AZUL

Welcome everyone, and thank you for joining us today. We're pleased to present Azul's first quarter results. This quarter is particularly important because it reflects the early outcomes of decisions we made proactively on capacity, cost, and capital structure in anticipation of a more volatile macro environment. Despite operating with lower capacity in the quarter, we delivered record first quarter results across revenue, RASK, EBITDA and EBIT, reinforcing the strength and flexibility of our business model. As we go through the presentation, we'll focus on three core themes: disciplined revenue generation, structural cost efficiency, and a continued de-risking of our balance sheet, all of which position Azul well for the remainder of the year. Before we dive into the details, I would like to begin by thanking our more than 14,000 crew members for their hard work, dedication, commitment to excellence.

Their focus on safety, service quality and operational reliability is the foundation of Azul's success. The record performance we delivered this quarter is a direct reflection of their passion, resilience, and professionalism. These strengths were also essential in establishing our partnership with the Brazilian Football Confederation, reinforcing Azul's position as the official airline of the Brazil national football teams. We are extremely proud of this partnership. I'm especially excited about this announcement, given that we're heading into the World Cup. It's a powerful moment to be alongside the Brazilian teams, supporting a symbol that unites the entire country. I also want to remind everyone that the Women's World Cup will be in Brazil next year. Of course, we'll be supporting the Brazil women's team. This partnership goes beyond brand visibility.

It reinforces Azul's emotional connection with Brazilian consumers, strengthens our presence across leisure and corporate travel segments, and supports long-term demand generation. Importantly, it aligns our brand with national pride and premium service. We are the true Brazilian carrier that serves all of Brazil. As we continue building this stronger, more resilient Azul, I'm pleased to welcome our new Chief Financial Officer, Antonio Garcia, whose leadership will be instrumental in the next phase of our financial and strategic evolution. His depth of industrial and financial expertise strengthens our leadership team as we focus on de-leveraging cash generation and long-term value creation. With that, I'll turn the call over to Antonio. Antonio?

Thank you, John. I'm truly excited to be joining Azul at such a special moment. I have worked closely with the company for many years as supplier. I have always admired Azul's culture, its commitment to customers, and its unique ability to execute with discipline and consistency. Joining the team now, right after the successful financial restructuring and at the start of the new chapter, giving me, first, tremendous sense of responsibility, and second, optimism on the way forward. Azul has a strong foundation, a clear strategy, and exceptional group of leaders and crew members. I look forward to contribute to Azul next stage, strengthening our financial position even further, and helping deliver long-term value for our customer, partners, and shareholders. Why I'm here at Azul? I do see a lot of value creation. I do believe slides four explain exactly why. Azul is a unique airline in every dimension.

We have a customer-centric culture that consistently delivers the best travel experience. We operate a flexible next-gen fleet that give us unmatched efficiency and adaptability. Our strategic capacity management and deep understanding of demands allowed us to maximize profitability even in volatile environments. We have a robust, unrivalable network that reaches every region of Brazil with minimal competitive overlap. All of this supported by strengthening capital structuring following our successful restructuring, putting Azul on the strong financial foundation in its history. These fundamentals are people with great culture. Our strategy and our competitive advantage are exactly why I choose to join Azul. Azul is perfectly positioned for the next phase of deleverage and long-term value creation. With that, let me turn back to John, who will walk you through the strong results we deliver in the first quarter. Thank you.

Thank you, Antonio. We're truly excited to have you with us, and we're confident that your experience and leadership will add tremendous value to Azul. Turning to our first quarter results. Slide 5 shows the strong performance we delivered this quarter. The metrics shown here underscore both resilience of our business model and the effectiveness of our strategic initiatives. We reported operating revenues of BRL 5.5 billion, a first quarter record. This was supported by healthy demand, disciplined capacity deployment, strong ancillary revenue, and continued growth from our business units, with RASK increasing 4.3% year-over-year. Our EBITDA reached BRL 1.7 billion, up 22.6% year-over-year, with a 31.1% margin, which translates to an expansion of 5.4 margin points year-over-year.

EBIT totaled BRL 1 billion, up 83% versus first quarter 2025, with a 19.1% margin. These results reflect consistent execution and disciplined capacity, as you can see on slide 6. As we outlined it in our plan, Azul made a deliberate decision to reduce capacity and focus on the markets where we generate the highest profitability. This disciplined approach is now clearly reflected in our results. We delivered an impressive 83% increase in operating results in the quarter, while we reduced our capacity by 2.7% year-over-year. This performance demonstrates that our strategy is working exactly as we intended. By proactively adjusting our network and prioritizing profitability over market share, we are capturing stronger margins, improving cash flow generation, and reinforcing the structural resilience of our business model.

This is the outcome we planned for, and the results speak for themselves. Beyond the strong profitability impact of our capacity discipline, we also continued to deliver meaningful progress on the cost side. Turning to slide 7, you can see that our financial restructuring was about more than just debt and fleet. We used this moment as an opportunity to streamline the company, reduce structural costs, and become an even more efficient and resilient airline. In the first quarter, our CASK decreased 5.7% year-over-year, primarily driven by our cost initiatives we implemented throughout the restructuring, supported by lower fuel prices and a stronger Brazilian Real against the U.S. dollar. When compared to one of our regional peers, Azul continues to maintain the lowest CASK in the region, an even more remarkable accomplishment considering our diversified and more complex fleet.

This performance underscores our structural cost advantage and demonstrates the effectiveness of the measures implemented during the restructuring process. I just want to repeat, we have the lowest unit cost in the region. Beyond the improvements in our cost structure, we also continued to strengthen one of the most important foundations of our business, our fleet. Turning to slide 8, you will see the significant progress we made in modernizing and optimizing our fleet mix. We reduced our E1 fleet by 31% year-over-year, while increasing our E2 fleet by more than 40%. As a result, we ended the first quarter with almost 93% of our domestic capacity coming from next-gen aircraft, considerably higher than any competitor in the region. This modern and efficient fleet is what enables us to serve all of Brazil with minimal overlap and unmatched network breadth.

Even with the youngest and most modern fleet in the region, we permanently reduced lease payments by more than 30%. Youngest fleet with a 30% reduction in lease payments, which will provide meaningful and recurring support to Azul's cash flow generation going forward. Alongside the modern fleet, we also strengthened the foundation of our network. On slide 9, you can see how we continue to reinforce our strategic hubs while reducing our exposure to low-margin routes. Our main hubs, Campinas, Recife, and Belo Horizonte, are located in regions with strong business demand, higher income populations, and a significant concentration of corporate travelers. These markets deliver more stable demand patterns, support higher yields, and provide a stronger mix of premium customers compared with leisure-focused hubs.

In addition, our flexible and diversified fleet allows us to match capacity to the right markets, deploy the ideal aircraft for each demand profile, and maximize connectivity and operational efficiency across the network. This flexibility is even more important in this volatile fuel environment. This hub-focused strategy enhances connectivity, improves aircraft utilization, and strengthens yields while enabling more rational deployment of capacity. Ultimately, this disciplined approach allows us to maximize profitability and further increase the efficiency of our network. Our disciplined network strategy is just one part of the story. We also benefit from the portfolio of business units that consistently generate premium revenue and highly predictable cash flows. On slide 10, you will see the businesses that we have as an additional layer of strength and stability to Azul, continuing to make meaningful contributions to our results and representing 23% of our RASK in the quarter.

Moving to slide 11, I'm proud to report that we already over-delivered on our restructuring commitments. We executed a disciplined and comprehensive de-leveraging process that has already materially strengthened our balance sheet. Lease liabilities down 42% year-over-year, reflecting the structural improvements achieved in our lease payment profile. Loans and financing decreased almost 40%, driven by consistent debt reduction throughout the period. As a result leverage improved by over 3 turns, reaching 2.4 when using cash plus credit card receivables, or 2.3x when using cash plus all short-term receivables. This represents a substantial improvement from the 5.5x levered we were in first quarter 2025. Lower leverage significantly reduces financial risk and interest burden, while positioning Azul for sustainable long-term value creation, supported by strong operating cash flow generations.

With our leverage improving significantly and our balance sheet now much stronger, we also made important progress in reshaping our debt profile. Turning to slide 12, you can see that we now have an attractive financial debt maturity schedule supported by almost $1 billion in immediate liquidity, with no meaningful repayments expected until 2031, when our exit financing comes due. The exit financing is the only major debt in our capital structure, giving us exceptional visibility and stability over the long term. I also want to remind everybody of the coupon on that was significantly better than our two peers in the region. We were able to permanently reduce interest payments by more than 50%, which supports us on a trajectory to generate consistent free cash flow.

On slide 13, you'll see that in the first quarter, we generated BRL 217 million in recurring free cashflow, and this was achieved in a period that is seasonally weaker. In other words, Azul was free cashflow positive even after paying CapEx, aircraft rent, and interest. In the quarter, our cashflow was negatively impacted by a decrease in ATL as a result of the lower capacity in our growth driven by the war. This impact should be one time in nature, occurring only as we adjust our capacity levels. As capacity normalizes, ATL should also return to more typical levels. This performance clearly shows that our restructuring was effective and that we are already capturing its benefits. Looking ahead, the ability to generate cash consistently at this level is a strong indication of the sustainability of our business.

This cash will continue to be used to delever the company and to invest in Azul's long-term strategic priorities. Having demonstrated the strength of our restructuring, our improved debt profile, and our consistent cash generation, we'd like to close by looking ahead. Turning to the last slide, as we mentioned in our 4Q results, all the actions we implemented over the past year have made Azul much stronger and more resilient airline. We're uniquely positioned to navigate any macro volatility. At the center of our success is our strong service-oriented culture, a key competitive advantage that consistently differentiates Azul in the Brazilian market. We remain firmly committed to deleveraging and generating cash. At the same time, we are closely monitoring the impact of higher fuel prices. Our strong fundamentals allow us to navigate this environment from a position of strength.

We implemented strategic pricing actions across our network. We also adjusted capacity and optimized our network to focus on the most profitable markets. This is only possible because of our diversified and flexible fleet. In parallel, we're maintaining strict cost control and reinforcing strong cash management discipline to protect liquidity. Together, these actions help ensure that Azul can protect margins and navigate the current fuel and macro volatility. I want to once again thank all of our crew members, partners, investors, and customers for their support and trust in Azul. With that, Antonio, Abhi, and I are available to take any of your questions.

Ladies and gentlemen, thank you. We will now begin the Q&A session, remembering that if you have a question, click on the Q&A icon at the bottom of your screen and write your name and company. When your name is announced, please activate your microphone and proceed. For those who are listening to the conference on the phone, press nine to join the queue and six to accept the audio when requested. Moving on to the first question will come from Savi Syth, sell-side analyst, Raymond James. Savi, we're going to open your microphone so you may ask your question. Please proceed.

Hey, good morning, everybody. Thank you. Antonio, welcome to the side of the aviation business.

Thank you.

maybe for Abhi, you know, obviously the focus here is fuel is higher, even though it's volatile day to day. just curious, you know, what you're seeing in terms of success in kind of fare increases both in the domestic and international markets.

Yeah. Hey, Savi, thanks. Yeah. Obviously we anticipated this question, so I'll give a slightly longer answer, and I'll try to cover everything here because obviously one of the most more important questions today. First of all, it starts with network and capacity, right? As John and Antonio said, we continued focus in our network. Close to 90% of our capacity, we are either alone or we are dominant, right? We already have a very privileged network position, and I'll talk a little bit later how that translates into fare resilience. 'Cause there is a difference in the fare resilience and the demand resilience in kind of our network versus what we are seeing in the competitive markets. That's first, number 1. Second, as you know, we already had a very conservative growth profile for this year, +1% overall.

first Q was -2.7%. In addition to that, we've already made capacity adjustments for May and June. We've taken about 5% capacity out for May and June, and we will strategically roll that forward as needed. That +1% that was the public plan on exit most likely is now going to be negative for the whole year, right? We've already been very, very proactive, and I think we were the first to move overall in that space. Also helping us right now is our international fleet replacement. The timing actually could not have been better. That's reducing our fuel exposure kind of over the next three to six months, which should be the peak of the fuel prices.

From a first point on a capacity perspective, we are really well-positioned, and I think we don't have to do anything stupid. We don't have to take airplanes that we don't want. The fleet is very disciplined as well. That really gives us a lot of confidence on the next topic, which is the most important, which is average fares. The industry has done, I think, a good job in showing a lot of urgency. Nine fare increases since February 28th, eight of them 10%, one of them 15% compared to last year, only three fare increases last year versus nine. Clearly a lot of urgency, which is good. That's taken average fares up, right? Last time when we talked, I said we were over 20% booked average fares.

Right now, we're over 30% booked average fares. Domestic is higher than that. International is lower than that. Makes sense. Domestic, you have a lot more close-in demand, corporate demand. The booking curve is much, much closer in, so you can actually effectuate the higher fares much quicker. International takes longer with the booking curve, and also the absolute numbers are a lot higher, right? That's taking a little bit more time. Right now we're at +30% booked average fares, higher domestic, lower international. In terms of revenue performance, some interesting cuts here to give you some perspective. Close in travel agency bookings are doing well, being able to absorb these fare increases. We are pushing 30% corporate revenue share in Brazil.

Our capacity share is a lot lower than that, we're doing well in that space. Our business units, vacations especially, is actually doing quite well. Positive year-over-year even with the fare increases, that's doing good. Fidelidade loyalty is doing well. Where we are struggling, and I think that's probably common, overall, is the further out APs leisure demand that's booking directly into our web and our app. Last time I said those customers were waiting, they're still kind of waiting to be honest, but we're able to make that up specifically with our business units. Overall we're positive revenue, and remember, we are negative capacity, right? That bodes really, really well for our unit revenue expansion going forward. One last slice on the bookings. Azul markets versus competitive markets.

A lot more fare resilience in our markets. Again, obviously because we control, we decide that, so we're seeing a much steadier curve, in our hubs and our markets. In the competitive market, São Paulo and Rio, we're seeing, a lot more oscillations in the fares. They spike up and then we kind of give it back, and then they spike up again, we kind of give it back again. It's kind of happened two or three times already. You can kind of notice this if you just search Google Flights or anything on any weekday afternoon, you'll kind of see those changes.

Look, the way we are positioned in our network with our fleet, with our capacity posture, we couldn't be better positioned for this and, you know, looking ahead, we see kind of strong unit revenue expansion going forward.

Thanks, Abhi. I think you answered, like, five or six questions there, but I'll turn it back. Appreciate it.

Thank you.

Thank you. The next question now comes from Guilherme Mendes, sell side analyst from JPMorgan. Guilherme, we're gonna open your microphone so you may ask your question.

Yes. Good morning all. Thank you for the space, and best wishes, Antonio, on your new role. My first one, it's kind of a follow-up. It was very clear, thank you, Abhi. In the fourth quarter call, you mentioned about 8% target to increase unit revenues to kind of offset the fuel curve that you were seeing back then. Can you provide kind of updated figure that would compare to this 8% increase from RASK for the year, please? The second point is on let's call it shareholder structure, if there's an update on the ADR relisting, and also on the cancellation of the warrants that was announced in April. Thank you.

Yeah, let me start with the unit revenues. What I mentioned on the fourth quarter call was we need to have about 8% above plan, right? To recapture fully the fuel cost increase. Year-over-year, that because there was already a year-over-year RASK improvement built into the plan, the number that you should be looking for in terms of year-over-year RASK increase kind of going forward, and I think this is pretty similar to most airlines, given the fuel curve, which is a very, very high curve right now in 2Q, and the curve comes down in 3Q and 4Q, is gonna be about year-over-year about 12%. 12%-15% is what I think airlines will require.

I think we have good visibility right now in 2Q to achieve that number. A little bit of caveat with World Cup, because World Cup is a huge distraction in Brazil. We'll see how that goes. 3Q, 4Q, I think everybody's gonna need around that number. When you combine the fuel curve that's right now it's a peak, it's coming down 3Q, 4Q. If we're able to maintain about a 12%-ish to 15% year-over-year unit revenue, then we will be able to recapture exit rate 2026, 90% plus of the impact, and that puts us in a very, very good position for actually higher earnings in 2027.

Guilherme, Antonio speaking here. In regards to the relisting, we are preparing ourselves here to relist with our ADR programs in the coming weeks, probably to end of May. That's more or less what we are foreseeing right now. Can be changed one week before or later, but it's more or less the time window that we are seeing right now. In regards to warrants, John-

Yeah, let me just add to what Antonio said. Antonio and I will both be in New York next week. It's Brazil week. We're gonna be out talking to investors, telling the story, prior to our listing. As for the warrants, we'll be updating the market shortly with news on that.

Very clear. Thank you all.

Thank you.

Thank you. Moving on to the next question, comes from Lucas Barbosa, sell side analyst for Santander. Lucas, you may ask your question.

Lucas, you may be on mute. Let's go to the next question.

All right. Okay, let's move on to the next question, will come from Matheus Sant'Anna, sell-side analyst, Bradesco BBI. Matheus, we're gonna open your audio so you may ask your question, please.

Hello, good morning. Thank you for choosing my question, and welcome, Antonio, to your first call here. I just wanted to ask one here about the fleet plan. You know, you see the capacity's going to be, the growth is going to be lower than expected, actually a reduction. Are you planning on changing anything related to the fleet plan, and what are the changes expected? Thank you.

Yeah, Matheus, you know, as you remember from our exit plan, we actually modified our fleet plan exactly for this reason. Of course, we didn't know it was gonna happen, but you know that we kept talking about a resilient business model, and one part of that was, reducing our future orders to give us a lot of flexibility, right? We actually only have four E2s coming this year. One's gonna be coming in June, three the second half of the year. The fleet plan is only five E2s per year, right? That was the fleet plan, post-restructuring.

We're very, very comfortable with that fleet plan and, as of now there's no changes because it's a very conserved plan compared to, you know, airlines that are taking dozens of aircraft per year, if you will. That gives us a lot of flexibility and a lot of opportunity to take advantage of the market.

Yeah, I don't think it's any secret no airline wants to be taking 20, 30, 40 aircraft this year, right? What we learned over the past few years is you make a fleet decision well in advance, and you don't know what's gonna happen. You don't know if COVID's gonna hit, you don't know if there's gonna be a war in the Ukraine, you don't know about a Middle East crisis that doubles fuel prices. You know, our ability to adjust capacity, you know, we are very excited about how we're positioned in the market right now.

Clear. Thank you.

Thank you. Moving on to the next question, coming from Pedro Tineo. Pedro, we, sell-side analyst from Itaú BBA, we will open your audio so you may ask your question.

Hey, thanks for taking our question, and Antonio, we're wishing you the very best here at Azul. I just wondered if you guys could comment, we've seen a lot of meaningful price increases, without a corresponding loss in volumes for the past years. Do you guys think that this trend could continue in a scenario of higher oil prices environment? That's it from our side. Thank you, guys.

It has to continue, to be honest, that's why our capacity position and our network position is so important, right? That's why it gives us the confidence to allow us to do that. We can already see the results in terms of the fare resiliency, as I called it, in the discipline that's being maintained in our markets and versus the competitive markets. This is not just us, it's everybody, you know, here and around the world, right? I'd much rather be in our situation where we have such a privileged network position. We already started with a low growth model, we have a really kind of flexible fleet plan going forward. The answer is yes. If you asked me in 2019, would unit revenues be at BRL 0.45, right? That was not heard of.

In fact, we've been able to generate a 7% CAGR over the last several years on a consistent basis while we were growing. You know, absolutely we should be able to do that, with a lower growth model. I think customers might take some time to get used to it. That's why you need time to recover. Given our network position, given our capacity posture, we are, I think we are in the best possible position to make that happen.

Pedro, just to complete. Sometimes crisis brings also opportunity. I do see the company here well prepared to navigate in this environment we are right now, comparing a few others that we are seeing outside Azul here.

That's perfect. Thanks, guys.

Thank you.

Thank you.

Okay, moving on to the next question. Will come from Michael Lindenberg, sell-side analyst for Deutsche Bank. Michael, we will open your microphone so you can ask your question, please.

Oh, hi. Good morning. This is Shannon Doherty on for Mike. You know, the delevering has been great. Can you guys update us on what your leverage target is for the end of this year? Have your liquidity and leverage ratio assumptions meaningfully changed, you know, with the spike in fuel?

Yeah, Shannon, we have our plan that's public and, you know, given the volatility in the market, you know, we're not coming out yet, but we're obviously gonna be, on the road in the next couple of weeks and we'll be providing guidance. I think a couple things, right? You've had a fuel price increase, but you've also, the dollar traded at BRL 4.98 today, right? You know that's a significant improvement overall. You know, I think there's some puts and takes. Obviously, you know, it takes some time to get all of the revenue back, and when you look at the fuel curve, the fuel curve is a second quarter spike, right? Everybody has a fuel curve coming down significantly, and so that's gonna impact the second quarter. Our mission has not changed.

We are going to deliver this business. We're gonna significantly deliver the business over the next couple of years. Antonio has a mission that he's committed to the board. We want to have the lowest leverage in the region. That's it.

I would say, there is no decision to worsening the debt to ratio to end of this year. We are fighting to get the same as we agreed.

Great, and thank you for that. Maybe one for Abhi. You know, you gave us a lot of color on Azul markets, but what are you seeing on the competitive capacity front? You know, do you expect to see some of your peers cut capacity in the second half?

Uh-I'm definitely watching it, let me just say that. Do I think it's enough? No. Obviously I don't think it's enough. If you look around the world, you see some of the highest growth rates here in Latin America, to be honest, right? You have guys like United talking about cutting capacity, and other airlines. You know, even Delta cut, like, 3% in June or something like that, right? I think there's more work to be done in this region. I think we've led it, obviously, from our post-restructuring plan and also what we've already done. We're not really looking sideways. I think we're really comfortable with where we are and the strengths that we have.

you know, I think that our market is just a lot more resilient, and the other markets are oscillating, and I think that will drive the capacity cuts that are required, to be honest.

If I just add, the best-run airlines in the world have cut capacity. That's a fact across the board. A little bit back to the previous question that we had, which was we have flexibility and resilience in how we built the model. Unfortunately, airlines buy aircraft well in advance, and they're delivering into a Middle Eastern crisis, and it's a bit harder to take capacity out when you're taking new metal with high ownership cost. Again, I want to reiterate, our ownership cost is down by 30% permanently, and we have a much more flexible fleet plan going forward. Allows us to react. As Abhi said, we're not looking to the left and to the right. We're looking forward, focusing on our markets where we can generate cash.

Thank you.

The next question comes from Nicholas, sell-side analyst Jefferies. Nicholas, we will open your microphone so you may ask your question.

Yes. Good morning. Thank you for the call. Welcome Antonio to the team. I just wanted to ask here on liquidity. Please if you could give us an update on the government credit lines. I believe there are three, the FGE, the FNAC, and the more recent fuel installments payment plan. If you can give us an update on those three sources of liquidity. Just on the American ACG approval process timeline, any updates? Lastly, on TAP. It would be helpful just to have an update here on these liquidity measures as we think about liquidity through the end of this year. Thank you.

Thanks, Nicholas. You hit them all right there. I'll start and then pass it over to Antonio. First of all, we ended the first quarter with more cash than we thought, right? We upsized the exit financing, so we feel very comfortable where we are right now. We have just under $1 billion in available liquidity and immediate liquidity, so we feel very good about our starting position going into things. Other things that I highlighted, our plan was at BRL 5.50. The exchange right now is at BRL 4.98, right? You have seen the government be very proactive. They do not want to see capacity cuts in the market, right? The government has done a lot of things.

There's a lot of, you know, different lines that we're looking at as an industry, and we see that as a positive thing. They're acting in a very proactive manner. I think that's exciting. As for TAP, they owe us the money. They know they owe us the money. Everybody knows they owe us the money. I think that there's a commercial relationship with TAP that we continue to have, and they're in a privatization process as we speak. You know, we're excited to, you know, get that resolved later this year. You know, we think that a friendly solution is always the best resolution to something, especially as they're in a privatization process. In many cities in Brazil, we are their number one connecting partner for them.

I'll pass it over to Antonio because, you know, there's the government, there's a lot of things happening and a delevered balance sheet just opens up tremendous opportunity for us.

Yeah. Thanks, John. Nicholas, thanks for the welcome. In regards to the lines of credit, we are back on the street after the Chapter 11, and it's not only the government line, but you have the other bankers also in on discussion right now, and we are evaluating the best options for Azul to get this money, either for the government or for the private banks, I would say. I'm sure we will have access based on my previous experience for those line in the still this year.

Okay. This concludes the Q&A session for today. We will now turn the call to John so that we can make the closing remarks, please.

Thanks, everybody, and I just want to thank everybody. We look forward to seeing people in New York and talking to the investors on the sell-side as we prepare the company for our relisting in New York. Thanks, everybody.

Thank you. This concludes the Azul's audio conference call for today. Thank you very much for your participation, and have a good day.

Hello everyone, and welcome to Azul’s First Quarter Earning Call. My name is Zack, and I will be your operator for today. This event is being recorded and all participants will be in the listen-only mode until we conduct a Q&A session following the company’s presentation. [Operator Instructions] I would like to turn the presentation over to Thais Haberli, Head of Investor Relations. Please proceed Thais.

Thank you Zack, and welcome all to Azul’s first quarter earnings call. The results that we announced this morning, the audio of this call and the slides that we referenced are available on our IR website. Presented today will be John Rodgerson, CEO; Alex Malfitani, our CFO; and Abhi Shah, Chief Revenue Officer and President of Azul are also here for the Q&A session. Before I turn the call over to John, I’d like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company’s future plan objectives and expected performance, constitute forward-looking statements. These statements are based on a range of assumptions that the company believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in our CVM and SEC filings. Also, during the course of the call we will discuss non-IFRS performance measures which should not be considered in isolation. With that, I will turn the call over to John.

