Copa Holdings SA (NYSE:CPA)
Q2 2008 Earnings Call
August 14, 2008 11:30 am ET
Joseph Putaturo - Director of Investor Relation
Pedro Heilbron - Chief Executive Officer
Victor Vial - Chief Financial Officer
Jim Parker - Raymond James
(Nick Howell) - Morgan Stanley
Daniela Bretthauer - Goldman Sachs
Keith Weissman - Calyon Securities
Steve Trent - Citigroup
Michael Lindenberg - Merrill Lynch
Please standby we are about to begin. Ladies and gentlemen thank you for standing by and welcome to Copa Holdings Second Quarter 2008 Earnings Call. During the presentation all participants will be in a listen only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions). As a remainder this call is being webcast and recorded on August 14, 2008.
And now I would like to turn the conference over to Mr. Jo Putaturo, Director of Investor Relation. Sir, please go ahead.
Joseph Putaturo - Director of Investor Relation
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 Victor Vial, Chief Financial Officer.
First, we will open up with an overview of our second quarter highlights, followed by Victor, who will discuss our financial results. Immediately after, we'll open up the call for questions from analysts. We kindly request if you could limit yourself to one question with a good brief followup so we can accommodate most questions.
In today's call, we'll discuss non-GAAP financial measures. A reconciliation of non-GAAP to GAAP financial measures can be found in our second quarter earnings release, which is been posted on the company's website Copaair.com.
In addition, our discussion will contain forward-looking statements not limited to historical facts that reflect the Company's current beliefs, expectations or intentions regarding future events or results.
These forward-looking statements involve risk 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 would like to turn the call over to our CEO, Pedro Heilbron.
Pedro Heilbron – Chief Executive Officer
Thank you, Joe. Good morning and thank you for participating in our second quarter earnings call. First of all, I would like to thank and congratulate all of our co-workers for delivering another very solid quarter. We continue to delivering this relating result perhaps with effort and commitment. As you know, these are difficult time for our industry. Unfortunately all initiatives our team has made in the past and their continued focus in the future are paying up now. Our result would most likely be very different today if we did not have one of the youngest and most efficient seat in the America, if we had not sit in place through a conservation and other technological initiatives such as the early adoption of Blended Winglet in our Boeing and Embraer fleet, and pioneering the implementation in our region. If we had not invested n our pilot trading center which has allowed to recruit and develop pilots locally. If we have not developed the most convenient network for intra-Latin American and travel, all of our coworkers were not continuously looking for cost efficiencies without sacrificing our award winning customer experience.
These are only a few of initiatives that despite today’s difficult environment for the industry allow our company to consistently deliver industry leading financial and operational result.
With this said, I am pleased to highlight that for the second quarter Copa Holdings recorded net income of 30.4 million or diluted earnings per share of $0.70, despite a 56% year-over-year increase in fuel prices. This came as a result of exceptional revenue growth which increased nearly 27% above second quarter `07, on 11% capacity growth with Copa Airlines capacity growing 17% year-over-year, and we ended the quarter with a very healthy balance sheet and liquidity position.
On the operational front, Copa Airlines once again delivered leading on time performance and completion indicator with on time performance coming in at 89% and flight completion factored 99.7%.
Moving to second quarter, Copa Airlines took delivery of three aircraft two Embraer-190 in April and May, and a Boeing 737-800 in June. Copa Airlines currently have three to four aircraft with an average eight or four years, and Copa Holdings consolidated fleet including as of AeroRepublica currently compose of 52 aircraft.
In May AeroRepulica added new direct daily service to Caracas Venezuela from the Columbian fleets of Bogota and Marine. These two new routes to Caracas represent another step forward in AeroRepublica trend to increase its participation in Columbia to international market and its continued effort to provide more and better options for our passenger.
