Copa Holdings SA

NYSE:CPA

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Copa Holdings First Quarter Earnings Call. During the presentation all participants will be in a listen-only mode. Afterwards we’ll conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call and webcast is being recorded today on May 10, 2018.

Now I'd like to turn the call over to Raul Pascual, Director of Investor Relations. Sir, you may begin.

[Raul Pascual, Director of Investor Relations]

Thank you very much, La Toya, and welcome, everyone, to our first quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings; and Jose Montero, our CFO. First, Pedro will start with our first quarter highlights. Followed by Jose, who will discuss our financial results. Immediately after, we'll open up 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 the earnings release, which has been posted on the company's website, copa.com. Finally, our discussion will contain certain forward-looking statements not limited to historical facts that reflect the company's current beliefs, expectations and/or intentions regarding future events and results. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions that are subject to change. Many of these risks and uncertainties are discussed in our annual report filed with the SEC.

Now I'd like to turn the call over to our CEO, Mr. Pedro Heilbron.

[Pedro Heilbron, CEO]

Thank you, Raul. Good morning to all and thank you for participating in our first quarter earnings call. First of all, I want to congratulate all of our coworkers for their efforts during the quarter. Their ongoing dedication and commitment keeps us at the forefront of Latin American aviation. Today, we're pleased to report very strong results for the first quarter and a solid outlook for the year. Even though fuel prices were significantly higher year-over-year, which resulted in higher unit cost, thanks to higher load factors and yields, we were able to produce an operating margin for the quarter of over 20%, higher by 1.2 percentage points versus the first quarter of 2017. Among the main highlights for the quarter: passenger traffic grew a solid 10.4% year-over-year, outpacing our capacity growth of 8.4%. This resulted in a strong 83% load factor, 1.5 percentage points higher year-over-year. More importantly, yields came in at $0.133 or 5.3% higher than in the first quarter of 2017. Due to our higher load factor and yields, unit revenues, or RASM, increased almost 7.2% year-over-year to $0.114.

On the cost side, ex-fuel unit cost came in at $0.063 or 1.1% higher year-over-year due to the timing of certain events, mainly one-time maintenance cost related to a lease return. Our operating margin came in at 20.1%, 1.2 percentage points higher than the first quarter of 2017. On the operational front, Copa earnings delivered an on-time performance of 91% and a completion factor of 99.8%. Again, amongst the best in the world.

Turning now to more recent developments. As you may know, on April 5, the government of Venezuela announced that it was temporarily suspending economic financials and commercial relations with Panama, including certain companies for a period of 90 days. That measure forced us to immediately cancel 900 flights between Panama and Venezuela that were to be operated during the 90-day period. At that moment, the company's immediate focus was to minimize the impact of the cancellations on thousands of affected passengers. We adopted several temporary policies to provide these customers with alternate routings, refunds and penalty waivers. On April 26, the Venezuelan and Panamanian government announced the reestablishment of diplomatic and commercial relations effective immediately.

As we have previously stated, we have been flying to Venezuela for 20 years, and the company has become an important gateway for the Venezuelan people to Panama and to the rest of the continent. We also have a significant Venezuelan community in Panama, and our service has proven to be essential for their well-being. That being the case, on May 1, we reinitiated service with a daily flight to Caracas and a daily flight to Valencia. Tomorrow, we will restart the second daily flight to Caracas. On May 17, we will restart Maracaibo. And finally, on May 24, we will restart the third daily frequency to Caracas, leaving us with the same capacity to Venezuela as we had in the first quarter.

Like all last-minute cancellations, the resulting impact is not limited to the canceled flight but extends to the rest of the network by not having enough time to sell the freed-up capacity on connecting flights. Also, the reinstated flights are being sold with a very short lead time and lower yields. We estimate the total one-time financial impact to be in the range of $15 million, all in the second quarter. It is important to note that the magnitude of the impact is related to the fact that these were last-minute cancellations, more than anything particular to the Venezuela market.

