Rogério Araújo

Rogério Araújo asked for details on the reduction in lease expenses and the expected trend for this line. He also inquired about the drivers behind the positive trend reversal in prepaid ARPU and expectations for its performance in upcoming quarters.

Answer

David Melcon, CFO and Investor Relations Officer, explained that lease depreciation and interest accrual remained consistent, with volatility in payments due to ongoing renegotiations with tower companies, leading to lower principal and interest payments this quarter. He expressed optimism about the trend, citing opportunities to reduce unitary costs and share towers given Brazil's low tenancy ratio. Christian Gebara, CEO of Telefônica Brasil, attributed the improved prepaid ARPU to strategies motivating top-ups and higher average tickets, alongside successful migration of prepaid customers to hybrid plans. He noted strong mobile service revenue growth and stable postpaid churn, but did not provide specific ARPU guidance per segment.

Rogério Araújo from Bank of America Corporation first asked for details on the reduction in lease expenses, including reasons and expected trends. His second question focused on the reversal of the negative trend in prepaid ARPU, seeking clarification on the main drivers and the outlook for upcoming quarters.

Answer

David Melcon, CFO and Investor Relations Officer, attributed the reduction in lease expenses to ongoing renegotiations with tower companies, noting a BRL 1.2 billion payment this quarter, lower than previous periods. He expressed optimism for future reductions, citing Brazil's low tenancy ratio of 1.4 and opportunities for tower sharing. Christian Gebara, CEO of Telefônica Brasil, added that operating cash flow after leases showed strong margin expansion. Regarding prepaid ARPU, Gebara explained the improvement was driven by strategies to encourage top-ups, higher average tickets, and successful migration of prepaid customers to hybrid/postpaid plans, contributing to a 7% mobile service revenue evolution. He declined to provide specific ARPU guidance but affirmed expectations for continued revenue growth.

Rogerio Araujo asked if local currencies supporting yields is the sole reason for Copa's flat RASM expectations despite double-digit capacity expansion, or if other regional strengths or supply rationality contribute. He also sought color on which cost lines offer further reduction opportunities to achieve the CASM ex-fuel guidance.

Answer

CEO Pedro Heilbron clarified that potential currency strength is not a primary assumption for the full-year plan due to volatility, though it is a current tailwind. Regarding CASM ex-fuel, Mr. Heilbron identified benefits from global scale on fixed/semi-fixed costs, disciplined overhead growth, and additional savings in sales and distribution as key areas for achieving the guidance.

Rogerio Araujo asked if local currencies are the sole reason for Copa's flat RASM expectations despite double-digit capacity expansion, and sought color on specific lines for CASM ex-fuel reduction opportunities.

Answer

CEO Pedro Heilbron clarified that potential currency strength is not a primary factor in the full-year RASM guidance due to volatility, though it is currently a tailwind. For CASM ex-fuel, Mr. Heilbron (likely Peter Donkersloot based on topic) identified benefits from fixed or semi-fixed cost lines, non-operational salary/wages/benefits (due to disciplined overhead growth), and additional savings from sales and distribution initiatives.

Rogerio Araujo of Bank of America questioned the fuel price assumption in the company's guidance, asking if it was conservative, and inquired about the expected trend for CASM ex-fuel for the rest of the year and into 2026.

Answer

CFO Peter Donkersloot explained the $2.45/gallon fuel assumption was based on the curve when guidance was built and is not updated daily. He reaffirmed the full-year CASM ex-fuel target of $0.58, expecting it to be flat through year-end, and noted that H2 2025 RASM is expected to be similar to H2 2024, in line with guidance.

Rogério Araújo questioned the fuel price guidance of $2.40 per gallon, suggesting it was above the current curve, and asked about potential margin upside. He also inquired about the dividend policy and the possibility of further shareholder returns.

Answer

CFO Peter Donkersloot Ponce defended the fuel guidance as prudent and consistent with their overall margin outlook. CEO Pedro Heilbron acknowledged potential upside if current prices hold. Regarding returns, management confirmed the dividend is based on a policy of paying ~40% of the prior year's net income and that about $110 million remains on an existing share buyback plan.

Rogério Araújo sought confirmation on whether the guidance assumes a full year of Venezuela flight restrictions, asked about the yield comparison basis for 2024, and inquired about potential yield upside if operations resume.

Answer

CFO Jose Montero clarified the 2024 guidance includes the Venezuela impact from late July onward, while the 2025 preliminary guidance assumes the capacity is deployed regardless of a restart. He noted that second-half 2024 yields were also affected by currency fluctuations, particularly in Brazil. CEO Pedro Heilbron added that while a restart in Venezuela is unpredictable, he is confident it will happen, likely at some point in 2025, which could present an upside.

