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Copa Holdings SA (NYSE:CPA)

Q2 2013 Earnings Call

August 08, 2013 11:00 am ET

Executives

Joseph Putaturo - Panama - Director of Investor Relations

Pedro Heilbron - Chief Executive Officer and Director

Jose Montero - Chief Financial Officer

Analysts

Jeffrey Eisenberg

Hunter K. Keay - Wolfe Research, LLC

Michael Linenberg - Deutsche Bank AG, Research Division

James D. Parker - Raymond James & Associates, Inc., Research Division

Eduardo Siffert Couto - Morgan Stanley, Research Division

Bianca Faiwichow

Scott Park

Pedro Balcão Reis - Santander, Equity Research

Stephen Trent - Citigroup Inc, Research Division

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings' Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being webcast and recorded on August 8, 2013. Now I will turn the conference call over to Joe Putaturo, Director of Investor Relations. Sir, you may begin.

Joseph Putaturo - Panama

Thank you very much, operator, and welcome, everyone, to our second quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings; and Jose Montero, our Chief Financial Officer.

First, Pedro will start with our second quarter highlights; followed by Jose, who will discuss our financial results. Immediately after, we'll open up the call for questions from analysts.

Copa Holdings' second quarter financial results have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss non-IFRS financial measures. A reconciliation of the non-IFRS to IFRS financial measures can be found in our second quarter earnings release, which has been posted on the company's website, copa.com.

In addition, our discussion will contain forward-looking statements not limited to historical fact that reflect the company's current beliefs, expectations and/or intentions regarding future events and results.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions that are subject to change. Many of these risks and uncertainties are discussed in our Annual Report filed with the SEC.

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

Pedro Heilbron

Thank you, Joe. Good morning to all. And thank you for participating in our second quarter earnings call. First, I would like to congratulate all of our coworkers for another solid quarter.

Thanks to their efforts, we have been able to grow and expand our network year after year, while continuously delivering the world-class product that our passengers enjoy and expect from us. Among our main highlights for the quarter: Revenues grew a very healthy 15% on 18% capacity growth. Traffic grew 20%, leading to an almost 2 percentage point year-over-year increase in load factor, partly offsetting a drop in yields that resulted mainly from an increase in average length of haul. Although unit revenues were down 2.5% for the quarter, they were actually up 1% when adjusting for a 7% increase in length of haul.

On the cost front, we were able to reduce our x fuel unit cost and also benefited from a drop in our all-in cost per gallon of jet fuel. As a result, we delivered a 16.5% operating margin, a 2.4 percentage point year-over-year improvement.

On top of this outstanding financial result, we continue delivering a world-class product with on-time performance for the quarter coming in close to 90%, again, among the best in the industry. In fact, in June, Copa Airlines was recognized by Skytrax World Airline Awards as Best Airline and Best Staff Service in Central America and the Caribbean, which recognizes onboard and airport customer service. We're quite proud of this award, which are given based on annual customer satisfaction survey, so they are a direct recognition for a well-done job.

During the first half of the year, we expanded capacity very strong 19% year-over-year. And demand was able to assimilate this capacity as traffic expanded by 20%. Although one might think that at the expense of yields nevertheless, when evaluating yields, one must take into account that we have added 15 new destinations in the last 2 years and that our average length of haul has also increased approximately 8% year-over-year. In fact, adjusting for this increase in length of haul, yields per RASM has increased year-to-date through June. That said, during the second half of this year, our year-over-year growth moderated substantially. During the third quarter, which is our high season, we expect to grow year-over-year capacity by approximately 10% compared to 27% in Q3 of last year. We expect this more moderate growth levels in Q3 and Q4, together with stronger seasonal demand to be positive for yield and load factor. In fact, our preliminary July figures point to marginally higher year-over-year unit revenues driven by higher load factor and stable yields. On top of that, forward bookings continue to point towards a healthy demand environment.