On a brighter note, demand trends for the rest of the network are solid, and we are seeing good booking patterns for the rest of the year. That being said, the second quarter will prove specially challenging as we have the Venezuela cancellation impact, spiking fuel prices in what's seasonally our lowest quarter and a tough comparison to a strong second quarter in 2017 that benefited from Easter holiday travel. As always, Jose will provide a full year guidance update.

Turning to our fleet. We already received two 737-800s, one in January and 1 in April, and have returned one Embraer-190 upon its lease expiration in March. In the second half of the year, we expect to receive five Boeing 737 MAX 9s, to end the year with a consolidated fleet of 106 aircraft. We're looking forward to the arrival of our first MAX 9 in August, which will deliver both revenue opportunities and cost efficiencies.

In regards to our network, in our last earnings call, we announced three new destinations starting in July, Fortaleza and Salvador, our 8th and 9th destinations in Brazil; and Bridgetown, Barbados, our 16th destination in the Caribbean. We are pleased to report that all new destinations are booking well and should be off to a good start. After these additions, Copa will provide service to 78 destinations in 32 countries in North, Central, South America and the Caribbean. Finally, Wingo, although a very small 2% of our revenues, continues to do very well, both operationally and financially.

To summarize, we're off to a very good start in 2018, and expect to continue seeing a healthy demand environment throughout the year. However, the impact from the Venezuela flight cancellations, spiking fuel prices and the Easter holiday shift all make for a more challenging second quarter, which is typically our lowest quarter in the year. We continue growing and strengthening our network, the most complete and convenient hub for intra-Latin America travel. Our team continues to deliver world-class operational performance, while achieving industry-leading unit cost. And we also continue focusing on several cost and revenue initiatives that are aimed at further increasing our margins. Lastly, we are in our business model and our financial position. We have the strongest network for travel within the Americas, an extremely flexible fleet plan, the lowest unit cost, a very strong liquidity position with low leverage and a highly committed team.

Now I'll turn it over to Jose, who will go over our financial results in more detail.

[Jose Montero, CFO]

Thank you, Pedro. Good morning, everyone, and thanks again for joining us. As always, let me begin by joining Pedro in congratulating our entire team for all their outstanding achievements during the quarter.

Now turning to our first quarter results. We grew capacity by 8.4% year-over-year, while revenue passenger miles increased 10.4% year-over-year, which resulted in a consolidated load factor of 83%, a 1.5 percentage point increase versus Q1 2017. Passenger yields came in 5.3% stronger year-over-year, which combined with a higher load factor, resulted in a unit revenue increase of 7.2% from $0.106 in Q1 2017 to $0.114 in Q1 2018.

Consolidated revenues increased 16.2% to over $715 million. On the expense side, our first quarter operating expenses increased 14.5% year-over-year on the 8.4% capacity growth, which resulted in our cost per available seat mile increasing 5.6% to $0.091, mostly as a function of higher jet fuel prices.

For the quarter, our effective oil and fuel price averaged $2.16 per gallon, an increase of 17.6% versus the $1.84 per gallon that we averaged in Q1 2017. The cost per available seat mile, excluding fuel, ex-fuel CASM, increased 1.1% from $0.062 in Q1 2017 to $0.063 in Q1 2018, mainly as a result of one-time maintenance events related to the return of a leased aircraft as well as some IT project expenses.

Consolidated operating earnings for the quarter came in 23% higher at $143.4 million, resulting in an operating margin of 20.1%, 1.2 percentage points higher than the 18.9% percent generated in Q1 2017.

Looking at non-operating income and expense. The first quarter generated a net non-operating income of $4.9 million, mainly driven by $7.7 million foreign currency translation gain. In terms of net results, net earnings for the quarter came in at $136.5 million. Earnings per share of $3.22, 34% higher than the earnings per share reported in Q1 2017.

Turning to the balance sheet. We closed the quarter with a very strong financial position. Assets totaled $4.3 billion, owners' equity totaled $2.2 billion, debt plus capitalized leases totaled approximately $2 billion and our adjusted net debt-to-EBITDA ratio came in at a very strong 1.3 times, by far the lowest in our peer group and one of the best in the industry. We closed the quarter with approximately $1.1 billion in debt, more than 60% of which is fixed with a blended rate including fixed and floating rate debt of approximately 3.1%.