Thank you, Thais. Welcome everyone and thank you for joining us today. First, let me begin by thanking our incredible crew members for their passion and dedication. The first quarter for Azul brought a return to operational excellence that our customers expect. As we shared many times before, in 2024 we did not run the best operation due to significant OEM issues we experienced. This was tough on our customers, our crew members and had an impact on our results. I’m happy to report now that towards the end of the first quarter our operation is back. I will give you more details later on this call, but for now I just want to thank our crew members for their perseverance and hard work. Turning to Slide 3, I want to just highlight the sustainable competitive advantages of the Azul business model. The combination of a differentiated network with unique fleet flexibility, our high growth business units, our lowest unit cost in the region, together with passionate crew members and supportive stakeholders is what allowed us to deliver the results we present to you today. On Slide 4, I want to start with our network. One which we are constantly optimizing with a singular focus on profitability and the best use of our assets, our aircraft. This network that is different by design, with no non-stop competition in 82% of our routes, representing 77% of our revenue, a remarkable competitive advantage. Still, we are constantly making changes to make it even better. This quarter was particularly active. In the month of March we suspended service to 14 cities. This was in response to the high fuel environment combined with the revenue performance in these markets. At the same time, we increased service in many other markets, up gauging to fuel efficient Embraer E2 aircraft, especially at our Belo Horizonte hub. These are just some examples of how we continuously strive to extract the best possible results from our network. On Slide 5, you can see that we’re excited to report another strong first quarter. Revenue of R$5.4 billion with a RASK of R$0.42. Flat year-over-year with a 16% increase in capacity. Our EBITDA for the quarter was R$1.4 billion with a margin of 26% and EBIT of R$571 million. In the first quarter, we were impacted significantly higher than expected because the devaluation of local currency and irregular operations, which I will address later on this call. Turning to Slide 6. I want to share the details on our revenue performance. Overall, we maintained unit revenue flat with a 16% growth in capacity, a strong result overall. Even more impressive given the fact that the major part of our year-over-year increase in capacity was in our international network due to low base from last year. Normally this would have an effect on lowering unit revenues due to longer stage lengths, but thanks to the demand environment and the contribution from our ancillary and business units, we were able to overcome that effect. We are also actively using technologies in the area of revenue management, tools make recommendations on pricing, yield management and ancillary revenue on a quasi-real time basis, further allowing us to maximize our unit revenue. Turning to our business units, I want to highlight their revenue contribution and impressive performance this quarter. Our business units have done a great job of growing beyond the metal, finding new and unique ways to increase our revenue outside of just ticket revenue. On Slide 7 you can see the contribution of our high margin business units on RASK, which grew from 19% in first quarter 2024 to a very strong 23% in first quarter 2025. All units combined resulted in positive impact of more than R$480 million in the quarter accounting for 35% of our total EBITDA in the quarter. On Slide 8 you can see the continued high growth from each of our beyond-the-metal business units. Our loyalty program now boasts 19 million members and a record high monthly active users. Flown revenue was up 65% year-over-year and net unit revenue contribution was double compared to first quarter 2024. The combination of our domestic and international network, airline, hotel, retail and banking partners has resulted in record engagement and results in our loyalty program. Our vacations business continues to grow with gross billings up 56% year-over-year. Upcoming network additions such as Porto, Mendoza, Bariloche and Madrid will continue to propel growth in this leisure focused business for years to come. Finally, Azul Cargo, our logistics business had a very strong quarter. Total revenue up 20% year-over-year, international revenue up 62% and most importantly, our EBITDA doubled compared to first quarter 2024. During the quarter we entered into service our two A321 freighters and they are becoming a key driver of revenue and margin expansion in the business. As we have always said, our business units are a key part of our strategy and a driver of unit revenue and earnings expansion going forward. On Slide 9, I want to highlight the improvements we have made in our ancillary revenue. Overall ancillary revenue was up a very strong 22% year-over-year and ancillary revenue per PAX was up 14%. These increases were driven by the growth in our premium products such as business class and extra-legroom seats. Together with the record activity in our loyalty program, we continue to see opportunities in improving merchandising, CRM and pricing. So we expect continued growth in the ancillary revenue per passenger metric. On Slide 10, I want to highlight another key competitive advantage, our co-branded credit card with Itaú, we believe we have the strongest co-branded program in the country with the highest percentage of premium card holders. We already had the Visa Infinite card that was incredibly popular with spending of about one half of 1% of Brazil’s GDP. And this April we’re proud to launch the Mastercard Black Skyline Premium credit card. This product further positions Azul as a premium airline in Brazil and expanding even further our base of high yield demand and revenue. On Slide 11, I want to turn to the cost side of the business. We continue to be the lowest cost provider in Brazil. This includes the effects I mentioned on the cost we were facing from operational impacts and OEM challenges. As I mentioned in the opening, and we’ll show on the next few slides, we’re significantly improving our operation and those inefficiencies are coming out of our business. We also continue to be laser focused on efficiency, whether that is in our aircraft utilization or our headcount productivity, ground time at airports, we are focusing Azul into a lean operating airline. We have made significant progress so far, but there’s still more we can do. Turning to Slide 12, you will see two great examples of operational improvements that led to efficiency. Despite all OEM challenges faced in the later part of 2024 and early 2025, we were able to increase our aircraft utilization by almost 5%. This is a result of a combination of factors including our network optimization strategy I mentioned before, more new generation fuel efficient aircraft flying in our network and a significant improvement in our operational reliability. In addition to a higher utilization leading to more efficient ASK generation, the airline is also more efficient delivering additional ASKs with less headcount. Our efforts to optimize processes, develop new automation technologies alongside our passionate crew members resulted in a productivity being up 18.9% year-over-year. On Slide 13 you will see the impact on ASK generation from all of the challenges we faced in 2024. I would like to highlight two major factors. We began the year with the unfortunate floods in Southern Brazil, a devastating natural phenomenon that turned 10% of our network offline overnight in one of the most profitable bases. Shortly after, the constant OEM challenges we faced throughout the year worsened with several unscheduled engine removals and longer recovery time impacting our ASKs for the second half of 2024, these impacts were a loss of close in ASKs which had a devastating impact to our customers and operation overall. However, since early 2025, working together with the OEMs and our partners, we’re seeing improvements in all operational areas. We’ve been able to close the gap and get back on track to our planned capacity generation. On Slide 14, I would like to highlight two examples of impacts disruptions trigger to our operations and customers that have been significantly - that we’ve been able to significantly improve over the past few months. Our irregular operations as a percentage of departures has decreased by over 65% in the first quarter and continues to be a downward trend. Such improvement [ph] directly to another great indicator which is the average nights customers spend in hotels due to the impact to their booked flights. During the past quarter, we reduced our average customer hotel nights by 75%. Even though we made significant improvements during the first quarter, we were still impacted by the additional cost generated by the irregular operations and the customer litigation caused by it. Looking forward, we see a positive trend and expect these costs to improve during 2025. Going forward on Slide 15, you can see the improvements in the macro scenario to support our EBITDA generation in 2025 and beyond. The real has appreciated 9.3% in 2025, which reduces our dollar denominated debt and expenses and improves our cash flow generation and reduces the cash outflow to pay down aircraft lease, CapEx and interest. We’re also seeing improvement in the heating oil curve, which is down more than 17% compared to the January peak. Using the current spot price, fuel expenses would have been R$200 million lower in the first quarter, showing the potential upside to improve EBITDA and cash flow generation in the coming quarters. Turning to our final slide, I must highlight how the first quarter really shows how much Azul has overcome a challenging year and is already generating positive results. Our unique business model has once again proved the value generation this airline has at its core. Our enhanced approach to our network strategy, our beyond the metal business units and improved operation have resulted in improved more efficient ASK generation at the lowest CASK in the country while sustaining a strong unit revenue. I’m certain that our competitive advantages will continue to prove how Azul is the strongest airline in the region and yield positive results on a consistent basis. I can’t thank enough our entire crew member base for bringing back to our usual levels of operational excellence. I’m proud of the unique business model we have built together. With that, Abhi, Alex and I are available to take your questions.

Ladies and gentlemen, thank you. [Operator Instructions] We will now go to the first question that will come from Savi Syth sell side analyst Raymond James. Savi, we’re going to open your microphone, so you may ask your question. Please proceed.

Hey, good morning everyone. If I might just, there’s a lot improvement that you called out here on the cost side. Just operations, FX, fuel. Could you talk about how you’re feeling about EBITDA for the year and how it should progress from here? Because it seems like maybe seasonality might be a little bit different this year just given the movements in macro and operations?

Sure. Hi Savi. Yes, so Q1 I think was worse than we expected, but it’s early enough. And also we saw significant improvement going forward. Right. So when you look at the forward curve for oil, when you see where the real is, and there has been already some recapture in the first quarter. Right. So namely, fuel alone, the fuel expense line alone, like we said, was over R$200 million of a bad guy. When you add effects, that’s another R$100 million and then the irregular operations, but everything is improving. Right? All of those items, fuel effects and irregular operations are also are all improving. And we are still getting benefits on the demand side. We’re seeing strong RASK even with high capacity growth. So when you combine all that, we’re going to work, and we think we have enough time to still deliver as high an EBITDA generation as we can, even with the impact in Q1.

Understood, I appreciate that. And I wonder, maybe a question for Abhi. Could you elaborate a little bit what you’re seeing on the on the demand side, just between corporate and leisure? It doesn’t seem like, there’s been much of a hit with some of the macro headlines that we’ve had, but curious what you’re seeing?

Yes. Hey, Savi. Yes, you’re right, I mean, nothing compared to what you’re anecdotally hearing in the U.S. Right. Ex-Brazil point of sale demand has been strong. Even with the noise in the U.S. we didn’t see any oscillations in our U.S. business. Our international network is a high-end leisure network. I think we are more insulated in that sense. On the corporate side in Brazil, it’s been very, very steady. We haven’t seen, obviously we’ve grown and the revenue has grown with us and so we are maintaining that pace. We had, you can check the corporate travel agency shares. We had a 34% revenue share the last report. This is public data from corporate travel agencies. So the Brazil sort of local environment has been solid, has been very steady. Brazil point of sale internationally has been good as well. And we’re actually seeing a growth year-over-year in Ex-Brazil point of sale, which is revenue that’s coming in euros and coming in dollars, both for international network as well as our domestic network. So, I think you’ll see unit revenues expansion in 2Q, which is good. So I think overall a pretty steady demand environment.

Very helpful. Thank you.

Thanks, Savi.

Thank you. The next question comes from Andre Ferreira, sell side analyst, Bradesco. Andrea, we will open your audio so that you can ask your question, please proceed.

Hi, good morning. Thank you for the space here. So, two questions from my side. The first, if you could comment on your thinking regarding the $200 million equity raised in terms of timeline and there are talks, foreign anchor investors. And my second question is, Alex, you mentioned that fuel was R$200 million high detractor affects another R$200. And from the other cost line, which had the R$330 million higher costs year-over-year. In the release you mentioned that it’s mainly from the performance issues. How much of the R$330 was the performance issues alone? And is there a chance that Azul will be compensated for it by the OEMs? That’s it. Thank you.

Yes, thanks. So on the equity raise, I think just to remind everyone of the timeline. Right. We’ve reached an agreement with our bondholders, lessors and OEMs. And part of that agreement called for an equitization of debt to happen in April. Right. We actually had three equity offers over the last few months. One to equitize the lessors, one for the controlling shareholders to bring in new money into the company, and more recently the equitization of 35% of our 29 notes and 30 notes. So we’ve been implementing the plan as agreed and that’s why we had an equity offer in April. Now, the markets didn’t favor the timing. We didn’t get incremental equity raise, but we were successful in equitizing a significant amount of debt and reducing our leverage. Right. We obviously would - it would make sense for us to bring in additional equity capital, but we’ll find the right time to do that. Right. I think there’s a lot of noise in the market both in macro terms and on understanding our overall restructuring. And so I think things will calm down over time and we’ll continue to evaluate that opportunity. On the cost side, yes, fuel about R$208 dollar about R$100 other was impacted like we said about irregular operations. And just think about what that entails when you’re unable to fly and when you have close in impacts from OEMs. We did, that creates a lot of disruption in terms of us having to reaccommodate our customers, in terms of meals, hotels, transportation, sometimes, transportation on other airlines that close in fares. But so that was a big part of the increase in the other line. Also the other line that has a lot of components that are dollar denominated and the average dollar between Q1 of 2024 and Q1 of 2025 was almost 20% up. Right. Now, obviously, as we have demonstrated, the operations have improved significantly. So we should see a reduction in customer re-accommodations and legal contingencies going forward. But that absolute number is not that far from what’s consistent with our guidance as well. Right. So even though there was a big increase year-over-year, the improvement that we see in irregular operations would be enough for us to continue on the path that we had outlined.

Yes. And as for the OEM claims, we were in constant discussions with them. I mean, we had eight widebody engine removals in the span of six weeks in the fourth quarter. Right. And that had a significant impact to our customers. Abhi was unable to sell close in revenue because we were just re-accommodating customers. And when you cancel people’s flights on international, you’re putting them up in hotels and moving people around. So, yes, there is claims out there to the OEMs for sure. And we’re seeking compensation similar to what you’ve seen with other airlines around the world. And we’ll continue to do that. But we wanted to show, as Alex mentioned and the chart shows, there’s been significant improvement in that just in the last 60 days alone. So we have more spare aircraft available to us, more spare engines, and more engines leaving the shop. And so we expect a significant improvement going forward in this line item.

Very clear. Thank you.

Thank you. The next question now will come from Michael Lindbergh, sell-side analyst from Deutsche Bank. Michael, we will open your audio so you may ask your question. Please proceed.

Hi, this is Shannon Doherty on for Mike. Thank you for taking my questions. Maybe for the first one, just to follow-up on Savi’s question, Are you officially reiterating the R$7.4 billion in EBITDA this year? I understand that’s going to be back half loaded, but just want to know if you’re like walking away from the guidance.

Yes, we’re not changing guidance at this time.

Okay, understood. And for the second one, just so we know, going forward, what is the share count that we should be using for the next quarter, assuming a net profit? I know in your footnotes in the release it says that the share count doesn’t include dilution and you did get a bunch of transactions done post-quarter end. So just an update on share count would be helpful.

Yes, the current number of shares outstanding after the acquisitions that we have done is R$980 million preferred equivalent shares.

Thank you.

[Operator Instructions] The next question now will come from Rogério Araujo, sell-side analyst, Bank of America. Rogério, we’re going to open your audio so that you may ask your question. Please proceed.

Hey, John, Alex, Abhi, thanks a lot for the opportunity. I have a couple here. The first one on liquidity, second queue is usually at the third quarter in terms of seasonality and cash flow. So if you could update us on any potential credit line from the government that has been spoken in the past, if there is an update there? Also, we saw the TAPs Bond going to - actually short-term asset in the balance sheet. It expires in March 26th if I’m not mistaken. So what to expect with the TAPs Bond? Will it become a cash position, same amount as in the balance sheet in March? Is there any way that it could be repurchased by TAP before that? Would that require a haircut? So how can we think about that line? And my second question of actually it’s follow-up from the equity offering. I understand there is an anti-dilution clause for creditors that are converting that into equity and at this price an offer could trigger further dilution to investors. So how can we think about this potential equity offering in terms of disclose what to expect? Could that be revised? Is there other alternative? Because I understand that this has to be concluded for the third phase and the restructuring to be concluded as well. Thank you so much.

All right, Rogério. We’re going to take it in pieces. First of all, second quarter as we build up the summer and sell the summer peak. Usually there’s improvement in cash flow in the second quarter compared to the first quarter. But your question about the government line. I think we’ve seen movement for sure. They passed through initial approvals for the FGE [ph] line which could be a couple $100 million worth of liquidity to - each airline. And so we’re very positive on that. We’ve been in constant conversations with the government around that line. So all things indicate that that’ll get approved fully in the next week or two, which that’s exciting. As for the equity offering, I’ll let Alex kind of give more color, but obviously that anti-dilutive clause was not helpful. And so as we went through the process, we needed to equitize the debt that they have and what I would say Rogério is, we’re in constant conversations with the bondholders and so they asked for something initially that was to protect them and it actually didn’t protect them and it didn’t protect and sustain the stock. And so yes, we’re in - constant conversations with them on a better approach because we do need to de-lever the business even further. And that clause is not helpful for sure.

Yes, that’s right. On the liquidity, sometimes I think people mix up the strength of the quarter in terms of revenue versus the strength in terms of cash. Right. Q1 is a very good quarter in terms of demand and revenue, but it’s flown revenue. But most of that flown revenue was booked in previous quarters. So in terms of cash, Q1 is actually probably our worst quarter, seasonally speaking, Q2 is our worst quarter in terms of demand, traffic, usually RASK. But it is a good quarter in terms of cash because you’re starting to build booked revenue into the July season and the second half of the year, which is obviously the stronger in terms of demand. It’s not exactly like that. But usually, the strongest quarters in terms of revenue are the weakest quarters in terms of cash flow and vice versa. Right. The weakest quarter in terms of revenue is the strongest quarter in terms of cash. It’s not exactly like that. But Q2 is not a bad quarter in terms of cash generation. In terms of the TAP Bonds, I mean, they are within a year from maturity. So that’s why they are in short-term and we expect to be paid that debt that has never been in question. There are discussions obviously on the collateral and interest calculation, but no discussion on the existence of the debt. So we’ll be discussing with TAP and the Portuguese government, obviously directly with them. And any news we will share with the market as soon as possible.

Fair enough, that’s very helpful. Thank you.

Thanks, Rogério.

Thank you. The next question will now come from Guilherme Mendes, sell-side analyst, JPMorgan, Guilherme, we will open your audio so you may ask your question. Go ahead.

Hey, John, Alex, Abhi, thanks for taking the time. First one, it’s on the M&A, the potential M&A with go. The company now is expected to the Chapter 11 probably in June. And you are evolving your own liability management. So if there’s anything that you can share on the exchange ratio or at least timing for you to be announced. And the second one, just a follow-up on the guidance. Are you guys firmly withdrawing the guidance or just not updating it? Thank you.

Yes, Hi. On the M&A, we - as we have said before, we continue to be in conversations with Abra. They always made it clear that goal was going to exit first. So that was always a - always part of the plan. But the discussions continue and they continue on many parallel fronts, including valuation, including antitrust documentation, all those kinds of things. So the discussions continue.

And as regards, there’s no change.

So perfect, thank you.

Okay, thank you. And the next question comes from Savi, sell-side analyst Raymond James. So savvy, we will open your audio so you may proceed.

Hey, thanks for the follow-up. Just given the kind of outlook hasn’t changed, I’m guessing your views on capacity haven’t changed much, but could you talk a little about again, how you’re thinking about that for the rest of the year and between domestic and international? Thanks.

Hey Savy. Yes, it hasn’t changed a lot. As John said, we are making changes to the network, but overall, I see about in the domestic industry, I see about 8% growth on a year-over-year basis. It will peak in the second quarter. So you will see higher growth from everybody in the second quarter and then you will see lower year-over-year growth from everybody in the back half of the year. Azul Go [ph] LATAM are kind of all following that same trend. And for us, yes, we’re on plan. I would say domestic around 8% international is going to be higher only because some of the OEM issues that we faced last year led us to have an artificially low base. So you will see high international now in 2Q and then you will see higher international again in 4Q because of the OEM. But I would say, Azul overall, around 10% domestic will be around 8%.

That’s helpful, thank you.

Okay, thanks. The next question comes from Daniel McKenzie, Seaport. Daniel, we will open your audio, so please proceed with your question.

Oh, hey, thanks. Good morning guys. Really the questions that I have really are around hardening the business model to handle the macro swings that can cause revenue to move pretty hard, FX and fuel and so I’m just curious in the context of hardening the business model going forward. You guys have done a lot to build a really impressive airline, but the traditional way has been to slow capacity, cut capacity. And I’m just curious, how you’re prioritizing the levers, looking ahead and then just related to that, what leverage metrics are you targeting end of this year and end of next and, what’s the pathway to the optimal balance sheet that you’d like to see?

Hey, Dan. Yes, I mean, as an airline in Brazil, we always say that we are an imported service in a way. Right. And so we are exposed to the cost of importing the inputs that allow us to produce a seat in Brazil. Right. We have aircraft that are denominated in dollars. The financing for the aircraft is mainly in dollars. Even the working capital for an airline as a capital-intensive business, usually for you to be able to borrow the significant amount of capital that the business requires for a longer term, that capital is usually provided by U.S. or foreign investors that want a return in dollars. Fuel in Brazil unfortunately is dollar denominated. We don’t think it should, but it is. And then a lot of other items like GDS fees and IT and spare parts and maintenance and insurance and so yes, that exposure is intrinsic to the business. I think the lever we pull, I wouldn’t say, as much capacity, but I think the main one is fares. Right. We see that fares are essentially pegged to the dollar with a bit of a lag. They’re not indexed to dollar. But we’ve demonstrated that over time, even though the real has significantly devalued since we started Azul, the real was at R$160 to R$ 1 when we started Azul. And I don’t think anybody had in their forecast that it would reach R$630 to R$1. But over time we have been able to more than offset that currency devaluation with fares. Through the strength of our network and our fleet and the customer experience that we deliver, we’ve always also made the company a lot more efficient. And we’re going to do that regardless of the dollar. We’ll be constantly pursuing more efficiency, more productivity, higher aircraft utilization. You just need to be constantly looking for opportunities to reduce costs. And even though we’ve made a lot of progress, if you look at everything that’s under our control, which is employee productivity, aircraft utilization, ancillary revenues, the revenue that come from our business units, everything that’s in our control is doing really well. But unfortunately, the things that are outside of our control, such as fuel and effects, were big headwinds in Q1. But the positive news is that they should be much better for the remainder of the of the year. Right. But also one thing that we had in the past, Dan, you may remember, we kind of had to use it up during the Brazilian recession in 2016 and then through the pandemic, is that we are able to finance our fleet in reais. Right. We are the only operators of Embraer’s in Brazil and in the past we had about a third of our fleet that was debt financed and a lot of those aircraft were financed in reais. That is a great hedge. Unfortunately, it’s not one hedge that we can just reset and rebuild overnight, but we will absolutely do that going forward. The beauty of that is that the aircraft, when it’s financed and reais, it continues to be valued in dollars. And if you need to reduce capacity, you can sell that asset, pay down the debt and the debt will be constant. We’ll not have increase because of the devaluation while the value of your asset will. Right. We had that cushion that we built over time. We had to use it up over a couple of crisis that we faced and we’re going to rebuild it going forward and that will be another competitive advantage that Azul has which no other competitor can match.

Yes, Dan, a couple of things, just the FX alone is going to improve and leverage. But a couple of things that Alex said, I just want to reiterate, we’re down year-over-year in headcount. Absolute FTEs were down, yet we’re up 15% in ASKs. So we are building a more efficient airline. Real denominated debt with the ability to finance our E2s. The government line is also something we need to have less U.S. dollar denominated debt on our balance sheet. We need to de-lever and that’s why we’re talking to our partners about doing.

Yes, thanks for that comprehensive answer. A follow-up to that is Alex, can you speak to CapEx this year and next, just big round numbers, how should we think about that? And then, given everything that you just shared, how can we tie that? What kind of leverage metrics should we think about for Azul as we look ahead one to three years?

So CapEx, you remember back in, I think November, we put out a walk-through of our free cash flow to firm. That number is dollar denominated. The dollar has fluctuated somewhat. So depending on what your dollar assumption is for the year, you need to adjust that CapEx number going forward. Also, the OEM issues that we had may require a little bit, more engines to be sent to overhauls. But, we don’t have guidance on CapEx and we don’t have guidance on leverage either. But you can use kind of those old numbers as a guideline for you to come up with your estimates. Now we want to reduce leverage. I think that is something that all stakeholders of Azul would like to see. We’ve done a lot of progress on reducing that leverage and unfortunately some of that leverage came back through the devaluation, but it’s coming back. So we will continue working on everything that’s within our powers to generate more cash, pay down debt. And that’s also something that is always permeating our conversations with all of our stakeholders.

Hey, Dan, I just want to reiterate one other thing, which is a competitive advantage that Azul has is that all of our next generation aircraft are under PBH contracts and engine agreements overall. So while CapEx will be up in the short-term because of the reliability of the new engines, you’re going to get that back over time. It’s just a pull forward, if you will, because all of our engines are under a power by the hour contract. And that’s a competitive advantage that we have that quite frankly, the OEMs aren’t offering anymore. And so as we look forward, we have that advantage going into the next few years.

Yes. And it is an asset that Azul owns. Right. Because as John said, that contract is not being offered anymore and it is providing significant protection because the cost of engine overhauls, with all these supply chain issues and OEL and MRO capacity issues is obviously going up significantly.

Yeah. Thanks for the time, you guys.

Thanks, Dan.

Thank you. I will now turn it over to John for closing remarks.

I’d just like to thank everybody for your time today and thank our crew members for all their work in the quarter and we look forward to talking to you. Feel free to reach out to our IR team if you have any additional questions. Thanks, everybody.

Thank you. This concludes the Azul’s audio conference call for today. Thank you very much for your participation and have a great day.

Hello, everyone, and welcome to Azul's fourth quarter earnings call. My name is Zach, and I will be your operator for today. This event is being recorded, and all participants will be in listen-only mode until we conduct a Q&A session following the company’s presentation. [Operator Instructions] I would like to turn the presentation over to Thais Haberli, Head of Investor Relations. Please proceed, Thais.

Thank you, Zach, and welcome all to Azul's fourth quarter earnings call. The results that we announced this morning, the audio of this call and the slides that we reference are available on our IR website. Presenting today will be David Neeleman, Azul's Founder and Chairman; John Rodgerson, our CEO; and Alex Malfitani, our CFO. Abhi Shah, the President of Azul, is also here for the Q&A session. Before I turn the call over to David, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance constitute forward-looking statements. These statements are based on a range of assumptions that the company believes are reasonable but are subject to uncertainties and risks that are discussed in detail in our CVM and SEC filings. Also, during the course of the call, we will discuss non-IFRS performance measures, which should not be considered in isolation. With that, I will turn the call over to David. David?

Thank you, Thais. Welcome, everyone, and thank you for joining us today. First, let me begin by thanking our incredible crew members for their passion and dedication. 2024 was a tough year for Azul. Like many airlines around the world, we were impacted by OEMs, supply chain and engine challenges, which created schedule uncertainty and operational disruption. This affected our customers and crew members in addition to a heavy financial impact of over BRL1 billion. Also, the Azul family and Brazil at large were severely impacted by a significant devaluation of the local currency and extreme floods in the state of Rio Grande do Sul, which resulted in the closure of the Porto Alegre Airport for over six months. Despite all these significant challenges, our crew members went above and beyond, taking care of each other and our customers on each and every flight. I am proud of them, and I cannot thank them enough. Turning to Slide 3. The Azul business model more than ever demonstrated its value, thanks to our strategic and competitive advantages. The combination of a differentiated network with unique fleet flexibility, our high-growth business units, the lowest unit cost in the region, together with passionate crew members and supportive stakeholders is what allowed us to deliver the record results we present to you today. Slide 4. I would like to describe what I think is the strongest of our competitive advantages, our network. From the beginning, Azul was designed to be different. Our focus has always been to grow the market, to access demand that has never been accessed before. While our competitors focus its operations in three cities of Brazil, resulting in high overlap, our unique fleet and network combination allows us to be the only carrier in 82% of our routes, connecting over 150 destinations, many of which are located in the fastest-growing regions of Brazil. Slide 5 is another clear way to see how differentiated our network truly is. In this chart, we show how much of each airline's capacity is in the airports where they have over 60% share. As you can see, Azul leads the global industry with 63% of our capacity deployed at airports where we are the most relevant carrier. This means we choose to fly where we are strong, and we are strong in airports where we choose to fly. This is in clear contrast to the industry expectations that as we grew, we would inevitably face more competition. In fact, the opposite has happened. We have grown our markets within our network, increasing our strength and extending our competitive advantage. We truly built a unique business that allows us to succeed even in the most challenging moments. Proof of that is the tremendous support we have received from all of our stakeholders, whom I would also like to thank. We have truly set up Azul to be successful for the long-term. With that, I will turn the time over to John to give you more details on our record results. John?