O n June30th, Copa Airlines announced new services from Panama and connecting cities to Belo Horizonte, Brazil beginning later this month. Also few days ago we announced service to three additional destination Valencia and Venezuela, Santa Cruz, Bolivia and Island of Aruba. With this destinations by the end of the year Copa Airlines will provide service to 45 destinations in 24 countries in the America. By far the most expensive and complete network for Intra Latin America travels. We continue to makeover half of the America the most exhaustive and convenient connecting point within our region.
More recently, and as part of our future growth plans in July Copa Airlines announced an order for two Boeing 737-800 aircraft to be delivered in 2010 and 2011. We now have a total of 13 front and 15 options in place for Boeing and Embraer Aircraft. Also in July Copa Airlines received its new Embraer 190 flight team leader become the first Latin American Airlines who have both Embraer 190 and Boeing 737 flight team leaders. This valuable trend device will now enable us to provide training to our Embraer cruse locally saving time and money.
Now looking at the current business environment, I am pleased to say that economic and the region continue to grow and we expect strong demand for the remainder of the year. Latest growth forecast for Latin American call for GDP growth of between 4 to 5% at Columbia expected to grow at 8 and 6% respectively. This help the economic backdrop have you let increasing load factors with Copa Airline which represents the both of our capacity coming in with the load factor of 78% during what traditionally its our low season quarter.
Looking ahead at the third quarter, we continue to see healthy traffic numbers. In fact, on Monday we released our July traffic figures where Copa Holdings load factor increase almost one percentage point to 81%. With our core business Copa Airlines coming it close to 85% on a 15% capacity growth. This strong underline demand is facilitating revenue management initiatives and setting these stage for good top line performance in the third quarter which will helpless in the impact of incremental cost related to extraordinary run up in fuel during the quarter.
We are extremely pleased about the new environment and the performance of the company. Keep in mind that Copa Airlines network has increased from 30 to 41 destinations in the past two years and accumulated significant capacity growth. We are still delivering industry leading margins as well as still operational performance.
In addition we maintain a very solid balance sheet with ample liquidity and adequate leverage. So over the industry as the whole it’s facing a difficult situation, we are well positioned to Weatherly strong and come out ahead. We remain now more than ever focused on the long term growth and profitability of the company. Our strong financial and compare it that position at flexibility as in the past to gain distance from our competitors and strengthen even more our position. In fact our previous operational plan did not contemplate the opening of the Aruba, Valencia and Santa Cruz during the second half of this year. The anticipated launch of this new destinations are considered effort to see the opportunity to further consolidate our network in half. Copa will now be serving five new destinations this year.
Third Port of Spain which we began in March, so far load factors have exceeded our initial expectations and we’re already planning to increase frequencies from (inaudible) to daily later this year. Our second destination Belo Horizonte Brazil which we will begin service to this month will be our fourth Brazilian destination. Even though the third largest city in Brazil within metropolitan area population an excess 5 million is not well connected to a region especially for Central America and the Caribbean. Aruba complementary network nicely special in South America where it’s a very popular destination.
Our fourth destination plan for this year is Valencia Venezuela, Valenica would have population of 1.5 million so the third Venezuelan city after Caracas and Marcaibo, and one of the country's main economic centers containing some of it's top industries and manufacturing companies. And finally, Santa Cruz Bolivia will represent Copa 20th South American destination. Santa Cruz and is another important cities which is also not well connected with our region. It is the most popular city in Bolivia as well as the capital of one of its most productive departments.
Our current operation plan Copa Airlines holds for capacity group of 17% compared to our previous growth forecast of 19%. This select reduction comes partly as a result of optimizing capacity in multiple frequency destinations during our low season month, as well as some delays in obtaining alternative services and ramping up service for flight we are planning -- we were planning to start earlier in the year.
With regards to AeroRepublica we expect the capacity reduction of a approximately 9% compared to 2007, mainly as a result of changes in the operational plans driven by the reduction in frequencies and some marginal domestic routes even impressing fuel prices throughout the downgrade to Embraer-190.