In regards to cash, short and long-term investments, we closed the quarter with approximately $1 billion, about $160 million more than at the end of the first quarter of 2017. Our cash balance at the end of the quarter represents approximately 38% of last 12 months revenues. In terms of fleet, we took delivery of 1 Boeing 737-800 during Q1 2018 and returned one leased Embraer-190, ending the quarter with 100 aircraft: 81 Boeing 737s and 19 Embraer-190s.

For the rest of 2018, we already received our last 737-800 in April, and we expect to receive our first five Boeing 737 MAX 9 starting in August to end the year with a total of 106 aircraft. It is important to note that we have already secured the financing for all of our aircraft delivery in 2018. Finally, I'm pleased to announce that our Board of Directors has ratified the second quarterly dividend of $0.87 per share to be paid on June 15 to all shareholders of record as of May 31.

So, going back to our results and to recap, we delivered very strong financial results for the first quarter. We expect demand for air travel in our region to remain healthy, we continue to expand our successful network, we have one of the strongest balance sheets in the industry and we continue to return value to our shareholders.

Today, we're also updating our guidance for 2018 based on our operating plan and expectations for air travel demand for the year. We're maintaining our capacity growth in terms of ASMs at approximately 9%, and we continue to expect our operating margin to be in the range of 17% to 19%. However, given the challenges we are facing in the second quarter, mainly the Venezuela cancellations and the spiking fuel prices, we expect to be at the lower part of the range for the full year.

Our 2018 full year guidance is based on the following assumptions: load factor of approximately 84%; RASM of approximately $0.11; CASM ex-fuel of approximately $0.063; and a higher effective fuel price per gallon, including into-plane of approximately $2.25. So, we will see relatively softer second quarter performance, but we continue to expect solid results for the full year supported by a sound demand environment and the many initiatives we have continued working on to strengthen our competitive and financial position.

Thank you. And with that, we'll open the call to some questions.

[Operator]

[Operator Instructions] The first question is from Hunter Keay from Wolfe Research. Your line is open.

[Hunter Keay, Wolfe Research]

Still given the big jump we're seeing in utilization; can you help us understand if that is going to involve more off-peak flying? And maybe help us think about the mix of growth between sort of peak and off-peak relative to the prior couple of years?

[Pedro Heilbron, CEO]

Yes. So not sure that there's a huge jump in utilization. We've been improving utilization, of course, especially since 2016, which was a down year in that sense because of the economies in the region. So, we have been increasing utilization. But I think it's been gradual, not anything radical. However, we do make more losses on cuts than before and the aircraft are mostly used for maintenance during -- so we accumulate our maintenance needs during the low season. We do some in high season, but much less. And instead of having dedicated aircraft for the C-Check, which are our heavier maintenance, we do low season cancellations, and that's worked well for us, and we're going to be doing the same or maybe even more so in the future.

[Hunter Keay, Wolfe Research]

You obviously mentioned strong demand and bookings. Are you -- how should we think about -- are you still -- I mean, maybe I should put it this way, are you still confident in the relationship between rising commodity prices and demand in your economies? Or are you a little bit more -- be more suspect of that relationship, given that oil prices are higher maybe on, say, supply factors rather than like emerging market growth? Are you still seeing that relationship? Or do you expect it to hold going forward as it has in the past?

[Pedro Heilbron, CEO]

So, we're still confident in that relation, all other things being equal. So, what I mean by that is that, for example, right now, fuel prices have been spiking quite a bit, but currencies have not strengthened. The U.S. dollar has been gaining strength. So that's, obviously, not a good situation to increase yields, but we're thinking that's going to be temporary. And in the medium term and even maybe less than that, it still remains high over where it is now if currencies will strengthen in our region. For sure, no matter what, the economies will do better. So medium-term, yes, we are confident in that relation. And then, obviously, the other factor is capacity. It's competitive capacity. In most markets, maybe with the exception of Brazil, capacity growth has been very rational, and there's nothing like out of sync right now. So, we are confident that, that relationship will be maintained.

