Copa Holdings - Q4 2022
February 16, 2023
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings' fourth quarter earnings call. During the presentation, all participants will be on a listen-only mode. Afterwards, we will conduct a question-and-answer session.
At that time, if you have a question, you will have to press star then one one on your touchtone phone. As a reminder, this call is being webcast and recorded on February sixteenth, twenty-twenty-three. I will turn the conference over to Daniel Tapia, Director of Investor Relations. Sir, you may begin.
Daniel Tapia (Director of Investor Relations)
Thank you, Latif, and welcome everyone to our fourth quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings, and Jose Montero, our CFO. First, Pedro will start by going over our fourth quarter and full year highlights, followed by Jose, who will discuss our financial results. Immediately after, we will open the call for questions from analysts. Copa Holdings financial reports 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 our earnings release, which has been posted on the company's website, copaair.com. Our discussion today will also 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 subject to change. Many of these are discussed in our annual report filed with the SEC. Now I'd like to turn the call over to our CEO, Mr. Pedro Heilbron.
Pedro Heilbron (CEO)
Thank you, Daniel. Good morning to all. Thanks for participating in our fourth quarter earnings call. Before we begin, I would like to extend my sincere gratitude to all our coworkers for their commitment to the company. Their continuous efforts and dedication have kept Copa at the forefront of Latin American aviation.
To them, as always, my highest regards and admiration. We're proud to report solid fourth quarter and full year results despite the pressure higher jet fuel prices have added to our operating costs and other headwinds common to our business. Among the main highlights for the quarter, in terms of capacity, although we had a similar number of daily departures compared to 2019, we achieved 6% more ASMs than in Q4, 2019 due to a higher average gauge.
Revenue passenger miles increased by 7.5%, which led to an 86.6% load factor, a 1.4 percentage point increase when compared to the same period in 2019. Passenger yields came in at $0.151, or 20% higher than in the fourth quarter of 2019.
While cargo revenue, including the contribution from the operation of our Boeing 737-800 freighter, was 69% higher, resulting in unit revenues or RASM of $0.137, a 23% increase compared to the first quarter of 2019. Adjusted ex-fuel CASM decreased by 7% compared to Q4, 2019, from $0.066 to $0.061. Our operating margin came in at 24.7%. Now turning to our main highlights for the full year, 2022.
Unit revenues increased 12.6% year-over-year to $0.121, mainly driven by a 10.8% increase in yields. CASM ex-fuel came in at $0.0598, almost 5% lower than 2019. The operating margin for the year came in at 15.2%. During the year, we started flights to Barcelona, Venezuela, Santa Marta, Colombia, and to the Felipe Angeles Airport in Mexico City, ending the year operating to 77 destinations in 32 countries in North, Central, South America, and the Caribbean, strengthening our position as the most complete and convenient hub in Latin America.
We inaugurated our new Copa Club in Tocumen's new Terminal 2. This new and modern facility provides our business class and preferred members with a world-class experience while traveling through our Panama hub of the Americas.
We also reactivated our Panama Stopover program, which promotes our home country as a tourist destination. We're seeing good results. In September, we launched our new distribution strategy, including the new Copa Connect option for travel agency to access Copa First and other content via the IATA New Distribution Capability, or NDC.
At the same time, Copa introduced a cost recovery surcharge for bookings made through the legacy GDS technology, known as EDIFACT. During Q4, we were pleased with both the adoption of Copa Connect among our agency partners and the increase in direct sales via copa.com.
We're still at an early stage. These changes are helping us gain more control over our distribution strategy and offset and eventually lower our distribution costs. On the operational front, Copa delivered an on-time performance of 87.4%, and was recently recognized by the Official Airline Guide as the most on-time airline in Latin America in 2022.
In fact, according to OAG, Copa's on-time performance was again the highest of any carrier in the Americas. Additionally, last year, Copa Airlines was recognized by Skytrax for the seventh consecutive year as the best airline and the best airline staff in Central America and the Caribbean. I would like to once again express my recognition to our more than 7,000 coworkers, who day in and day out deliver a world-class travel experience for our customers. Their contributions are key to our success.
With regards to Wingo received 1 additional 737-800 from Copa yesterday and ended the year with a total of 9 aircraft. It continued its regional expansion and ended 2022 operating 31 routes with service to 20 cities in 10 countries. Turning now to our expectations for 2023. During our last call in November, we shared preliminary capacity guidance for the year of +16% compared to 2022.