In terms of financial results for the second quarter AeroRepublica reported a 2.8 million operating loss and while it’s seasonally its weakest quarter. Although top line growth was healthy the airlines operating results were affected by increase fuel cost and the timing of major overhaul events related to MD-80 fleet. However, given the dynamic and seasonality of the Columbian market, we still expect AeroRepublica to come in with an operating profit for the year, despite record high fuel prices and still flying approximately half of the ASM in less deficient MD-80, which as we have mentioned are due to exit entirely before the end of the next year.
So to recap, Copa Holdings second quarter was marked by healthy demand and capacity growth, strong yields for both Copa and AeroRepublica, a challenging through tough environment and continued execution and strengthening of our business model.
Looking ahead although we expect margins to be affected as a result of continued record high fuel prices, we believe the outlook for the year is still very positive on a standalone and even more on a relative basis.
As I mentioned before we remained confident on our ability to continue driving unit revenues higher to mitigate this adverse fuel cost environment. This will be driven to a large extent by the continued preference of our network for Intra-Latin America travel.
So thank you. Now I will turn it over to Victor, who will go over our second quarter financial results.
Victor Vial - Chief Financial Officer
Thank you Pedro and good morning every one. Thanks again for joining us. Let me start again by joining Pedro in thanking all the men and women in our team for their efforts and especially for wavering commitment to running a world class airlines.
I'm pleased to report that despite record high fuel prices our team delivered another quarter of solid results with Copa Holdings net earnings for the second quarter reaching approximately $30.4 million, which translate to diluted earnings per share of $0.70. Second quarter results were achieved in spite 56% year-over-year increase in the price of a jet fuel, which mitigated its average $3.47 per gallon in Q2 '08 compared to 2.22 in Q2 '07, resulting in $37 million of additional fuel expense.
We continued expanding capacity during the quarter with Copa Airlines which accounted for 83% of Copa Holdings total available seat miles delivering another quarter of strong growth with 17% year-over-year increase in ASMs.
Generally we continue to see strong demand for air travel and the markets we serve as economic growth in Panama as well as the rest of the region remains very strong. This allowed for another quarter of increased unit revenues at Copa Airlines where revenue for available seat mile, RASM climbed nearly 12% year-over-year driven by higher low factors which reached 78.3% for the quarter together with an outstanding 9.4% increase in yields.
AeroRepublica, which accounted for the 17% of Copa Holdings totally a cents decrease available seat miles of 10% compared to the second quarter of '07. Passengers revenue backing of miles decreased 4.3%. Consequently AeroRepublica load factor in Q2 '08 is slow season quarter increased 3.4 percentage points to 56%.
Unit revenues at AeroRepublica increased nearly 30% mainly due to stronger yield which showed an 18% increase compared to Q2 '07, most of these yield gains were the result of the strengthening of the Columbian currency against the US dollar on a year-over-year basis.
Yield on load factor gains led to higher operating revenues for Copa Holding, which for the quarter generated $298 million of operating revenues or 27% increase over Q2 '07. both segments showed strong revenue growth with Copa Airlines operating revenues increasing 31%, while AeroRepublica delivered a 16% increase. Passenger revenue for Copa Holdings which accounted for 94% of total operating revenues, so an increase of 27% from $221 million in Q2 '07 to 281 million in Q2 '08.
On the expense side, operating expenses increased 36% year-over-year or approximately $70 million, while unit cost or cost for available seat mile capital increased 22% year-over-year to $12.07.
However, excluding fuel unit cost increased 6.9% year-over-year to $7.08 mostly as a result of additional MD-80 maintenance events, a stronger Columbian currency and the effect of downgrading to an Embraer-190 fleet at AeroRepublica.
Now turning to Copa Holdings main operating expenses compared to the second quarter of 2007, fuel expense increased 75% driven by an 11.7% increase in gallons consumed due to increased capacity and a 56% increase in the average cost of fuels net gains.