Thank you, David. We are very proud of what we built, and I too would like to thank our outstanding crew members. On Slide 6, you can see that we are excited to report another tremendous quarter with an all-time record revenue, EBITDA and EBIT. Our revenue was up 10% year-over-year to a record BRL5.5 billion with a strong RASK of BRL0.45. Our record quarterly EBITDA of BRL2 billion with a margin of 35.2% and EBIT of BRL1.2 billion reflects the strength of our unique business and competitive advantages, bringing Azul to industry-leading levels of profitability. On Slide 7, we break down the capacity and unit revenue metrics for the quarter. Even with capacity growth of 11% year-over-year and at the same time that fuel prices dropped 17% year-over-year, we sustained a historically strong RASK of BRL0.45. This is a clear demonstration of how we can generate high-quality revenue in any macroeconomic environment. In addition to year-over-year trends, we also generated strong quarter-over-quarter improvements, even with Porto Alegre only partially reopening in October and not getting to full capacity until December of last year. As a result, we will see further revenue improvements as we head into the first quarter of this year and beyond. Overall, we see a disciplined industry environment with encouraging revenue trends and more unit revenue gains expected in the quarters ahead. Turning to Slide 8, we highlight another one of our structural competitive advantages, the diversification of our revenue base. Our business units have done a great job of what we call growing Beyond the Metal, finding new and unique ways to increase our revenue outside of just ticket revenue. Our high-margin business units contribute -- contribution to RASK grew from 15% in 4Q '23 to a very strong 23% in 4Q '24. All units combined resulted in a positive impact of more than BRL450 million in the quarter and BRL1.5 billion in the year, accounting for 24% of our 2024 EBITDA. The investments we're making in people, technology and products into these businesses is a key element of creating and extending our competitive advantages, allowing us to continue our profitable growth trajectory for years to come. On Slide 9, I would like to further highlight some key results from each of our business units. Our loyalty program, which continues to do well, now has more than 18 million members and increased 27% in gross billings ex airline year-over-year. Our co-branded credit card ranked best in the country, has total spending that represents 0.5% of Brazil's GDP. Let me say that again, 0.5% of the value of Brazil's GDP is spent on the Azul credit card. Our vacations business continues to expand its network of agencies and stores throughout the country, resulting in an incredible 63% growth in gross billings in 2024. Our logistics business has returned to revenue growth as well, powered by a 9% increase in international revenue for the full year and a very impressive 54% growth in international revenue quarter-over-quarter. In summary, the growth beyond the metal is strategic and is a key part of the Azul story and a fundamental element of our competitive advantages. On Slide 10, we focus on what is becoming yet another competitive advantage. Our CASK is the lowest amongst our peers. Overall CASK was down 6.5% year-over-year. Even more impressive is that despite an 18% devaluation of the local currency in the fourth quarter and almost 5% inflation in 2024, CASK ex-fuel remained flat. This was driven by our laser focus on efficiency and productivity, two examples of which I will show on the next slide. As you recall from our past two earnings calls, our Elevate plan became a new way of managing our business. In fact, Elevate was so important to us in 2024 that it has been incorporated into our yearly strategic planning moving forward. Slide 11 shows two very beneficial initiatives of our Elevate plan, increased aircraft utilization and productivity, which has been key in driving down our unit cost. On the left, you can see how aircraft utilization has increased year-over-year. Among other reasons, this was accomplished by reducing aircraft ground time and optimizing our handling, catering and air processes, leading to an increase in utilization of almost 13%. On the right, you could see that the airline today is 10% more productive in terms of ASKs per FTE compared to last year or at any time in our history. Therefore, it's fair to say that Azul has never been more productive and further gains are on the way. Summing it all up on Slide 12, you can see that the combination of our structural competitive advantages, growing business units and lowest unit cost have put Azul back on the path of consistent profitable expansion. Despite its challenges, 2024 was the best year in our history in terms of EBITDA generation. 2025 in turn is expected to be even brighter with significant revenue growth. With that, we're in a position to reaffirm our outlook for 2025 with a projected record EBITDA of BRL7.4 billion. This superior operational performance is now paired with an optimized capital structure, thanks to the comprehensive restructuring we have negotiated with our bondholders, OEMs and lessors. I will now turn it over to Alex, who will provide more details about the capital restructuring.

Thanks, John. As we have been communicating consistently, our comprehensive restructuring focused on improving liquidity and cash generation, resulting in reduced debt and leverage. Over the next slides, we will present in detail the robust capital structure that resulted from this plan. On Slide 13, you can see the different liability components we have eliminated from our balance sheet, resulting in almost BRL8.5 billion in debt being extinguished and an additional $500 million of new capital coming into the company. The first step of the plan was the elimination of equity obligations owed to lessors and OEMs totaling approximately BRL3.1 billion in exchange for 96 million new AZUL4 preferred shares, which are being issued right now in the first quarter of 2025. The BRL2.7 billion you see on this slide represent the present value of these obligations. The agreements also extinguished a significant part of the 2030 notes held by lessors and OEMs with the remaining notes being exchanged for new unsecured notes due two years later in 2032 with an option for Azul to pay interest in kind. That is additional to the cash flow improvements of over $300 million across 2025, '26 and '27, also negotiated with our commercial partners. Given the successful agreements with lessors and OEMs, we then moved on to negotiating with our bondholders, we managed to reach an agreement to equitize into preferred shares $785 million of the 2029 and 2030 notes. By April 30, 35% of the notes' value will be converted into preferred shares and 52.5% will be converted into new exchangeable notes also with a pay-in-kind interest option. The remaining 12% shall be converted upon completion of an equity offering, raising at least $200 million. By reaching these agreements, we were able to access the full gross proceeds of the super priority notes of $500 million. These transactions significantly improved Azul's capital structure and operational cash generation by eliminating not only the lessor and OEM equity issuance obligations, but also most of the 2030 lessor and OEM notes as well as the 2029 and 2030 bondholder notes. None of this would have been possible without the support of our partners and investors to whom I'm very thankful. Their support demonstrates how the aviation community and financial markets believe in the Azul business model. Slide 14 shows the resulting share count of all of these agreements. On a fully diluted basis, once all convertible instruments are exchanged into shares, our total share count on equivalent preferred basis will be 2.3 billion shares. The shares issued to lessors and bondholders represent 85% of that base compared to 30% before we started the restructuring. As you all know, before this restructuring, we had two equity instruments, the convertible debenture issued in 2020 and the lessor and OEM equity instrument, which together would already represent a 30% dilution to our shareholder base. Since the dilution of these instruments is already included in the 85%, the incremental dilution from the new agreement is 55%. This means that we exchanged 55% of the company for a total debt reduction of over BRL6.3 billion. You can see that illustrated on Slide 15. As we saw before, we reduced our debt by over BRL6.3 billion, including the new super priority notes we issued in January. If you do the simple math, this represents an implied valuation of over $2 billion. We have strengthened our balance sheet and can now turn our attention to expanding our margins and generating positive free cash flow. This has been the focus of a strategic planning effort we have just concluded and which John will now discuss. John?

Thanks, Alex. With the successful conclusion, we're now even more excited about our future. As I mentioned before, we have incorporated Elevate into our long-term strategic plan, as you can see on Slide 16. Under a permanent safety mindset, we will focus on four major pillars to fly Azul into even brighter skies, cash generation and profitability, operational integrity, crew member engagement and customer experience, underpinned by a new framework of governance. Azul is already one of the most profitable airlines in the world. And now with our financial restructure completed, the best is ahead of us. Finally, on Slide 17, you can see how we will continue to expand profitability into 2025 and beyond. We still have significant fleet transformation upside to come with more next-generation aircraft being delivered. Our business units continue to grow beyond our metal, delivering high margins and unit revenue expansion. Our new business management strategy will produce even lower unit cost and secure every additional revenue opportunity ahead of us. With our exclusive network platform and unique fleet flexibility and the lowest cost in the region, we're very optimistic about the future. With that, David, Alex, Abhi and I are available to answer your questions as I turn the call over to the operator.

[Operator Instructions] Our first question comes from Savi Syth, sell-side analyst, Raymond James. Savi, we’re going to open your audio, so that you can ask you question. Please proceed.

Thank you. Good morning, and congratulations to the team on completing the current phase of your capital restructuring. Maybe, Alex, could you provide an update on like the major cash flow components for '25 and '26 after what's been completed?

Yeah. I think it's still consistent with what we provided at Azul Day. If you look at the guidance for free cash flow that we showed, you can see the BRL7.4 billion EBITDA that we reaffirmed. And then you see the additional components of working capital, rent, CapEx and interest. Obviously, those numbers were provided when the real was a little bit stronger than what it is today. I think around the budget time, we were at about BRL5.50, the real shed up to BRL6.20. Now we're at about BRL5.70. Savi, there's a little bit of headwind here. But just to remind everyone, I think we've given these numbers in the past. But basically, when you see a 10% devaluation in the currency, to get back to breakeven on a free cash flow basis, we only need about a 6.5% increase to fares, right? And obviously, from BRL5.50 to BRL5.70, we're only talking about a 3% devaluation of the real. So the fair increase we would need to come back to that free cash flow guidance would be only about 2%, right, which is very much feasible, especially given the demand environment that we are seeing today. So we've reaffirmed the $7.4 billion EBITDA. And I think the free cash flow is something that we're also still continuing to pursue for this year, right? We definitely -- I think that's what we all collectively are looking for. Clearly, we have a very sound strategy. Our EBITDA generation is best-in-class. But we all want to convert as much of that cash flow generation -- much of that EBITDA generation into free cash flow going forward.

And, Savi, it's a strategic pillar that the whole company is focused on, right? And so every crew member at Azul is aware of it, and our metrics are driven by it. Our bonuses are linked to cash flow generation now.

Yeah. And that interest number that we talked about already reflects all of the components of this equitization, right? The debt reduction, the PIK option, right? So that is all consistent with everything that we've already announced so far.

That’s helpful. Thank you. And then maybe just on kind of capacity, Abhi, just what are you expecting in terms of kind of the fleet deliveries this year and retirements? And how should we think about kind of domestic versus international growth as you kind of progress through the quarters?

Yeah. Hey, Savi, so you will see a higher growth first six months of the year, mostly because of Porto Alegre. So you will see kind of a peak in second quarter, and then it will come down 3Q and 4Q. In terms of deliveries this year, really, it's only the E2. We have no Airbus deliveries this year. So our focus is going to be on the E2. Obviously, we're pushing Embraer and like every OEM in the world that has its challenges. It is a constant monitoring and a constant engagement with them. And in terms of retirements, we do have E1 retirements this year. We are selling some aircraft, and we have some ATR retirements as well. And so we're managing that. In terms of overall capacity, I think we're going to be somewhere in the 10% to 12% range, mostly driven by international. Domestic, I would say, is going to be high single-digits in the 8% range and then international is going to be high. The reason international is much higher is because one of the largest OEM impacts we had last year was on the wide-bodies. We had delays early in the year with aircraft that we were expecting that we didn't get. And then we had impact late in the year with Rolls-Royce engines severely impacting our wide-body fleet. So, I would say, domestic, sort of high single-digits, around 8%, overall capacity growth about 10% to 12%.

Very helpful. Thank you.

Thank you. The next question comes from Victor Mizusaki, sell-side analyst at Bradesco. Victor, we will open your microphone so that you can ask your question. Please proceed.

Hi. I have two questions here. The first one, with regards to the financial restructuring, if I'm not mistaken, there is a plan to raise like BRL200 million of equity. So my first question is if you can comment about the status of this process. And the second one, Azul called a Shareholders' Meeting to approve the issuance of [owned] (ph) shares as part of the restructuring plan. So can we assume that controlling shareholders will subscribe this deal?

Yeah, I'll take the second one, and then I'll give the first one to Alex. Yeah, I think we're excited. I mean, David is on the call, and he's putting in money into the company right now. I think that's -- it's a bullish sign for the company overall. And we're also in the process of going to a single share class, right? And so that's something that, as part of this restructuring process that will happen in about a year's time. And so seeing the controlling shareholders put new capital in, they're doing that at a slight premium to where the stock is today. I think that's also kind of a bullish sign that they believe in the company and are -- plan to be around. So I think that's a good thing. I'll let Alex kind of talk to kind of the final steps of the restructure.

Yeah. Thanks, Victor. Yeah. So as we described, there are essentially three capital raises happening, right, as all part of the restructuring that we have already announced. The first one, which is happening right now is the equitization of the lessor and OEM obligations, which are going to generate about 96 million preferred shares at a price of BRL32 and some change, right? Then as also part of this restructuring, as John mentioned, the voting shareholders, the controlling shareholders are putting in more money into the company. That is also a capital increase that we have already announced, which will be made into ONs at the equivalent price of BRL4.50 per preferred share, which is about BRL0.06 per ordinary share. And then there will be the equitization of the 2029 and 2030 notes. And then consistent with our bylaws and with Brazilian law, all of these capital raises allow for shareholders to participate. So, shareholders can buy together with the lessors at BRL32. They can buy together with the voting shareholders at BRL4.50 per preferred share, and then they will be able to equitize under the same conditions as the bondholders, and we have to do that until April 30, if you've seen that on our documentation, right? All of this is public information that we have already announced. So we have to see how much interest there will be from the market on all these capital increases. And then as you've also seen from all of our announcements, there is a remaining 12.5% equitization of the 2029 and 2030 notes that do depend on a capital raise of $200 million. And so we will see the results. We're focused on implementing all of these capital increases, and then we will see where we are with regard to the remaining requirement.

Thank you.

[Operator Instructions] The next question now comes from Rogerio Araujo, Bank of America. Rogerio, we will open your microphones so that you may ask your question. Please proceed.

Yeah. Hi, guys. Good afternoon. Thanks a lot for the time and also the question. I have a couple actually. One is regarding the number of shares that you just disclosed at BRL2.3 billion. Does it include the $200 million follow-on offer? And also in this restructuring, there is a clause saying the controller shareholders -- actually, there is a clause saying that management team and Board members, they may have 11% share in the future, post dilution. It's -- can you disclose a little bit of the terms of those 11% shares and if this is somehow included in this calculation? That's the first one. Thank you.

Rogerio, first question, it's not included, right? And so we did not include the $200 million capital raise because that's -- that can happen at any time in the future. And so we're giving the outstanding shares as of now. And yes, you are correct. There is a management incentive plan for the management team. It's performance-based and time-based from a retention standpoint. And so it can result in up to 10%, 11% dilution as you suggested. However, there are certain criteria to getting there and the Compensation Committee at Azul is defining what those terms are. And that is our new long-term incentive plan that will be available for the company for the years to come. So it extinguishes all old equity plans that we had, and this is the new equity incentive plan to the management team.

Okay. Sounds clear. Thank you, very clear. The second one is regarding a haircut that was made in the 2030 notes, if I'm not mistaken, about $244 million. You say in the release that this was done in exchange for other commercial agreements. Could you please clarify what commercial agreements does it include?

So, there was a cash component that was paid with a significant discount to face value on those notes. And then there were other, let's say, commercial items in dispute, for example, maintenance reserve reimbursements or aircraft deliveries. It's mainly, I think, in general, selecting lessors and continuing with our commercial relationship with lessors under market conditions, right? We have a lot of growth into our future. And so some of the concessions or some of the commercial agreements that we have negotiated essentially locks in some future demand that Azul has for future aircraft deliveries with specific lessors or it settles some disputes that we had in the past. But everything done -- as you probably know, we had FDI inside the company here kind of checking all of the agreements that we have negotiated, validating it to make sure that they qualify towards the $100 million annual cash flow improvement that we had as a mission, right, from our bondholders to be able to access the full $500 million and the equitization. And all of that has been certified and checked.

Great. Thanks very much, Alex. Have a great one.

Thanks.

Thank you. The next question now comes from Savi Syth, sell-side analyst, Raymond James. Savi, we’re going to open your microphone, so that you may ask your question. Please proceed.

Hey, thanks for the follow-up. Just, Abhi, I was wondering if you could provide a little bit more color on the current demand environment. I know there's a lot of noise. I think the Carnival timing is not great for 1Q, but you do also have easy comps coming up. But just curious what you're seeing both on kind of the leisure side and the business demand side here.

Yeah. Hey, Savi. So actually, we've been positively surprised with what we've seen January and especially February. You're right. Normally, with Carnival kind of first week of March, you would expect kind of a lame duck February, if you will, and then corporate demand coming back right after Carnival. But we've been actually reasonably positively surprised in February with the [close-in revenue builds] (ph). They've actually been better than last year, which is a good sign. We see a disciplined overall discount environment as well. So looking at corporate discounts, looking at travel agency discounts, we see that's pretty disciplined, which is a very good sign. Talking to our corporate customers, we see no signs of corporate demand slowdown or anyone trying to kind of pull back. We see a lot of groups demand. We see a lot of demand for in-person trainings and conventions, which has been quite good as well. So -- and for us, honestly, our operation has been much more stable than it was at the end of last year, especially on the international side. And so for us, just having less disruptions and less volatility has been a really good positive sign as well. So overall, I think I've been positively surprised with what I've seen so far in January, February. Next week is Carnival. So it's going to be dead. But we do expect strong corporate rebound March 10th and onwards. So I would say, overall disciplined environment, overall corporate discounts, disciplined as well. And our operation has been stable, which has been a very good sign also.

That’s helpful. Thanks, Abhi. If I might, just are you seeing any differences between kind of domestic versus international?

International continues to be good. And it was interesting because even when the currency kind of went to BRL6.30, we didn't really see a slowdown in international either. And now it's at BRL5.70 and it looks good. We've actually had to increase a little bit of capacity for the Carnival time frame because we were a little bit too booked actually. But it looks stable to me. The normal seasonality, spring time frame, very strong in the US. Europe, a little bit weaker. But as we look ahead to the Northern summer, we see Europe coming back strong and the US kind of holding its own. So we announced a Recifi to Porto. That's already selling, and we will have a couple of more announcements coming down the pike next couple of weeks as well. So we also announced -- come back to Argentina for the peak winter season here. We're excited about Mendoza and Barajas. So overall, pretty stable international, strong, I think, kind of the commentary that I'm hearing all around.

Thank you.

Thank you. The next question comes from Guilherme Mendes, sell-side analyst, JPMorgan. Guilherme, we will open your microphone, so you may ask your question. Please go ahead.

Hey, thank you all. Hey, John, Alex, Abhi, thanks for taking my question. So regarding the proposal of the M&A with Gol, can you share some expectations regarding the CAT analysis for the proposed M&A in terms of timing and potential remedies? And the second one on the synergies. I mean, what is the timing for your expectation to capture synergies in terms of revenues and in terms of costs? Thanks, again.

Yeah. Hi, Guilherme. So obviously, we cannot comment too much publicly here. But what I will tell you is that we're really confident in the technical analysis and what we propose, right? So let me just give you the quick highlights of what we see as the main benefits to the consumer and to Brazil. First is, we have very low overlap between Azul's network and GOL's network, right? And we think that the low overlap is a key driver to future growth. We look at the Brazilian market overall has not grown significantly for the last several years. We want to get to 200 cities served, in Brazil, and we think we can do that when we have these networks that are not overlapping that are very, very complementary to connect together, right? So we really believe that on the technical case here that it is a case of growth of adding service. We believe that many more cities in Brazil, for example, should and will have service to international destinations, right? And so we think that that's a key element of growth as well. And also, we think that we can build an airline that is going to be able to compete globally when it comes to fleet, when it comes to engines, when it comes to OEMs, when it comes to access to capital. And those are going to be really, really critical to keep this market growing. So all of this, we think, is our technical case. We see significant consumer benefit coming from this, and that's the case that we're putting forward.

Thanks, Abhi.

Thank you. The next question now comes from Michael Linenberg, sell-side analyst, Deutsche Bank. Michael, we will your audio, so that you may ask your question.

Mike, we can't hear you. Mike?

[Operator Instructions]

Yeah, we can't hear Mike. We'll try to get back to him. If there are any other questions, we can move on. Otherwise, I think we're done.

Okay. So, this closes our Q&A session for today. I'll turn it over now to John so that we can -- for closing remarks.

Well, I'd like to thank everybody. Obviously, a lot of information. Our IR team, Alex, Abhi, myself will be available to talk to you about Azul going forward. A lot of great things happening, lowest cost, highest EBITDA margins, I think, in close to the world right now. And so we're very, very excited about the future. We fixed the balance sheet now. Now we're off to the races, and we appreciate the support of all of our stakeholders, and we're going to continue to grow a very profitable business. Thanks, everybody.

Thank you. This concludes Azul's audio conference call for today. Thank you very much for your participation, and have a good day.

Hello, everyone, and welcome all to Azul's Third Quarter Earnings Call. My name is, Ed, and I will be your operator for today. This event is being recorded and all participants will be in an listen-only mode until we conduct a Q&A session following the company's presentation. [Operator Instructions] I would like to turn the presentation over to Thais Haberli, Head of Investor Relations. Thais, please proceed.

Thank you, Zach, and welcome all to Azul's third quarter earnings call. The results that we announced this morning, the audio of this call, and the slides that we reference are available on our IR website. Presented today will be David Neeleman, Azul's Founder and Chairman; and John Rodgerson, CEO. Alex Malfitani, our CFO; and Abhi Shah, the President of Azul are also here for the Q&A session. Before I turn the call over to David, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance constitute forward-looking statements. These statements are based on a range of assumptions that the company believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in our CVM and SEC filings. Also, during the course of the call, we will discuss non-IFRS performance measures, which should not be considered in isolation. With that I will turn the call over to David. David? Hey, David, can you hear me? David, maybe you are on mute. Do you want to start?

Okay. Sorry, Thais. Are you there?

Yes, yes. Now we can hear you.

Okay. Sorry about that.

No worries.

Okay. Great. Thanks, Thais, and thank you all for joining us for our third quarter 2024 earnings call. We have a lot to talk about today, but first, we have, our third quarter results, which were very positive. With an all-time record revenues in EBITDA with industry leading margins. Second, we want to talk about the results of our recent renegotiation with our principal partners, which are going to create a fundamentally stronger Azul for 2025 and beyond. John will lead you through the details, but first, let me thank our crew members for once again delivering a solid quarter under very challenging circumstances. Like many airlines around the world, we continue to face disruptions with our fleet, engine removals, and supply chain issues, which are leading to short-term changes to our network. Our crew members are doing an amazing job taking care of our customers, and I want to thank them for all their efforts. On Slide 3, I want to remind you about the strength of our business and our competitive advantages, which are now greater than ever. Our differentiated network combined with our fleet flexibility allow us to access demand and grow the market in a sustainable and profitable way. As John will show you, our next generation fleet combined with the efficiency initiatives give us the lowest unit cost in the region. Finally, our fast growing high margin business units, Logistics, AVA, Vacations and Loyalty are key driver to the growth and margin expansion. These are all structural features that we will continue to boost our profitability into the future. On Slide 4, I want to show you a perspective going back to 2019 pre-COVID. We've overcome a large number of challenges and the key message here is that even with these challenges, Azul has continued to produce earnings growth and margin expansion. Let's take a look at Q3 for as an example. In the quarter, our revenue was 69% higher than the third quarter of '19. Our EBITDA was 77% higher and our EBITDA margin was 1.4 percentage points better. All this, with a currency that is 40% devalued and fuel prices that are 73% higher. That is how strong and resilient this business is. This is our ability to grow profitably, to create and expand our competitive advantages. Everything we do is focused on making Azul stronger for the long-term from our fleet, our network, our business units, and our capital structure. I'm amazed with what we have accomplished so far and even more excited about the future. With that, I'll pass the word over to John. John?