In terms of our expansion for 2013, last month, we executed the first phase of our growth plan, which included 1 new destination, Boston, as we work to increase frequencies to several markets. Boston, now our eighth destination in the U.S., is proving to be a very good addition to our network as initial demand has met expectations. In addition to Boston, we also increased frequencies to a number of destinations. For example, we added a sixth daily frequency to Medellin; Orlando and Punta Cana went from 3 to 4 daily flights; and we increased our flight to Port of Spain from daily to twice daily. The second phase of our expansion plan, which will be in launched in December includes 1 new destination, Tampa in Florida, which will be served 4 times per week as we work to increase frequencies to several markets. Some new frequencies which we have already announced are: An 8 daily flight to San Jose, Costa Rica. We will increase JFK New York from 2 to 3 daily flights. We will add 4 weekly frequencies to Las Vegas on top of the daily service we added in June of last year. And we will add frequencies to several other markets where we provide less than daily service. With the recent addition of Boston and Tampa in December, Copa Airlines will provide service to 66 cities in North, Central, South America and the Caribbean, strengthening its position as the most complete and convenient connecting point for intra-Latin America travel.

With regards to infrastructure, I'm pleased to mention that the Tocumen Airport South Terminal expansion is underway. This expansion, which will add another 20 jet bridges to our connecting center in the next 3 to 4 years will keep Tocumen at the forefront of airport capacity in our region and ensure that our hub has the necessary infrastructure to accommodate our future growth plan.

Turning to economic environment. The region's growth prospects have been cut back slightly, partly due to slower growth in Brazil and Mexico. Nevertheless, regional GDP is still projected to grow approximately 3% this year, with Central America expected to grow 4%, while South America and the Caribbean are estimated to grow 3% and 2%, respectively. With an expected GDP growth of approximately 8% for 2013, Panama continues to have one of the fastest-growing and most promising economies in the region, performing remarkably well amidst execution of large public investment infrastructure projects, ambitious private sector projects and very healthy domestic demand, which is being supported by higher employment and a growing middle-class. The long-term strength and growth prospect of Panama's economy should definitely benefit Copa in the coming years, while at the same time our network and regional connectivity increasingly contributes to Panama's prosperity through job creation, new opportunities for interregional commerce and trade, as well as the attraction of a growing number of multinationals that are setting up regional headquarters in Panama. As you can see from our recently released July traffic figures, where international traffic grew 16%, we continue to see healthy regional demand trends and are confident about our expansion plan and the market's ability to assimilate our projected capacity growth, while we take the opportunity to continue consolidating and expanding our network.

So to summarize, we're very pleased with our second quarter results. Our team continues to deliver world-class operational performance. We're further strengthening and consolidating our network. The regional economic environment remains strong, so we expect healthy load factor and yields during the second half of the year. And we look forward to another year of healthy growth and industry-leading results.

Thank you. With that, now Jose will go over our second quarter results.

Jose Montero

Thanks, Pedro. And good morning, everyone. Thanks again for joining us. First, let me begin by thanking all our coworkers for their efforts in running a world-class operation and delivering a very solid quarter, one in which we grew capacity by 18%, increased revenues by 15% and maintained very competitive x fuel unit costs, which along with lower fuel prices allowed us to deliver once again one of the strongest operating margins in the industry.

In terms of financial results, reported net earnings for the quarter came in at $74.4 million or earnings per share of $1.68 compared to last year's net income of $32 million or earnings per share of $0.72. Excluding the fuel hedge mark-to-market loss of $10.6 million, underlying net income for the quarter came in at $85 million compared to last year's second quarter underlying net income of $58.5 million, which excludes the fuel hedge mark-to-market loss of $26.5 million during that period.

With respect to traffic, revenue passenger miles increased 20% year-over-year, driving the load factor for the quarter to 75.3%, a 1.7 percentage point increase compared to last year's second quarter load factor. Nevertheless, a 4.6% decline in passenger yields offset our higher load factors and contributed to 2.5% drop in unit revenues. It is important to mention that adjusting for a 7% year-over-year increase in length of haul, yields for the quarter decreased only 1.2% and unit revenues or RASM actually increased 1%.