[Jose Montero, CFO]

Now Hunter, this is Jose here. The one thing that I'll add to that is that, you've got to be mindful as well that the kind of the yield benefit, if you would, or a reaction to fuel price increases is not immediate. It's something that has a certain lag to it, and so we had to be mindful of that as well.

[Operator]

The next question comes from Michael Linenberg of Deutsche Bank.

[Catie O'Brien, Deutsche Bank]

It's actually Catie O'Brien, filling in for Mike. Can you just give us some more color on how the Venezuela relaunch is going? It sounds like maybe the first couple of weeks, we'll see some fair impact, just given the short booking window. But how quickly do you think we could return to the same level of profitability in Venezuela from -- before you had to pull down that service?

[Pedro Heilbron, CEO]

Yes, we -- you know, before that -- before we had to cancel the service, given that we are like almost the only option for Venezuelans to connect with the rest of the continent, demand was quite okay, and was doing okay. Now that's going through cycles, of course. In 2017, we had cycles when demand was very weak, and then we had other months when it was much better. So, it was better in the second half of the year than in the first half of the year. That's last year. So right now, we're doing well. We had to cancel from 1 minute to the other, literally. And now we've been reinstating that service with very short lead time to generate those bookings because everything was canceled. But demand is still healthy. So, we don't see a change in demand from before the cancellations. Only that, again, we're doing it from one day to the other, and even though we staggered the reestablishment of flights throughout the month, it's still a short lead time. It was -- we've also done fair promotions to stimulate some short-term demand.

[Catie O'Brien, Deutsche Bank]

Okay, understood. So maybe, you know, could take a little bit of time to get back, but sounds like the demand is there.

[Jose Montero, CFO]

Yes, Catie. Sorry, this is Jose, Catie. We -- there are a couple of items here to note. One is that, yes, we've been stepping up the capacity, so we didn't include the entire capacity back immediately. So, we've been staggering back some [indiscernible] sense into the market. And I think the figure that we mentioned -- as the impact, in the second quarter, essentially, which is going to be in the range of about $15 million, if you dispose the cancellations and the fact that the ramp up of this capacity also, as well, will take time, and we are cognizant that it will not all be back immediately. So, it's all within that figure that we established.

[Pedro Heilbron, CEO]

So, we expect it to be back to normal sometime in June.

[Catie O'Brien, Deutsche Bank]

Okay, understood. And then, if I could just ask 1 more. So, we saw that VivaColombia is pulling out of its service to Panama. Have you seen any positive impact to your bookings yet? Or do you expect to see some going forward?

[Pedro Heilbron, CEO]

Yes. Well yes, we read that in the news, also. Apparently, they're going out in May 20. This obviously, has a direct impact on Wingo, which is our low-cost -- our ULCC, which competes in the Panama routes with Viva. Those are routes between two Colombian ferries, Medellín and Bogota, and a secondary airport on the other side of the city of Panama. Panama Pacífico is called the airport. So, we expect Wingo to see more demand, and we expect -- actually, Wingo already announced yesterday that they will be adding more capacity in those two markets, in those two routes, to make up for some of the capacity that's going to be left by the party -- by Viva. But Wingo is only 2% of our revenues. So, we don't see this as having a significant effect on Copa Holdings either way. I mean, Wingo is doing very well, by the way, and it's being successful. It's being successful in the Panama routes, but -- and in other routes, but again, it's only 2% of our revenues. So, either way, it won't be significant.

[Operator]

The next question is from Savi Syth of Raymond James. Your line is now open.

[Matt Roberts, Raymond James]

This is Matt actually on for Savi here. My first question is on the CASM ex side. I know in the first quarter you called out onetime maintenance costs. After the rest of the year, are there any other timing issues or anything that could impact the cadence of CASM ex throughout the year? Or would down for the rest of the year being an okay assumption there?

