Azul S.A. (AZUL3) Earnings Call Transcript & Summary

Hi, everyone. Thank you for joining us today. I am Thais Haberli, Azul's IR and FP&A Director. On behalf of all of Azul, I would like to extend a warm welcome to those with us here in New York and to everyone joining us online. Before we begin, I would like to thank our more than 14,000 crew members and everyone that have been supporting us. Today is an extraordinary day for Azul. Not only we are hosting our Azul today, but we are also back on the floor of the New York Stock Exchange, an important milestone that symbolizes the remarkable transformation of Azul and the beginning of a new chapter for us. Today's presentation is about much more than innovation. Today, we will share how our unbeatable network, customers and tricky culture, diversified business units and operational excellence position us to capture significant opportunities in the Brazilian aviation market and beyond. Our priorities are straightforward: generate sustainable free cash flow, continue our disciplined deleveraging journey and create long-term value for our shareholders. We are building a company that is not only stronger today, but also structurally positioned to deliver attractive and sustainable returns for many years to come. Presenting today will be John Rodgerson, our CEO; Abhi Shah, the President of Azul; Antonio Garcia, our CFO; and Fabio Campos, our Chief Corporate Officer. We will conduct a Q&A session following our presentation. And if you are joining us online and have a question, please send your questions to our Investor Relations e-mail, [email protected], and that we read your question here online. Thank you for being here and for your continued interest and confidence in Azul. We are excited to share our vision for the future and demonstrate why we believe the best chapters for Azul are still ahead of us. With that, I will turn the presentation to John.

Hello, everybody. Welcome. It's fun to be in New York. It's fun to have bell ceremony today. And we want to thank you for being on this journey with us. We have a lot of exciting things to talk about today about how we're diversifying our revenue streams. And also, I'm really excited to have Antonio here with us. He's the new CFO and I think a couple of things. He joined us at a crucial time in our history. And he also joined Embraer at a crucial time in Embraer's history, right? And so if you think about it, he joined Embraer in early 2020, right, before the pandemic, right, when Boeing pulled out of that deal, and he was able to kind of take Embraer from its lowest point to an all-time high. And so I'm very grateful to have him here as a partner. Of course, Abhi has been with me on this journey for over 18 years and have Fabio here with us who is representing the rest of our leadership team who's in Brazil because we have more than 900 flights to deliver today. We want to be most on-time airline and take care of our 33 million customers. But -- so I think today is going to be pretty interactive as we go through, but we're going to kind of walk through kind of a couple of things about Azul. You know the network. We've been talking about the network for a long time. The customer-centric culture that we have at Azul, really interesting post Chapter 11, a 25-point increase in our NPS scores, really focusing. We're going to talk a lot about this today, on the high-value customers overall. Structural cost advantage, right? Azul has the lowest unit cost in Brazil, right? And so when you think about it to have such a high value for our premium customers and still have the lowest unit cost, that's really unbeatable in the market overall. So we're very happy about. Our diversified revenue streams, right? I think as you think about it, we have customers that fly us once every 4 years. We have customers that fly us weekly. We have customers that fly us multiple times a week, but the idea of these diversified revenue streams is to allow us to generate revenue from our customers even when they're not flying, right? So that's our credit card, which we just have over 1 million credit cards in circulation right now. That's pretty exciting for us. And so the customer may only fly us 3, 4 times a year. We have the ability to generate revenue from that customer every single day, our club, our vacations business. We're going to talk a lot about our partnerships that we have. But the diversified streams is really, really important. And I think that's a massive from where we were when we took the company public in 2017. You're going to see how much of our revenue is coming from that. Our strength balance sheet. This is something that we're very proud of. We exited at 2.4x levered. That's a great starting point for us. And then obviously, this engine of an airline that continues to generate a lot of EBITDA and a lot of operating cash flow. And so as Antonio will walk you through how we've cleaned up the balance sheet through that. Go to the next slide. So again, just the main pillars here, a strength in balance sheet, a sustainable growth focus, right? This is something that's really key. I think as you looked at Azul in the past, we were growing double digits a year, right? This is a much derisked business, right? We will be back to a growing airline. But I think good news this year is not a growth year for us, we're actually down in capacity year-over-year. It's a great time to be down in capacity as we've seen. And so we have a much more sustainable business model, and we have a saying inside of Azul, earn the right to grow. And the way you earn the right to grow is generating cash. And as you generate cash, that's how you earn the right to grow. I think one of the things I'm most proud of is that we have the 2 premier airlines. One is still pending antitrust approval, but United Airlines and American Airlines have both decided to invest in Azul. I mean that's a pretty remarkable thing to have those 2 airlines come together and invest alongside of us. And we've had them as partners in United Airlines for more than 12 years. So really excited they've been on our Board and here shortly. We look forward to having American Airlines come in and help us build a stronger airline. And that's really a key