Operating revenues for the quarter came in at $592 million for a 15% year-over-year increase on 18% capacity growth, solid revenue performance during our low season. On the expense side, second quarter operating expenses increased close to 12% year-over-year, while cost per available seat mile decreased by 5%, mostly as a result of lower fuel prices. We also saw nearly 3% year-over-year improvement in our CASM x fuel, which came in at $0.067 for the quarter.

Moving on to our operating earnings. Consolidated operating earnings for the quarter came in at $97.7 million, growing 35% year-over-year and translating into an operating margin of 16.5%, well above last year's second quarter operating margin of 14.1%.

In terms of nonoperating income and expense, second quarter results reflect a net nonoperating expense of $15.3 million, consisting mainly of a net interest expense of $4.7 million and a $10.6 million loss on the other net line, mostly related to the mark-to-market of fuel hedge contracts. With respect to fuel hedges, we ended the second quarter with hedges for 38% of the projected volume for the second half of the year using crude oil and jet fuel swaps. 15% of our volume is hedged in jet fuel at an average price of $2.94 per gallon, and 23% in crude oil at an average of $89 a barrel. In addition, for 2014 and 2015, we had coverage of approximately 18% and 10%, respectively. Similar prices and using the same instruments.

In terms of fleet. During the quarter, we received 1 of our 7 scheduled aircraft deliveries for the year, which are all Boeing 737-800s. So we ended the quarter with a fleet of 86 aircraft, 42 737-800s, 18 737-700s and 26 Embraer-190s. During the remainder of the year, there are 4 scheduled deliveries, 3 in the third quarter, 1 of which has already been delivered, and 1 in the fourth quarter. So we expect to end the year with a fleet of 90 aircraft with an average age of approximately 5 years.

Turning to our balance sheet. We continue to strengthen the company's position. Cash and cash equivalents at the end of the quarter totaled $849 million, which represents 35% of last 12 months revenues. We also maintain a very favorable position in terms of leverage, with a total debt-to-equity ratio of 0.7x. Given our current and projected cash position, our Board of Directors have put a change to our dividend policy, increasing it from a maximum of 30% of the previous year's consolidated net income to a maximum of 40%. Additionally, our dividends will now be paid in a quarterly basis instead of yearly. The board also decided that it will start paying the quarterly dividend beginning in the third quarter of this year. So we will start by paying a third quarter dividend of $0.73 per share on September 16 to shareholders of record as of August 30, and we will pay another dividend of $0.73 per share on December 16. In summary, we will be paying a dividend of up to 40% of previous year's net income divided in equal installments during the months of March, June, September and December each year.

So to recap, demand for air travel in our region continues to expand and our health continues to attract a growing number of passengers. We had another quarter of solid capacity and revenue growth. We continue to be well positioned to achieve another year of strong earnings, and we continue to return value to our shareholders.

In terms of our guidance for 2013, given our performance during the first half of the year, the economic outlook in the region and current trends, we're updating our guidance as follows: we're expecting our capacity growth in terms of ASMs to be at approximately 14%; load factor is expected to come in at plus or minus 76%; we're keeping our RASM guidance of plus or minus $0.136; we're updating our CASM x fuel guidance to plus or minus $0.067; we're maintaining our effective fuel price assumption for the year, including into plane and net of hedges at approximately $3.20 per gallon. And as a result, we continue to expect strong operating margin for the year in the range of 19% to 21%.

Thank you. And with that, I'll turn it over to Pedro for closing remarks.

Pedro Heilbron

Thank you, Jose. Now we will open up the call for some questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Duane Pfennigwerth of Evercore.

Jeffrey Eisenberg

This is Jeff Eisenberg in for Duane today. When we're looking at your RASM comps in the second half of 2013 there, they're getting easier relative to the first half. Your capacity growth rates are stepping down pretty substantially. Why wouldn't we expect to see sharp increases in RASM in the back half of the year versus sort of the 1% to 2% type growth rates implied by your guidance?