We mentioned that we were expecting to receive 13 Boeing 737 MAX aircraft during the year. As you saw in our earnings release, we're reducing our capacity growth guidance to a range of 12%-14%, as it now looks like Boeing won't be able to maintain its originally scheduled delivery dates. We now expect to receive 12 air-air aircraft during the year instead of 13.
Additionally, as is the case for the industry worldwide, we're experiencing higher maintenance costs related to our engines and we shove their turnaround times. We expect that this issue to add pressure on our unit costs for the year. Jose will provide more details about this.
This year we expect to continue growing our output in terms of frequencies and new destinations. So far, we have announced new service to the cities of Manta in Ecuador and Baltimore and Austin in the U.S. as part of this growth. With these additions, we will be serving 80 destinations in North, Central, South America, and the Caribbean by July of this year.
To summarize, we delivered strong results in Q4 and for the full year 2022. Our team continues to deliver world-leading operational results, including, again, the best on-time performance in the Americas. We're reducing our capacity assumptions for the year given the current delays in the aircraft delivery stream. As always, we will continue looking for efficiencies and savings to further reduce our unit costs and strengthen our competitiveness going forward.
Lastly, we're as confident as ever in our business model. In 2022, we delivered competitive unit costs and solid margins while continuing to offer a great product to our passengers, making us the best-positioned airline in our region to consistently deliver industry-leading results. I'll turn it over to Jose, who will go over our financial results in more detail.
Jose Montero (CFO)
Thank you, Pedro. Good morning, everyone. Thanks for being with us today. I'd like to join Pedro in acknowledging our great team for all their efforts to deliver a world-class service to our passengers. I will start by going over the main highlights for full year 2022.
Our load factor came in basically flat versus 2019 at 85.1%. Driven by a 10.8% increase in yields, unit revenues improved by 12.6% versus 2019 to $0.121. Our unit costs came in at $0.0598, 4.6% lower than in 2019. Due to an increase of 67% in jet fuel prices, our operating margin was 0.9 percentage points lower than in 2019 at 15.2%.
Reported net income for full year 2022 came in at $348.1 million, which translates to earnings per share of $8.58. Excluding special items, namely an unrealized mark-to-market net gain of $12.7 million related to the company's convertible notes, as well as changes in the value of financial investments, adjusted net income came in at $335.4 million, or adjusted earnings per share of $8.26. Turning to our fourth quarter results. Net profits for the quarter came in at $88.3 million or $2.23 per share. Excluding special items, net profits came in at $177.7 million or $4.49 per share.
Fourth quarter special items are comprised of an unrealized mark-to-market loss of $91.3 million related to the company's convertible notes and a $1.9 million unrealized market gain related to changes in the value of financial investments. We reported a quarterly operating profit of $219.7 million and an operating margin of 24.7%. Capacity came in at 6.5 billion available seat miles, or approximately 6% higher than in Q4 2019.
Load factor came in at 86.6% for the quarter, a 1.4 percentage point increase compared to the same period in 2019, while passenger yields increased 20.4% to $0.151. As a result, unit revenues came in at $0.137, or 23.4% higher than in the fourth quarter of 2019. Driven by higher jet fuel prices, unit costs, or CASM, increased $0.103 or 10% more than the adjusted CASM in Q4 2019.
Finally, our CASM ex-fuel came in at $0.061, a 7% decrease versus the adjusted CASM ex-fuel for Q4 2019. I'm going to spend some time now discussing our balance sheet and liquidity. As of the end of the year, we had assets of close to $4.7 billion.
In terms of cash, short and long-term investments, we ended the year with $1.1 billion, which represents 38% of last 12 months revenues. As to our debt, we ended the year with $1.7 billion in debt and lease liabilities and achieved an adjusted net debt to EBITDA ratio of 0.8x.
Turning now to our fleet. During the fourth quarter, we received two Boeing 737 MAX 9s to end the year with a total of 97 aircraft, compared to 102 aircraft in our fleet at year-end 2019. In January of 2023, we received an additional 737 MAX 9 to bring our total fleet to 98 aircraft.