differentiator. They had the ability to invest in other airlines, but they have decided to invest in us and they decided to invest in our balance sheet. And we're really excited about that. And so as you take a look at the other change is we've gone from being a owner company with David Neeleman, our founder, who had the dream of building Azul and have the controlling shares, we're now a true corporation, right? I think that's exciting. I think it's an exciting change. It's an improved governance structure overall. And David is still with us as the Chairman of the Board, but kind of having the best governance out there now. I think that's an exciting change as well. And so as you look at it, having great strategic partners like United and American, our existing shareholders have nominated a couple of people to our Board and our strategic committee. And so we have the best governance out there, which is really exciting as we move forward. I kind of wanted to highlight a couple of things on here because I think it's a 10-year look. But the reason why we went back is because we were here in the New York Stock Exchange roughly 10 years ago when we took the company public. As you look at some of these things, right, and so we're up 2x in ASKs, but 3x in EBITDA. And this is -- we have a little mistake here, but one of these is revenue and the one of these is EBITDA. And so this airline today is twice as big in terms of capacity, 3x as big in terms of revenue and 3.8x as big in EBITDA. And so here, we've passed through, so -- and we're a full turn lower in leverage than we were when we went public, right? So think about that for a second, here we are 10 years later and we're 3x the size in revenue, 3.8x the size in EBITDA and yet -- so it's a great starting point for new investors to come in because when we took the company public in 2016, we took the company public for roughly a $2 billion market cap. And in a period of less than 4 years, took the company from a $2 billion market cap up to a $5 billion market cap, right? And so kind of delivering on our promises that we made to the market. And so now we're at a similar starting point with a much larger company, much more cash generation and much lower leverage. I think I'd like to talk about Brazil because it's kind of my adopted home country. And if you see the size of Brazil, it's a massive country. And I was having dinner last night with one of our banker friends and we were talking about the size of Brazil. The north of Brazil is closer to Canada than it is to the southern part of Brazil. Think about that for a second, right? I think it's us -- sometimes we're very U.S.-centric, and we forget the size and the magnitude that Brazil is. If you're in the eastern part of Brazil, you're actually closer to Africa than you are to the Western part of Brazil. So Brazil is a massive country, it's the size of the continental U.S.A. I often have friends say, "Oh, I'm going to visit you in Brazil. I'd like to go to FosiusI'd like to go to Norona, I'd like to go to Manaus." I'm like you realize going L.A. to New York and then Florida, these are -- this is a massive country. And Brazil is the bread basket of the world. We still believe there's a tremendous opportunity for growth in Brazil. And you can see that Brazilians still travel less than Argentines do, less than Colombians do, less than Chileans do. And our diversified model that Abhi will walk you through truly serves all of Brazil. And our ability to serve all of Brazil truly differentiates Azul from anybody else. This is our route network, 137 cities served. I think our next closest competitor is about 60 cities served. So there's about 80 cities that only Azul is serving today, and we truly have the breadth all over Brazil, right? So our main hub in Campinas that Abhi will talk about today, COFINS, but we fly all throughout Brazil to so many different destinations. And where we fly internationally, we are the only ones that fly internationally, right? And I think that's an important distinction. There's plenty of people that serve the Gadus Airport or the Galleon Airport, but we are the only one serving internationally, the Campinas Airport. The COFINS to the U.S. and to receive it to the U.S. We are the only ones doing that service, which makes a big difference. As you look today at the network, I often talk about this is that we have 2 really good competitors, right? But our 2 competitors, their ASKs are concentrated on 3 markets: Rio, Sao Paulo and Brasilia. And every time one of my competitors' plane takes off, there's a 92% chance it will take off or land in one of those 3 cities. So for them, Brazil is about the size that you thought it was about, right, about an hour flight to get everywhere around because it's about 1.5 hours flight to each of those cities. But when you think about Brazil and what is Azul's Brazil, it's a massive country with massive breadth and a lot to be done. And I think you can see that through this. And we like to fly where we can dominate in a market and where we can really make money. And you can see the overlap that we have on this slide with our competitors is truly unique where we are, whereas our competitors really fly on top of each other, right? And so when you more challenging environments like a spike in fuel prices because of war, the ability to pass that along makes a difference in terms of how you're operating your business model. I talked briefly about this at the beginning, but Azul is not just an airline. I think this is really, really important to go through each of these business units in detail, we'll do that today. Our loyalty business, I think everybody in the U.S. knows how important the credit card relationship is to the airline. But in Brazil, we have the best credit card by far, and we'll talk you through that today. But in addition to that credit card, we actually sell points to all of the banks in Brazil. So we have an exclusive credit card with Itau today, but we sell to Bradesco. We sell to Caixa to bunker to Brazil. And so we actually sell to very various different banks. We have our packaging business in Brazil today. This drives a couple of billion in revenue on an annual basis. Our logistics business where we're very happy to be Amazon's #1 partner in Brazil. Our tech ops business, which is a growing business in Brazil today because of the labor cost advantage that Brazil has, we have the largest hanger in Latin America as well, which helps that business. Our connected business that Fabio will walk you through today. And then media, right? I think one thing I'm excited about is we're now starting to monetize our platform onboard our aircraft, right? All of our aircraft have live TV on board, the aircraft have televisions at every screen. So our ability to kind of monetize that is really important. And you're going to see how much of our revenue is coming from diversified streams going forward. And many of these, as I talk about, are you can make money when the customer is not traveling, right? If you're selling media onboard the aircraft to one of your customers, right, like Etau or Santander, those companies are actually advertising on board our aircraft, I don't need them to travel to actually bring in revenue from them. But it all comes down to and we have some of our great crew members here with us today that helped us ring the bell this morning. But are a people business, and our customers know it because we take really good care of our people and our people are very passionate. And so we were voted one of the best places to work by Time Magazine. We consistently get all of the top awards in Brazil, and we continue to deliver a great customer experience. I'm going to walk you through that on the next couple of slides because this is something I'm really proud of. So I think we're the only ones that have televisions onboard our aircraft, right? So one of our competitors is getting E2s. And I always say they keep showing the outside of their E2 because they don't want to show the inside because mine has televisions on board aircraft, right? So it's a differentiator for us. And -- but go back to slide as and-- but as you go -- as you look at this, right, obviously, having snacks. But what's the experience? The experience is when our flight attendants connect with the customer. And these are just notes that I received in my WhatsApp just this week. These are our flight attendants, writing handwritten notes. And in today's day and age, with AI and chat bots, to have a flight attendant or an airport agent take the time to write a handwritten note to hand it to a customer, that's what makes Azul special. And I think that's really exciting to see. And you see how often this happens and you can see what's happening our NPS as we kind of are now we're back, right? And I think the message today is that Azul is back. This is the Azul that everybody knows, but it's actually a much stronger Azul, much more diversified revenue streams and -- but that that mojo that we've always had at Azul that maybe we lost because of the pandemic and the fight that we had over the last couple of years, we're back now. And you feel that from our crew members when they deliver the experience on a day-to-day basis. A couple of other things as you go forward, we talk about this, go to the next slide, Tais. We have Azul Concierge. I think as you look at the U.S. airline business and we look at our partnership with United Airlines, they've been in our boardroom for quite some time. It's the high-value customer that matters, right? And I think that, that's all customers matter, but it's the high-value customer that we need to take really, really good care of. It's those people that are traveling with us on a weekly basis, that are traveling with us on a pretty consistent basis. So we have this Azul's concierge product where we kind of deliver the customers to the airplane in one of our BYDs and we have a partnership with BYD. So the cost of the cars for us was thing, right? So we get to advertise their brand, but we actually get to treat our customers really, really well in this Concierge product. And I think everybody is going after the high-value customer, right? And so everybody has their own version of this. But I think we have the special sauce, which is our people, and I think that makes a big difference. This is our Azul comfort. We're actually adding of a differentiated product on board, our international flights today. And so we're kind of excited about that, kind of the economy premium product that we're seeing. We're seeing that, that is what's truly driving revenue. It's not just economy seats anymore, it's actually the product, even kind of upgrading from coach into a premium economy. And they drive a lot more revenue. This is our new lounge that we have in Sao Paulo. We partnered together with Itau, which is the premier bank with our lounge as well. And so you kind of get to see some of the product offerings. This is an annual event that we do every year to recognize our top crew members inside of the company. These are the ones with the highest NPS scores. They've been voted by their fellow crew members. And that recognition event is really, really important for our crew members and they get a star on their badge when they win this event. And for those of you that are in this kind of World Cup phase right now, we had a little bit of a sad week, I'll admit, right? And so Brazil was knocked out of the World Cup. But Brazil is the only country in the world that has 5 stars, right? So we've won the World Cup 5 times, right? And so that's why we route heavily against Germany and Italy because they have 4 stars. And so we want to remain with 5 stars. And so as we look at this, and so when you win this event, you get a star on your badge, right? And so other crew members recognize that you are one of the elites, right? And so that is something that's very exciting. We actually give the crew memory a new badge with a star on it. And so it's pretty exciting for our crew members. I'm going to kind of turn it over here briefly to Fabio to talk about our partnership with the CBF. But I think this was important as we exited to support and basically, tell the world Azul is back, right, and to be the official sponsor of the Brazilian football team. It's a great way to kind of turn the page on the past, look forward and football is everything to Brazilians, but I don't know, Fabio, if you want to comment a little bit on the partnership with CBF.