Thanks, David. I would also like to thank our crew members for all of their hard work during the quarter. What David said is just incredible. With the efforts of our crew members, Azul's revenue is now 69% larger than 2019. On Slide 5, you can see that we set several records this quarter. Our revenue was an all-time record of BRL5.1 billion. Our RASK was BRL42.87 a record. We generated an all-time record revenue -- record of over BRL1 billion of operating income in the quarter with an all-time record of BRL1.7 billion of EBITDA. As David mentioned, our ability to expand margins compared to 2019 in spite of the currency and fuel headwinds is a clear demonstration of the strength and competitive advantages of our business. On Slide 6, you can see the recovery in capacity and unit revenue compared to the second quarter, which was impacted by the severe floods in Rio Grande do Sul. As we mentioned on our last call, we're starting to see signs of recovery in bookings and revenue. And now you can see clearly that we are back on a normal revenue trajectory with RASK up 12% over second quarter. I'm also happy to report that the Porto Alegre airport, which was closed since the first week of May, was partially reopened on October 21st. This is a very positive sign as these customers can now access the full potential of Azul's network. Just to be clear, our third quarter had no contribution from Porto Alegre as the main airport remained closed until October. Looking ahead to our peak summer season, we see a positive combination of overall demand and industry discipline, which gives us confidence in continued strong revenue performance going forward. On Slide 7, you can see the early results of our Elevate program, which was described in some detail last quarter. Elevate is a new way of thinking for the entire organization in terms of processes, in terms of priorities, in technology and this new thinking is already giving us some early results. Let me give you a few examples. If you look back to our second quarter results, you will see that we had almost 15,800 full time crew members. This quarter, we have 15,500 and that is with a 10% increase in capacity quarter-over-quarter. As a result, the airline now is 11% more efficient compared to just last quarter. In addition to staffing, we're laser focused on a wide range of initiatives from purchasing to logistics, to fuel, all of which will drive CASK improvement going forward. We already have the lowest cost in the region, even with a more diverse fleet and lower average seat count, and this will only get better over the next few years. Turning to Slide 8, we highlight our performance over the previous quarters. Even with the headwinds in fuel and currency, we expanded both operating and EBITDA margins compared to last year. This clearly shows that over the medium and long-term, our business model is 100% able to recapture and recover the negative effects of macro changes. The competitive advantages inherent in our business model allow us to be resilient, robust airline over time and over varying macroeconomic conditions. On Slide 9, we show our cash evolution in the quarter. We generated BRL1.7 billion in EBITDA and we amortized more than BRL100 million of debt in the quarter, which led us to a flat liquidity position at the end of the third quarter. Keep in mind, we paid around BRL600 million of interest expense this quarter. This is going to be very important as we talk about the outcome of our transaction we announced with our bondholders as we will significantly decrease our interest expense and therefore improve cash generation going forward. On Slide 10, I want to show you that we're firmly back on our earnings growth trajectory. 2024 will be our biggest year ever in terms of revenue, EBIT and EBITDA. As we look across the board at our passengers, logistics, vacations and loyalty businesses, we can confidently say that the demand for Azul's products and services has never been higher. Our outlook for 2025 with a projected record EBITDA of BRL7.4 billion is even brighter. As we said in the beginning of the call, we wanted to first talk about the strong third quarter. Now we want to talk about the results of our negotiations with our partners. Setting the stage on Slide 11, it's important to remind everyone of the challenges we faced in 2024. Starting with the devaluation of the currency now at BRL5.8 to the dollar, an 18% devaluation since the beginning of the year and almost 50% weaker since 2019. We had the devastating floods in the South of Brazil, which impacted 10% of our domestic revenue in one of the highest margin markets. As David mentioned, we continue to face challenges with OEMs when including the impact of delivery delays, early engine removals, delays in spare parts and logistics, the effect on our network and cash generation is significant over BRL1 billion this year alone. Finally, as we've discussed before, as the currency devalued, the local capital markets froze, further restricting our ability to raise local capital. As you can see on Slide 12, in response to these challenges, we strengthened the partnerships with our major stakeholders. First, we reached an agreement with our lessor and OEM partners on the equity structure, the results of which we announced on October 7 and which eliminated the obligation at a significantly lower dilution than projected and there was no cash outflow. Second, we strengthened our partnership with existing bondholders, raising new capital, creating a significantly improved cash flow and reduced leverage for our airline. The initial results were announced on October 28, and I will talk more about that shortly. Finally, the Brazilian government also contributed signing a bill into law that allows FNAC, the National Civil Aviation Fund, to fund loans to Brazilian Airlines. These developments together with increasing strength of our business provide a solid footing for Azul to continue to grow into the future. Turning to Slide 13, I want to get into the details of the transaction that we announced over the past several weeks and most importantly, how positive this is for Azul and our partners. This process is comprised of several steps. The first step was the agreement with our lessors on the equity instrument, which addressed pandemic era lease deferrals and reductions. As we've already announced, we have agreed to settle BRL3.1 billion in obligations with our lessors and OEMs for 100 million preferred shares of Azul. This is a strong vote of confidence from the leasing community in the future of Azul and their desire to increase their commitment to us. In fact, as they have done in the past, this year's lessors continue to deliver aircraft to us, four A330s, two A321s, four E2s, even while we were in active negotiations. Clearly, they have a strong belief in the future of Azul. Step two is the agreement with the existing bondholders for new funding via a super priority note. We initially announced this agreement on October 28, whereby Azul bondholders have agreed to inject up to $500 million in fresh capital into the company. Funding is coming in steps with $150 million already received, $250 million to come upon the completion of documentation and a final $100 million based on a collaborative initiative to generate cash flow savings of $100 million per year, which I'll talk about next. And finally, Step three, as we discussed our plans with our bondholders, they challenged us to look at a much larger opportunity here to fundamentally strengthen Azul's balance sheet and increase cash generation. They committed to increase the new money to $500 million and equitized $800 million in secured loans. This would in turn create $100 million in annual cash flow savings from reduced interest expense. The condition to unlock this, which will fundamentally improve Azul's financial strength is to realize another $100 million in cash flow improvements per year from '25, '26 and '27. We therefore embarked upon a joint effort with the bondholders to identify these improvements and meet this condition. I realize this is a lot of information and we will show you what this means for our financials next. But let me summarize. We structured a comprehensive transaction together with our partners to eliminate over $1.5 billion of debt from our balance sheet and this process improve our annual cash flow by another $200 million. Put this all together, with our projected EBITDA growth for 2025, you can see how this plan is so transformative for our business. Slide 14 is what I'm really excited to show you. This is the result that gets us so optimistic about our future. I know it took a lot of slides to get here, but it's really important to set the stage and describe the various steps for us to be able to get this result. Let's highlight the important numbers on the table above. First, the lessor equity. You can see in the adjustments column that this value is being eliminated, the BRL2. 3 billion from our balance sheet, which is the present value of BRL$3.1 billion in obligations I talked about earlier. Second is the total debt. This is a very significant reduction of BRL2.2 billion in the equitization of the $800 million second lien notes, together with the new capital of $500 million coming in. Third, we have another BRL800 million in additional concessions from lessors and OEMs related to the 2030 notes. Putting it all together, you can see the result. A net BRL5.4 billion reduction in debt and a 1.4 turn improvement in leverage from 4.8 today if adding the lessors and OEMs equity instrument to a pro forma 3.4 when considering the last 12 months EBITDA of BRL5.6 billion. As I stated earlier, we're going to do 6 billion this year and 7.4 billion next year. Now you can clearly see why this is such an important opportunity and why we had to take advantage of it. Resetting Azul's balance sheet to 3.4 from 4.8 today is extremely powerful. This resets our credit rating, puts us in a completely different category of airlines globally. Azul is already one of the highest margin airlines in the world, but we had a challenged balance sheet. With this transaction, we're now placing Azul back on the list of the strongest, most resilient, profitable airlines in the world. Slide 15 demonstrates a significant leverage reduction from this transaction, but it's important to also highlight the component parts of this leverage. Since we are an airline that primarily leases our aircraft, our main asset by which we generate our revenue and EBITDA, the majority of our leverage is related to our aircraft leases. After this transaction, our leverage from loans and financing will only be 1.4 times. On slide 16, we highlight the benefit from the agreement with our partners to leading to a significant reduction in gross debt through equitization envisioned by this transaction. The gross debt and leverage reduction together with the cash flow savings and EBITDA generation puts us in a very confident position from which to service this debt. This truly makes Azul a robust, resilient airline for the future. A key element of this plan is to improve cash generation via a reduction in interest expense. If you recall back on Slide 9, I asked you to remember the BRL600 million we paid in interest expense in the third quarter alone and how this is such a large drag on cash generation. Well, now thanks to this plan, we're able to reduce our interest expense by nearly BRL1 billion per year, as you can see on Slide 17. This reduction translates directly to cash generation, which then leads to a consistent, virtuous cycle for liquidity and deleveraging. This is a structural improvement that fundamentally strengthens us for the years to come. On slide 18, we present our 2025 EBITDA and cash flow guidance. Thanks to our strong EBITDA generation of BRL7.4 billion combined with the significantly reduced interest expense, our guidance is for free cash flow to firm of BRL1 billion for the year. And now we will become an airline that will consistently generate cash. And this is including all of the challenges from higher fuel, which is 70% higher and a currency which is almost 50% higher than it was in 2019. This is a result of all the work I just described. The lessor instrument converting to Azul shares, the improvements in operating cash flow, the EBITDA generation, the reduction in interest expense and the reduction in leverage. All of this combines to produce positive free cash flow to firm in 2025 and beyond, truly making Azul a much stronger company. Finally, turning to Slide 19. To conclude my comments, we're incredibly excited about our future. As I showed you before, Azul is already one of the most profitable airlines in the world. And now with this work and our capital structure, we're making ourselves one of the most resilient as well. In addition to these incredible results, the best is still to come. We still have significant fleet transformation ahead of us with more E2s to be delivered in 2025. Our business units continue to be high growth, high margin businesses. Our Elevate way of thinking is already producing unit cost reduction with more opportunities in front of us. Combining all of this with our exclusive network and a unique fleet flexibility lead us to be incredibly excited and optimistic about the future. With that, David, Alex, Abhi, and I are available to take your questions.

Ladies and gentlemen, thank you. We will now begin the Q&A session. [Operator Instructions] Let's go to our first question. Our first question will come from Andre Ferreira, sell-side analyst, Bradesco BB. Andre, we will open your microphone, so that you can ask your question. Please proceed.

Hi. Good morning. Thank you for taking my question and congrats on the results. I wanted to ask about two points here. So first if you could update us on the expected deliveries for the widebodies for by year-end and for 2025, if there are any delays? Same for the E2s, how many are left this year and for the next year as well? And if you're, I mean, you already commented a bit on the delays, but when should those aircraft come in? And second point about the 2025 guidance. I just wanted to know how much capacity growth is assumed in those numbers? Thank you.

Hey, Andre. Abhi here, I can answer that. On the widebodies, we got four widebodies this year. So we are in good shape for now. The next set of widebodies is our next Neos, the next order of the Neos, the A330s Neos, which are scheduled for fourth quarter of next year, probably late next year. So this year we had four widebodies already delivered, already in service. On the E2s, we have 10 deliveries this year. A little bit of delay, I would say, maybe 30, 45 days delayed, but still okay. And then for next year, we're assuming between 12 and 15 E2s, maybe some of them slip into January '26. So in that range of E2s. So our growth, as you probably know is going to be very much focused on the E2s, which is an upgauging strategy from the E1s, significantly lower trip cost, significantly lower fuel burn for 18 extra seats. So we're very excited about that aircraft. So 10 E2s this year and maybe 12 to 15 next year. In terms of capacity growth, we're looking at roughly about 10% next year capacity growth. It's going to be lower than that on the domestic side, and it's going to be higher than that on the international side because of the four widebodies we received this year, halfway through the year, they will come full circle next year. So I would say high-single-digits domestic and then the rest of it will be mostly the growth will be on the international side, thanks to the widebodies.

Perfect. Thank you.

Thank you. The next question now will come from Michael Linenberg, sell-side analyst, Deutsche Bank. Michael, we will open your microphone, so that you can ask your question. Please proceed.

Mike?

Hey, good morning, can you hear me okay?

Yes. Hey, Mike.

Okay. Great. Two questions here. So first, when we look at the $807 million of debt that's going to be equitized, it looks like three different phases there. And then it looks like the three phases represent 47.5% of the principal. And then there's another 52.5% that I think is tied to a note that becomes an exchangeable. Can you give us a sense because I think you indicated in the release that there were term sheets on the Investor Relations site, and I didn't see them yet. But give us a sense of maybe the underlying shares tied to that $807 million.

Yes. So, Mike, just to kind of walk through what the transaction does, okay? Most likely this will all close by the first quarter. We're hoping in the January timeframe. That's what we're looking at right now. We're actively working with these partners. Obviously, there's dilution here but this is a significantly stronger company going forward. And so it's going to be based on what the share price is at the time. And so we feel very good about it. And in addition to taking the debt off the balance sheet, this is now a company that will cash flow on a go-forward basis, right. And so we are going to be measuring free cash flow every year going forward and not just valuing Azul based on EBITDA. And so we'll walk through the details. But you're right, it happens in a couple of different phases, right. An initial part happens right away at 10% that turns to equity, then the second chunk and then the rest of it is a convert that hopefully will get converted through maybe by the end of 2025 is what our expectation is based on the value of Azul at that time.

Great. And I should be clear that it is a real deleveraging moment and I should offer congratulations on the amount of heavy lifting that you guys accomplished. So I want to make that on the record. Just one quick follow-up on the widebodies to Abhi. As I recall last quarter, I thought we were going to see some widebodies come later this year and some got pushed into the early part of 2025. And now it seems like you're not going to be getting anything until late in 2025. Has there been a change or a shifting in the order book? Thanks for taking my questions.

Yes. So, Mike, we actually got widebodies from the secondary market actually. So we received two Neos from the used market. We received two Ceos from the used market as well ex-Condor. Those are currently flying all those four. We were looking at two other Neos as well that were used to enter maybe 1Q, 2Q of next year. But we think we're better off not taking those right now and going directly to our order with Airbus, which is going to be in the December timeframe of next year.

And Mike there's just challenges with the engines worldwide right now and that's not exclusive to narrow-bodies. It's also a challenge we're seeing on the widebodies as well. And so that's why it was important for us to kind of lockdown these used aircraft this year, but then we'll be taking aircraft in our spec on a go-forward basis.

Great. Thanks, everyone.

Thank you. The next question comes from Savi Syth, sell-side analyst, Raymond James. Savi, we will open your microphone, so that you can ask your question. Please proceed.

Thanks. Good afternoon, everyone. Can I clarify on the 2025 guide, if that reflects the completion of everything that you're working on today and the current kind of FX environment which has become a little bit more challenging. And along those lines, maybe, Abhi, just if you could talk about the demand environment today and like what you're seeing on the pricing front, both in the leisure and corporate side of things?

Hey, Savi, it's Alex here. On the 2025 guidance, so for example, EBITDA essentially doesn't depend right on the transaction. It's a firm 7.4% in our estimation. As we usually do, the big unknowns here are FX and oil. For oil, we always use the Bloomberg forward curve. We essentially look at heating oil, which tracks very nicely to jet fuel, but it's a much more liquid derivative. So we like using HOA instead of jet fuel. And we essentially just use the forward curve to project next year. On FX, we normally use the Focus survey with some adjustments when you have strong movements because there is a little bit of a lag for the Focus survey to kind of reflect current market conditions. So right now, for example, when the spot price is much higher than what the Focus survey is projecting, we also adjust the Focus survey a little bit up, right. So we're a little bit higher than what the Focus survey has for 2025 FX. But normally, we use Bloomberg and the Central Bank Focus survey to project oil and FX. Now when we're talking about leverage and interest expense and cash generation, yes, the projections assume that we complete Stage 3 and we're confident that we will be successful.

And I just want to highlight on that before I pass it to Abhi. Savi, our partners are excited about this. When we go to our lessors, our OEMs and they say, wait a second, I can be inside of a delevered to Azul. And all we have to do is everybody contributes a little bit, helps cash flow generation over the next couple of years. And it's across all of our partners, our lessors, our OEMs, all of our suppliers. And we sat there and say, hey, we have the opportunity to take leverage down by 1.5 turns overnight, right. That is a powerful thing and people have been with us along this journey for many years and everybody is really excited about that. So I think the $100 million a year in '25, '26 and '27, we are very confident that will happen. And I think we're going to kind of announce to the market that we completed that prior to year-end.

Hey, Savi, on the demand side, we're not assuming anything too different from what we're seeing right now. If you just look at the second half this year and you take that as an exit rate, that already puts us at the $7.2 million EBITDA number, $3.6 billion is second half exit rate. So the international network is just what we're flying right now. But instead of flying basically four months this year or five months this year, it's going to fly 12 months next year. So that's not going to be anything too different. And on the domestic side, it's going to be E2s taking up E1 markets well within our own network. So we're not really asking for anything too different. I'm overall pretty happy with the way demand is looking. We've seen good recovery August, September, October, November, each month being ahead of the month before. And actually, if you remember, 1Q of this year, which we're now looking at the booking curves for next year, we actually flew some pretty low load factors. We flew 73 in February, low 70s in March as well. So we're actually quite ahead of our booking curves right now when we look at first quarter on a good fare base. I think the industry overall has done a good job of keeping pace with the way dollar is moving, with the way fuel is moving, trying to make sure that the fares are keeping pace. I think the industry has shown good discipline. And finally, our business units. If you notice third quarter just 76% of our unit revenue came from the passenger business. Our vacations business unit revenue was up 30%. Our loyalty business, unit revenue was up 30%. Our charters business unit revenue was up like 90%. And so we made a strategic decision to diversify our revenue base. And so that's really going to give us a lot of benefits as we go forward here. And these businesses keep growing and they keep diversifying. So I'm pretty confident overall about how next year is looking right now.

That's all very helpful. I appreciate it. And I recognize those two questions. But if I might clarify, Alex, the supplier, the agreements you're working with the suppliers and your partners, is that all related to financing and nothing that flows through then EBITDA?

You mean on the target for $100 million of cash flow improvements?

Exactly.

There's both. There are things that will help the P&L. There are things that shift or postpone payments, but it's essentially $100 million cash flow target.

Got it. Appreciate it. Thank you.

Thank you. The following question now comes from Ian Snyder, sell-side analyst, JPMorgan. Ian, we will open your microphone, so that you can ask your question. Please proceed.

Thanks all. Just one for me here. A couple of other questions were answered. But just hoping you can quantify what percent of the cash impact from the FX devaluation was offset by the higher fares in this quarter and then what we should expect from fares in 4Q and 2025?

Yeah, hey, So we're expecting a steady improvement 3Q over 4Q. 4Q seasonality is better than 3Q. We are heading into our peak summer. We have been able to recover the effect of FX and fuel 100% over the long-term. A quarter to a quarter, it takes a little bit longer. Maybe we were 60%, 80% right now. We can check the number. But we feel pretty good about the trends going forward with fares, with booking trends. And you can already see the 12% improvement in flown RASK from 2Q to 3Q. So it will continue the normal seasonality curve that we've been seeing over the last several years.

But I think there's other two points that I just want to highlight. First of all, the fourth quarter now has Porto Alegre in it. We did not have that in the third quarter and that's very important to us. And the other is the industry needs higher fares. It's just a fact, right. When you have a 20% devaluation of your currency, the industry as a whole needs higher fares. The industry as a whole is dealing with the OEM challenges. And so how do you combat the macro situation that we're in? You need to dilute your fixed cost with more capacity and you need higher fares. And I think everybody is in that same boat. I think as you look at everybody in the industry, they're fighting over engines, they're fighting over deliveries. And so I think the industry is very disciplined right now, which is a positive thing.

Great. That's very helpful. And that's it for me. Appreciate the time and congratulations on the holistic deleveraging.

Thanks, Ian.

Okay. So the next question will now come from Rogerio Araujo, sell-side analyst, Bank of America. Rogerio, we will open your microphone, so that you can ask your question. Please proceed.

Hi, guys. Can you hear me?

Yes.

Okay, great. Yeah, thanks for the opportunity. I have one question on two cost lines that caught our attention. The first one is on salaries. There was a drop year-over-year. You mentioned in the release that you dismissed 1.5% of the employees despite continuing to expand operations. So the question is if this is sustainable, if you're going to hire new employees again, what to expect for this line in the upcoming quarters? And the second one is on the other expenses line, which came slightly below BRL400 million. It was a 26% drop year-over-year. And it actually came back to pre-COVID levels. It's about 7.5% of revenue. It was almost 10% in the previous year. So should we expect this to go back to pre-COVID levels already in upcoming quarters? Can we see that as sustainable? Thank you.

Sure. So on salaries, we need to be more productive, right, and we will be. The fleet transformation enables us to be more productive. There was growth that we had prepared for and didn't come because of Porto Alegre, because of OEM issues. So we fully expect to be more productive than we are today going forward. So if you look at our $7.4 billion EBITDA for '25, I think, it includes essentially the productivity levels that we're seeing today with a little bit more improvement from Elevate from fleet transformation. We just need to be constantly more efficient throughout the whole organization. And beyond the fleet transformation, there are many ways to do it, right, through processes, through automation, by just being better every day and the idea of having a program and a packaging of the Elevate plan behind it is to rally 15,500 crew members to all push in the same direction and be every day more and more productive. So we believe that the current productivity that we have is sustainable and we can actually improve upon that. On the other expense that is a catch-all line, which has a number of items. We periodically look at it to see if it makes sense for us to break it up. But I think the biggest item within this expense is IT with roughly like BRL40 million or BRL50 million. So it is a big bucket of other expenses. And some of them are dollar denominated, some of them are not, some are fixed, some are variable. So it is a bit more difficult to forecast. But the BRL7.4 billion EBITDA, I think, has a quarterly rate that is higher than the number you're seeing there, a little bit because of exchange, a little bit because of growth.

Perfect. Very clear. Thanks very much.

Thank you. This ends our Q&A session for today. I will now turn to John for final remarks.

Well, thanks, everybody, for joining us today. We're very excited about where we are. You're looking at a delevered Azul going forward, a company that will start to generate cash in 2025 and beyond. And we'll be on the road speaking to many of you. We're going to have Azul Day, I think, the first week of December. So we'll have the opportunity to spend time with each of you and kind of go through all of the positive aspects that we've been able to put together. And feel free to reach out to any of us if you have any questions.

Thank you. This concludes the Azul's audio conference call for today. Thank you very much for your participation and have a good day.

Hello, everyone, and welcome all to Azul's Second Quarter Earnings Call. My name is, Zach, and I will be your operator for today. This event is being recorded and all participants will be in listen-only mode, until we conduct a Q&A session following the Company's presentation. [Operator Instructions] I would like to turn the presentation over to Thais Haberli, Head of Investor Relations. Please, Thais, proceed.

Thank you, Zach, and welcome all to Azul's second quarter earnings call. The results that we announced this morning, the outlook of this call and the slides that we reference are available on our IR website. Presented today will be John Rodgerson, CEO; David Neeleman, Azul's Founder and Chairman; Abhi Shah, the President of Azul; and Alex Malfitani, our CFO. Before I turn the call over to John, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the Company's future plans, objectives and expected performance constitute forward-looking statements. These statements are based on a range of assumptions that the Company believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in our CVM and SEC filings. Also, during the course of the call, we will discuss non-IFRS performance measures, which should not be considered in isolation. With that, I will turn the call over to John.

Thanks, Thais. Welcome everyone and thanks for joining us for our second quarter earnings call. First, I would like to express our solidarity with the families, loved ones and the crew members affected by the aviation tragedy that occurred in Brazil on Friday. Aviation safety is number one in everything that we do and as an industry, we always come together in times of need. We offer them our condolences and support and our prayers during this very difficult time. I would also like to thank our crew members for all their hard work during the second quarter. Our strong culture was essential as we successfully navigated a challenging combination of seasonality, fleet, high fuel and currency devaluation combined with the devastating floods in the south of Brazil, all of which made this an especially difficult quarter. I'm incredibly proud of our entire team for how quickly we adapted to the changing conditions, implemented initiatives and delivered what I think is an industry-leading result. On Slide 3, we summarized the results for the quarter. Our revenue was BRL4.2 billion with a RASK of 0.32. Unit costs reduced 1.8% even with fuel prices up compared to last year and the devaluation of the Brazilian real against the dollar. Most importantly, our EBITDA was BRL1.1 billion and our EBIT was BRL441 million, representing a margin of 25.2% and 10.6%, respectively. As I look around the world, even with all the challenges we face, this is a strong result. The key was our ability to adapt and this is something we will talk a lot more about in this presentation. Moving to Slide 4, I wanted to provide an update and context on what happened in here Rio Grande do Sul, and how it impacted our results. As we mentioned on our last call, the State of Rio Grande do Sul was impacted in early May by severe flooding. We were deeply saddened by the loss of lives, displacement of people and widespread destruction in the region. Once again, our crew members and our clients stepped up, contributing over 3,000 tons in donations, which we delivered quickly to those who needed them most. The main airport in Porto Alegre remains closed. The good news, however, is that it will now partially reopen on October 21st. Last Friday, we opened sales to that airport and we will be the largest airline again with 60 daily operations, almost 80% of our capacity pre floods. For those who don't know, Rio Grande do Sul is the fourth largest state in Brazil in terms of economic activity and represented over 10% of our total capacity. The relevance to us is equivalent to the relevance of Los Angeles for a major US airline. As a result, we estimate that the reduction in our capacity in that region negatively impacted our second quarter results by at least BRL200 million, and had an even bigger impact to cash when including the impact to ATL and the loss of forward bookings. On Slide 5, you can see the rapid devaluation of the Brazilian real in 2024. End of period exchange rate in the second quarter devalued 12% versus the first quarter, while at the same time, fuel prices increased 2.4%. The combination of these negative effects required us to rapidly adapt during the quarter. For example, we quickly redeployed the capacity from Porto Alegre to other cities in our network. While we were forced to sell this capacity quickly at a lower quality than we would have liked, we still were able to mitigate part of the EBITDA impact. Turning to Slide 6. Our business units were very instrumental in our ability to adapt. We are extremely proud of the performance of our business units, which accounted for more than 20% of our RASK and over 30% of our EBITDA. Azul Fidelity batch, our loyalty program delivered strong results with all-time records in members, gross billings and active credit card sales, highlighting our customers' preference in Azul. Azul Viagens, our vacations packaging business grew 63% in gross bookings in the second quarter versus second quarter 2023. Our logistics business grew 12% quarter-over-quarter. In total, Azul's revenue was 60% above 2019 levels on an airline that is roughly 35% larger. Looking ahead to the rest of the year, we are very encouraged by the normalization of demand and capacity and the favorable seasonality with positive bookings and average fares plus additional revenue initiatives we are putting in place. To give you further details, I will now turn it over to Abhi.

Thanks, John. Let me start by talking about recent trends in bookings because as we all know, good bookings will always lead to good flown revenue. As you can see on Slide 7, we are seeing significantly improved average fares since the beginning of the quarter and even better since the bottom in mid-May. The closure of Porto Alegre had three major impacts to our revenue. First, a demand shock where 10% was immediately lost, not just to the routes to and from Porto Alegre, but also the network contribution from the largest city in the fourth largest state in Brazil. We also believe that the damage caused by the flood affected demand throughout the system, further deepening the weak seasonality in 2Q. Finally, we have to rapidly reallocate this capacity in the months of May and June to other parts of our network and sell this capacity quickly with little advance notice. As John already mentioned, this resulted in lower-quality revenue but still mitigated a good part of the EBITDA impact. On Slide 8, you can see the tangible positive results from the improving fare and demand environment. Comparing 2Q RASK to what we just flew in July, RASK has improved a very strong 15%. On a year-over-year basis while 2Q was down 5% in RASK, July was actually up 5% versus last year. This clearly indicates that the demand environment is improving faster than seasonality and the market is showing signs of of strength. The July trend continues in August and beyond as we see stronger booking curves for the rest of the year. These booking curves are supported by the strong economic indicators here in Brazil. Contrary to what some are seeing in the US where there are some signs of reduced consumer demand, Brazil indicators like GDP, unemployment are strong and this gives us further confidence as we look to demand for the second half of the year. Moving to Slide 9, I want to talk about our international network and the challenges we faced during the quarter. As we migrated from the exit of the A350s earlier this year, our plan was to add six A330 aircraft as replacements. This transition resulted in a temporary reduction in our 2Q network. Due to the global fleet challenges, aircraft we had planned to enter into service in 2Q were moved to 3Q. As a result, we had to significantly cancel down almost half as you can see our international long-haul flights. This created a large volume of customers we had to re-accommodate on our own flights blocking those seats for sale. This had a big impact on our bookings and our flown unit revenue as we were not able to sell those closer in higher yielding fares. The very good news is that we are now beyond those effects and looking ahead, we see a 50% growth in our international long-haul capacity. This will have a very significant positive impact in bookings and fares. Finally, on Slide 10, I wanted to show a longer-term view that demonstrates the resiliency in our business and our ability to recapture cost increases fund unfavorable macro drivers. As David will explain later on, this is all because we are true to our model as we have grown over the years. A good part of our expenses and financing is dollar-denominated, and that creates some uncertainty with the Brazilian real devalues. Given our financial structure, a 5% increase in the dollar requires only a 3% increase in fares to offset the impact on expenses and cash. But looking all the way back 2018, while the dollar has increased about 5% a year, our average fares have increased much more than the required 3%. They grew at a CAGR of 8%. And this has happened even as Azul has doubled in capacity. The point here is to show that 100% of our revenue can be thought of in dollars because we have the ability to overcome the effects of currency. It does take some time to realize the effects of this revenue recapture, and during that time, you will see some negative impact. But over the long term, we are able to expand our margins, continue to grow and offset these effects. As John mentioned in his opening, the key to this quarter and our long-term success has been our ability to adapt. The recent challenges have encouraged us to do so again. And so now I would like to turn over to David, who can talk about his vision on how Azul continues its growth trajectory. David?

Thank you, Abhi. First to someone who has been in the industry for 40 years and part of six airlines, I am deeply saddened by the tragic events of Friday. My heart and prayers go to the families and crew members. And of course, we will do everything we can to provide support during this difficult time. As we went through the quarter and realized that the new exchange rate -- realities of the new exchange rate, it became clear to me that Azul once again had to adapt, something we have done incredibly well as we have navigated the last 15 years. Slide 10 gives you a summary of just how much the environment has changed throughout the years yet how consistent our growth in revenue and earnings have been. We launched Azul 15 years ago with a single fleet type, aiming to serve regional destinations in Brazil. We soon realized that the opportunity was much larger and we expanded that strategy via fleet diversification, a merger and our expansion into international travel. At the same time, we diversified our business with high growth and high yield -- high margin business units like loyalty, vacations and logistics. Most recently, our response to the pandemic and our capitalization -- our capital optimization plan was another clear example of our ability to evolve and adapt. From a real of BRL1.67 to the dollar, to almost BRL6 to the dollar, from a fuel price of BRL2 per liter to BRL5 per liter, and we can count at least six major evolutions in our business. And the bottom line is, through it all, we have continued to grow and to be more profitable. Turning to Slide 12, you can see the core elements of our resiliency and growth. Our network is a foundation of our structural and long-term competitive advantages. We continue to be the only carrier in 84% of our routes. This is a direct result of our fleet flexibility, where we put the right aircraft on the right market at the right time. We have more than doubled in size over the past several years, always staying true to our business model. Our business units, as I mentioned, have played a critical role empowering our growth, while our team has done an incredible job of maintaining the special culture and passion amongst our more than 15,000 crew members. Our history shows a clear and key to trend of evolution and improvement. Building upon the successful completion of our capital optimization plan last year, the team was able to turn focus 100% back to the business. To maintain this, once we realized the external factors affecting Q2, I challenged the team to an annual target of more than $1 billion in incremental value. As we show on Slide 13, the team developed and started implementing a plan which we named Elevate with multiple opportunities across revenue, cost, fleet and financing that once again allows Azul to continue to adapt and thrive for many years to come. With that, I want to turn the call over to Alex to give more details on our Elevate plan.