With this addition, our total fleet is now comprised of 68 737-800s, 21 737 MAX 9s, and 9 737-700s. These figures include 1 737-800 freighter and the 9 737-800s operated by Wingo. Two-thirds of our fleet continue to be comprised of owned aircraft, and 1/3 of our aircraft are under operating leases. During the remainder of 2023, we expect to receive 11 additional aircraft, all Boeing 737 MAX 9s.
We have been informed by Boeing of additional delivery delays in our 2023 delivery stream. We now expect all 11 aircraft pending to be delivered during the year to have between 2-4 months of delays versus the original delivery date.
As to our outlook, based on the current demand environment and the expected delivery dates for our incoming aircraft, we can provide the following guidance for full year 2023. We expect to increase our capacity in ASMs versus 2022 within a range of 12%-14%, and we expect an operating margin within a range of 17%-19%.
We're basing our outlook on the following assumptions: load factor of approximately 85%, unit revenues within a range of $0.121, CASM ex-fuel to be in the range of $0.06, mainly due to the additional costs associated with our engines and the longer maintenance shop and turnaround times that we expect for this year. Finally, we're expecting an all-in fuel price of $3.15 per gallon. Thank you.
With that, we'll open the call to some questions.
Operator (participant)
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Again, that's star one one on your telephone to ask a question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Michael Linenberg of Deutsche Bank. Your question please, Michael.
Michael Linenberg (Managing Director)
Oh, yeah. Hey, good morning, and congrats on the great results, team. Two questions here. I guess first... Oh, you're welcome, Pedro. Two questions here. Just, the first, can Pedro, can you actually update us on some of the shareholder initiatives, the share repurchase and where things stand with respect to dividend reinstatement?
Jose Montero (CFO)
Okay. I'll answer the second part, and then I'll let Jose address the repurchase part. The board met last week and decided to discuss the dividend reinstatement decision at an upcoming board meeting towards the second half of March.
Michael Linenberg (Managing Director)
Mm-hmm.
Jose Montero (CFO)
This coming month, where we're gonna present our budget, our CapEx need, our cash flow, et cetera. They decided to make the decision then. That will be in, like, a month or yeah, like a month or so.
Michael Linenberg (Managing Director)
Okay.
Jose Montero (CFO)
Mike, in terms of the share repurchase program, we were active last year in the program. You know, we have a currently approved $200 million program that is essentially halfway completed. You know, of course the objective of the program is to maximize shareholder value, and the other component of the strategy behind the program is to have liability management vis-à-vis the convert as well. That's kind of the strategy that we have with the share repurchase program.
Michael Linenberg (Managing Director)
Okay, great. Then, just my second. When we look at the 12%-14% capacity growth, you've already announced three new cities, right? Baltimore, Austin, and Manta. Should we anticipate more cities? As we think about the 12%-14%, is it mostly, you know, connecting the dots? Or really not even connecting, is it mostly adding frequency or depth to the schedule? Is it?
Jose Montero (CFO)
Yeah
Michael Linenberg (Managing Director)
... 50 new cities? I'm just curious about the type of growth and, you know, low risk-
Jose Montero (CFO)
Right
Michael Linenberg (Managing Director)
... versus high risk type growth.
Pedro Heilbron (CEO)
Correct. So my answer, in a way, is all of the above. 50% of the capacity growth in 2023 comes from the full year effect of the additions in 2022, both frequencies and new destinations added in 2022.
The other 50% is mostly additional frequencies in current markets, and then a smaller part of that 50% is going to be new destinations. We have announced 3, as you mentioned, and we are hoping to announce an additional at least 2 or so for the end of the year.
Michael Linenberg (Managing Director)
Pedro, the 2 or so that you're looking to announce, are they some of the destinations that you served prior to COVID that you have yet to restart? Or are they completely new destinations?
Pedro Heilbron (CEO)
I mean, I meant to say new destinations. We still have about eight destinations we haven't restarted from pre-COVID, and we hope to also reinstate some of those during the year.
Michael Linenberg (Managing Director)
Okay. Very good. Okay, thanks. Thank you very much.
Pedro Heilbron (CEO)
Thank you. Bye.
Operator (participant)
Thank you. Our next question comes from the line of Duane Pfennigwerth of Evercore ISI. Your question please, Duane.