Yes. I do think I have to say, I think it's acute how the U.S. actually thinks there into soccer now just because the World Cup and then like starting next week. Nobody is really going to watch soccer again for another 4 years. But that's not the case in Brazil, right? Brazilians are all about soccer. And for us being the sponsor and not only the sponsor of the men's team that played in the World Cup now, but we're actually the sponsor to all of the national teams. So the women's soccer team, beach soccer role of them. And we're actually hosting -- Brazil is actually hosting the women's World Cup next year. And we're very excited. We actually had a friendly with the U.S. just 3 weeks ago, and we did win. So that's good.

We split, the Brazil won one game and the U.S won one game.

We won one game. That's what matters. But this -- like John mentioned, this was a lot about -- this is the next phase of Azul. This is a 5-year partnership that will take us through the 2030 World Cup, which is the 100th anniversary of the World Cup. So we're very proud of it. It has a lot to do with our crew members. I think a lot of the 25 points that we got on NPS back. A lot had to do with this partnership. It was our crew members being very excited about it, being very supportive of it. And it gave us definitely the most brand exposure we've ever gotten in our history, right? And being side-by-side with major brands like you can see there, but also doing a lot of social media, very heavy on social media, getting a lot of impressions, getting all over the world. I think I got some text messages from some of you when we flew Brazil flag airplane over Copacabana that went around the world. So a great brand exposure that we're very excited about, and we look forward to closing the cycle up in 2030 on the next World Cup where I guarantee you, we're getting to 6 star. So...

As we said, I know many of you saw our -- the baptism of our airplane, right? That's how serious we take it. I think we probably should have used holy water for the baptism. It would have probably helped the team. But so we have a couple more opportunities to do that. So I'm going to hand it over to Abhi.

Thank you, John. Hey, everyone, good to see you. So talk a lot about the network, talk about the revenue. We'll talk about revenue recapture. Obviously, one of the most important themes right now. But it's not just about short-term revenue, right? It's about our structural competitive advantages. And everything that we do every single day is about creating or extending our competitive advantages. That's all we should be doing. And I believe that's what we are focused on, right? But it starts with the network. It always has. Back in 2008, when David first went down with John, it was to build a different airline, right? We are designed to be different, and we've continued that through this point. Even as we've grown double, triple, we're still a very, very different airline and we're actually proud of that. And it starts with the fleet. So we have a very diversified fleet in Brazil, as you can see. And why do we have this? Because it allows us to access demand nobody else can. It allows us to access demand at a cost that nobody else can access and bring that demand into our network. So every aircraft, it has a specific mission in terms of distance, in terms of utilization, in terms of the types of markets that it serves very, very thoughtful construction of the network. And so, of course, you have your turbo props, shorter distances, very, very low trip costs. So on the left side of this chart, you're playing the trip cost game, which is to bring in demand at the lowest possible cost per flight. On the right side of this chart, you're playing the seat cost game, which is where you have a lot of demand markets, so you want the lowest cost per seat. And that's the optimization that we do on a daily basis. Obviously, Azul started with the Embraers because we were entering markets that had never been served before, right? So 118 seats, what type of demand? We don't really know. Then we went to the left a little bit with the ATRs, smaller markets, call it, populations of 300,000, 400,000, 500,000, never been served cities, bring that demand into our network. Once we saw the network growing, we needed to widen the pipes. So 2015, the airbuses, right? The narrow bodies to widen the pipes really bring a lot of connectivity into the network. And at the same time, the widebody is really, really focused on just a small handful of markets. Really Brazil an extension, which is Portugal, Florida and now we have Madrid as well, right? So it's a very, very focused network, very thoughtful, and each airplane is doing its mission at the right place in the right market at the right time. The E2s going forward is the backbone of the airline. We'll end this year with 46 E2s. Our new order book now is 5 to 6 airplanes a year, which we're very, very comfortable with that growth rate, but a very, very efficient