Thanks, David. As David said, the Elevate plan we are announcing today is a natural extension of the work we did last year to optimize our capital structure. As we said then, we're now able to focus 100% on our business, and the Elevate plan galvanizes that focus across the entire company. I'm really excited about this opportunity and at the early results we are seeing. Slide 14 illustrates some of the multiple opportunities we are already working on the revenue side. A main one, of course, is the co-chair with Gol. We're now jointly selling about 150 origins and destinations that connect the two networks. These connections provide increased options and convenience to all of our customers. We started selling the co-chair in July, so only in the beginning, but we're very happy with the early results and I want to thank our partners Gol. Ancillary revenues are another area of growth and focus. For the month of July, we hit a record in ancillary revenues with a 17% increase in revenue per passenger versus July '23. I especially want to thank our airport crew members who are selling double what they sold a year ago. Our business units continue to be a key driver of revenue expansion. On the loyalty side, direct point sales to our customers, enabled by our credit card, our club and our buy points product are now our largest source of revenue, providing dependable recurring cash flows. On the vacation side, we are creatively using idle capacity available off-peak not only on weekends but also on weekdays to provide expanded customer choice and flexibility. This was one of the reasons that our vacation business grew more than 60% in the quarter. Finally, as Abhi mentioned, the recovery and growth in our international network is a key driver of earnings and cash generation going forward. On Slide 15, turning to the cost side, we see some really exciting opportunities in fleet, utilization, efficiency, productivity and purchasing. These will all allow us to reduce costs, utilize our resources more effectively and generate more cash. Let me share some examples in the next slides. On Slide 16, I want to highlight one of the key initiatives to further expand margins this year, our aircraft utilization. We were already increasing utilization across the operation but in late June we decided to make a structural change by implementing a reduction in ground times across our network. Such a reduction of between 5 minutes and 15 minutes for every aircraft turn allows aircraft to be in the air longer, generating more capacity and therefore improving earnings. The team immediately jumped to the task and developed a series of operational process changes that allowed us to safely implement this ground time reduction and most importantly, maintain the quality of our operation. This new network is already operating and I want to really thank the entire Azul team for their incredible work. So far this month we have a 99.2 completion factor with an on time performance of 87.2%, the best in Brazil. On Slide 17 you can see another great example of opportunities on the fleet side which is our move from E1s into E2s. Now we ended 2Q with approximately 83% of our capacity coming from next-generation aircraft, considerably higher than any competitor in the region. This is extremely beneficial as E2 is a much more profitable aircraft that flies more hours per day with much lower seat costs. In July, for example, our E2s flew an average of almost 12 hours per day. Plus the E2 has 18 more seats and delivers 18% lower fuel burn in total than the E1, leading to a 26% reduction in cost per seat. As we expect to receive another 15 E2s over the next 18 months, this difference in utilization and seat costs will significantly drive earnings growth. But we want to further expense this advantage and we have made the decision to reduce utilization of the E1s and increase utilization of E2s by prioritizing the E2 as the scheduled aircraft type and use E1s as a spare, leveraging the commonalities across the two models but increasing profitability and also reducing CapEx, significantly improving cash. I also want to show how our focus on efficiency and productivity has yielded significant results already. On Slide 18, you can see that just within a period of four months, we are 17% more efficient at airports and the Company overall is generating 16% more ASKs per FTE. These levels of productivity will improve further as we continue our growth into the seasonally stronger Q3 and Q4. Summarizing these actions on Slide 19, compared to 2Q '23, CASK ex fuel reduced almost 3%, mainly driven by our cost reduction initiatives and productivity gains. We made a promise to you that we would emerge from the pandemic as a more efficient airline, and that is exactly what we're doing. These are just some examples. As part of our Elevate plan, we have a list of over 40 initiatives spread across the entire airline and this plan will be our number one priority for the entire Company as we move forward. Putting all of this together on Slide 20, you can see how throughout the years, our EBITDA trajectory has exhibited strong and consistent growth, obviously, excluding the pandemic. For 2024, we expect an EBITDA of over BRL6 billion, a 17% increase from 2023, and once again an all-time record for the airline. To wrap up on Slide 21, I couldn't be prouder of being a part of Azul. We're running an incredible operation. Our customers love to fly us and our crew members love to work for us. As David noted, we have adapted and evolved many times over the years, but have remained true to our essence. Everything we do is to build a stronger Azul and to expand our competitive advantages, benefiting all of our multiple stakeholders. Our Elevate plan is another step in this direction. We're truly excited by the opportunities ahead of us. With that, we're all available to answer your questions. So I'll turn the call over to the operator for Q&A.

Ladies and gentlemen, thank you. We will now begin the Q&A session. [Operator Instructions] Our first question comes from [Fernandez Hekas] (ph) sell-side analyst from BTG. Fernando, we will open your audio so that you can ask your question. Please proceed.

Thank you and good morning, everyone. Thank you for taking my questions. Two from our side. The first, I would like to get an update on the debt conversion terms. If I'm not mistaken, the lockup period for the debt conversion expires now in Q3. So maybe if you could comment a little bit how are you thinking to tackle the 3 million shares that are expected to vested by the lessors? And we know that there is a difference between the strike price and the current price that the stock is so maybe, guys, if you could comment what are the alternatives that you're thinking of, or if you're thinking on using cash to close this gap. This is my first one. And the second regarding the supply chain issues that led for the guidance downward revision in terms of ASM. Could you update us on the latest fleet plan that you have for this year and the next? If I'm not mistaken, you were expecting to finish -- sorry, to receive around 12 E2 and around two Airbus A320. What is the latest? And if you could comment on next year, how are you thinking on the aircraft deliveries? That's it from my side. Thank you.

Thanks, Fernandez. This is Alex. I'll talk about what we call the lessor equity structure. Just to remind everyone first on the call what that is, right? So this is essentially COVID deferrals that our lessors agreed to transform into essentially what's interest-free debt, where Azul has the option of paying in cash or equity, and then if there are shifting conditions that it may not be a good idea to pay in cash or equity, we always have the ability to talk to our lessors and negotiate new terms. And that's essentially what we're doing. We're in bilateral conversations with our lessors and we always like to remind everyone also of the relationship that we have with our lessors, right? Lessors are partners who have a very long-term relationship with the airline and they look at a very long-term horizon. And for them to maximize their economic value, obviously, what they need a thriving business, right? So we always are able to kind of come up with a construct that works for us but also works for them. Obviously, they have their own constraints as well, but they were able to -- we were able to count on their support last year and we know that we can count on their support going forward as well. So we are in these bilateral conversations with our lessors, and as we reach new terms with them we'll update you all. But as you've seen, we have not issued shares and so we are having these conversations and we'll update you over time.

And again, as Alex said, they're partners -- they're partners in this business and they've seen what's happened. I don't think anybody expected the exchange rate to devalue 12% inside of a quarter. I've been here for 15 years, we've never seen that. And so as all partners do, you sit down at the table and we work through it and figure out what's the best path forward. As for the fleet projections and the OEM delays, I'll pass it over to Abhi.

Thanks, John. Yes. Hi, Fernandez. So I'll start with the A320s. We've already received the A320s we were going to for the year. So Airbus has delivered for this year. On the widebodies, as we said, our plan was six A330s. Two are already in the fleet. We expect two more in September, and then we expect the final two between December and January in that timeframe. As you said, the focus is on the E2s for this year and for the next couple of years. Actually, we are working very, very closely with Embraer. The number is moving around a little bit. For example, in September, we have two deliveries, and then down the road every month, August and beyond. So I would say we're working with them. It is moving around a little bit to the right as well. This is one of the impacts for this year, you will see some deliveries in December, for example, which will help us next year. So overall, I would say around 15 to 18 between now and the end of next year.

I think it's also important. A lot of the OEM deliveries are back-end loaded so that actually impacts leverage at the end of the year as well as kind of what's happening with the exchange rate. But on average, they've been shifting 30 to 45 days to the right.

Perfect. Thank you very much for your answers.

Thank you. The next question now comes from Savi Syth, Raymond James, sell-side analyst from Raymond James. Savi, we're going to open your audio so that you can ask your question. Please proceed.

All right. Thank you. Good morning, everyone. I was curious from my first question on the flooding and the BRL200 million impact in the second quarter. Was that net of redirecting of capacity? What I'm trying to do is I'm trying to understand what kind of drag we should be modeling here until it kind of opens back up in the fourth quarter.

Yes, Savi, that was net, and also it doesn't really include the fact that we had to sell the other capacities so quickly, which contributed to the reduction in year-over-year RASK as well. So certainly, as we move forward now that we have a little bit more time, you can already see how much July improved. August, September and October when the capacity comes back, we certainly expect to be back to normalized RASK, and actually, I expect a positive year-over-year RASK in 3Q as well. So we're certainly getting back to normal, but it was just something we had to sell very, very quickly. So we were able to use our assets. So the back half of May in the month of June.

We actually believe operating at Porto Alegre and being the largest airline will be a benefit to us going forward, as there's enormous amount of economic activity projected in the city to rebuild it. And so right now there's about seven flights a day into a military base in Porto Alegre when previously there was 120 flights a day at the airport. So there's just not people traveling in that region right now.

That's super helpful. And if I might on the -- just to follow up on the previous kind of fleet question. Is there no kind of A320 deliveries next year, and just along the lines of fleet, I think that was kind of an agreement with BNDES on financing. I was curious how that financing looks, and I'm guessing that's for the E2s.

Yes. So we're not planning A320 deliveries next year. They've been pushed off for 2026 and beyond. And actually, now it's mostly A321s to be honest, which we're very excited about that aircraft. not the LR XLR, just the domestic ones, which are doing very well. But the next two years, really the focus is going to be on the E2s. But at the back half of this year and the next 18 months, the focus is going to be on the E2s.

Yes. And the BNDS financing is kind of standard ECA financing that's available to Embraer customers. The terms are set by the aircraft sector understanding. So they're pretty standard and we have approval for up to 10 aircraft, and we've decided to take two for now. The majority of the E2s that we expect to take delivery off should be operating leases and will not provide additional cash outflows. And these two also, the reason why we took them is because we were able to structure in a way that also didn't provide cash outflows, even though they're financial leases as opposed to operating leases. But all of these delivers between now and end of 2025 you don't have to expect any cash outflows for the deliveries.

Helpful. Thank you.

The next question comes now from Alberto Valerio, a sell-side analyst at UBS. Alberto, we will open your microphone so that you can ask your question. Please proceed.

Hi, Alex, John, thank you for taking my questions. I'm interested to know about the five deliveries that you have quarter, whether you have an intention to make the sales visit back on this aircraft. So I think was two A320s and two A330s and one Embraer. And also about the announcement of the government last week that would provide financing from BNDES to the airlines. I think they made a condition to -- on Embraer, and I know you guys are right on. My only question is if you have to order further more issues from Embraer, and when this finance would arrive to you guys. Thank you.

So the deliveries, they are operating leases, right, so no sale-leasebacks would apply here. And the BNDES financing, like I said, it's kind of a financing for the order that we already have.

Yes. But what you're referencing is the FNAC financing that was already approved by the Senate. Expectation is it gets approved by the House. And so Mercadante who is the President of the BNDS has referenced that this is something that we expect to be approved in the third quarter and probably dispersed in the fourth quarter. So this is exciting. So this should be less expensive debt that the government is providing. There will be some things that we need to do. We need to add growth. Obviously, they're very anxious for Embraer, but we already have enough Embraer aircraft in our backlog to kind of makeup for those conditions. But I think you're going to hear a lot more about the FNAC financial financing in the next couple of weeks, which is a very positive thing for the sector overall.

Perfect. Thank you very much, Alex and John.

Thank you. The next question now comes from Gabriel Rezende, a sell-side analyst from Itau. Gabriel, we will open your microphone so that you can ask your question. Please proceed.

Hello. Can you guys hear me?

Yes.

Perfect. Good morning, David, John, Alex, Abhi and Thais. Two questions on our side as well. Just to confirm the chart, you show it on Slide 7 on the tariffs increasing week-by-week. Can you confirm that the increase we have seen so far that you just showed us is enough to deliver your current guidance? Are you considering that you need to make additional increases? I mean, obviously, considering the seasonality that we've seen in the fourth quarter, but should this trend continue in order for you to deliver the guidance, or could it be stable again just by the seasonality for you to be able to deliver? So that's the first question. And the second question. We saw a much lower maintenance expense booked in the quarter. You mentioned some insourcing and some cost-cutting initiatives, and we did see a higher personal expense in the quarter. But I would just like to understand what is the additional upside that we could have on these, on this maintenance line looking forward to put into our model. Thank you.

Yes. Hi, Gabriel. Look, on the demand and fare side, we're pretty happy with the trends that we're seeing right now. The key is to maintain that as we go through the quarter and the second half of the year. Seasonality is going to help. It is a period of better corporate demand. It is a period of better close-in demand. And so the situation is pretty good in terms of the level of the fares. What is key now is that you have to maintain this level so that you can continue to build the booking curves every single month as we go forward. What was difficult in the second quarter, especially after Porto Alegre and the chart shows that is the dip that happened in May, and then we had to take time to recover from that dip. There should be no reason for that to happen now in the second half of the year given strong seasonality, given the strong economic indicators. So the fare levels where they are, are good fare levels. The key is for the industry overall to maintain those levels as we go through the second half of the year. So if we're able to do that, then I do believe we can produce very good unit revenues overall.

And I just want to add, codeshare exists in the third quarter. It didn't exist in the second quarter. The ancillary revenue that Alex was talking about being up 17% year-over-year, that exists in the third quarter, wasn't there in the second quarter. And the story around Elevate as a company is, it's really a cost story, right? As Alex kind of walked through increased utilization, being more efficient as an airline, kind of going through all of the initiatives that we have so I think one thing that's being lost in the second quarter, it was a great cost quarter as we focused ourselves on the business, negotiating with the OEMs, negotiating with our suppliers across the board, and really driving better cost results. And so Abhi needs to do his job, and Alex needs to consider to take costs out of the business on a go-forward basis.

Yes. And on the maintenance side, also to remind everyone we have a maintenance line as part of operating expenses. That's mainly line maintenance. So some of that, obviously is driven by our own internal work where the initiatives that John mentioned can really provide a positive impact, and some of it is driven by capacity. So because this is mainly line maintenance, there is a correlation between this line and capacity, right? On the CapEx side, I think that's where you can see really big numbers because then we're talking about numbers that are in BRL1 billion plus a year in terms of maintenance CapEx, and where a lot of our initiatives that we mentioned in terms of utilizing aircraft more efficiently or using the next generation aircraft more than the ones, that's where you can see a lot of the benefit coming from the Elevate plan.

That's very clear. Thank you.

Okay. Moving on to the next question comes from Guilherme Mendes, a sell-side analyst from JPMorgan. Guilherme, we will open your microphone so that you can ask a question. Please, go ahead.

Hey, good morning, everyone. John, David, Abhi, Alex, and Thais, thanks for taking my question. I have first a follow-up on the fares discussion. So pretty impressive how the industry has been able to increase fares, and Abhi, you mentioned about you expect to maintain such levels. And back to the exercise of a 5% depreciation leading to a 3% price increase, how you guys see elasticity going forward? Meaning how much more you think you can increase prices without necessarily impacting demand? And the second question, it's a follow-up on the Elevate plan. If you can help us quantify the potential benefits of it in 2024 or into 2025, or in other words, if something is included on the BRL6 billion guidance for this year. Thank you.

Yes. Thanks. So, like I said, we saw July year-over-year RASK already positive year-over-year, and that was really just the first month of getting back to normal booking levels post Porto Alegre. Our job is to continue to test the market. We think that the fares that the industry has now, we probably would not have anticipated sort of pre-pandemic, but as we showed on the slide in dollar terms, our fares have actually gone up about 8% every single year. So it's a matter of testing the market. I feel pretty good about overall industry discipline. I'm seeing the industry disciplined in terms of actions, in terms of network actions. And so I don't see any reason why there's a limitation. We're going to keep testing it, and I think the strong economic activity in Brazil, the second half seasonality are going to be very supportive of us maintaining these fair levels.

As for the Elevate plan, I just want to remind you we had a 12% devaluation of our currency and 10% of our network knocked offline, and so we have less ASKs in the plan, but yet we're still going to deliver above BRL6 billion of EBITDA. So Elevate helps us get there, but we -- as you go forward into 2025, that's when you should get an incremental $1 billion of EBITDA. And that's making the assumption that the exchange rate remains devalued. But these structural changes we're making to the business will be permanent. The things like we're doing on the revenue side with ancillary, code share, all of the -- they will be permanent changes. On the cost side, they will be permanent changes as well. And so we're shifting and adapting, but it's -- part of the Elevate is in the BRL6 billion, but there's a lot more as we roll forward into 2025.

Yes. And think about the ramp-up, right? Some of these initiatives were things that we were talking about, we were looking at, but we decided to accelerate. Some of them are brand new. But overall, all of the initiatives are going to have much less than a full year's worth of contribution to 2024, but then they should have a full year's worth of contribution for 2025, right? And so the BRL6 billion kind of includes the ramp-up that we're going to do this year. We haven't provided guidance on 2025 yet, but in terms of what the initiatives should contribute, you should have a full billion reals of contribution from the initiatives being available to us for a full year.

Super clear. Thank you all.

Okay. Moving on to the next question. Next questions come from Victor Mizusaki, a sell-side analyst at Bradesco. Victor, we will open your microphone so that you can ask your question. Please proceed.

Hi. Two questions here. The first one, if you look at Slide 9, you basically show the kind of a guidance for international traffic growth in the second half. So my question here is, if you can comment how this international traffic will impact the demand for domestic travel giving our hub and spoke model. And the second one, if you can give any updates on the negotiations with Embraer? Thank you.

Yes. Hi, Victor. On the international, the truth is it actually helps our domestic because it allows us to sell seats that we didn't have. So the second quarter, if somebody wanted to go from Curitiba to Fort Lauderdale, chances are they would not find a seat on Azul. And now we're starting to see that availability come up. Recife and Belo Horizonte, we actually went to zero flights to the US for about a six-week period, and that affects the demand domestically in those regions in the Northeast and the Belo Horizonte regions. And having Porto Alegre back in October, it's a big driver of international demand as well. So actually, international was blocking demand on the domestic side as well. So having those seats available, given the strength of our network, it's going to help international and it also helps domestic. John?

As we've stated, as has Abra, yes, we are in active discussions. I think you'll get news about that in the not-too-distant future. We have to respect the process that Gol has today in their bankruptcy. But we'll update the market at the appropriate time.

Thank you.

Okay. Moving on to the next question comes from Joao Frizo, sell-side analyst at Goldman Sachs. Joao, we will open your microphone so that you can ask your question. Please go ahead.

Hey, good morning, everyone. Thanks for taking my question. I have two quick ones. The first one is on CapEx. You guys mentioned that you expect over BRL1 billion in CapEx on maintenance only so I just wanted to get a sense on the CapEx. On the back end of this year, if we should expect the same run rates as we saw in the first half, and for 2025, how should we think about it? And then following on cash generation, how should -- we also think about this on the second half of the year, right? It's a seasonally stronger semester. So just wanted to get your view on this as well. Thank you very much.

Thanks, Jerome. Now, just to clarify, what I mean is, within CapEx, you're talking about orders of magnitude of billions of reals on spend per year. We did not provide guidance on what the maintenance CapEx is going to be or what the impact of Elevate on maintenance CapEx is going to be, right? But that is where the opportunity is, right? There is some maintenance that flows through the operating expense, but as you see, it was kind of less than BRL200 million this quarter. When you're talking about maintenance CapEx, then you're talking about a bigger number. And that's, I think, where we think Elevate can really provide help because our line maintenance is not going to reduce dramatically. We could always be more productive, more efficient, right, works more intelligently. But when you decide to fly E2s more often, which are newer aircraft and you decide to reduce the utilization on E1s, that is primarily going to help maintenance CapEx as opposed to maintenance OpEx. On the maintenance CapEx or CapEx as a whole, if you remember we also had announced a while ago that we now have access to a maintenance CapEx line from kind of guaranteed by sovereign risk. We have not drawn upon that facility yet, right? That is about $200 million of capital that's available to us. And so this year, when you look at the CapEx that happened in the beginning of the year, there was no benefit from this line yet, but that benefit should be available to us going forward. So it'll reduce the cash CapEx in the third and the fourth quarter.

Exactly.

And yes, when you think about -- if you take a look at Bloomberg consensus, that breaks it down quarterly, what the market expects us to generate in the first half, what the market expects us to generate in the second half, there's a big difference, right? And so that translates to a better cash performance also accordingly because a lot of the cash generation comes from the EBITDA production.

Thank you very much, guys. Super clear.

Thank you. The next question now comes from Michael Linenberg, a sell-side analyst from Deutsche Bank. Michael, we will open your microphone so that you may ask your question. Please go ahead.

Yes. Hey, good morning, guys. You can hear me, right?

Yes.

Great. Hey, just a question here on your immediate liquidity of BRL2.5 billion, one, does that include that guaranteed maintenance CapEx line? And as we think through the year, what is the target liquidity level for you as we go into 2025? And as I think about Elevate, how that's going to contribute on the EBITDA side? Is that $1 billion of EBITDA? I know that's a P&L impact, but should we think of that as also a cash impact as well? Is it one-to-one, or is there other elements of that? And then I have a follow-up.

Sure. So the immediate liquidity does not include a deadline, right? That is just essentially cash plus receivables, as we normally provide. And the main part of that is that the majority of the receivables are credit card receivables, which have not any cardholder risk, right, and are very easy to advance and transform into cash. So it does not include that guaranteed maintenance line that's available to us. In terms of target liquidity, as we grow, right, we expect to want to increase our liquidity. We like to have something between 10% and 20% of last 12 months revenues in cash. Where we're going to end between that 10% and 20%? Some of it depends on seasonality, some of it depends on the cost of capital, right, but we can comfortably operate within those ranges.

Okay.

And in terms of Elevate, the BRL1 billion, Mike, sorry.

Sorry.

So there are a lot of initiatives in Elevate that provide a benefit beyond the P&L. They're not included in the BRL1 billion. The BRL1 billion, I think, is more, on a recurrent basis what you can expect once these initiatives are all ramped up, what they incrementally contribute to what Azul kind of steady state would be. But we are -- some of the initiatives in Elevate also include some cash benefit, especially in 2024.

Hey, Mike, I just want to highlight one other thing, too, before you go on to your next question. Obviously, when 10% of the network is offline, impacts ATL. When international is offline, impacts ATL as well. Those are two things that come back to us in the third and into the fourth quarter, where we will have those sales going forward from both those two major events. I mean, it's not often that an airline is impacted so severely by those two big impacts.

No, good point. Thanks, John. And then as we -- can you just sort of remind us about what sort of stake, if any, in TAP? I'm only bringing it up because it now seems like that there is going to be something that happens there, maybe sooner rather than later, and I know there was some restructuring around that. But as I recall, I still thought you had some claim there, some value there. Can you just remind us what you have left with respect to TAP Air Portugal?

Yes. Thanks, Mike. They owe us, I think at current -- currently, they owe us around EUR150 million to EUR165 million, right? And where they are today is, it's widely reported that they're in a privatization process, and our expectation is that, that privatization process can't really go forward until we settle this issue. And so there are discussions happening as we speak, and our expectation is that, that could be a source of liquidity for us this year.

Great. No, no, that's good to hear. And John, can I squeeze in just one more as it relates to the codeshare? The fact that a few weeks back, maybe it was three, four weeks ago, we did get the headline from the regulators, the competition authorities that they were going to examine or look into. Is that just -- that's a formality, right? That's a perfunctory process. They have to do it. We shouldn't read into that. Or whatever you can say to that process would be great. Thanks for taking my questions.

Yes. Hi. Yes, Mike. Yes. Look, we are in constant communication with the regulator about the codeshare. We're talking to them about how we're phasing in the markets. So, yes, I mean, given the scale of the co-chair, it's absolutely expected and not a surprise that they ask some questions, do some analysis, and we're constantly in communication with them. No restrictions. We're selling it and we continue to be in our plans. So, yes, it's part of their analysis, but it's just part of the process, if you will.

Hey, Mike. But what they're specifically looking at is, should there been a pre-notification to the antitrust authorities before the codeshare went into place, out of respect, went there jointly and told them, but we didn't do an exact filing, nor did we do that when we were with LATAM in a codeshare -- a similar code share. And so this is part of the process. We respect their process. We responded to it, I believe, roughly 10 days ago. And so we hope to get a resolution on that in the next couple of days.

Great. Thanks, everyone.

Thank you.

Thank you. The next question now will come from [indiscernible] a sell-side analyst from J.P. Morgan. Yans, we're going to open your microphone so that you can ask your question. Please proceed.

Great. Thanks a lot and thanks for taking my question. In our perspective, I think maintaining good liquidity is very important to Azul given the cash needs in the next two years and the environment that we're in. Can you help us better understand the main drivers of the working capital build we saw this quarter? What were you able to accomplish in this quarter regarding working capital that helped with the build and offset any sort of impact that would have resulted in a cash burn? And then what can we expect for the second half of this year, including any progress on working capital initiatives you're working on?

Yes. So we agree, right, liquidity is very important, and -- but as we've demonstrated, we will always have the necessary liquidity because it's essentially a good business, right? When you made reference to in terms of the build for this quarter, a lot of that is seasonality that we start selling the higher capacity and higher demand in the second half of the year. But that mainly happened in July, right? But as we demonstrated in the past also the operation generates a lot of cash. It's a good business and it only becomes stronger and stronger. The question is, where does that cash go? And that cash goes essentially to our partners, right? It goes to lessors, it goes to suppliers, and it goes mainly to interest on our debt, as we don't have any relevant debt amortizations over the next few years. So the question of how to manage liquidity goes back to what we talked about the partnership, right? Since all of that cash that we're generating goes to our partners, some of the liquidity management that we did last year, for example, was with the support and with bilateral amicable conversations with our partners. So that is always going to be some back and forth and some ebb and flow in those numbers. But the important part is going forward in terms of seasonality, the majority of that help, which, again, goes to the split between the EBITDA generation in the first half versus the EBITDA generation in the second half. You see a lot of positive trends from seasonality, from higher capacity, from new aircraft coming in, and then the elimination of all those headwinds that we saw, especially into Q, right, like the lack of ability to sell Porto Alegre, the lower capacity in international. I think that's the major, I think, shift that you can see in liquidity and working capital will come from there.

I just want to highlight a couple of other things, right? Mike Linenberg mentioned the tap-on source of liquidity. I mentioned FNAC has already passed the Senate, should pass the House this week. That's anywhere from $200 million to $300 million of incremental liquidity that can come into the business. We mentioned the GE line that we haven't tapped into yet. We have an unencumbered cargo business, right? So these are access to capital, right? But again, as Alex said, the core business needs to continue to operate well. And I think you can see that even in the extremely challenging second quarter that we just got through, we had pretty good numbers overall. When 10% of your network is knocked offline, you're not selling international in a 12% devaluation of the currency. So the core business of Azul is strong, and even with that, we still have access to other sources of capital.

Great. Thanks. And if I could ask one more follow-up, and I do tend to agree on liquidity being better than I expected given the unforeseen circumstances of the quarter, as well as the seasonality. But you touched on -- we already touched on the National Aviation Fund, as well as the lessor equity instrument, what you're trying to do with bilateral negotiations. Can you touch a little bit about the cargo business? What you think you could do there? Where you would potentially look to raise financing? And where that could be pledged if you ultimately look to go that route?