Jose Montero

Well, this is Jose here. We believe that the yields would probably -- will be remaining flattish for the rest of the year. It's going to be slightly higher unit revenues year-over-year. You should take into account that we've put in 15 new destinations over the last couple of years and very strong growth for the last 24 months. With still half a year to go and our visibility for the latter part of the year is not necessarily yet as clear, so we're still maintaining our operating margin guidance between 19% to 21%.

Jeffrey Eisenberg

Okay. And also, it seems that foreign exchange would have held back RASM a bit in the quarter. So what would your RASM have been year-over-year in the second quarter on a constant-currency basis?

Jose Montero

Well, I don't think we have necessarily a RASM basis with the way that exchange rates were -- or effect to exchange rates, but what I can say is that we have a -- let me see what the impact of exchange rate was. The transactional was -- FX was $1.5 million in transactional exchange rate impact for us both in Colombia mostly. I think that overall our RASM, it was not material, I don't think, to RASM.

Pedro Heilbron

And demand has held up. We have not seen an impact on demand and bookings going forward look fine. So we haven't seen so far much of an impact from the currency devaluations to [indiscernible].

Operator

Our next question comes from Hunter Keay of Wolfe Research.

Hunter K. Keay - Wolfe Research, LLC

Can you give us a little more color on what's happening with the CASM x fuel? Was there any kind of timing benefit that pushed anything from 2Q into the back half? Really kind of wondering what's driving back half CASM x fuel up so much. And is it fair given the capacity deceleration into next year that a goal of yours is you're going to keep CASM x fuel flat in 2014 versus 2013?

Jose Montero

Well, for the second half of the year there indeed -- this is Jose here by the way -- there's some timing event that will come in line during the second half of the year, essentially driven by advertising activities that usually come in, in the second half. And also there's some higher maintenance reserves due to us having more leased aircraft coming in. For 2014, we have not determined yet our guidance, and we'll have that later on in the year. But as you know, we've maintained very competitive unit cost over time with lower than this. More of our aircraft are in the 737-800 family will be -- the unit cost benefit of that going forward.

Pedro Heilbron

This is Pedro here. But I would say, that at this point, a flattish CASM will be a fair assumption. But again, we'll have better visibility with our preliminary guidance at the end of the year.

Hunter K. Keay - Wolfe Research, LLC

That's great, very helpful. As you think about Copa over the next 3 to 5 years, how should we think about your airline evolving over the next few years? You just had a nice 3-year period here with 20%-plus capacity roughly. How should we think about this company evolving over the next 3 to 5 years? And what are going to be your targets? Is it going to be to sustain an EBIT margin around this 20% level? Is it going to be taking it higher? I mean, is it going to be -- sort of as capacity decelerates and these markets mature, your goal is to drive 50 bps of EBIT margin expansion a year or something like that? But just sort of talk me through the strategy for how we should expect this company to look as it evolves in a decelerating capacity environment.

Pedro Heilbron

Yes. So this is Pedro. We usually, when we answer a question like this one, we don't have a lot of exciting stuff to share because we're about doing like more of the same in a better way. So as we think over the next 3 to 4 years, we're going to be -- we're going to continue strengthening our hub in Panama, adding destinations and adding frequencies. Trying to keep our very high standards with world leading on-time performance. Very competitive unit cost, and we'll keep implementing technologies and other initiatives to keep our cost as low as possible. But it's all based on the same business model. No major changes, adding destinations, but also we have huge opportunities in terms of adding frequencies as our markets mature, given that there's still many destinations that we fly less than daily or where we fly just once a day, and we operate, as you know, out of 6 banks. So we have great opportunity there. In terms of margins, I mean growth is going to be more in the lower double-digit than what we've seen the last 3, 2.5 years, where we were speeding up growth, given all the opportunities we had. It's going to be more in the lower double-digit, but it's still going to be very, very healthy growth. And we expect to maintain margin pretty much where we've averaged them in the last few years. I don't think we should expect increased margin. We already have world-leading margins. So expecting to take them above that maybe will be a little bit too much.