Salaries and benefits increased 13%, mainly as a result of an overall increase in operating headcount to support increased capacity and the effect of the Columbian currency appreciation.
Passenger servicing increased 23% driven by an increase in passengers carried by Copa Airlines, more international service offered by AeroRepublica and the effect of the Columbian currency appreciation. Commissions increased 6% for more part a result of a 27% increase in passenger revenue, mostly offset by a lower average commission rate in both Copa Airlines and AeroRepublica.
Reservation and sales increased 19% mainly due to more passengers carried by Copa Airlines. Maintenance, materials and repairs increased 21% mainly due to more scheduled major maintenance events at AeroRepublica related to their MD-80 fleet.
Depreciation increased 23% due to additional aircraft repairs. Aircraft rental increased 29% primarily related to least aircraft supplemental rent and additional least Embraer 190 at AeroRepublica. And on flight operations, landing fees and other rentals combined increased 33% mainly as the result of increased capacity and higher crew related expenses.
Other operating expenses increased $1.6 million or 12.5% year-over-year and other non-operating income and expense totaled a net operating income of $2.7million. The main component of which are net interest expense of $6.7 million and a $5.7 million gain related to mark-to-market fuel hedge contracts.
In terms of operating earnings the company produced $31.2 million of operating profit a $7.8 million decrease compared to Q2 ’07, while operating margin came in at 10.5%. The recently Santa flight job compared to Q2 ’07 we’re extremely pleased with a capacity of our business model to continue delivering margins that are not only industry leading today, but would be consider outstanding before fuel prices became a major concern for the industry.
With respect to fuel hedges Copa Holdings had 18% of the second quarter volume hedge to jet fuel swaps and crude oil collars, and 25% for the second half of the year using the same instruments. We have also hedged a portion of our `09 volume having hedged 25, 19 and 10% respectively for the first three quarters of next year.
Now moving on to our balance sheet, assets and owners equity at the other quarter reached 1.9 billion and a 592 million respectively, while debt and capitalized leases totaled $1.2 billion.
Bank debt at the end of the quarter totaled $896 million 45% is US bank guaranteed debt. 41% of our total debt for 12 years and the average blended rate including fixed and veritable rate debts for the second quarter came in at a very competitive 4.3%. In terms of liquidity the company maintains a strong position with $347 million in cash and cash equivalent at the end of the second quarter, which translates to approximately 30% over the last 12 months revenue.
So in summary demand for air travel continue to strong, our model continues to deliver healthy margin despite record high fuel prices. We are pleased with our ability to continue growing our top line fuel and load factor gains, our liquidity position balance here are very solid and we will maintain our focus as always in expanding our networks profit earnings.
Looking forward to the rest of 2008 and based on our revised outlook for jet fuel prices, we are bidding our 2008 guidance as follows. We are revising our full year capacity guidance of $9.1 billion to plus or minus 8.8 billion, which compared to 7.9 billion as a cents in ’07 for an 11% year-over-year consolidated growth.
On a segment basis, Copa Airlines would be growing at 17% year-over-year while AeroRepublica will decrease 9% as a result of rationalizing domestic capacity and downgrading to an Embraer-190 fleet.
We are increasing our load factor from 75% to 76% also approximately 74% in `07 as we expect demand for travel to continue strong for the remainder of the year. We anticipate a healthy fair environment as such our RASM guidance has bee revised from $0.14.2 to plus or minus $0.14.6 compared to $0.13 in `07 for a 12% year-over-year increase.
In terms of unit cost we are maintaining CASM- ex-fuel guidance at $0.7.5 compared to $0.7.1 in `07 despite of a slight capacity reduction in our current guidance and lastly we are maintaining our operating margin guidance in the range of 15 to 17% compared to 19.2% last year. Though we now expect to come in at the lower end of this range as we are now assuming an average price for jet fuel for year of $3.17 US force compared to the 298 in our previous guidance. With that I will turn over to Pedro for closing remarks
Thank you, Victor. And again thank you all for joining us today. At this time we will be happy to open up the call for questions.