Duane Pfennigwerth (Analyst)
Hey. Thanks. Good morning. Just on the, just on the traditional pattern of margins, 4Q to 1Q, you know, typically we actually see some pickup sequentially, from 4Q to 1Q. If you think about the kind of roughly 25% margin that you've posted here, how do you think about that into, you know, into 1Q? You know, I guess what we're trying to get a feel for is how much conservatism you've baked into the second half of the year because it just feels like a lot.
Pedro Heilbron (CEO)
Right. Duane, of course it's only February, so we're gonna be cautious in how we try to forecast, you know, what, 11 months we have ahead of us. I should also say that Q4 was not necessarily a typical Q4. I'll let Jose maybe get into more detail.
Jose Montero (CFO)
Yeah. Duane, you know, Q4 was particularly strong for a couple of reasons. One, you know, there was a strong demand environment in the region. Number two, most of the sales that were performed for Q4 were made during a period where fuel was still high, and then fuel came down during the quarter as well versus where it was, you know, in Q3.
That created a, you know, very, very strong result for the quarter. The other item I think, you know, I think Pedro was kind of getting to this. You know, we decided to go back to our yearly guidance, we're providing a, you know, a full year guidance.
For Q1, I would say from a top line sort of RASM perspective, you could argue that in Q1 there is a maybe a slight, you know, reduction or the guidance assumes a slight reduction in the RASM versus the Q4 RASM that was very strong.
That's just a function of, you know, there's a little bit more capacity in the network and the other item there is fuel is a little bit lower as well. There's some of that dynamic going on there. You know, we expect Q1 to have a, you know, a good, you know, good development in terms of its profitability from what we're seeing it so far.
Duane Pfennigwerth (Analyst)
Okay. I mean, fuel is lower sequentially. Obviously, fuel's been all over the place, but it is lower sequentially at least.
Jose Montero (CFO)
Yeah.
Duane Pfennigwerth (Analyst)
you know, our view today-
Jose Montero (CFO)
Yeah.
Duane Pfennigwerth (Analyst)
4Q to 1Q. Then maybe just for the follow-up on the pilot contract announcement. Can you speak to the magnitude of that? Assume that's in your full year cost guidance. How should we think about that?
Pedro Heilbron (CEO)
Right, Duane. This is a process we go through every four years with all of our unions, including our pilot unions. You usually don't even find out because there isn't a lot of noise out there about it. It's usually a very professional, and, I don't know, I don't wanna say friendly, but professional and respectful negotiation.
It wasn't any different this year, only that it got out in the news, a little bit more noise was made out of this. The agreement was signed last week as always. Usually it gets signed on the last, on the due date, and it was not much different to what we have signed in previous negotiations four years ago or eight years ago.
Not very different and it should not have an impact that we cannot cover with other efficiencies and growth and things like that.
Jose Montero (CFO)
Yeah. It is, and just to be clear, it is included in our guide for 2023 in terms of ex-fuel CASM. Again, it's in line with what we have signed in the past with that group. It was signed, you know, I think the conclusion to the negotiations were done in a very good spirit.
Pedro Heilbron (CEO)
It's in line with inflation in Panama also. Inflation in Panama is in the 2%-3% range. It's also in line with that and again, very similar to what we have signed in the past. It's in the guidance of course.
Duane Pfennigwerth (Analyst)
Okay. Very clear. Thanks for the time.
Jose Montero (CFO)
Thank you, Duane.
Pedro Heilbron (CEO)
Thank you.
Operator (participant)
Thank you. Pardon me. Our next question comes from the line of Rogerio Araujo of Bank of America. Your line is open, Rogerio.
Rogerio Araujo (Senior Analyst)
Thank you very much. Hey, gentlemen, thanks so much for the opportunity. I have one follow-up on, maybe supply demand.
Pedro Heilbron (CEO)
There is a rest implied in the guidance that is about 12% of 90 team level, and 4Q was 20%, 21% above 90 team level. I would like you guys to comment what is driving that. You already mentioned that some of the 4Q tickets have been sold when oil price was at a higher level. Can you break down in maybe 3 segments here?
One is the higher frequencies from Copa, how it should impact expected yields, the higher the expected capacity expansion from competitors, and also demand. Do you expect some demand weakening? Is there, I don't know, maybe a faint demand environment currently that is expected to be normalized? How are you thinking about Copa's supply, competitor supply, and demand? Thank you.