Operator

Our next question comes from Michael Linenberg of Deutsche Bank.

Michael Linenberg - Deutsche Bank AG, Research Division

Just a couple of questions here. Can you talk about maybe some of the -- maybe some of the share or flows that you may have seen with TACA shutting down the San Jose, Costa Rica hub? And I guess presumably, the fact that you're going to an eighth frequency, which I can't think in the history of Copa if you've actually ever had more than 7 daily frequencies in a market. So this sounds like a new record. Is that predicated on the fact that there were flows and passengers going to that market that may be now could be better served over the Panama hub? If you could elaborate on that, that would be great.

Pedro Heilbron

Okay. Eighth frequency is probably the most we've flown to any particular destination. Their San Jose hub was not -- was their weakest hub. And really didn't compete that much with us. So there will be some benefit. You could say part of that eighth frequency might serve some of that market, but we do not expect to see a material benefit from them. We do think they're flying in San Jose. We're not expecting a material difference or a material benefit. It will be slight at best.

Michael Linenberg - Deutsche Bank AG, Research Division

Okay, good, Pedro. And then my second question, and this is probably more for Jose. You have airplanes coming in later this year, obviously, airplanes next year. We've seen interest rates move pretty meaningfully of late. How are you financing airplanes in 2013, over the rest of 2013 into 2014? Does sale-leasebacks make sense? Have you considered maybe doing something in the double ETC market? We're seeing a lot more international carriers look more closely at that market as that market has opened up. Just any thoughts on that, Jose?

Jose Montero

Yes, so the aircraft that we're taking delivery of this year are all sale-leaseback transactions. And so we -- for a couple of reasons, one of them also being the fact that it brings balance and flexibility to our fleet. And for us has been a good method for this year. We are evaluating always different opportunities and the different alternatives that are out there for us for financing aircraft. And so next year, next year, we have 8 units coming, of which there are 4 that are owned aircraft, and we're in the process still of determining what is the best, most positive way to finance the aircraft. But you know, historically, we've done Ex-Im financing. There's been several avenues for us that are available.

Operator

Our next question comes from Jim Parker of Raymond James.

James D. Parker - Raymond James & Associates, Inc., Research Division

I have a question regarding the rather substantial amount of cash you have in Venezuela, and I believe Venezuela is like 8% or less of your revenue, but 32% of your cash is there. Is there something going on -- 2 or 3 years ago, it was $100 million. So now, it's like $273 million. Is there any concern there that they're holding your cash and won't repatriate it?

Jose Montero

Jim, thank you for your question, this is Jose. We have been able to repatriate our funds from Venezuela. It just takes time. The process with the government takes time. A lot of -- so the important thing is that we'd be repatriating funds at the official exchange rate. And so there is a lag in the amount of time that -- from the time that we file our request for repatriation until the government pays. But up to now, we've been able to get the funds out.

James D. Parker - Raymond James & Associates, Inc., Research Division

Has the time lag increased?

Pedro Heilbron

Jim, this is Pedro. It has increased a little. Not a lot. I mean, it's pretty much the same as it was maybe last quarter. But more than what it was a year ago. Maybe it has increased by a couple months. Our revenues have increased quite a bit also. Yes. So again, it's a matter of timing. The money will come out. It just takes its time.

James D. Parker - Raymond James & Associates, Inc., Research Division

Okay. And just looking at your growth. You're talking about perhaps low-double digits like 11%, 12% something like that. But next year you have only have 4 aircraft, so like 4% increase in the fleet and then you will have a longer trip length. I'm curious, are you going to lease some aircraft? Or is it only going to be a net of 4 aircraft next year?

Pedro Heilbron

Right. So yes, we will -- again, we haven't given guidance for next year yet, official guidance. So we're giving you kind of a directional indication of where we're going. So we would be -- we have lease expirations, which in that number, in the 4 net number, we have 8 new deliveries and 4 aircraft we're returning, 4 leased aircraft we're returning. So to achieve the lower -- the low-double-digit growth, we will have to retain all or some of those leased aircraft. And we hope to make that official in the coming months, update our fleet projections and then give official guidance or preliminary guidance towards November of this year. But we would have to retain some of those leased aircraft. And that's what we will do instead of leasing a new aircraft.