Thank you, sir. (Operator Instruction). We will take our first question today from Jim Parker with Raymond James.
Good morning gentlemen. Just quick question. Victor, it appears that you will have a bit more pricing power than most airlines and that you have been able to raise fares sufficient to offset much of the increase in fuel prices. I think in January at your Investor Day you indicated that perhaps 94% of the fuel price had been offset, where are we would fill at a 115 – have you fares than risen, raised sufficient to offset fuel at that level or how does that stand
Somehow I know you will be the first one to ask the question and that in that will be first question you would ask to. Right now we are standing at around 70% or so, when you take in account not only the fuel surcharges, but also fares, because we managed both, and I think that’s especially pleasing for all this that we have been able to do that and still we see very healthy load factors, so we haven’t reached a point that this in point where e you raised fares and you start seeing demand decrease. So looking forward and what embedded in our guidance is that we expect to be able to keep passing the additional cost of fuel to our passengers and somewhere in the range of the 70 maybe a little bit higher than that to cover additional cost.
Okay, I think Brian has a question as well.
Yeah, thanks just on the fuel hedge for the back half, I am wondering what the specific percentages are for the third quarter and the fourth quarter, and what price you’re hedged at, and the 317 for the year does that include taxes and fees? Thanks.
Yeah. For the third quarter we’re hedged approximately 25% of our total volume, if you look at from our Copa Holdings prospective, and for the fourth quarter that’s always in that range around 25%. We will be hedging using jet fuel swaps earlier on, and the contact we have with Jet fuel swaps have a range in the price of approximately 240 or so for both quarters more or less, and Jet fuel swap to be seen around 13% for the third quarter and 9% for the fourth quarter of the total volume that we have hedged jet fuel swaps. And recently what we have been doing more is hedging a crude oil collars given hard print that we’ve gotten to hedge, and we have around 13 to 15% of our volume in Q3 and that’s what in Q4 hedge somewhere in the range of around $115 to $150 and that will be the with floor of 115 and ceiling of 150.
That’s great thanks. And then just on a 317 is that including the taxes and fees in your guidance?
No, that is US Gulf Coast.
Okay, thank you.
And we will take next question from (Nick Howell) with Morgan Stanley.
Hi guys first question has to do with change in guidance, is it right to say that its really the softness in Columbia that you abating the guidance change on that we’re probably seeing less ASM increase in Columbia than we are seeing -- than we expected previously and. And then if you could comment just a little bit on the Columbia market in general, is AeroRepublica’s performance reflected of what’s going on the market or is doing better or worse and what’s going on in the market particularly the incumbent carrier there and I am just curious to figure out whether what we are seeing in Columbia domestic market is and a weak market or a market that’s doing okay, but maybe ARS is experiencing some problems?
Thanks Nick this is Victor. In terms of capacity guidance, its basically coupled more with a Copa guidance, and its basically a function of two things one is as we mentioned in our first quarter earnings call we’re going to do as much as we need to a optimizational capacity in the low season month and when fuel reaches a $130, $140 we are going to be aggressively looking, especially at markets where you have multiple frequencies. And as you can see in our load factors, our load factors are very healthy and we have made some adjustment that we expect to make some additional adjustment, but also beside optimizing capacity we had related an expected launch dates for Sundrop which someway are starting now, which were suppose to have quarter before and we are expecting some to start later in the fourth quarter and the impact has been to bring down ASMs from 9.1 to 8.8 billion ASM. So that’s really what behind it on the Copa side and the AeroRepublica side.
Does that mean you are pushing off some capacity growth till next year, I mean, the more we delay or is it a change?
It’s a delay and basically what you will see next year is full year effect of what we are doing this year. So it will have an impact with a result of that.