Jose Montero (CFO)
Thank you, Rogelio, for the question. I will start by saying that, you know, this is early in the year, so the visibility towards the latter part of the year is still limited. From what we're seeing, at least in Q1, demand, the demand environment continues being relatively strong versus what we saw in Q4.
You know, I think that, you know, for both, in the unit revenue side, you know, and in the load factor side, looks relatively strong. Maybe a tad down versus again Q4, but in general terms, still very, very strong system-wide, and all regions seem to have that sort of same behavior.
In terms of what we're seeing when you compare, let's say, the unit revenues for the second half of 2022 and the full year 2023 guidance that we've issued, I would say that the majority of the component in terms of the change in RASM is related to the fuel curve assumption that we have or the fuel curve that we have, based our unit revenues in.
I would say about 2/3 of the movement is related to that. The other part is related to the capacity that we brought in. You know, we're increasing capacity for the full year by the range of 12%-14%, so it is an important, you know, double-digit movement in capacity.
I would say those are the two movements, but it's, you know, again, fuel and capacity on our own capacities is what's driving the guidance for 2023.
Rogerio Araujo (Senior Analyst)
Very clear. Thanks so much. Congratulations on the very strong results.
Jose Montero (CFO)
Thank you, Rogerio.
Operator (participant)
Thank you. Our next question comes from the line of Savanthi Syth of Raymond James. Your line is open, Savi.
Savanthi Syth (Managing Director and Senior Equity Analyst)
Thank you. Good morning, everyone. If I might, on the capacity front, could you talk a little bit about just from a MAX delivery standpoint, how you expect that to kind of come throughout the year and kind of the capacity cadence there, which related to that is also kind of the fuel efficiency?
Do you expect that to improve as we go through the year, or is it just based on kind of the routes that you're adding? Do we, you know, maybe shorter haul routes or anything around that that maybe causes fuel efficiency to maybe not improve despite the MAX delivery?
Jose Montero (CFO)
Yeah. I would say, Savi, that the cadence throughout the year, I would say that most of the growth will probably occur during the second half, so it will be more anything backloaded into the second half of the year. you know, we're seeing for Q1, again, a growth on a sequential basis and low single digits versus Q4.
Remember that. But also there's the impact of, I mean, again, here we're comparing against 2022 in total. There is also the impact of Omicron at the beginning of the year a little bit. There's some noise in the base of 2022 to 2023. I would say it's mostly backloaded into the second half of the year.
There, you know, the benefits in terms of fuel consumption for the MAX is there. You know, it's in the double digit range versus low double digit range versus the NG. We're seeing that, and I think that's an assumption to make in the fuel consumption part of the model.
Pedro Heilbron (CEO)
Which is of course in our guidance.
Jose Montero (CFO)
Yes, of course.
Savanthi Syth (Managing Director and Senior Equity Analyst)
Got it. And if I might, on the Wingo, you know, increased, one more aircraft, I don't know if that was kinda expected or not. Could you just talk about, you know, what's, you know, how you're thinking about Wingo or how that's evolving, based on what you're seeing in the environment today?
Pedro Heilbron (CEO)
Sure. Wingo did go from 8 aircraft at the beginning of 2022 to 9, something we had planned for. However, the Colombian market is very competitive right now. I would say it has overcapacity. We think that Wingo for 2023 is gonna remain at 9 aircraft.
We don't see Wingo growing much this year except for better utilization of its fleet. They'll do a few things. They'll add some markets. They'll shift capacity around, they will remain with 9 aircraft during the year.
Savanthi Syth (Managing Director and Senior Equity Analyst)
Helpful color. Thank you.
Jose Montero (CFO)
Thank you, Savi.
Operator (participant)
Thank you. Our next question comes from the line of Bruno Amorim of Goldman Sachs. Your question please, Bruno.
Bruno Amorim (Equity Analyst)
Hi, can you hear me?
Pedro Heilbron (CEO)
Yes.
Bruno Amorim (Equity Analyst)
Thank you. The question is actually a follow-up on the outlook for 2023. just wanted to make sure that we got the right message. Is it fair to say that, you know, you are taking advantage of the fact that margins are running above trend to stimulate some demand and bring margins back to what were the historical levels?
You know, because I understand fourth quarter was particularly strong, but even if you look at third quarter, margin was 18% already with much higher fuel prices, right? It does seem that, you know, all else held constant, there was room for margins to be better in 2023. Thank you.