[Jose Montero, CFO]

No, I think we're comfortable with the $0.063 guidance that we're providing. Historically, as you know, the fourth quarter usually carries a little bit more flight cost, because of timing. Kind of year end expenses that come in. So that's basically, the only difference, that you have a little bit more in the fourth quarter, but the rest basically will average out to the $0.063 that we have. And by the way, one important thing is also that the lease return is the sole aircraft we have for this year. So, there's really no other sort of extraordinary maintenance-related item in there. It's just basically a seasonality of CASM in the fourth quarter is all that you'll we see.

[Matt Roberts, Raymond James]

Perfect. That's great. And then secondly -- sorry, just one more modeling question here. The tax rate in 1Q, coming in a little bit low. Is there anything going on there? Maybe a change in geographic revenue segments there that we should think of for the rest of the year? Or...

[Jose Montero, CFO]

Yes, we -- we're cognizant of that. It's mostly related to timing of how the tax laws work in different jurisdictions that we have, and we're still guiding for the full year tax rate to come in the range of 12%. So that's, I think, the basis that you should use for the full year tax rate.

[Operator]

The next question is from Stephen Trent of Citi.

[Stephen Trent, Citi]

The first, just to be clear, and to make sure I understand. I appreciate the color on the Venezuela shutdown. When we think about the impact on the full year guidance, is it fair to say that some of this impact could be characterized as non-recurring?

[Pedro Heilbron, CEO]

Yes, I would say the Venezuela impact is 100% non-recurrent. It's the $15 million one-time in the second quarter. By the end of the second quarter, by the end of this quarter, we'll be flying the same capacity we had before -- we had in the first quarter. And demand is looking normal right now. So, by the third quarter, there should be no impact. No additional impact, I should say.

[Stephen Trent, Citi]

And that $15 million in terms of you guys telegraphing, where you're going to be in the guiding -- the guidance rather. You're including that $15 million in kind of your comments about the lower range?

[Jose Montero, CFO]

For sure. Yes, absolutely, it's included in there.

[Stephen Trent, Citi]

And just one other question. It's actually a follow-up question on the young lady on Mike Linenberg's team. When we think about Central America outside of VivaColombia looking like it's throwing in the towel. Any color on what's going on in the rest of that market with that one Mexican competitor seeming to maybe do nonstop Central America to U.S.? And what you might be seeing on that front?

[Pedro Heilbron, CEO]

Correct. So yes, our LCC Mexican competitor in Central America has announced and actually probably started some flying from Costa Rica via El Salvador and Guatemala, 2 points in the U.S. Those are not really big markets for us. And let's say, I mean, we do move some traffic from those markets to our hub, but it's traffic that we can replace because it's not significant in numbers and its usually low yield anyway. So, I would say that's a different market than our core market. So, it should not really have a significant impact on our performance.

[Operator]

The next question is from Joseph DeNardi of Stifel. Your line is open.

[Joseph DeNardi, Stifel]

Jose, just on the guidance. I mean, it would seem like if you back out the 15 million in 2Q that the RASM outlook got a little bit better. Can you just talk about kind of where that incremental strength is coming from?

[Jose Montero, CFO]

Yes, I think that it's basically coming in the second half of the year more than anything, and again, with limited visibility that we have. And I think it's also based on the increase in fuel that we have. We have an increased fuel consumption, and here, we are assuming that we are going to be capturing some of the fuel increases in our yields. So that's basically the way that it was calculated.

[Joseph DeNardi, Stifel]

Got you. So, it's not as if the improved demand has kind of showed up at this point, it's more the anticipation that it will in the back half of the year?

[Jose Montero, CFO]

Yes. Yes, it's back half of the year loaded.

[Joseph DeNardi, Stifel]

Okay. And then Pedro, just on the loyalty program and as that's transitioned from United to now being in-house for you. I'm just wondering if you could talk about whether that's allowed you to more effectively monetize your members? And if you could talk about how much more valuable a loyalty program member is than a nonmember just in terms of spend?