And in terms of – this I Pedro, I think in terms of AR is doing, the domestic market in Columbia has not been growing that fast, its growing on 2.6% year-over-year in `08 and they did have a weak April, you saw that in the traffic release of April. Over wide AR has been doing okay, after that and even before that we just had a very, very weak April, but we are with their contribution to Copa segment and to Copa Holdings. And as they are growing more internationally we have been lately, we expect that contribution to increase and we will be even happy. So I think we are in the right track although, yeah, we had a weak April and we could have seen stronger results overall in the second quarter.
And what’s your outlook there just generally speaking in Columbia next year and conditions improving or the currency situation brought a strong currency?
The currency situation its anybody get, the economy is doing well and the outlook for Columbia seems to be positive, you ask also for anyone else and we feel their interesting opportunities we are not growing capacity that much, actually we are reducing it a bit to explain and mainly due to the downgrade and we are going to keep it in the future pretty stable, we don’t expect big changes there. So I think that will give them a lot of room to improve on their result. Also on the operational side they have been doing very well. And they’re in fact reaching our standard. So we are still very bullish with what we’ve got. I had mentioned before their contribution to Copa Holdings is very valuable.
Excellent. Thank you.
And we will take our next question from Daniela Bretthauer with Goldman Sachs.
Hi good morning. Just wanted to go back year-over-year environment I mean, so far you’ve done a pretty good job increasing your yield on a sequential basis in both year-on-year, but how much of fares have gone up year-to-date and how much is fuel surcharge mechanism?
I would say if you look at our second quarter RASM, for ASM and look at the increase so about half of that increase is a result of the fuel surcharge and the other half roughly is a result of increased fares, and obviously that’s an average and it will depend on different markets?
Okay. And how much more do you think your use can increase from where they are or where they ended in the first half?
For that invented in our full year guidance for RASM and we also gave you a low cycle , but directionally what I can tell you is that in the remainder of the year we expect yields to remain pretty steady. But keep in mind when you compare on a year-over-year basis third quarter last year you may recall we have validated management issue. Obviously you will see a big increase on our year-over-year raises for Q3, and then for Q4 you won’t see that big gap, it will be more steady with having increased -- shown the increase that we shown in Q1 and Q2 over Q4.
And your guidance, your operating margin guidance for full year, what sort of all you assumptions are you factoring to get there because I mean, obviously it looks a big challenging?
Right now we are assuming at least 17 US Gulf Coast, and its based on the four curve of this rate, and we all know how that’s been moving in the past, and a few weeks ago people already were talking about $180, $200 oil, and now that people are talking about $80 oil so, we will see.
So if it’s least damp then you’re comfortable with the 16 to 17%?
That’s what we are basing our guidance on.
And when does AeroRepublica -- last question, when does AeroRepublica actually because they had a loss, does it become trustable already in the third 3Q I mean, based on what you’re seeing so far in July and August?
Well the second half of the year it’s a little stronger than the first half. So we have always seen and we expect an improvement during this third and fourth quarter, and I think we mentioned during the call that we’re expecting that to have – to come in with a positive operating profit for the year.
And also just – you had some lets say maintenance expenses in the second quarter, how much of that would you say, lets say non-recurring but higher than expected or do you think your non-fuel task can stabilized?
Victor is trying to see if we have any number with that. But a lot of it, to see if we can..
There was an MD -80 and…
MD-80 stock is non-recurring to our point I mean, it will be non-recurring once the MD-80 have gone, it will begun by the end of ’09, and what happened this year compared to last year was just a matter of timing, we’ve had a number of major airplane inspection and engine event that we did not have last year again, that’s pure timing and we exit that fleet which would happen by the end of '09 we will be with an all new Embraer fleet where the maintenance inter also going to be longer. So we expect an improvement, we have a breakdown however…….