Jose Montero

And of course, there's some timing related as always in terms of the aircraft that are coming in later in the year that will be operational in the fourth quarter of the year, and the full year effect of those aircraft for next year is significant as well.

Operator

Our next question comes from Eduardo Couto of Morgan Stanley.

Eduardo Siffert Couto - Morgan Stanley, Research Division

Most of my questions were already answered, but I would like to touch base just a little bit on South America. Have you guys seen any slowdown in South America, especially Brazil given the recent currency depreciation? And if you could also tell us, how much Brazil represents of your total ASM, that would be helpful also.

Pedro Heilbron

Okay. I'll answer the first part and then Jose will look up the second part. We have not seen a slowdown. I mean, in general terms, our demand is where we expected it to be, and the forecast looks okay. So we, again, we have not seen a slowdown that we can attribute to a currency devaluation or the economic slowdown.

Jose Montero

And in terms of our revenue it's around 13% of our revenues are Brazil, related to Brazil.

Eduardo Siffert Couto - Morgan Stanley, Research Division

13, 1-3, Jose?

Jose Montero

1-3.

Operator

Our next question comes from Bianca Faiwichow of GBM.

Bianca Faiwichow

Can you comment what is the CapEx involved in the firm orders for the 37 aircraft that you have? And when do you expect to receive it? I mean, in how many years?

Jose Montero

So the CapEx for this year is around $168 million. Also you have to remember that this year, most of our aircraft are -- have been acquired via sale-leaseback transactions. So that's the reason behind the CapEx figure for this year.

Bianca Faiwichow

Yes, but in regarding this firm orders that you have for 37 aircraft. What can we expect in the coming years? If you can comment, please.

Jose Montero

Okay, so for 2014 for example, our CapEx figure is probably going to be around $280 million, mostly related to PDP [ph] funding of these aircraft. So you could expect then, we're having 4 purchased aircraft next year. So you can make that -- take that as an assumption.

Bianca Faiwichow

Okay. Perfect. And these 37 aircraft, when do you expect to receive? I mean, in how many years? Just to have an idea.

Jose Montero

Aircraft per year. So for next year, in 2014, we have 8 deliveries of which 4 are leases and 4 are owned aircraft. As Pedro mentioned before, there are 4 737-700s that are coming off lease next year, and we're in the process of evaluating whether we maintain those going forward. And then in 2015, we have 6 aircraft coming in, in our skyline. And then, in 2016, we have 7 aircraft in our skyline.

Bianca Faiwichow

Okay, perfect. And just to complement Eduardo's question, can you comment a little bit more about your international demand breakdown? I mean, which region is doing better?

Jose Montero

So our demand, we're in the middle of a high season right now. We haven't really seen any impact to our demand. So demand obviously in the coming months looks okay also. We haven't really seen a significant impact to it.

Pedro Heilbron

And this is Pedro. Yes, it looks normal right now. Maybe it's a little bit too early to know what's going to happen in November and December towards the end of the year. So we'll know that probably in a few months.

Operator

Our next question comes from Daniel McKenzie of Buckingham Research.

Scott Park

This is Scott Park calling in for Dan. So it sounds like there are some IT projects that you're initiating later this year. What are the projects exactly? And are they going to be big enough to impact margins in the back half of the year?

Jose Montero

Well, there are a couple of projects that we have, both on our passenger experience side and also in the back office side on the house. These are projects that have been designed over the last 6 months and are going to start implementing in the second half of the year. So as I mentioned, just to summarize, the projects associated with passenger experience at the airport, et cetera. Always investing in our copa.com website, and there's some back office-type IT investments also coming online.