[Pedro Heilbron, CEO]

Right. So, I think we've been very successful in growing our loyalty program and monetizing our members if we want to call it that. But it's still relatively small program. It's been only a little bit over two years. Yes, we are home-based. It's not the largest country in terms of population. And so, we never expect the ConnectMiles to become this huge monster. But it's providing a cash flow that otherwise would have been going to third parties. And also, it's positive in terms of P&L, in terms of bottom line, and it's complying with all the guidance and forecasts that we have shared in the past. So again, at one point, we said that ConnectMiles could be between 1 point and 2 of margin in the range of that, in the range of a point. And it's there and it will grow in the future.

[Operator]

The next question is from Duane Pfennigwerth of Evercore ISI. Your line is open.

[Duane Pfennigwerth, Evercore ISI]

Just a couple from me. One, can you just remind me what the gain on bolivar payables is, just practically what that is and what your outlook is for those gains for the rest of the year?

[Jose Montero, CFO]

Duane, this is Jose here. The -- what happens is that there's a set of expenses that we have. Just ticket-related taxes, et cetera, that are in local currency. And the bolivar, the official exchange rate that the bolivar had in -- was changed in February by the government and it was a massive change. And so, therefore, that affected this and there were payables from a translational basis. We have to declare that gain. So -- but it was -- I would say depending on how -- I mean, after that, the government has moved official exchange rate of bolivar across time. But at one point, it was an exchange rate that really reduced the value of bolivar significantly at one point in February -- in the first week in February it was.

[Duane Pfennigwerth, Evercore ISI]

So, I guess based on the current mark, what is the kind of value of that liability as it stands today?

[Jose Montero, CFO]

I think it's very little right now because of the fact that the currency has really been depleted significantly. I mean -- and so it is very -- it's a very small figure, it's not significant. And again, it varies on mostly sales that we have and just operational payables that we have. So, it's not really something that it's a huge amount that is being carried, and it's related to basically the forward bookings that we have related to the country.

[Duane Pfennigwerth, Evercore ISI]

And then I understand the fuel estimate in your guidance. But -- and, obviously, we've just had a big move here and it moves around every day. But what would be a good kind of spot fuel number right now? It feels like maybe in the $2.40 range would probably be closer to where a spot fuel is for Copa.

[Jose Montero, CFO]

I don't know. It depends on the minute where we are in today, right? So, in the last 24 hours, it certainly moved quite a bit. I mean, the last that we had in a spot basis, purely spot basis was $2.33 where -- but it's so volatile right now that there is -- it's very, very difficult to put necessarily this into projection of a curve. I think it's still early on in the year. So as fuel moves, and we see a little bit of more clarity what happens later on in the year, I think we'll be able to ready to rate. But certainly, I think that we are confident in the business model and our ability to capture fuel increases into yield going forward. And as I mentioned earlier, there is a lag in that. It's not automatic. But I think that's the nature of where the economies that we operate work like. And we'll see over time how it reacts and how it behaves.

[Duane Pfennigwerth, Evercore ISI]

And then just lastly, it looks like the schedules are indicating about a 11% capacity growth in the June quarter. I wonder if that -- if you feel like that's a good number or maybe that's sort of before these cancellations that you've incurred. So, if you're willing to comment on it, what's the capacity growth in 2Q? And how many points did you lose related to these Venezuela cancellations?

[Jose Montero, CFO]

Not a problem, Duane. The -- yes, the second Q year-on-year growth does seem around that range and its mostly year-over-year thing. Remember Venezuela doesn't really represent a significant amount of our ASMs. It's just about 2% on an ongoing basis, and so ultimately what we did is we canceled almost -- a little bit over 1/3 of that for the entire quarter. So, it isn't really a significant figure. Ultimately, I mean, the endpoint, we canceled around 360 flights overall in our Venezuela operations. So, it wasn't a massive portion of the network.

[Operator]

[Operator Instructions] The next question is from Rogério Araújo of UBS. Your line is now open.