Sure. That was part of our capital optimization plan. You always need to demonstrate. I think that gives a lot of comfort to all of our stakeholders that we have the ability to access capital if we need to, right? Because obviously, when we did the capital optimization plan last year, we couldn't go to our lessors and our suppliers and say, hey, give me enough working capital and deferrals so I can face a 10% knockout of my capacity, right? That would never fly with them. So they provided the support that we all combined, jointly expected was needed and sufficient at that time. But obviously, we're working with an exchange rate of [$560] (ph). We weren't working with some of these kind of events that occurred. And so we wanted to have a rainy day fund and so we were deliberate in creating that rainy day fund by kind of preparing the structure to potentially use our Azul cargo business as collateral, the same way that we used our -- essentially our loyalty and vacation business. So it's a very similar structure that we already set up that collateral is available. We have used it for kind of short-term things, very small things that in an eventual capital raise would go away. But at the time, I think we talked about a debt capacity in the hundreds of millions of dollars that was available to us. Now, that's not what we would need to raise, but that's what would be available to us. I think when you look at the documentation of that facility, it allows us to raise first debt capacity of $800 million. So obviously, we wouldn't need anywhere near that amount, but it's always good to have that capacity out there because it provides comfort to everybody that is providing credit to us all. And then on top of that, as you mentioned, there are these other potential sources of liquidity that we all talked about already.

Great. Thanks. That's it for me. Appreciate the answers.

Thank you. Moving on to the next question then. Next question will come from Gabriel [indiscernible] sell-side analyst from Bank of America. Gabriel, will you open your microphone so that you may ask your question? Please go ahead.

Good morning, gentlemen. Thanks for the opportunity. I have a question on the equity instrument solstice. Apart from the FX translation, we noted a [$287] (ph) million increase in these accounts in a line that you call the transfers. Could you kindly give us some idea on what was this increase related to?

It should be FX, basically, right? There's no interest accrual on the facility, and it's essentially a debt. In terms of accounting, it is recognized as debt so it should be FX. If you're not kind of able to reconcile it, we can take this question offline.

Okay. Thanks, Alex.

Okay. Moving on to the next question coming from Dan McKenzie, a sell-side analyst, Seaport Global. Dan, we will open your microphone so that you may ask your question. Please go ahead. Yes. Unmute, Dan.

Okay, there we go. Hopefully, you can hear me okay. Hey, just a couple of questions here. Thanks for the time. Just given the change in the macro, how is that impacting your outlook for 2025 growth at this point, and potentially also its composition? And I guess I hear you on improved utilization. I'm just trying to reconcile longer-term growth with macro instability and of course, Elevate the self-help initiatives that you guys are implementing.

Hey, Dan, on a percentage basis, the number moves around because this year we're flying less than what we actually would have liked to. So in some sense that pushes up the percentage for next year. But obviously what's important is kind of the absolute level of flying that we want. We still want the E2s. As Alex said, they really work very well for us given the fuel burn economics, given the fact that we're able to fly much higher utilizations on the E2s then -- and we're going to be reducing utilization on the E1. So that we'll have to really sit down with Embraer and see what's possible for next year. The international is just coming full circle of what we're going to finish this year. Two additional wide bodies will have an impact next year. So you can kind of model that as well. So on a percentage basis, a lot of it is going to be influenced by kind of the impacts from Porto Alegre of this year and from the international reduction of this year. But our focus is on the E2s for next year, reducing E1 utilization, increasing E2s. And again, 84% of our routes have no nonstop competition, and that's as we have grown over the years. David mentioned this. So we continue to be very true to our network. Even as we grow, that's not going to change, and we focus on where we're strong.

Dan, I think everybody's focused on the exchange rate, but if you look at the other macro indicators in Brazil, unemployment is going down, GDP is going up. And I think what's a testament to that is that Abhi was able to have increased RASK in July year-over-year 5% with Porto Alegre still offline, right? And so, that's a big indicator that the Brazilian economy is actually in a different direction than what you're seeing in the US right now.

Yes. Given that economic growth, can you elaborate a little bit on how that's rippling through to the corporate side of the story, just in terms of either accounts or share of the wallet that you're getting domestically?

Yes. No, we feel pretty good about the corporate market, Dan. If you look at the latest results from Abra Corp, which is the association of Brazilian corporate travel Agencies, we have about a 33% revenue market share from corporate overall, which is much higher than our fair market share if you look at our capacity in the domestic market. So we are overachieving in the corporate market. One reason is our expanded presence in Congonhas since last year, where we doubled our network, and one reason is where we're strong in the Midwest and the agro market of Brazil, which is doing very well right now given exports and things like that. So you can go online and check out the Abra Corp information. It's public. We have about a 33% revenue share, which is well above our fair share in the market.

Great. If I could squeeze one last one in here. Just given the conversations with Abra, I'm wondering if you could just help us understand the flexibility with United and that international codeshare if things potentially move around here, or the potential to add a stronger US partner at some point.

We think United is a great strong US partner, but what you're talking about is something much bigger. And I think the US carriers pale in comparison to what combining two Brazilian networks and the strength of that could do, Dan. And so I think that that's a phase two and not a phase one in the discussions.

Understood.

But just technically speaking, there is no exclusivity in place anymore.

Yes. Thanks for the time, you guys.

Thank you.

Thank you. This now closes the Q&A session for today. I would like to turn the floor to John for final considerations.

Great. Thanks, everybody. And we'll be available to talk to you on an individual basis over the coming days, and we appreciate your support, and we look forward to talking to you.

Thank you. This concludes the Azul's audio conference call for today. Thank you very much for your participation and have a good day.

Hello, everyone, and welcome all to Azul's first quarter earning call. My name is Zach, and I will be your operator for today. This event is being recorded. [Operator Instructions] I would like to turn the presentation over to Thais Haberli, Head of Investor Relations. Please proceed, Thais.

Thank you, Zach, and welcome all to Azul's first quarter earnings call. The results that we announced this morning, the audio of this call, and the slides that we reference are available on our IR website. Presenting today will be David Neeleman, Azul's Founder and Chairman; and John Rodgerson, CEO. Alex Malfitani, our CFO; and Abhi Shah, the President of Azul are also here for the Q&A session. Before I turn the call over to David, I would like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives, and expected performance, constitute forward-looking statements. These statements are based on a range of assumptions that the company believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in our CVM and SEC filings. Also, during the course of the call, we will discuss non-IFRS performance measures, which should not be considered in isolation. With that, I will turn the call over to David. Dave?

Thanks, Thais. Welcome, everyone, and thanks for joining us for our first quarter 2024 earnings call. First of all, I wish to express my solidarity with the people of Rio Grande do Sul, during this very difficult time. We are deeply saddened by the loss of lives, the displacement of people, and the widespread destruction caused by severe flooding in that region. On a personal note, my family has deep connections to that region. My father has done business there for decades. My daughter served a mission for our church there and we have many, many dear friends. Azul crew members from all over the country have put their heart and soul into relief efforts, donating time, money and supplies, while at the same time running the day-to-day operation. I've always stated that we have the best crew members in the world, and they are once again proving it. I cannot thank them enough for their passion, and their dedication. We've already received more than 1,300 tons of supplies in donations, and the challenge now is to swiftly get these supplies to those who need them. With that in mind, we have created, together with Itau Bank, a fund to enable as many dedicated flights, and truck shipments as possible. I want to especially thank Milton Maluhy, the CEO of Itau, for his partnership and support in these efforts. During our earnings -- turning to our earnings presentation, I want to remind you of the fundamentals of our business. Our exclusive network, diverse business units combined with a growing, efficient, and flexible fleet are key drivers to another record quarter of results. One clear example of this is the fact that we continue to be the only carrier in 82% of our routes. Many thought that as we grew, we would have to encounter more competition, but in fact, the opposite has happened. We stayed true to our strategy, we grew within our network and by doing that, the percentage of routes, that we are the only carrier of, has actually increased. On Slide 5, we show 1 great example of this effect, our focus city, Belem in the North of Brazil. In the past, if a customer from the north of Brazil wanted to fly to another destination in the north, they first needed to fly south, the so-called V route, adding hours and sometimes more than a day to their journey. We saw that as an incredible opportunity to connect all of the north of Brazil via Belem. Since 2019, only in Belem, we are up 70% in departures. Out of the 23 destinations served, we have competition on only 5 of them. This is just another of the many examples around the country, of how we've been able to grow by finding and developing new demand. We are confident Brazil still has a lot more room to grow, and Azul will continue to explore that opportunity. On Slide 6, we summarize Azul's ecosystem of business, which has powered our growth and diversified our strategy. In Q1, our core businesses of loyalty, vacations, and cargo once again had solid results. For example, gross billings of our loyalty program increased 31% versus the first quarter of 2023, and our vacations business increased gross billings by 75% year-over-year, thanks to strong demand in leisure markets supported by our dedicated vacations network. Even with all this growth in the Brazilian market since we founded Azul in 2008, Brazilians still travel significantly less than countries such as Colombia, Chile, or Mexico. So imagine the opportunities we have to grow even more in these businesses. In addition, we continue to ramp up our maintenance unit, Azul TecOps, our overhaul and maintenance unit. We have seen accelerated growth in our charter unit, Azul OnDemand as well. These fast-growing, high-margin businesses strengthen our leverage in our business model, and are a major factor in driving margin expansion. I am proud to see the great strength of our company. Once again, we are reporting record results and margin growth. We are doing all we can to help the people of Rio Grande do Sul, at the same time are laser focused on our business, and our path through 2024 and beyond. With that, I will now turn the time over to John, to give you more details on our record first quarter results. John?

Thanks, David. First, as David said, our heart goes out to all the people affected by the devastating floods in Rio Grande do Sul. I've been in contact with dozens of our crew members, and we're doing all we can to support them during this difficult time. I'm so proud of all of our crew members for their incredible volunteer efforts, which are deeply appreciated by the people in the South. The culture and sense of family at Azul are stronger than ever. One question I'm sure you all have is, when do we expect the Porto Alegre airport to reopen? The answer is, we do not know yet and of course, ANAC -- report are monitoring this difficult situation and we will determine when the airport can be reopened safely. In the meantime, we're working with authorities to allow a limited number of commercial flights into the neighboring Canoas air base. This will allow the industry to reconnect the region to the Brazilian airline network, enabling critical movement of people and supplies. We will keep you updated as the situation develops. Focusing now on our results. As you can see on Slide 7, we once again had a record quarter. Our operating revenue increased 4.5% to BRL 4.7 billion, driven by a healthy demand environment, robust ancillary revenues, and growth in our business units. RASK and PRASK stood at record levels for our first quarter, demonstrating the strength -- of our business model. Capacity for the quarter grew 2.6%, supported by a 6% growth in domestic market, offset by a temporary reduction in our international network, due to a transition in our widebody fleet. EBITDA reached BRL 1.4 billion, a record for a first quarter and an increase of 37.4% compared to first quarter 2023. Our EBITDA margin of 30.3% was also a first quarter record, and one of the highest in the world. It clearly confirms our ability to grow, and extend margins at the same time. As David mentioned, as we grow, we get stronger and more profitable. On Slide 8, you can see the continued evolution of our EBITDA. Since first quarter 2019, our EBITDA has more than doubled as the company has grown, but now our EBITDA margin has reached a record as well, to more than 30%. This is especially remarkable given the fact that both currency, and fuel are much more challenging today than they were in 2019. So even with these headwinds, we were able to grow and expand margins, demonstrating once again the strength of our business. On Slide 9, I want to highlight 1 of our key initiatives, to further expand margins this year and beyond, aircraft utilization. We have significantly increased aircraft utilization compared to last year, supported by strong demand throughout our businesses. For example, our vacations business alone has doubled its dedicated route network. These flights allow us to increase utilization at non-peak times, while at the same bringing us a whole new segment of demand. These are opportunities that we continue to develop, and we're extremely excited with the progress we are making. Looking ahead to the rest of 2024, I want to talk about a key driver of our growth and EBITDA expansion, our E2 deliveries. As you can see on Slide 10, we significant -- we will significantly increase the rate of E2 deliveries this year with 13 new Embraer E2s. To remind you, the E2 has 18 more seats and delivers 18% lower fuel burn, compared to the E1. This means we get a 26% reduction in our cost per seat. In summary, with this aircraft, we can have more revenue and lower cost, compared to the first-gen E1s that we're flying today. Today we have 20 E2s flying, but by the end of 2025, that number will more than double. Slide 11 shows how relevant the E2s are becoming. In the next 12 months alone, the flights and capacity flown on E2s will more than double. The economics of the E2 allows us to fly longer stage-length and more hours in a day, and as a result drive significant operational leverage and margin expansion. Azul will be a larger airline as we exit this year. Our broad network and unique connectivity serve as the ideal platform for this profitable growth going forward. Moving on to Slide 12, you can see we have a consistent growth in EBITDA expansion over the last 15 years, only interrupted by the pandemic. But if you exclude that period, you can see that we're back to the earnings growth trajectory that we've always had, and there's more to go. Our 2024 EBITDA of BRL 6.5 billion will be by far our best year ever, and still the best is yet to come. Our strong operational performance, leads to improved cash flow and reduced leverage. On Slide 13, you can see that even in a seasonally weak quarter, from a cash perspective, the operation was able to generate enough cash to pay down aircraft debt, CapEx, and interest. We've also been able to invest in our growth with, for example, pre-delivery payments for upcoming aircraft, which we know will come back when these aircraft are delivered. In the second half of this year, the airline will be about 15% larger than it is today. Combined with favorable demand seasonality, EBITDA will be even higher, while the cash outflows will practically not change, clearly leading to improved free cash flow generation. As we annualize these numbers, you can clearly see that we're on the path to sustained cash generation. As a result, as we show on Slide 14, thanks to significant EBITDA generation in 2024 and continued pay down in debt, our leverage at the end of this year will be around 3, lower than what we had in the fourth quarter of 2019. As we reach this milestone, we will exit 2024 as a truly stronger company than we've ever been. Concluding on Slide 15, our business is doing extremely well with record revenues and EBITDA. Going forward, our continued fleet transformation and increased aircraft utilization, will lead to much higher growth in EBITDA than in lease payments or CapEx. Our interest payments will also reduce as we paydown debt and our cost of capital improves. This leads directly to higher cash generation, which is why we're so excited about the future. More importantly, our customers love to fly us and our crew members love to work with us. We are sharply focused on executing our business plan for 2024 and beyond. With that, David, Alex, Abhi, and I are available to answer your questions. And I turn the call over to the operator.

[Operator Instructions] First question will come from Gabriel Rezende, sell-side analyst, Itau.

It would be great, if you could provide some comments regarding the forward bookings, and the respective yields you are seeing at this point for the coming months, the months that you already have some visibility. Mainly considering that, Azul has been able to maintain yields at a very attractive level, increasing on a year-on-year basis, despite what has been happening with fuel costs, and the [ favorable ] effects on a year-on-year basis as well. So that's my first point. The second point, if you could provide some comments regarding potential supply chain risks that could challenge your expectations for the aircraft to be delivered this year. I understand this might be a key point for your guidance, and expectations regarding fuel savings as well.

Yes. Gabriel. Abhi here. I can take the first part. So overall, we feel pretty good about demand. We are in the middle of second quarter, so there is second quarter seasonality, which is very similar to last year. So I expect similar flown RASKs this second quarter, to last second quarter. But we are seeing really good momentum in terms of future sales. I'll give you some highlights here for the month of April. So, the month of April, for example, we had a 100% recovery in corporate volumes versus pre-pandemic. We had a 40% increase year-over-year in corporate volumes, versus last year and a 40% increase in leisure volumes versus last year as well. So looking ahead to the end of -- middle of June, end of June - July onwards. We feel pretty good about how the curves are building, and how the demand is kind of moving forward. So I would say second quarter seasonality, very similar to last year, but a really good month in terms of forward bookings, like I said, up 40% in the month of April looking ahead. John?

Just quickly, on the supply chain issue that you highlighted, we have a great partner in Embraer. We have a great partner in Airbus, as well as ATR, and we're closely tracking the deliveries this year. And we were assured by our partners that all the deliveries we're supposed to get, will happen on the new schedule. And so, they're more back-end-loaded than we would want. However, that's why we're exiting 2024 a much larger airline, which rolls forward to 2025, that we'll be a much larger airline going into 2025, because of the back-end nature of when the aircraft will deliver. I just want to remind everybody that all of our engines are under power-by-the-hour agreements, which is a strategic advantage at this time in the industry. People that do not have deals locked in with the OEMs, it's a strategic disadvantage and all of our engines are now under a long-term agreement with the OEMs, which means we've got great partnerships, and the ability to grow going forward.

The next question now comes from Victor Mizusaki, sell-side analyst, Bradesco.

Congrats for the quarter. We have 2 questions here. The first 1 is a follow-up with regards to the aircraft deliveries. So John, considering that the deliveries are back-loaded this year, what does this mean in terms of capacity growth for 2025? And my second question is, if you can comment about a potential deal with Gol or the negotiations with Abra?

Yes. Hi, Victor. So the aircraft for this year, I think our guidance for capacity growth was 10% to 11%. There's going to be a little bit of an impact now with the Porto Alegre network. So I think 10% to 11% is a good number for this year. When you then take the aircraft that we are expecting second half and beyond, and you annualize that towards next year, you can expect a slightly higher rate for 2025. We don't have 2025 guidance yet, and of course, we're still closing the fleet plan, but this year between 10% and 11% and a little bit above that for 2025 versus 2024 in terms of overall ASK growth.

And Victor, obviously we can't comment on kind of any of the news reports. The only thing I'll say is, we believe strongly in what Azul is building. We believe strongly in what we have going forward. And we're big fans of consolidation. I think that that's also something that we've been pretty open about for the last 5 years or so. And so, we'll see what happens going forward. There's a process in place, and we're watching very closely, and that's all we can really say.

Okay. So the next question will come now from Savi Syth, sell-side analyst from Raymond James.

Hi, this is [Laura] on for Savi. Our first question is, can you comment on what you're seeing in the domestic market in terms of competitive capacity?

Yes, absolutely. So regarding competitive capacity, we see a pretty mild competitive capacity environment, disciplined. We think overall capacity growth this year, I think, is going to be low single-digits for the industry overall. We're not seeing any large variations from any of the players. So it feels pretty disciplined overall. I think everybody is focused on results. And even the allocation of capacity within the networks, as I've said many times before, I think airlines are focusing where they are strong, and I think that's providing the best results for each one. And I think that's the best for the consumer. I think it's the best for the industry overall. So if you were to model the whole year domestic market, I would say overall capacity growth this year, a little bit -- now Porto Alegre puts that in doubt, but I would say low single-digits.

And I just want to highlight, the OEM issues that exist with engines across all of the engine manufacturers are making it really tough to add capacity in the short term. And Airbus and Boeing having issues delivering aircraft on time, so I think that keeps capacity in check for the foreseeable future as well, which -- that makes for a healthy environment.

And then just 1 more quick one. Do you have any color on cargo demand as well?

Yes. So cargo continues to be sideways, I would say. Internationally, we're not yet seeing a robust -- we're seeing strong demand, but we have not seen a return in cargo yields. International cargo yields are still low, and I think many airlines that have reported so far have already commented on that. Domestically, we are growing, which is good. We see strength in our partnership with e-commerce players like Amazon, for example. Amazon had a press release about Azul a couple of weeks ago. So we're growing with them. So we are growing. I would say growth is going to be in the mid-single-digits this year, which is still a positive scenario compared to many airlines around the world that are still reporting negative cargo revenue growth. So, I would say domestic growing mid-single digits. International, good demand, but yields still soft and we haven't seen -- so, I would say kind of mid-single-digit growth on the cargo side.

Okay. So the next question will now come from Alberto Valerio, sell-side analyst, UBS.

First, I would like to congratulate all Azul team for the initiatives that they are doing in Rio Grande do Sul. I have 2 questions. First 1, it's about the seasonality of the year. Usually, we have a first and second quarter very close one to each other. Last year we have a slightly worse second quarter compared to the first quarter. Would like to see about this year, how this year will be. And my second one is about the cash generation for the year. We -- in the beginning of the year, we are forecasting a 0 cash burn for the year. If you can keep thinking that way, we have a slightly negative numbers for the quarter compared to our numbers. I think it's BRL 200 million difference. I would like to see if you can still keep this cash in the ratio at 0 for the year?

Yes. Hi, Alberto. On the seasonality, yes, this year as well, we will have 2Q slightly below 1Q levels, very similar to last year. And then the rebound in 3Q and 4Q. Last year we had many holidays in 2Q, especially in April. This year we have much fewer holidays, which is good from a bookings perspective. We are seeing significantly higher bookings, especially with the more days available. But we are seeing a more diluted flown revenue environment, just not as peaky, not as many peak days as we had last year. So overall we will have similar seasonality to last year, 2Q slightly below 1Q, and then a rebound in 3Q and 4Q, which is normal for Brazil.

Yes. And Alberto, on the cash, right, we're very excited. I think this is a year where you're starting to see everything that we've built and everything that this strong EBITDA generation can provide. And you can see by the slide that we provided, kind of using the direct method, right. You can see that our EBITDA in a seasonally unfavorable quarter, in terms of cash like Q1, was enough for us to pay everything that we have to pay, right? We generate a lot of cash inflows from the operation, and that's enough for us to pay for all of our rent, to pay for all of the interest, all of the CapEx. Normally, in a seasonally unfavorable quarter, you could even burn a little bit of cash on that basis, right, of free cash flow to firm and still generate cash for the full year, right, especially the way that Abhi talked about the seasonality. He talked about first quarter and second quarter. But also you have to think about how the first half is different from the second half right, right, in terms of when the capacity growth is coming. What is the fuel curve for the year, right? Clearly, fuel is going to be higher in the first and second quarter than it's going to be for the third and fourth. And just the natural demand seasonality that you have during the year, you always have demand accelerating into third quarter and fourth quarter. So, if we're breaking even in a quarter like Q1, we're very excited about what the result is going to be for the full year, right. And we reaffirmed our leverage guidance, right, on -- for the year, right. We will be below the leverage that we had in 2019 in the pre-pandemic, which gives you an estimate for what the cash position is going to be. And that's 2025, right, that we're very excited about -- that's 2024 that we're very excited about. But if you start doing this math for 2025, 2026, the number that we're going to generate this year, which will be a positive number, can increase by about a BRL 1 billion every year after that, right. It's not that we turn positive this year and then stay at those levels. EBITDA generation is going to continue to grow, and as you know, we don't really have a lot of increased fleet costs, right. The CapEx is what it is. The rent goes up, but it doesn't go up as much as EBITDA. It doesn't even go up by as much as capacity, because some of the capacity growth comes from the up-gauging of E1s into E2s and A320s, some of it comes from increased aircraft utilization, as we described, right? So, the revenue growth and the capacity growth is going to outpace growth in rent and so when you do that math, you can see these significant jumps in the cash flow generation year-over-year going forward,

Especially as the airline just gets size with all these E2s that we're talking.

Okay. So the next question will now come from Rogerio Araujo, sell-side analyst, Bank of America.

I have a couple here. One is one-off costs and expenses. The company had been reporting 5%, 7% of revenue in one-off costs in the previous quarters, but now it was 0. And this led to a strong margin gain when taking out this -- when actually including these one-off expenses. My question is, how should we think about it in upcoming quarters? Should it continue to be close to no? And that's the first one. The second is on the 2.6% capacity expansion in the quarter. You talked about a temporary reduction, because of international capacity on this widebody fleet transition. If we could have more detail on that would be great.

Great. Yes, on non-recurrent -- a lot of the non-recurrent that you had been seeing in 2023 was related to the restructuring, right. We were deeply in restructuring mode last year, and that caused restructurings in the fleet, in the lease payment schedule, obviously, a lot of one-time fees to advisors, a lot of fees for new issuances. So going forward, unless there's anything that's actually extraordinary, we do not expect to have anything relevant in terms of one-time adjustments.

And Rogerio, on the capacity growth, yes, so, big impact this quarter from the international widebody fleet. To give you more detail, we had our 2 A350s that were flying. They, as part of their restructuring from last year, were returned to the lessor at the end of January. So they exited the fleet. We have 4 A330s coming to replace them, but due to the transition of the fleet, they are coming now. So one is already flying. It started flying in April. The second one is going to start flying in the first week of June. The third one is going to start flying third week of July and the last one at the end of August. So that's why you have the slow ramp-up in capacity. You have the dip that was February, March, April, and then you have the recovery in international capacity as we go through 2Q, 3Q, and 4Q. So that's on the international side. We basically have 2 widebodies leaving the fleet end of January, and then we have 4 coming in. We also had some heavy maintenance, calendar timing. And then as John mentioned, we have the E2s coming sort of second half of the year. That's going to provide some capacity for this year and then for next year. But that's the detail on the widebody fleet.

Okay. So this closes our Q&A session for this call. We'll move the call over now to John for closing remarks. Please, John.

I appreciate everybody, and look forward to seeing many of you in New York this week. And once again, let's pray for the people in Rio Grande do Sul, very catastrophic what's happened there. And rest assured, Azul is doing all we can to help as we run a fantastic business. We'll continue to grow this business going forward. We feel very strongly about what we've built and we're going to continue expanding margins and generating cash on a going-forward basis. Thanks, everybody.

Okay. Thank you. This concludes the Azul audio conference call for today. Thank you very much for your participation and have a good day.

[Call Starts Abruptly] [Operator Instructions] I would like to turn the presentation over to Thais Haberli, Head of Investor Relations. Please, Thais, proceed.

Thank you, Zack, and welcome all to Azul's fourth quarter earnings call. The results that we announced this morning, the audio of this call and the slides that we reference are available on our IR website. Presented today will be David Neeleman, Azul's Founder and Chairman, and John Rodgerson, CEO. Alex Malfitani, our CFO, and Abhi Shah, the President of Azul, are also here for the Q&A session. Before I turn the call over to David, I'd like to caution you regarding the forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives, and expected performance constitute forward-looking statements. These statements are based on a range of assumptions that the Company believes are reasonable, but I subject to uncertainties and risks that are discussed in detail in our CVM and SEC filings. Also, during the course of the call, we will discuss non-IFRS performance measures, which should not be considered in isolation. With that, I will turn the call over to David. David?