Pedro Heilbron (CEO)
I'll start and then let Jose finish the question. In Q3, we're able to cover our fuel expense with higher yields. Of course, when fuel is up, most every airline is affected in the same way, and it's a lot easier to get fair action matched by everyone, which is what happened in the second half of the year. In Q4, we had a very strong month of October, where load factor was about 90%.
That's way above our high average. It's even above our high average. Then fuel started coming down in the latter part of the quarter, while yields remain higher or higher than before. We don't think that's sustainable, and we're seeing that.
It's experience from the past also, that when fuel comes down, airlines are a little bit more aggressive in their pricing, and we've seen a lot of that, or some of that, I should say. The expectation is for Q1, that demand will be slightly lower, but still very healthy. We won't have an October, the rest will be very similar. Yields will be also slightly lower due to the fuel reduction. I don't know if you wanna add something to that, Jose.
Jose Montero (CFO)
No. I mean, the point is that we're also growing by, you know, between 12% and 14%, which is a significant level of growth. I think that that's also a driver of our strategy for the year, is just simply to continue sort of rebuilding the hub to where it was pre-pandemic.
I think that the margin guidance that we're providing is at the high end of what we have delivered on a yearly basis over the last several years. It is. I think with the added growth is precisely, as you mentioned, a portion of the strategy that we're pursuing in terms of capturing new market or recapturing our markets.
Bruno Amorim (Equity Analyst)
Thank you very much.
Pedro Heilbron (CEO)
Thank you, Bruno.
Operator (participant)
Thank you. Our next question comes from the line of Stephen Trent of Citi. Your line is open, Steven.
Stephen Trent (Managing Director and Senior Equity Research Analyst)
Hey. Good morning, gentlemen, and thank you very much for taking the time. I just had one or two quick follow-ups on the competitive environment. It seems, for example, like Spirit Airlines has exited Florida, Panama, that may have had some trouble competing there. In Colombia, I know you also just mentioned it, but it looks like Viva Air Colombia is maybe looking a little wobbly from a competitive perspective. You know, when you think about sort of broader capacity in the region, do you see kind of medium to longer term upside for passenger capillarity through Tocumen? Thank you.
Pedro Heilbron (CEO)
Yeah. Actually, the two examples you have alluded to are not really don't have a significant impact in our network. We don't compete much against either one, and we have very little overlap. Those exiting certain markets don't really have an impact.
What we have seen is a tilt towards more ULCC competition in our network, versus what would have been 8 years ago or even 4 years ago. That's, I think, the big change, which is kind of it has two sides. One side is, of course, we need to remain very focused on our costs and our efficiencies, et cetera. Secondly, we are like, in most markets, the only full service carrier. That gives a certain uniqueness.
In general terms, as I mentioned, competition right now in our network is mostly ULCC. I would say that most airlines have brought back most of their capacity, to pre-pandemic levels or very close to it.
Stephen Trent (Managing Director and Senior Equity Research Analyst)
Very helpful, Pedro. As my follow-up, just really quickly, I know you guys gave, you know, very helpful guidance on the full year. I was wondering if you might have, you know, a high level view as to, you know, how we might think about, sort of 1Q, jet fuel kerosene, sort of, you know, relatively where you could see it settling in. Thank you.
Jose Montero (CFO)
Yeah. Stephen, if you are on a quarter-over-quarter basis versus Q4, fuel is down by about 4%. Yeah. That's kinda how we're seeing it on a, again, Q4 versus Q1.
Stephen Trent (Managing Director and Senior Equity Research Analyst)
Super, Jose. Thank you, and let me leave it there. Thanks, guys.
Pedro Heilbron (CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Helane Becker of Cowen. Your line is open, Helane.
Helane Becker (Managing Director and Senior Research Analyst)
Thanks very much, operator. Hi everybody. Thank you very much for the time. Just two questions here. The first question is with respect to cargo. Can you just talk a little bit about what you're seeing right now? You know, are you seeing similar declines to what others are seeing in the market? How are you thinking about utilizing the freight aircraft that you have?
Pedro Heilbron (CEO)
Right. First thing I should say is that cargo, it's only about 3% of our revenues. It's not that significant. I mean, it used to be 2.5%, so it's above what it used to be, but not by a huge margin. We are operating our 737-800 freighter.