Well, its early speaking what we can say is, in terms of the 190 where we place the MD-80, we expect the CASM obviously to be higher the result of the 190 having less seats. So its somewhere in the range of 11, 12% CASM versus the MD-80, however, on the flip cost per work over basis it will be around 20, 22, 23% lower than the MD-80. So we do expect to see the benefit of four Embraer-190 fleet as we give really not four MD-80s in the second half of next year.
And we will take our next question from Keith Weissman with Calyon Securities.
All my question have been answered. Thank you.
Thank you sir
Thank you Keith, it sounds great.
(Operator Instruction). We will go next to Steve Trent with Citigroup
Good morning gentlemen.
Hi Steve how are you?
Hi, good thanks I am almost in the same board as Keith Weissman did not quite. Forgive me, I missed one piece of the call when you were talking about pilot, but just a quick question there looking at your plans going into these new routes sort of over the second half of this year, and in the 2009, could you just provide an update on your situation in terms of pilot availability and forgive me if I miss what you already said.
I actually did not mention that you saw intimated. Now, we have been very successful in hiring and training all the pilots we need. And in fact, that we now have two simulators here in pattern of both Embraer and the Boeing team leader gives us a lot of flexibility. So we are fine there, and we’ve solved that issue and we are being very successful again in hiring and training all the pilots when need.
That heard from one or two my industry context that some of your competitors perhaps group of Taka have be one or two other guys have cut back a little bit. Are you seeing to some degree, some better availability as some of your competitors have may be lighten their employee ranks a little bit?
I mean, directly we have never hired away from them, and some of those competitors are trying different fleet, I am not sure we have been looking in the same fleets for pilot, but may be that has to do with a – overall that’s happening in our industry worldwide, and the fact that we have strong result and we run a very good airline and we are basing and attract it concrete, so it maybe a combination of load factors makes it easier for us to find, train and retain the necessary pilots.
Okay, fair enough thanks gentlemen.
(Operator Instructions) We will go next to Michael Lindenberg with Merrill Lynch.
Yeah, good morning. Two questions and you may be said this I may have missed this. Victor I know you had given hedge information for the second half of 2008. Did you give hedge position for '09 as I recall you had a small position on an early '09 I just wanted to get an update on how things did?
Yeah we do have some hedges already into '09. For the first quarter we have 25% of our total volume hedge, second quarter 19 and for third quarter 10%. And then mostly crude oil collars, which is what we have been doing recently given the price of hedges, and what we are doing we’re going to continue, we’re going to speak to our strategic hedge policy which I think is working quite well. Specially, in light of the cycle that we recover a significant portion of the additional cost to be our top line.
How much -- can you just give me a sense of the range of the collars even just rough ranges?
Yeah it’s in the range of a 115 on the floor and 150 or so on the ceiling.
Okay. And then my second question I noticed you took your RASM guidance up for the year, certainly a good thing and you talked about yields being strong in some of the commentary, I am just wondering as you develop the network and do you had add connectivity, are you seeing any shifting in the mix between business or leisure when you talk about the strong yields is it more of a function of some of the connecting markets or it just a local market to Canada, I am trying to get a better sense of what's driving the stronger results some -- you know if its more, but disproportionately one part of your system is business leisure connect versus low comp?
We have been racing everything across the board.
And it’s – I don’t think the emphasis has been one segment or the other in that – and when you look at the new routes we are announcing for this year and then starting with the one who started already. There are mainly business market for us, its somewhere has a leisure component, of course, we are always looking for that mix but they are mainly a business destination and even the leisure destination such as Aruba is kind of a high yield a high level destination. So now we have not seen significant changes in that mix you are mentioning.
Okay. Alright very good thank you.
And gentlemen, it appears we have no further questions. I will turn the call back over to you for any additional or closing remarks.
Okay, thanks again. Rest assure that our team remains focused on the opportunities and challenges ahead and we look forward to having you back for our third quarter earnings call. Have a great day.
And that does conclude today's conference call. Thank you for your participation. You may disconnect at this time.
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