[Rogério Araújo, UBS]

A couple of questions here. First, if you could mention a little bit on what is happening in Brazil last quarter. You said the Brazilian capacity was going up aggressively. Now we see the BRL depreciation made impact to the outbound demand in Brazil. So, my question is how our international rates behaving in flights from and to Brazil? And how are we seeing the bookings for upcoming months? So, can we state there is currently an oversupply in the region, especially given the necessity of increasing the ticket fares? Or is not like this? So, if you could give more color on the Brazilian market, I would appreciate. Then I do my second question.

[Pedro Heilbron, CEO]

Okay. So yes, so Brazil has the -- pretty much what you have described. It has -- the real has not strengthened maybe as expected with fuel, maybe it would happen, but it will happen eventually. But it has weakened somewhat. There's been a lot of capacity coming into market for the last 6 months or maybe a little bit more. So, in terms of what we're seeing, we're seeing healthy demand in terms of loads and that's going forward too, but at lower yields. So, yields are depressed in Brazil because of what you just described about the currency and what you just described about additional capacity. I think, it's one of the markets in all of Latin America that's seeing the most international capacity growth.

[Rogério Araújo, UBS]

Okay. It's very clear. So, my second question is regarding the guidance. Despite the Venezuelan impact, does your guidance include the ticket fare reduction versus what's currently charging? Obviously, seasonally adjusted, but do you also include reduction in the yields? Or it's kind of flattish going forward?

[Jose Montero, CFO]

Rogério, you mentioned the reduction in ticket prices in Venezuela to revamp demand, I assume?

[Rogério Araújo, UBS]

No. Actually, my question is does your guidance include a reduction in the RASM in upcoming quarters versus where we are right now?

[Jose Montero, CFO]

Well actually, for the full year, we are actually -- we bumped up the RASM assumption from $0.109 to $0.11 for the full year based on what we delivered in the first quarter and what our expectations are for the second half of the year. Now I would say that in the second quarter, we are expecting the performance to be below kind of the figures that we put up for the full year for 4 essential reasons. One, the second quarter is the weakest quarter of the year from a seasonality perspective. Number two, in the second quarter, we also saw Easter shift as well. We had the Easter in the first quarter. And third, we had the Venezuela impact. And your aspect as well is that fuel spike occurred in the second quarter mostly. So therefore, kind of that shift between when fuel goes up and you're able to recapture yields also, of course, there. So besides that, we're seeing actually a slight increase in full year RASM related mostly to our ability to capture some of the fuel -- the increased fuel impact that we're assuming as well.

[Operator]

The last question will come from Michael Linenberg of Deutsche Bank.

[Catie O'Brien, Deutsche Bank]

So just given some for your commentary about expecting the fuel and yields relationship to hold and that's being baked into second half guidance. If that did not materialize, would you be able to pull down some capacity to maybe help bolster yields in the back half? Just any thoughts there in terms of what flexibility you have to do it and when it will be possible to maybe start bowing out some of those directions?

[Pedro Heilbron, CEO]

Yes. Okay. So, we always -- we will always be willing to pull back capacity if that's good for our bottom line. We've done it before. We did it in 2015 and 2016, then we added back in 2017 and things got better. We don't think that's going to be necessary this year, beyond our low season reductions, which we already -- we have already scheduled. And we think that demand is still looking quite strong. But we're not sure that short term, we're going to be able to make up for the spike in fuel prices. That's kind of left to be seen. But we don't think right now that pulling back capacity is going to make our bottom line any better. And that's why we -- a big part of why -- beside Venezuela, of course, that's a big part why we're guiding to the lower end of our operating margin. Still early in the year, and we think there's still a lot ahead of us. And we want to wait to see what happens with fuel, if demand remains strong, and to see how quickly we can compensate for some of that additional fuel cost in our yields.

[Operator]

And I would like to hand the call back over to Pedro for closing remarks.

[Pedro Heilbron, CEO]

Okay. Thank you all. This concludes our earnings call. Thank you for being with us. And as always, thank you for your continued support. Have a great day, and we'll see you in the next call.

[Operator]

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