continue with normal growth trends. The question on Tulum was addressed in a later response.

Inquired about the possibility of sale-leasebacks for recent aircraft deliveries and asked for details on the newly announced government financing program (Fnac), including its conditions related to Embraer orders and timing.

Answer

The recent aircraft deliveries were operating leases, so no sale-leasebacks are applicable. The government's Fnac financing is a separate, positive development expected to be approved in Q3 and disbursed in Q4. Azul's existing Embraer order backlog is sufficient to meet the program's conditions.

Alberto Valerio questioned the future resiliency of U.S. pricing, asking why prices would remain sticky this time if volumes soften, in contrast to previous cycles.

Answer

Executive Lucy Rodriguez asserted that the U.S. market is sold-out, which supports pricing power, and noted that the first price increase of the year is typically successful. Executive Maher Al-Haffar added that an expected easing of interest rates should boost the housing market, which, combined with strong infrastructure and industrial demand in a tight supply environment, provides a solid foundation for continued price resilience.