Thank you, Thais. Welcome, everyone, and thank you for joining us for our fourth quarter 2023 earnings call. I'm happy to report that Azul had a record 2023. As you can see on Slide 3, we reported record revenues of almost BRL19 billion for the year with BRL5 billion in a single quarter for the very first time. Record yearly and quarterly RASK and an EBIT of BRL5.2 billion, BRL2 billion above our previous year. 2023 was also transformational, thanks to the conclusion of our capital optimization plan, where we partnered with all of our stakeholders to create a win-win solution that set up Azul for long-term success. And finally, in 2023, we continue to deliver exceptional operational performance by being the second most on time airline in the world. For this, I have to thank our incredible crew members for what they are doing each and every day. They are taking care of our customers and each other. On Slide 4, you can see that our network strength is foundational to our structural and long-term competitive advantages. We continue to be the only carrier in 82% of our routes. This is a direct result of our unique network combined with our fleet flexibility where we put the right aircraft on the right market at the right time. In fact, I remember when we went public, investors would say, as we grew, there would be more overlap. The opposite is the case. We have more than doubled in size over the past several years. Always staying true to our business -- into our business model, we have gotten stronger and stronger. The construction of this unique network strategy together with our fleet transformation, with the A320s and E2s is a critical ingredient to our continued sustainability and profitable growth. On Slide 5, we show a little more detail of how our network strength is so unique. We have always said that our mission is to grow the Brazilian market to serve cities that have never been served before and to provide connectivity and convenience like never before. Let me give you an example. Today, a customer can travel from [Sohizo]s a strong agribusiness market in the Midwest of Brazil. And with one convenient connection, our customer can be in Sao Paulo for a Monday morning meeting. A journey that would otherwise take 26 hours by car, this has never existed before, and it only does because of Azul. This is how we grow the market, and this is how we continue to profitably grow. On Slide 6, I want to show you another example, our Recife Hub. We have long identified Recife as a strong market in the northeast of Brazil. A growing city that has elements of a strong leisure demand with a growing corporate demand in technology and automotive. In 2017, we started to build out our Recife Hub, connecting every major city via nonstop service and then onto the rest of our network. Today, Recife is better served than ever, rivaling cities like Brasilia in terms of departures and even Sao Paulo in terms of destinations served. Today, our entire fleets from the caravans to the A330 fly in and out of Recife, bringing service and connectivity to Brazil and beyond. Recife is also a great example of market discipline where we are focusing on where we are strong and the industry is focusing on where they are strong. This is the type of network development supported by our flexible fleet and allows us to continue growing within our network. Finally, on Slide 7, I'm excited and proud of the partnership we have with the Brazilian Olympic Committee. Azul is unique and uniquely Brazilian. The cities we serve, the warmth and attention you feel when you fly us, and it's all unique to us and reflect the best of Brazil and the best of Brazil. With that spirit, we are so happy to partner with the Brazilian team for the Paris 2024 games. And with that, I'll turn the time over to John who will give you more details on our amazing results.

Thanks, David. I would also like to thank our amazing crew members for everything they do. I've always said we are a people business, and our crew members are our greatest asset. We know that sometimes the operating environment can be challenging, but the fact that we continue to deliver exceptional service and performance is all credit to them. On Slide 8, I want to highlight the big numbers for the fourth quarter. As David mentioned, 2023 was a record year and particularly the fourth quarter. For the first time ever, we did $5 billion in revenue, 60% higher than 2019. We had a record RASK of $45.3, up 6% year-over-year on top of a very strong base and with 7% capacity growth. Fourth quarter EBITDA of $1.5 billion with a 29% EBITDA margin. These are direct results of our competitive advantages and profitable growth strategy. On Slide 9, I want to highlight a really important and strategic shift that has been happening at Azul over the past year. More than 25% of our RASK is now non ticket revenue. This is because of our business units, vacations, loyalty, cargo, ancillary revenue and charter are all growing even faster than the based airline. This is a key diversification strategy that further extends our competitive advantages. This strategy captures customers from all different segments and brings them into the Azul universe from where we can cross-sell across all of our products and services. Even better, business units like vacations and loyalty can grow faster by providing services such as hotels, experiences, shopping, travel on other airlines, products that do not depend exclusively on Azul's growth. This diversification and contribution are a further example of why we are so confident in our profitable growth strategy going forward. It's hard to believe, but the $6 billion in revenue from these business units is almost the same as all of Azul's revenue we went public in 2017. Turning to Slide 10, we show a bridge for 2022 EBITDA to 2023. You could see the BRL2 billion increase David mentioned in EBITDA, with contributions from RASK expansion, network growth, lower fuel and currency and offsetting effects from inflation, increased maintenance expenses and investments in the future that I will discuss shortly. We significantly increased margins, improved revenue performance, grew the airline and therefore produced the best results in our history. On Slide 11, we bridge immediate liquidity from the third quarter to the fourth quarter. You can clearly see the operation generated positive cash flow, which was used to pay down debt and deferrals. Cash flow from operations was significant enough that even after aircraft rent, CapEx, and interest payments, we generated BRL300 million in cash. This clearly shows that our EBITDA directly results in cash flow generation and deleveraging. As a result, as we show on Slide 12, our leverage at the end of last year was down to 3.7, a full two turn improvement since 2022 and in line with our guidance. Even more exciting is that thanks to the significant EBITDA generation in 2024 and the continued pay down in debt, our leverage at the end of this year will be a very solid 3x. This is lower than what we had in the fourth quarter of 2019, when using the same methodology. We told you we would emerge as a stronger company, and we truly are, a remarkable achievement by our team. Transitioning now to the future, the exciting part of Azul. I want to talk about how we're preparing and investing so that we can meet and exceed our updated EBITDA guidance of BRL6.5 billion for 2024 and even higher in the years to come. We realized late last year that we needed to invest in our operational capabilities prepare for this growth. We invested in operational staffing, allowing us to reduce aircraft ground time and increase aircraft utilization. We invested in fleet and engine availability, ensuring we have adequate spare engines. We invested in our maintenance facilities, bringing forward by three years additional heavy maintenance capabilities that we are not dependent on external MRO capacity. Finally, we invested in pilots and flight attendant hiring so we can have the crew trained and ready to go. All of this combined with our next gen deliveries, especially the E2s, this year means that we are ahead of the curve and are more in control in terms of our fleet availability and capacity. On Slide 14, you can already see the results of some of these investments. While aircraft utilization improved in 2023, there are still opportunities to grow it. Looking ahead at our planned network for 2024, reaping the rewards operational investments and reduction in ground time, we can take another significant step to increase aircraft utilization. All fleet types will once again increase aircraft utilization in 2024. These are opportunities that we continue to develop, but we're extremely excited at the progress we're already making in 2024. On Slide 15, we thought it would be important to give you a panorama of our OEM partnerships. For the A320neo fleet, we have the LEAP engine as well as the CFM34 for our Embraer E1 fleet. For our E2s and ATRs, we have partnered with Pratt & Whitney. For our wide body fleet, we have partnered with Rolls-Royce. With each of these partners, we have ongoing long-term maintenance agreements that support the operational reliability of our fleet. On the aircraft manufacturer side, the majority of our future deliveries over the next few years will come from Embraer, a relationship that we are very close to and in this OEM and is an OEM that we believe is better positioned than others to deliver aircraft on time. While the situation is still volatile, we strongly believe that these are the best possible partnerships. And with our own internal capabilities, we are well positioned to continue our fleet transformation and growth plans. As I draw to a close, I want to share that we released updated guidance this morning that we released updated guidance this morning. As you can see on Slide 17, we expect BRL6.5 billion of EBITDA this year on an overall capacity increase of 11%. Leverage, as I mentioned earlier, will be around 3 below 2019 levels. Our fundamentals are strong, our business model is very unique, and I'm very excited to see all the great results Azul will deliver. And thanks to our incredible and passionate crew members, I'm confident that Azul will deliver better than expected results on a going forward basis. With that, David, Alex, Abhi and I are here to answer any of your questions.

[Operator Instructions] Let's go on now to the first question. It will come from Victor Mizusaki from sell-side analyst from Bradesco.

I have a few questions here. The first one, I mean, matter of fact talking about the audit figures or the audit financial statements. But at the same time, I mean, when we take a look at the Brazilian [inaudible], we can see all almost the, I mean, the financial statements. So, my first question, I mean, if you can comment what exactly in -- if you can comment, right, I mean, what kind of change, we can expect for the other figures if there's something related to negotiations with our leasing companies? And the second one talking about cash flow for 2024, you released the guidance for EBITDA, but if you start to think about, let's say, CapEx and working capital in the case of working capital, we can see a drop in Q4 in terms of account receivables. If you think about in terms of days, if this is a kind of a sustainable level for on the '24, and, if you can also comment about the CapEx, what we can expect for this year?

Thanks, Victor. It's Alex here. So on the audit statement, no change. It's really more, our independent auditors kind of finishing up their work and documenting, formalizing. We do not expect any changes to our financial statements, and that's why we put out, both the earnings release and the complete financial statements, but they are unaudited. We do not have the audit report yet, but we will have it in a few days and then we'll update the market accordingly. So we do not expect any change. On the EBITDA, I mean, you're in Brazil, but I think it's good for us to highlight that in Brazil, flows and differences between your cash balance and the account receivable balance do not mean the same thing that they mean in other worlds. That's why in other countries. That's why we look at cash plus receivables together. Because, for example, in quarters where we have big capital raises, for example, like we did in Q3, we do not need to advance receivables, right, because it costs not a lot of money to advance receivables, but it does cost a little bit. So if we don't need to advance receivables because we have a lot of cash that we just raised, normally, that quarter is a quarter where, the receivable balance goes up. Normally, if you're looking at a company and you see the receivable balance going up, you think that is a problem. In Brazil, that is a sign of strength showing that you just raised cash and you actually have a lot of cash from another source. Then in normal terms, right, because selling in installments is a very unique Brazilian feature, and it's a powerful sales tool and very economical, very good way to motivate our customers to buy tickets and to be able to afford travel and other purchases. We sell in advance and then we sell in installments, and then we advance these cash flows forward. And, again, it costs just a little bit of money more than the risk free rate in Brazil. So I encourage everyone to look at the cash flows receivable balance. And fluctuations are more a question of whether, there was a capital raise in the quarter or not. And that's the case with Q3. If you're comparing Q3 to Q4, you may think that the policy or the advancement of receivables changed, but it's really because they are fungible. So no change there. For CapEx, we don't give guidance specifically on that, but I think that Q4 is a somewhat representative number. I don't think it was much higher or lower than what the average quarter will be going forward. And, Victor, just to highlight a couple of things. We got the approved line with GE Celma, which is $200 million credit line for CapEx this year. But I think as you look at cash generation, take a look at what we did in the fourth quarter. With that EBITDA, we paid the aircraft rent. We paid CapEx. We actually paid the interest and still had money left over. And so that is the plan going forward to continue to pay down more expensive debt, generate cash, operating the airline, and deleveraging company as quickly as possible.

The next question will come now from Savi Syth, sell-side analyst from Raymond James.

You called out, for my first question, you called out strength in domestic and international in the release. I was kind of curious if you could provide a little bit more color on what you're seeing and your expectations, before the second quarter and beyond?

So first of all, even 4Q 6.1% RASK improvement on already a very high base, more than 35% RASK versus 2019. So the demand environment continues to be strong. And what we thought way past back about pent up demand has continued and continues to be the case, first quarter and second quarter of this year. So we feel pretty good about the demand environment. This year is going to be a little bit different, it feels to me, in terms of seasonality. I think second quarter is going to be stronger than we expect. And one of the reasons is that last year, we had a lot of holidays throughout the year, especially in April. So we had a little bit of bunched up demand in March and then a weak April, May. If I look ahead right now at April, May and June, which is seasonally the weakest quarter, all of the three months are actually running ahead of March right now in the domestic market. So that gives me a lot of confidence kind of going forward in the domestic market. International is holding steady. We do have some capacity variations, especially now as we transition the A350 fleet, which was which stopped flying at the end of January, And we have some wide bodies coming in now to replace that service April, May, June, July, onwards. So but overall, I'm not seeing anything different in terms of international. Appears to be very, very steady. And just like last year, the European summer, I think, is going to be very, very strong, especially Paris with the Olympics and even Lisbon as well. And on the U.S. side for us, you know, continues to be strong with Orlando and Fort Lauderdale and with our partnership with JetBlue and Tap and United. So I would say steady overall. I think we're going to be pretty happy with second quarter seasonality this year. Honestly, last year, I think we were disappointed but I think this year, it's going to behave differently. A lot more steady between 1Q and 2Q. You can expect positive unit revenue growth in 1Q and then higher unit revenue growth in 2Q, and then we get into strong second half seasonality.

Hey, Savi. If I could just add something to what Abhi said. The demand remains very strong in Brazil and we wanted to highlight the OEM relationships and the problems that the world is seeing, because capacity is going to be in check for the foreseeable future with all the problems that the large OEMs are having in delivering aircraft with engine availability. And, you know, one of the unique strengths that all of our deals are on powered by the hour, and we have the spare engine capability in place. And so we see a strong demand environment, and we see capacity very much in check for the foreseeable future.

And actually, it takes me to my second question, if I might ask. The incremental addition in capacity, I was wondering where that's coming from? And maybe just generally, are you still you know, if your thoughts are changed at all on where the capacity is going to be allocated this year?

Yes. I mean, not really, Savi. We still see a lot of opportunity in our network. In Belo Horizonte, for example, is doing very well for us. Belem recently is a focus city for us. We added some flights there, which are doing really well, Campinas as well. So again, you know, as David talked about the network and how foundational it is for us and just one factoid, we still had 77,000 departures in 2023 on the E1s. 77,000. All of which we want to go to the E2s as soon as we possibly can. 18 more seats, 25% lower trip cost on each and every one of them. So there's still a lot of opportunity to up gauging, in our own network.

The next question now will come from Gabriel Rezende, sell side analyst from Itau.

Just following up on the last topic regarding the demand and overall, what you are foreseeing in terms of yields. If you could comment a little bit about competition as well. You just mentioned that the capacity furnace industry remains somewhat capped given the supply chain bottlenecks we are seeing right now. But it would be great to hear, once again, how are you feeling that your competitors are behaving in terms of prices, at least in the first two months of the year and, the three months of the year and on the already booked flights as well? And a second topic here, if you could also comment about the labor expenses we saw in the fourth quarter. You saw them increasing on both a year-on-year basis and a quarter-on-quarter basis, looking at the unit expenses. You mentioned that that you need to increase your number of pilots as well as crew members. Just wondering if you already have seen a portion of this increase in the fourth quarter and the unit growth from here on should be more limited.

So, look, I think the industry overall is doing as good as it can. I think it is pretty disciplined on the capacity side as John said. And I think the industry is doing all of the right things on the fair side as well. There have been several -- so the industry is moving fares, as fuel varies, as dollar varies and is doing a really good job of recapturing those costs. So I think the industry is very motivated on maximizing results. Like I said, you can expect positive year-over-year RASK in 1Q, even higher positive year-over-year RASK in 2Q. And, a big part of this is because the industry is doing the right things in my opinion on making sure that we maximize results. And if that's yields, that's fine. And if that's load factor, that's fine as well. So I'm very comfortable right now with the overall industry environment. And looking ahead, I don't really see that changing, whether it's overall capacity, whether it's yields and also sort of competitive dynamics. As we mentioned in the opening remarks, I see the industry focusing where each one is strong. And I think that actually generates the best results for everybody and I don't see that changing in any meaningful way. So overall, I think we can be pretty satisfied with industry discipline.

And then on the labor side, I think we explained qualitatively what's going on in this quarter. But just to give you a little bit more color, I would separate it in two things. One is we found opportunities inside Azul to reduce total cost, but that is increasing the salary line and it's reducing another line. But in that, it is providing a reduction in cost. For example, we internalize a lot of maintenance services. And if we didn't have these maintenance services today with the supply chain issues and with the MRO restrictions that exist, we would never be flying as much as we're flying. So that is an example of the salary line going up, but enabling the amazing revenue performance that we're seeing. But the net result is obviously very positive for Azul. Same thing with in sourcing. We saw that there were situations where we had third-party providers and outside people where it would be much more efficient, much more affordable and we would have a better quality if we just used our own crew members for that work, right? So that's an example. And then there's all the investment in the future that John and David mentioned. We had to hire pilots. Sometimes, you have to hire pilots six months before they are actually going to fly. We had to increase airport staffing. But in exchange, we got a decrease in minimum ground time, which, again, gives us more aircraft hours to fly, which more than pay for the incremental cost of staff. So what that means is that the number that you saw for Q4 will not increase significantly. It's also, I think, pretty representative of what the average quarter will be in '24. That means we're going to grow into the staffing that we have already brought into the company.

The next question will come from Alberto Valerio, sell-side analyst from UBS.

I have two on my side. The first one, it's about guidance. If you take, the fourth quarter results and annualize it on a seasonal base that is a little bit stronger than the other quarters. We remain a little bit, adding the 11%, capacity expansion for 2024. In my estimate, we will be lacking BRL300 million. I would like to know if you are expecting, as Abhi said up-gauging aircraft if you are expecting higher yields or higher margins for 2024? This is my first question. And my second one is about the quarter-over-quarter results. If there is some different mix on the quarters, we see a little bit lower RPKs, from third quarter for this fourth quarter, and as well the margins was a little bit below 2.5 percentage points. If this was just point off for the zero or if you, we can see a different trend for 2024 and afterwards on this seasonality during the year?

Yes. Let me just kind of address your second question first, and then we'll get I'll go back to your first question. Keep in mind that, I think we did BRL1.6 billion or BRL1.7 billion of EBITDA in the third quarter, but fuel increased about 16%, 17% quarter-over-quarter. So the third quarter into the fourth quarter, fuel was up significantly. And so, yes, we delivered almost the same amount of EBITDA with significantly higher fuel prices in the fourth quarter compared to the third quarter. So I think that shows the strength of the business. As you're going into 2024 where we are today, keep in mind, we are significantly increasing our capacity to 11%, but that capacity is next gen capacity. And utilizing these existing aircraft we have even more and you should have a lower fuel price, an average lower fuel price in 2023 than you in 2024 than you had in '23. So, yes, you will see margin expansion because of that and we should be getting more economies of scale as we grow this business.

So seasonality should keep the same. It was just more from one product to the other day the fuel, right?

It was just the fuel. Take a look at the average fuel price fourth quarter versus third quarter.

And then also, we use Bloomberg to forecast fuel going forward. We use HOA. So you can also see that what we expect for Q2, Q3, Q4 is very different than what you saw in Q4. So multiplying by 4, like, is a very, I think, easy way to say that it doesn't take much for you to see that our exit rate of 2023 provides us great momentum into the BRL6.5 billion that we guided for 2024. And then you add the capacity growth. And then you add the fact that we are already paying for staff in Q4 and Q1 that's going to produce EBITDA in the full year of '24, that there are maintenance lines that we installed in our hangar that did not work necessarily for all of Q4, but they will work for all of 2024. So there's a lot that it's more about the run rate, than about the seasonality.

Yes. I think it's also important. I want to really address this point on OEMs. There's a battle worldwide with the OEMs, right? People are fighting over spare engines. They're fighting over slots at engine facilities. And the fact that we have a long-term relationship with GE, CFM, with Pratt & Whitney, I think that's a competitive advantage that we locked it in going forward. And what you saw in the fourth quarter was us ensuring that we have the assets in place to grow.

Now the next question will come from Bruno, sell-side analysts from Goldman Sachs.

I just have a follow-up on the outlook for this year. If we look at the fourth quarter results, if we adjust for what happened with fuel prices since then to your point, and if we account for the growth in capacity for the improvement in the competitive environment. We can easily get you the margin that you are guiding for this year just by taking into account the jet fuel benefit. And on top of that, you have the capacity growth improving competitive environment. Is it fair to say the guidance is conservative or am I missing something here?

We usually try to underpromise and overdeliver. So our guidance, I would not say, is our 50/50 number. But it's the beginning of the year. It's Brazil, but you're right. I mean, there is a lot that we talked about this when we finalized our capital optimization plan. We're very proud of that plan. I think we're proud of the support that we got, but obviously it took a lot of work. It took a lot of energy and time from the senior management team. Now we can just divert all that bandwidth to our Azul and to do what we'd like to do, which is to take care of the business, take care of our customers, look for opportunities. I'm not going to say that there's a lot of padding, but I think it is on us to absolutely work all year to deliver something better than the 6.5.

And, Bruno, rest assured, we're shooting higher.

Moving on to the next question will come from Daniel McKenzie, sell-side analyst from Seaport Global. So it will move, we will turn the microphone over now to Thais so that she may ask the question.

Daniel is asking about the heating oil prices. So what is the capacity flexibility that we have and what is the willingness to put back on growth to help support loads and revenue?

Look. I mean, we want to be disciplined overall, right? We want to grow within the network. We want to up-gauge. So I think we'll do what maximize the result and what makes sense. In terms of delivery flexibility, I think we do have a little bit flexibility second half of the year on the E2 side. Depends how Embraer delivers, but I think there is a couple of little bit of flexibility there to anticipate if we want. But we're going to focus on making sure we maximize margins, maximize the result and still stay disciplined to the overall market because we think that's healthy now, and we think that's healthy long-term. So, I think we'll do what makes sense and we'll do what's kind of right for the market overall.

The second question is, about corporate volume and revenue trends. What are your expectations throughout the year? The economic backdrop has surprised it to the upside. Is that driving an uptick in corporate travel?

Corporate travel has been strong. It was very strong second half of last year, especially kind of the September, October, November timeframe. We actually had periods where we've crossed over a 100% in corporate volume recovery. Revenue, just to remind everybody is well ahead, more than 50% ahead because of the average fares and the yields are up so significantly. So we're not seeing any resistance in terms of corporate revenue, in terms of corporate volumes. We think, Brazilians are flying, they're flying on leisure. They're flying to meet their customers. They're flying to make new deals. We're not really hearing any resistance from corporate customers at all. So I think now it's just kind of moving forward, update the network and continue to capitalize on the strong environment.

And the last one is regarding the government support to create funds to help the airlines. Is your sense that the fund would be competitive with the capital markets with respect to borrowing? And is the fund something that Azul would want to tap?

Yes. So, what I would say is I think there's been a great dialogue with the Brazilian government. I think the three airlines are working jointly to kind of show some of the main concerns that the Brazilian industry has faced over the last few years. One of which is having the highest fuel prices in the world which that holds growth in place because of that. And so we've kind of showed that to the Brazilian government. I think they're very receptive to those concerns. Also, there's a lot of lawsuits in Brazil and we represents 3% of the world's flights, 90% plus of the world's lawsuits. And so the Brazilian government is working jointly with the airlines. And I think that it's a very open dialogue. But the credit is where we're getting the most traction overall. And there's a significant burden on the airlines because the cost of capital has gone up significantly and because the Brazilian industry did not get any government aid at all. A lot of people are talking about a bailout package in Brazil. Really, what you're talking about is access to credit at more competitive rates than the capital markets, right? And so if there's more competitive rates in the capital markets, then we would certainly would access that. And that would help us continue our growth plans going forward, bring more capacity into the market. And I think that the Brazilian government would like to see more capacity because the demand environment is very strong. But I think the dialogue with the Brazilian government has been very good. They've been very receptive. And we have an agenda, and we're working through that agenda jointly. And so we're excited about what that can mean for the industry as a whole moving forward.

Mike Linenberg from Deutsche Bank also has some questions. The first one is a follow-up on the government's support. He thinks it was going to be BRL1.2 billion credit line. He wants to know how it it's going to be divided among the airlines and what will be the terms of the credit line?

Yes. So I don't think it's fully defined yet. But in our conversations with Brazilian government, they're talking about roughly BRL6 billion to RBL8 billion divided kind of equally between the major airlines in Brazil. And so that's what we're looking at. Still ongoing conversations. We'll be in Brazilian next week to discuss this again. And as I said, I think we're getting some great traction. And this is very positive overall, reminding everybody there was no help given previously. And so this is an opportunity for the Brazilian government to help the industry grow. Helping the industry grow is helping Brazilians travel more, which is really good for the economy.

And just to add, what John said. I think sometimes in the press, this is portrayed as a negotiation or a rescue package. And that's, like John said, that's not it. What I think both the government and the industry has seen is that Brazil has a huge potential and we want to unlock that potential. So we're going after the root causes of why that potential has not been materialized yet, but we're confident that we can work together and work at a few of these structural issues that this is going to be great for Brazil, great for the consumer and great for the industry.

And one thing Alex always likes to remind us, none of this is in our forecast. And so if we can reduce judicial claims, that's upside. If we can get a better cost of capital, that's upside. If we can get traction on fuel prices in Brazil, that's upside.

The second question is an update on the Embraer's deliveries. Are you seeing the same type of delays that Embraer that airlines are seeing from Airbus and Boeing? Are you on track to get it 13 aircraft this year or could that be delayed?

We feel good about where we are with Embraer. Obviously, we're working very, very closely with them on making sure the deliveries flow. We had three aircraft already enter service in January of this year. And now sort of June onwards, you will start to see a steady stream of aircraft between June and January for 2025. So far, we're on track. Obviously, talking very close with them and with the engine manufacturer to make sure that the engines are in place as well for the deliveries. So far seems good. So, yes, we have a little bit of upside potentially in our plan, but, we're on track for now.

I think, Mike, the only thing I would say on that is back end loaded like most OEMs. And so I think Azul's exit rate of 2024 is going to be a much larger company than I than certainly we enter 2024 just because a lot of those deliveries are second half of the year.

The next question now will come from Guilherme Mendes, sell-side analyst from JPMorgan.

My question is on the liability management front and thinking about the equity efficiency that's coming up in the third quarter of this year going up until the 2027. Assuming that the stock won't be at BRL36, how do you guys think about the potential use of proceeds to compensate the resource, potentially additional equity dilution or using debt? And if that is the case or cash flow or whatever, if it's included on the leverage guidance for this year?

So we have the option, right? When we finalized our plan, we communicated this as an equity structure that we had the option to pay in cash. The option is solely on us. So you could also foresee -- you could also look at this as in a different way. You can look at this as debt that matures over the course of 14 quarters all the way into 2027 with zero interest, where I have the option, if I want to give shares instead of cash. So if you look at it that way, I think it's a great facility, that's very comfortable, that fits within our cash flow generation. And obviously, we're going to look at the stock and make a determination on whether we think the stock is fairly priced and decide whether we pay that in cash or we pay that in shares.

So this closes the Q&A session. I'll turn to John for the final remarks.

Thanks everybody for joining us today, and a special thanks and shout out to all of our great crew members who continue to deliver fantastic results. Feel free to reach out to any of us in our investor relations team. We look forward to seeing you over the next over the coming weeks.

Thank you. This concludes the Azul's audio conference for today. Thank you very much for your participation, and have a good day.

Hello, everyone, and welcome all to Azul's Preliminary Third Quarter Earnings Call. My name is Zach, and I will be your operator for today. This event is being recorded and all participants will be in a listen-only mode until we conduct a Q&A session following the company's presentation. [Operator Instructions] I would like to turn the presentation over to Thais Haberli, Head of Investor Relations. Please Thais, proceed.

Thank you, Zach, and welcome all to Azul's Preliminary Third Quarter Earnings Call. The preliminary results that we announced this morning, the audio of this call, and the slides that we reference are available on our IR website. Presenting today will be David Neeleman, Azul's Founder and Chairman; and John Rodgerson, CEO. Alex Malfitani, our CFO; and Abhi Shah, the President of Azul are also here for the Q&A session. Also it's important to mention that Azul has not yet published its interim financial statements for the three and nine month ended September 30th due to the considerable volume and complexity of tests to ensure that all effects of its capital optimization plan are correctly reflected in the financial statements and we'll keep the market updated on these efforts. Before I turn the call over to David, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives, and expected performance constitute forward-looking statements. These statements are based on a range of assumptions that the company believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in our CVM and SEC filings. During the course of the call, we will discuss non-IFRS performance measures, which should not be considered in isolation. With that, I will turn the call over to David. David?