It's operating great, with good load factors and yields. It's actually operating over 10 hours per day, so we're getting the most out of it. Yields have come down a little bit, but in our network, most of our cargo still moves in the belly of our passenger narrow-body fleet, and the freighter is doing well.
We're not a big cargo carrier and we should continue seeing improvement in our numbers, in our cargo revenue numbers.
Jose Montero (CFO)
It's contributing positively, I think, in with those figures to the business. Yeah.
Helane Becker (Managing Director and Senior Research Analyst)
Okay. That's really helpful. Thanks, guys. My follow-up question is, how are you thinking about the convert? I think you can start buying it back in April. What are you thinking about with respect to that?
Jose Montero (CFO)
Yeah, Helane. I would not necessarily get into details of particulars of the strategy, but yes, there is a call option that is available in April this year. The convert has the due date of the convert is actually April 2025.
But, you know, what we have been doing in the past several months as we've discussed is been very active in our buyback program, which also is and gives us optionality for the settlement of the convert as well. So it is kind of the strategy that we're pursuing, and we have different options available to us on the table to be able to minimize the effect of the liability for us.
Helane Becker (Managing Director and Senior Research Analyst)
Okay. That's very helpful. Thank you.
Jose Montero (CFO)
Thank you, Helane.
Operator (participant)
Thank you. Our last question comes from the line of Josh Milberg of Morgan Stanley. Your question please, Josh.
Josh Milberg (Analyst)
Yes. Hi, everyone. Thank you very much for the call and congrats on the results. I just wanted to ask if you could touch on your CASM ex-fuel outlook and what factors could eventually enable you to beat this, the 6 cent level.
What I have in mind is eventually greater seat densification. I know that in the past you've said you wouldn't be complacent about that level. I also wanted to understand what's incorporated in your CASM ex-fuel guidance in terms of pilot crew salary adjustments. I joined the call a little bit late, so I'm sorry if you already addressed that.
Jose Montero (CFO)
Josh, thank you for the question. I'll answer the last portion first. Yes, in our 2023 guidance of $0.06, there we have included all the impact associated with all our salary, wages and benefits, contracts, et cetera. It's all in there. In terms of the guide for 2023, it does include an increase in maintenance costs associated with engine shop visits and lease engine rentals that we have.
That's basically the driver that is offsetting some of the improvements that we have due to the capacity impact and due to the distribution benefits that we've achieved in the last quarter with our new distribution strategy. That's kinda why the CASM is remaining flat for 2023.
As you well mentioned, we have still, you know, optionality related to the fleet densification program. We expect to conclude this portion of our fleet densification program during the middle part of the year, but there's another portion that is coming in subsequent years. You know, there's further opportunities in distribution, and in others.
The other component also that we're seeing growing a little bit in terms of unit cost this year that we're offsetting with some of the improvements that we are making is overflight fees are going up in a couple of countries in Colombia and Brazil this year, that is driving some cost pressures upward. Again, we've been able to mitigate that with some of the other improvements that we've made in our, in just in the business.
Again, to summarize, we're keeping a CASM ex-fuel expectation for this year, flat versus 2022. Driven by some incremental maintenance expenses driven off and overflight fees, and offset by some of the improvements that we made in distribution and the capacity impact that we have. Pending, of course, the densification going forward.
Josh Milberg (Analyst)
Okay. That's great, Jose. Thank you very much for that detailed response. If you could just touch very quickly on what you're seeing in terms of corporate versus leisure trends in the first quarter and in the first half. I know you guys always get that question.
Jose Montero (CFO)
It's still not fully recovered. I would say right now, leisure VFR is about three quarters of the total volume of passengers that we're serving, and about a quarter is related to business. It is still not back to the sort of 2/3, 1/3 where it was pre-pandemic.
Josh Milberg (Analyst)
Okay, great. Really appreciate it. Have a nice day.
Jose Montero (CFO)
Thank you, Josh.
Josh Milberg (Analyst)
Thank you. You too.
Operator (participant)
Thank you. At this time, I'd like to turn the call back over to Pedro Heilbron for closing remarks. Sir?
Pedro Heilbron (CEO)
Yeah. Okay. Thank you. Thank you all. This concludes our earnings call. Thank you for being with us. Thanks for your continued support and, you know, have a great day. Have a great weekend, and we'll see you next time. Thank you very much.
Operator (participant)
Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may disconnect and have a wonderful day.