Scott Park

Okay. And it looks like your #1 growth route this year is Panama to Cancun, but our question is not so much about the route. It's really about the visa situation in Mexico. Our understanding is that it's nearly impossible for ordinary Latin Americans to get a visa to travel, not just to Mexico, but to many of the destinations you serve. And Colombia is obviously doing a lot to tackle their social problems. And so it's in a much different place than it's been historically. So more broadly, is there something that Copa or I guess even the Panamanian government can do to relax the visa restrictions to many of the destinations you serve?

Pedro Heilbron

Yes, actually visa restrictions have been greatly relaxed in the last year, 2 years maybe in some cases, in the last few months. For example, Mexico no longer requires visas for Colombians or Brazilians. That's a fairly recent development, which has obviously aided traffic. As we go into new markets, for example, when we started serving Montego Bay, we got the Jamaican authorities to agree to lift visa requirements to Colombians and other nationalities. Panama is pretty liberal in terms of visa requirements for other Latin American countries. So there's been, I would say, a significantly relaxation of requirement, which has helped traffic throughout the continent and for all carriers, not only for Copa.

Scott Park

And to follow-up on that. It's kind of a Mission Impossible question to answer. But what kind of demand is ultimately unleashed?

Pedro Heilbron

Can you -- your question came a little bit...

Scott Park

What kind of demand are you seeing with the relaxations?

Pedro Heilbron

Well, yes. Yes, we're seeing, I mean, you just mentioned 1 market that had seen a greater demand and when we went into Montego Bay, we were able to double frequencies in a short time span. Thanks to that visa relaxation, Panama does well. It has a direct correlation between traffic and visa requirement. So it's been good for intra-Latin America traffic.

Operator

[Operator Instructions] Our next question comes from Pedro Balcão of Santander.

Pedro Balcão Reis - Santander, Equity Research

This is Pedro Balcão from Santander. My question is, with a such strong deceleration in supply implied in your full year guidance of just 14% increase in ASM. If we should expect an acceleration in load factor or an increase in yield or any combination of the 2 in the second half of this year?

Jose Montero

So this is Jose here. So what we're seeing for the second half of the year, again, we're seeing flattish yields and slightly higher unit revenue. And of course, as I mentioned before, there is still the latter part of the year where visibility will come in probably a little bit later in terms of understanding what the demand trends are going to be.

Operator

Our next question comes from Stephen Trent of Citi.

Stephen Trent - Citigroup Inc, Research Division

Just 2 questions for me. The first is, your long-term fleet strategy. I mean, as we move through time, what are your thoughts with respect to owning versus leasing, considering sort of new aircraft on the way out and what might be any potential residual value impact on today's planes?

Jose Montero

So this is Jose here. For now, I think that we're going to maintain our own-lease balance. I think that the 737 NG has proven to be a great asset in both in terms of its performance and unit cost and its reliability. And so therefore, we believe that going forward, we will continue with kind of the same trend that we've been following in balancing out owned versus leased aircraft. Of course, in the last couple of years, we've increased somewhat the number of leased aircraft that we have in our portfolio certainly to bring some balance. And right now, we're around 70% of our fleet being owned and 30% leased. So I think that's probably what we'll continue to do over time.

Stephen Trent - Citigroup Inc, Research Division

And just one other question. I saw in the quarter at least the effective taxation had come in moderately below our expectations, and I'm wondering if there's any sort of color and sort of guidance on how we should think about taxation over the next quarter or 2.

Jose Montero

Yes, Steve, our tax rate for the first half was around 10.7% effective tax rate, and there's some timing in just the way that the taxes are filed in Panama. And so for the second half of the year, we are -- our effective tax rate is going to be around 16.8%. It should come to an average for the year of around 13.7%. So there's, as I mentioned, some timing in terms of some of the tax payments that are made specifically here in Panama.

Operator

And at this time, I'm not showing any further questions. I'd like to turn the call back to Pedro Heilbron for any further remarks.

Pedro Heilbron

Okay, perfect. Thank you. Thank you, all. This concludes our second quarter earnings call. Thank you for being with us, and thank you for your continued support. We will see you next time. Have a great day.

Operator

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

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