Thanks, Thais. I welcome, everyone, and thanks for joining us for our third quarter 2023 earnings call. As you can see on Slide 3, we continue to strengthen Brazil's largest network by adding more than 40 new destinations since 2019. We're the only carrier in almost 80% of our routes and the leader in departures in 90% of our markets, a profitable strategy we will maintain as we grow. In fact, if you look at our ASK growth since 2019, 8% has been in five cities. Four of them are hubs and the one exception being Congolese. More importantly, we have demonstrated we can grow in a way that maintains our customer service excellence. We continue to run the most on-time airline in the region with the highest net promoter scores. John is going to give you more details on the quarter, but let me still extender for a second by summarizing on Slide 4. What this incredible team has achieved. Total revenues of BRL 4.9 billion in the quarter, an all-time record, 12% above last year and 62% above 2019. Fares and unit revenues are all up versus last year. In stark contrast to many other airlines around the world where airlines have fallen, especially in the United States in a year-over-year comparison. Finally, an EBITDA of BRL 1.6 billion and EBIT of BRL 1 billion, both records and most importantly, both in EBITDA margin and operating margin above 2019 levels. These numbers are a clear demonstration of what the real Azul looks like and is capable of delivering. This amazing team also implemented in record time, a comprehensive capital optimization plans that we have already described to most all of you. Upon the conclusion of this plan, Azul will have no significant maturities until the end of 2028 and we can now rely on the strong balance sheet, leading liquidity position and lower cost of capital to continue leveraging our superior network, product offering and cost structure, all of which creates a strong cash flow from operations. And the best is yet to come. For example, you all know about the E2 opportunity. This aircraft has a lower fuel burn, lower maintenance costs, lower ownership costs, lower trip costs while generating more revenue with 18 additional seats than the old E1s. We only have 17 of them operating now, but by the end of 2024 next year, we'll have 33. This is just one reason why we are so excited what we can achieve going forward. We're executing on our fleet transformation plan, demand environment is strong, our business units are all producing record revenues, and we are emerging as a more efficient airline. All I can say is thank you to each and every crew member. What they continue to deliver is absolutely incredible and we are truly excited about the opportunities ahead of us. With that, let me turn the time over to John to give you more details about the third quarter results. John?

Thanks, David. I also want to start by thanking our entire Azul team for their passion and dedication. Just last week, we were voted the best airline in Brazil by Melhores Destinos, the largest travel site in Brazil. Our internal crew member satisfaction scores this year were another all-time record with 82% participation among our people and 87% favorability score. Our team excels in delivering the Azul experience, our culture is stronger than ever, and our customers recognize the difference each and every time they fly Azul. Thanks to their dedication, we delivered another record result in the third quarter. On Slide 5, we summarize the cumulative effects of the strong demand environment, along with the high growth in our business units. Our all-time record revenue of BRL 4.9 billion in the quarter represents a 62% increase over third quarter 2019. This is a result of overall capacity of 19% and unit revenues up 36%. As you know, ASK growth often leads to a reduction in unit revenue, but demand for Azul flights is so high that we were able to simultaneously increase both capacity and fares. RASK in the quarter was $42.59, was a record for a third quarter and actually just missed the all-time RASK record for Azul by 0.3%. So overall, truly outstanding numbers across the board. Moving to Slide 6. You can see how the strength of our business model led us to 5% higher fares in the third quarter versus last year, even with fuel price dropping 33%. Remember, though, that fuel prices are still higher than 2019 and fuel prices in Brazil are the highest in the world. But as David said, this contrast with what other regions around the world are experiencing and this demand is consistent with what we've been seeing for almost three years now. Brazil had one of the fastest demand recoveries in the world, and Azul has the fastest demand recovery in Brazil. I don't know many airlines around the world whose revenues are 62% higher than 2019. Our business units continue to outperform, further adding to our Arsenal of competitive advantages as we show on Slide 7. Our loyalty program is now approaching 17 million members with high customer engagement, our co-branded credit card is doing incredibly well with a significant portion of the membership base coming from the Platinum and Infinite categories, premium segments with high levels of personal spending. In fact, our projection for total card member spend in 2024 is equivalent to 0.5% of the entire GDP of Brazil being spent on our credit card. Our vacations business continues to break records every month. It is now three times larger than 2019. This growth is extremely well aligned with our business model as it takes advantage of our low aircraft utilization [ph] on nights and weekends. Finally, our logistics business, Azul Cargo continues its growth trajectory and maintains its position as Brazil's largest domestic provider. We know that global cargo market is in a tough spot right now with many airlines reporting revenue decreases of around 30%. Azul Cargo, on the other hand, is performing significantly better and continues to show revenue growth, especially in the domestic market. We continue to win over new clients and to increase our partnership with existing ones. You may have seen the news that Amazon at a recent global event in Seattle, announced Azul as their partner for air logistics all throughout Brazil. On Slide 8, we turn to the cost side of the business. We told you we would emerge a more efficient airline, and that's exactly what we've done. Controlling for headcount on our hangar, which did not exist in 2019, Azul today generates 40% more revenue per full-time employee than we did in 2019. This is – this result is remarkable. We now have the lowest CASK in the region, not just when comparing aircraft within the same category, the A320neo compared to our competitors with the 737. We already had the lowest cost there. But now we have the lowest CASK overall, even with a smaller aircraft in our fleet. And as someone once said, it's low cost always wins. We have the most efficient cost structure in the region, and we will improve it further with our fleet transformation. This really gets us excited about the future. As you can see on Slide 9, we significantly increased the rate of E2 deliveries, doubling the size of that fleet in the last 12 months. The E2 delivers 18% lower fuel burn compared to the E1 with 18 more seats, leading to a 26% lower cost per seat. In 2023, we still had – had twice as many departures on our E1s than our E2s. As this ratio switches in favor of E2s, this will drive significant margin expansion going forward. This fleet transformation that is unparalleled in the region, in addition to making financial sense is also clearly a more sustainable way to grow. Our fuel consumption per ASK and carbon emissions per ASK are down an incredible 24% compared to 2016. Turning to slide 10. You can see the result of all these remarkable attributes, an all-time record EBITDA of BRL 1.6 billion and a 31.6% EBITDA margin, we have surpassed pre-pandemic EBITDA even with fuel 60% higher in an exchange rate 23% weaker to the dollar. Frankly, these numbers speak for themselves. This demonstrates the strength of our business and our structural competitive advantage. Turning to slide 7. You can see the significant increase in liquidity obtained through our capital optimization plan we concluded in September. As you recall, this plan yielded new agreements with practically all of our lessors and OEMs with the reduction in lease liabilities and improvement in cash flow. Given the scope and complexity of this plan, we haven't yet published our interim financial statements, and we'll keep the market updated on these efforts. Also thanks to this plan and all the support of our crew members, partners and stakeholders, we have no significant debt maturities until 2028, as you can see on slide 12. Now we can turn our attention to focus on our business and growing it. On slide 13, we show further evidence that demand in Brazil remains strong by comparing our expectation for fourth quarter RASK versus Bloomberg consensus for other airlines. In addition to the domestic market, our international network, which is now more than 100% recovered compared to 2019, is performing extremely well, with our complete network to the US and growth in Europe, with our new Paris service. Pricing and capacity discipline in the Brazilian market continued to be solid. This, together with our unique network advantages and flexible fleet deployment should result in unit revenue growth in the fourth quarter of 2023, leading again to an all-time record. As you can see on slide 14, Azul is the leading operator in next-gen aircraft in the region, with 79% of our ASKs flown by next-gen aircraft. Given that fuel prices in Brazil or about $1 per gallon higher than the United States, trying a young, fuel-efficient fleet is crucial. The fact that our fleet transformation is far ahead of our peers is a clear structural advantage that will remain for years to come. We also continue to outpace our competitors in next-gen deliveries, especially given the fact that Embraer, one of our main partners is experiencing fewer delivery delays than its competitors. We have roughly one Embraer E2 entering the fleet every month of 2024. Remember, we fly the most fuel-efficient aircraft over the shortest stage length with the lowest unit cost in charging the highest average fares. That's pretty hard to beat. Finally, on slide 16, we estimate 2023 EBITDA to be around BRL 5.2 billion, slightly lower than the previous projection as a result of the recent volatility in fuel prices and our adjusted capacity growth together with international cargo volumes being down. However, with strong demand we are seeing, together with our -- all of our margin expansion initiatives, including the E2, we already mentioned here, we increased our 2024 EBITDA expectation to BRL 6.3 billion. I truly believe the best is yet to come. In the last three years, we have focused on getting through the pandemic and then optimizing our capital structure. Now that this chapter has been completed, we can really focus on the future. That means accelerating our fleet transformation, unlocking value in our loyalty program by pricing our points for profit maximization, investing heavily in our co-branded card, attacking structural costs in Brazil, like the high-level litigation in the country. These results we show today are just a start. That is why we are so excited for 2024 and beyond. With that, David, Alex, Abhi and I are here to answer your questions. Operator?

Ladies and gentlemen, thank you. We will now begin the Q&A session. [Operator Instructions] Let's move on now to our first question. This question will come from Gabriel Rezende sell-side analyst from Itaú BPA. Gabriel, we're going to open your microphone so that you may proceed.

Thanks, and good morning. I'll start with a follow-up on John last comment regarding the guidance for 2024. It will be nice if you guys could provide us some color on how you're seeing the pass-through on forward bookings? Just trying to understand the assumptions for the higher fuel costs being passed through into the tariffs that you are selling right now for 2024? And second -- just quickly on a second point, if you could comment also on the OEM supply chain issues, whether you're seeing some deterioration on improvement looking forward or whether we could see some more delays in terms of aircraft being delivered to you guys? Thanks. And sorry, Abhi, please go on.

Hey, Gabriel. Yes, thanks for the question. We feel pretty good about the revenue environment. We've seen very good fair discipline, very good discipline on the capacity side as well. In fact, if you look at capacity in the domestic market compared to 2019, 4Q this year is actually flat, even slightly negative to what we had four years ago, roughly $28 billion to $30 billion ASKs. So -- and I think that, that capacity discipline is going to continue for next year and beyond. Sort of everybody is facing the same issues with fuel going up and down interest rates. So I really think the industry overall is very much interested in maximizing results and focusing on where they are strong. Like as David said in the opening, we've increased capacity, but 80% of it has been in five cities, all except a Congo is our hub. So our assumption for unit revenues for next year is basically what we are seeing at the back half of this year. And then you take that forward all through next year. So just run rate performance with the growth in our business units, which is a little bit of recovery in Azul Cargo, continued growth in our vacations business, Azul Viagens and our loyalty business. So we're not expecting something very different than what we are seeing already this year. Overall market discipline and growth in our business units.

I just want to talk quickly the OEM delays Airbus, Boeing, Embraer, Rolls-Royce, everybody has their challenges. And we received a delayed notification for aircraft we're supposed to receive in 2026, right? So I don't think this is a problem that gets resolved in the short term. I think the new technology that these engines are burning significantly less fuel. They just don't stay on wing as long, right? And so engines that we're supposed to stay on wing for 20,000 hours are coming off at 5,000 hours. And I think there's a fight in the market for spares versus production aircraft. And so I think what we're seeing today in terms of capacity around the world, capacity will be constrained for the foreseeable future until the OEMs fix that. I think that's a good thing as we look forward into 2024 and beyond. We're really excited that Embraer, we worked through our delivery schedule with Embraer next year. We're getting 13 new shells from them next year, not all on time, right? Some of those were supposed to be delivered earlier, but we do have a horizon as to when they're being delivered. But I think it's across the board, and I think all the OEMs are impacted by it, and it's a challenge that the industry has overall. So it's not necessarily specific to any manufacturer specific to Azul. It's just an across-the-board problem the OEMs are having.

Great. Thanks, guys. That’s very clear.

Thank you. Let's move on now to the next question. The next question will come from John [indiscernible] sell-side analyst for Goldman Sachs. John, we will open your audio so that you can ask your question. Please proceed.

Thank you, very much. Good morning guys. Thanks for taking my questions. Two from our side. The first one relates to the liquidity you guys posted, right? So, I would just like to get your help to reconcile your immediate liquidity change quarter-over-quarter, given the recent bond emission and the commitments you guys had in 3Q, right? So we saw immediate liquidity rises by BRL1.5 billion in 3Q, while you guys have raised roughly BRL4 billion in the third quarter, the 2028 notes, right? So, I would just like to get a sense from you guys to what were the key uses for the cash you guys raised it? And then a second one super quick related to the order for operating expenses. This quarter was significantly higher than the previous ones. So I just wanted to understand if this is the new level we should expect going forward or we should see a normalization back to last quarter's average. Thank you, very much guys.

Sure. Thanks, John. Yes. So the BRL4 billion number roughly Dave mentioned, obviously, that's the gross capital raise that we had. We are going to provide a lot more detail once we have our interim financials with the auditor's review. But just to give you a preview, some of this went to paying down debt, and we provided already some of this information on the exchange offer because we paid down some of the bonds that were exchanged from 2024 into 2029 were already paid down. So that is future debt payments that we have already made right now. We also paid down some of our convertible debenture, which is also principal that has been paid down now versus in the future. Obviously, when you do a capital raise like this, we actually had four big transactions, right, when you think about it. We have the big capital raise of $800 million. We also had two exchange offers that together got to almost $1 billion plus the exchange of the convertible note. All of that, unfortunately, requires lawyers and fees and the moluments and advisers, which also took some of that money. But having said that, as we have told you already before, this was a much more cost-efficient way to restructure our balance sheet, right? We estimate that we paid maybe 20% to 30% of what a court process would have cost us, right, what some of our competitors went through, right? So -- but there is a big number of fees there. And then there are some adjustments into payments to lessors that we hadn't paid. We had gotten some bridge financing from lessors, which were paid some of it when the capital raise happened. And then we had gotten some deferrals from our fuel suppliers, mainly that we also paid down when we did the capital raise. So the important, I think, concept to everybody to keep in mind here is that, yes, the cash increase obviously was not as high as $4 billion or BRL4 billion for all of the reasons that I mentioned. But the cash generation is as strong as ever. So the restructuring that we did and primarily the reduction in lease payments that we were able to negotiate and also in the CapEx deferral repayments that we had originally contracted that has significantly decreased, and it should allow us to deliver on the cash flow generation that we indicated when we published the -- when we talked about the capital optimization plan.

And we cleaned up the payables. As Alex said, there were some fuel notes that we've got some deferrals on. We have no debt maturities coming in the next five years. So there was a lot of cleanup that happened. We feel very good about the cash balance where we're at today, especially with where we're at, we invested some CapEx in the quarter as well. That was a significant thing because the airline is getting back to growth. And I think that that was an important use of the proceeds as well. Now that we fix the balance sheet, we can focus the airline back on growth again.

Exactly. And then on other expense, this is sort of a catchall. And so there are many things within this line. None of them are big enough yet for us to break them out, but we discussed that often here. But some of these expenses are driven, for example, by revenues, for example, GDS fees as our reservations increase. Sometimes when we start flying internationally, we start using more GDSs and then you see an increase in those fees by even more than our ASK growth. Some of these numbers here are driven by the exchange rates, some of these are driven by passenger count. But this is where we also recognize the cost of litigation and that is a number that we've been talking about the fact that this is increasing. There is a bit of -- the possible litigation is not a smooth number every quarter. I think this one was a particularly high quarter compared to historical levels and particularly compared to the same quarter last year. But this is something that the industry is very focused on. It's a cost that all passengers in Brazil have to bear in spite of the fact that the customer experience in Brazil is one of the best in the world. We are the most on-time airline in the world. We have one of the highest NPS scores in the world, and there are other Brazilian airlines in these on-time rankings as well. So this is something that I think we're all collectively interested, not just the airlines, not just the industry, but I think even the regulator and the government are interesting in finding.

I've said often that we're now back to focusing on running the business. And so to answer your question, is this the new norm? It better not be. We're going to drive the cost of this airline to be even more efficient going forward. We have a task force to go after a lot of these initiatives on a go-forward basis. And so nobody is happy with where that line is, and you'll see improvement going forward. And there's several things we're working with the government on, as Alex said on the litigation side, but there's other things that we're doing. Now we're focusing on the running the business. We're focusing on driving our unit costs even lower.

Thank you very much guys.

Thanks, John.

Okay. Thank you. We will now move on to the next question. The next question will come from Gabriel Raposo with Bradesco sell-side analyst. Gabriel, you can open your microphone, so that you can ask your questions. You may proceed

Good morning, guys. Can you hear me?

Yes.

Okay. So I have two questions from our side here. The first one, we saw that as when peers are in talks with the government or airfare prices. So could you give us some color about this discussion and if there is any kind of discussion also regarding the fuel prices? And the second one is related to the Boa Brazil program, the Ministry of ports and airports should submit by November 15, the official proposal for the program. So could you guys update us about this program? And how should we expect Azul benefiting from this looking ahead? Thank you.

Yes, great. Thanks for the question. I have a pretty active agenda in Brasília and working closely with this new government on opportunities for Brazil, right? I think what's an opportunity for Brazil. Brazil still has the highest fuel cost in the world. Brazil still has the highest civil claims in the world for aviation, where we're 3% of the world's flights, we're 92% of the world' lawsuits, and we run the most on-time airline in Brazil. Those are huge opportunities for this industry. There are huge opportunities to invite more people to fly. And so I don't think the government is happy with where fares are in the country today. But fares need to be at these levels given the cost of capital, interest rates and the highest fuel cost in Brazil. So the agenda in Brasília is to look at fuel prices, look at the cost of capital, look at these lawsuits and how can we invite more people to fly, which kind of leads to your second question, which is Boa Brazil, and that's getting the Class C of Brazil to fly. And I think -- our biggest desire is to have more people entering into aviation and flying more with us. We want to grow this airline. We think there's tremendous opportunity. We’re currently in 160 cities in Brazil, and ABI has a forecast to be in 200 cities in Brazil. And we need to do that by attacking the structural cost disadvantages that Brazil has which creates an opportunity to create more jobs in Brazil, create more opportunity. Any time you hire a pilot, a maintenance technician is one of the best jobs you can get in Brazil. And so Boa Brazil is a great program overall. We've been working very closely with the two ministers, one Minister, Márcio França, that started the program and then now Minister Silvio who's kind of taking it on. But there was a change, and that's one of the reasons why it hasn't gotten off the ground yet, but we're fully supportive of it. And I think there's a lot of opportunity in Brazil. Look at what Azul has been able to do with the highest fuel cost in the world. Look at what Azul's been able to do with the highest civil claims in the world. Imagine how many more Brazilians could be traveling by airplane if we attack some of the structural thing. That's why I think there's great opportunity in Brazil today. Fuel prices today are still 60% higher than they were in 2019. That's one of the reasons why fares are up, we're grateful that fares are up because we need to run a profitable business. It's good for our people. It's good for investors. It's good for our growth going forward. And so I think the agenda in Brasília is very positive.

Thanks.

Thank you

Thank you.

Moving on to the next question. The next question will come from Michael Linenberg, sell-side analysts from Deutsche Bank. Michael, we're going to open your microphone so that you can ask a question. You may proceed.

Okay. Can you guys hear me?

Yes.

Great. I guess I have a couple here. John, and Abhi, you talk about how strong the demand environment is in Brazil. And yet when you look at the overall GDP estimates and sort of where we are right now in Brazil and over the next quarter or two, it does look like we may be going through a bit of a soft patch. Are you seeing anything with respect to corporate or even discretionary travel that would reinforce the fact that Brazil may be going in through a bit of a downturn and not just Brazil, but the Southern Cone. Anything -- or are you defying sort of the macro backdrop?

Hey, Mike. So 3Q flown revenue was pretty good. We missed the all-time record just by 0.3%. But bookings actually in the quarter were even better. The accelerated kind of late in the quarter, September, October time frame. Bookings have been up 30% since June, for example, booked revenue. On the back of volume and fares, some of this, of course, helped by seasonality, late 3Q, 4Q is very, very strong seasonally and then our summer peak in January. But some examples, group's revenue. Group's revenue is three times higher than 2019. We're just seeing a huge increase in conventions in corporate events, in trainings that's something that what we hear from our corporate customers is going to continue. Corporate volumes 100% in terms of volume, much higher in terms of revenue but we had weeks with 100% corporate volume recovery. And we set five corporate all-time record fares records in September and October. Just a ton of events happening around the country. We had Formula One last week. I'm a Swifty. So Taylor Swift is here next week. And you know what she can do to the economy.

How do you get tickets

No, no tickets. It's too hard. Too difficult. But overall, international doing very well, especially Europe -- and our -- and on international metric that's really interesting is that of our international unit revenue growth, which is up like 60% above 2019. Business class is up $0.20 versus economy is up only $0.10. And so we're seeing some pretty good premium traffic as well. So -- and combining this with capacity discipline and our network is different, right? Our network is more exposed to the Brazil that grows the Brazil stat still has a lot of growth ahead of it, whether it's agro, whether it's infrastructure, our network is significantly more exposed to the part of Brazil that's not just Sao Paulo or Rio or Brazilian. So the trends have been accelerating through 2Q and into 3Q. So it feels pretty good from what we can see. December is ahead of last year. January is ahead of last year as well.

That's great. That's great. Thanks Abhi. That's super helpful. And then just my second question. You fly the Airbus A320s, the neos, I believe you use the LEAP engine, so you don't have to deal with the GTF. Although, John, you did mention that it seems like power plants are coming off wings sooner, no matter what the engine is. What about -- just on your E2s, we know that the GTF is potentially an issue with E2s and A220s, a couple of carriers are saying they're waiting to hear from Pratt. What has the manufacturer said to you about the E2s? Do you have any grounded right now, for example? Anything on kind of the engines, et cetera? Thanks.

Yes. Good news, Mike, is we've got no aircraft grounded on the E2 right now. I had a call with the President of Pratt over the weekend and we're monitoring it very closely. Good news is there's not as many E2 customers in the world. And so I think you just need to get in front of it. You need to make sure you have the proper spare ratio. We're a very important customer to Embraer and Pratt & Whitney and our business model is based on the E2, right? And so I think that that's kind of crucial. And it's constant dialogue to make sure that the spares are there, the deliveries are coming. And so it's not perfect. We understand that. Nobody wants to be where we are today. But I think we have a good relationship. And we're working very closely with Pratt and Embraer to ensure that we keep that fleet flying. And we're doubling that fleet in the next 12 months, right? And so that's a kind of a key driver for us.

Great to hear. Thank you.

Thank you. The next question now will come from Savi Syth from Raymond James. Savi, we're going to open your audio, so that you can ask your questions. You may proceed.

Hi. Good morning. This is Zara on behalf of Savi Syth. Our first question today is I know you provided early thoughts on 2024 capacity. How do you see that split between Domestic and International?

Yeah. Zara. It's -- so our International network is going to be -- you can take what we flew in the last quarter, which is public, our public capacity data. And it's just going to be year rounded. So there will be some growth, but it's basically the network we're flying today, year around. And the Domestic network is going to be just the deliveries of the E2s up-gauging from what we have today. So overall capacity growth around 10%, 11%, International is going to be kind of mid-single digits, if you will, just coming around and the rest of it domestic.

Okay, super helpful. Thank you. And how is demand evolving in the Brazil US and Brazil Europe markets?

Yeah. Europe has been strong for everybody. You heard that from the guys in the US as well. It's been a very, very strong European summer. We flagged the two largest European markets, Portugal and Paris, so pretty resilient demand even through the un-seasonal sort of winter. US, is a little bit more up and down, but it's looking very good right now for December, January. If you look at US Brazil capacity, it's still only 85% of what it was in 2019 and so you still have capacity shortages in US, Brazil. US -- Brazil, Europe is around 90%, 95% recovered, so -- but good demand. But overall, we're very happy with International and how it's performing.

Yeah. If I could just add, interesting about our network, we fly to the US from Manaus, Belen, Confins, Recife and Campinas. And many of those routes are relatively new and developing, and that kind of shows the strength of our network in the north of Brazil, the northeast of Brazil, at our second main hub in [indiscernible]. And so there's -- we have five different points of entry from Brazil into the United States.

Great. Thank you.

Thank you. Moving on to the next question now. The next question will come from Daniel McKenzie, sell-side analyst from Seaport Global. Daniel, we're going to open your audio, so that you can ask your questions. You may proceed.

Yeah. He typed his question. So maybe he's not on the phone. I'll be able to read.

Oh, Yeah. Hey Dan.

Yeah. Hey. Good morning. Sorry about that.

No problem.

Just a couple of questions here, just going back to the $6.3 billion in EBITDA for 2024 that outlook. What -- first of all, just some expectations around that. First, is there any unusual working capital -- considerations for next year that we should be aware of? Or will that EBITDA translate fairly accurately to cash from operations? And then just related to that, if you could help us unpack 2024 CapEx on a gross net cash basis? And then just kind of tying back to this idea of slower economic growth, what rate of slower economic growth might worry you with respect to the outlook that we see today?

Hey, Dan, I'm going to start and then Alex will give you the details. But I think what I want to highlight is this third quarter shows what Azul is capable of, right? You know, record revenue, record EBITDA, margins above 2019. We did $1.6 billion of EBITDA in the third quarter, right? Next year, we will have roughly 15 more E2s in the fleet because we're getting some at the end of this year. And so that gives you an idea of what this airline is capable of producing in terms of EBITDA on a go-forward basis. This year, we didn't have the full effect of Congolese. We didn't have a full effect of the E2s. We didn't have the full effect of kind of leveraging our loyalty program because of the crisis we were in. And so again, take a look at the third quarter and start to look at, wow, what is this little capable of as you roll this forward into 2024 with all the other good things that we're working on. As I've said several times, this management team is now focused on running the business. This third quarter, we showed once again two quarters in a row, we have the lowest CASK in the country. That's with flying ATRs, E-Jets and A320s, right? And so this company is capable of much, much more and kind of look at where we're at today. And I'll let Alex kind of walk through the details on the cash for next year.

Yes. Thanks, Jon. So then there is a little bit of working capital help. Yes, because as we grow, we will be selling an airline that's bigger than the airline that we're flying, right? So throughout these years where we're having the rate of growth that we are guiding to, you can expect that the cash inflow from operations should be a little bit higher than the EBITDA, right, whatever the EBITDA number is and we updated our EBITDA guidance for 2024 as you saw. In terms of CapEx, we haven't given guidance on CapEx. So I can't give you a number. Conceptually speaking, you can see -- you can kind of revert back to all of the concept of the capital plan that we put out. What the objective of that was? Right, was to -- the CapEx and the leases were primarily the target of us trying to reduce it out and exchange it for a 2030 bullet note and an equity structure, right? So you will see the effects in CapEx from that restructuring plan. But we're in the middle of our budget right now. Normally, we don't put out 2024 guidance until we finalize the budget. We're very excited about what we're seeing here on the demand side. So we went ahead and put out 2024 guidance, we may provide additional details as we finalize our 2024 plan.

Yes, very good. Final question here, I guess, my last question. I'm wondering if you just expand a little bit on the cargo operation. To what extent is it profitable, either more or less profitable relative to the core airline?

Yes. Hey, Dan, we like to have a balance of about 80% cargo in the belly, 20% cargo on the dedicated aircraft. As you can imagine, the belly cargo is extremely profitable because you're piggybacking on the airline itself, crew cost, fuel, navigation, all that kind of stuff, right? The dedicated margins are not as profitable as the belly, but they are important to complement your product offering, heavy palletized cargo, industrial customers, even manufacturing customers. So, we like to have that 80/20 mix. We think it's good risk management overall and kind of yields good margins overall. But the belly part is definitely extremely profitable, given the fact that you're piggybacking on our 900,000 flights a day.

Okay. Thanks guys.

Thank you, Dan.

We will now close the Q&A session. And I will give the floor to John to make the final remarks.

I want to thank everybody and we'll be communicating to the market shortly once we have our audited financials out there. I want to thank everybody for all the hard work. I look forward to seeing everybody at conferences. Feel free to reach out to any of our management team and thanks for all your support.

Thank you. This concludes the Azul audio conference call for today. Thank you very much for your participation, and have a good day.