Rogério Araújo asked about the evolution of tower lease negotiations with lessors, the drivers and trajectory of stepped-up incentives in Q4, and the outlook for lease expenses as a percentage of revenue over the next 2-3 years, questioning if renegotiations could offset 5G and new tower needs. He also sought early estimates on the impact of Brazil's tax reform on effective sales tax from 2027 onwards and how much would be passed to consumers.

Answer

Andrea Viegas, CFO of TIM S.A., stated that tower lease results reflect past efficiency efforts, and despite challenges from increased towers and inflation, margin expanded. She expects the lease-to-revenue ratio to maintain with a slight decrease. Alberto Griselli, CEO, added that negotiations with American Tower were finalized, another significant negotiation is ongoing, and network sharing discussions offer future opportunities. He confirmed plans to keep lease growth at a maximum with inflation, slower than revenues. Andrea Viegas also noted that the tax reform has no impact in 2026 and is neutral on free cash flow for 2027, declining to provide estimates beyond the announced guidance.

Rogério Araújo asked about the evolution of tower lease negotiations with lessors, whether terms are renegotiated ahead of maturities or upon renewals, and the drivers behind stepped-up incentives in Q4. He also sought TIM's view on lease expenses as a percentage of revenue over the next two to three years and if ongoing renegotiations could offset incremental 5G and tower needs. Additionally, he inquired about early estimates for the impact of Brazil's tax reform on effective sales tax from 2027 onwards and the expected pass-through to consumers versus absorption by the company.

Answer

CFO Andrea Viegas stated that tower lease efficiencies continue, with the ratio of lease to revenues expected to maintain with a slight decrease despite 5G expansion. CEO Alberto Griselli added that negotiations with American Tower were finalized last year, and another significant negotiation is ongoing, with network sharing discussions also progressing. He reiterated the plan to keep lease costs growing at most with inflation, slower than revenues. Regarding tax reform, Andrea Viegas stated no impact for 2026 and a neutral impact on free cash flow for 2027, declining to provide estimates beyond that.

Rogerio Araujo of Bank of America requested preliminary ASM growth expectations for 2026 and 2027, and asked what Volaris's profit margin would be in a theoretical scenario without the ongoing aircraft groundings.

Answer

EVP Holger Blankenstein provided a preliminary 2026 ASM growth target of mid-single digits, with a flexibility of plus or minus three percentage points. CFO Jaime Esteban Pous Fernández estimated that in a normalized scenario without groundings, the EBIT margin would be 2.5 percentage points higher and the net margin would be 3 percentage points higher.

Rogerio Araujo from Bank of America requested preliminary ASM growth expectations for 2026 and 2027. He also asked what Volaris's margins might look like in a normalized operational environment without the impact of grounded aircraft.

Answer

Holger Blankenstein, EVP, provided a preliminary 2026 ASM growth target of mid-single digits, with flexibility of plus or minus three percentage points. CFO Jaime Esteban Pous Fernández estimated that in a normalized scenario without groundings, the EBIT margin would be approximately 2.5 percentage points higher, and the net margin would be about 3 percentage points higher.

Rogério Araújo raised concerns about the weak Q2 margin guidance, potential overcapacity in Mexico, the impact of returning grounded aircraft, and the timeline for normalizing high aircraft redelivery costs.

Answer

President and CEO Enrique Beltranena withdrew full-year EBITDA guidance due to uncertainty but stressed that significant capacity cuts are intended to improve TRASM. He also noted redelivery costs will remain high in 2025, lower in 2026, and normalize by 2028. Airline Executive Vice President Holger Blankenstein added that the fleet plan has already been adjusted to manage the return of grounded aircraft.

Rogério Araújo inquired about the primary factors that led to margins exceeding guidance and their sustainability, and also requested an update on the expected timing for the Pratt & Whitney engine recalls.

Answer

CFO Jaime Pous attributed the margin beat to favorable fuel prices and stronger-than-budgeted TRASM. CEO Enrique Beltranena reported significant progress on engine repairs, with turnaround times improving from around 350 days to closer to 300 days, providing a solid and reliable outlook for redeliveries.

Inquired about Q2 liquidity, specifically an update on a potential government credit line, the status of the TAP bond, and how the company is addressing the anti-dilution clause related to its equity offering.

Answer

Q2 is typically a good quarter for cash flow. A government credit line (FGE) has passed initial approvals and is expected to be fully approved soon, providing significant liquidity. The TAP bond is expected to be repaid at maturity, with discussions ongoing. The company acknowledged the anti-dilution clause was 'not helpful' and is in constant conversation with bondholders to find a better approach for further deleveraging.

Asked if the new share count includes a future $200M offer, requested details on the management incentive plan's potential dilution, and sought clarification on the 'commercial agreements' related to a note haircut.

Answer

The share count does not include the future $200M offer. A new management incentive plan could lead to up to 10-11% dilution, with terms yet to be finalized. The note haircut involved cash payments and settling commercial items like maintenance reserves or securing future aircraft deliveries with lessors, all validated as contributing to required cash flow improvements.