aircraft, right? A great product, 2 x 2 seating, no middle seat, WiFi, seatback screens, but really, it's about the fuel efficiency. Wtith 18 more seats, call it, 15% more capacity, you're burning less fuel, right? That is the key here. So you have higher generation on the revenue side and much lower cost compared to the E1s, right? In addition, because of these economics, you can fly longer distances, you can fly higher utilizations. So we're flying the E2s 11.5, 12 hours a day, really opens up some great markets like the south of Brazil, Curitiba, Portalegre, going up to our hub riches, nonstop, right? Very, very difficult to do a 320, but very, very efficient on E2. So this is going to be our main growth engine until 2029. We'll get 321s. But this has been the backbone for a couple of years now and continues to be. This is something that happened recently on the wide-body fleet, right? We've really looked at the cost of wide-body fleet, and it's come down significantly. In fact, we are right now this year transitioning the entire wide-body fleet some of it by circumstance, I would say, some of it by design, but we'll take it, given the fact that fuel is up 80% in the second quarter and might be higher. We actually think that this timing was really, really good for this kind of change to happen. So our wide-body fleet is now going to be a very, very low risk, very, very resilient cost. We're coming down in terms of rent. We're coming down in terms of lease liability. Why is that happening? Because the lease terms are shorter. We've reduced the lease terms, so less debt. And we've cut capacity just a little bit, right? This year, it's going to be down more as we're transitioning the fleet. Aircraft are leaving, other aircraft are coming in. The timing never matches up. But again, we're down in capacity right now. It's the right time given where fuel is allows us to really maintain the unit revenues, increase the unit revenues, and then we'll recover towards the end of the year. But again, in a place like Brazil with currency exposure, fuel exposure, we really want to have the most resilient cost on the fleet side as possible. And this is what we have with the wide body. So we're very, very happy. And as John mentioned, we're getting 5 aircraft that were previously used by American back in 2019. That are going to introduce the Comfort cabin, which is our economy premium cabin. So very excited about that aircraft. One is already flying, 4 more to come in addition to 1 neo from Airbus as well. So we will finish the year with 10 widebodies, replacing the fleet completely essentially at a much, much lower cost. So very, very low-risk international operation. With partners, one thing that people don't realize is that, yes, we do not have a major presence in Sao Paulo International or Rio International, but we're still very relevant to international partners. Through 11 code share, almost 30 interline partnerships, we're very relevant to guys like TAP that fly to 8 cities in Brazil. We have codeshare with Emirates, we have code share with Turkish. We have code share with United, obviously. American, we hope as well after antitrust approval. Copa, so really great partners coming in. Using our network in Sao Paulo, but also in other cities like Belo Horizonte, like Salvador, like Recife, connecting to all over Brazil. Equally important is the partners that we have supporting our long-haul business, right? So in Florida, obviously, we have JetBlue that takes a significant part of our traffic beyond Orlando and Fort Lauderdale. Fort Lauderdale, as you know, JetBlue has recently invested in very heavily about 140 departures a day for them. So great connectivity all over the U.S. Orlando is just a massive airport and massive connectivity with lots of airlines. So a great connectivity there as well. United connects with us also in Florida to their hubs. In Europe, we have TAP in Lisbon that takes us everywhere to Europe and Air Europa code share in Madrid that takes us all over Europe as well. So we're very much covered for the long-haul business. And we're seeing a lot of opportunity in Brazil and Latin America as well in terms of these sector partnerships. So we actually are relevant foreign airlines coming into Brazil and also for our long-haul customers that travel to the U.S. and to Europe. In our hubs, right, we've talked about this before, but really, really strengthening our hubs, starts with Campinas, very, very strong. We obviously have a massive market share in Campinas. But really, it's focused on our network. And one really interesting thing is that as we've come into this more disciplined growth strategy for the next 5 years, it's allowed us to be very much more selective in the demand that we take. These hubs take a decent amount of connecting traffic as they're designed to do, but they're actually becoming more local over time. What does that mean? It means that you're able to choose very carefully the type of demand that you take. All of these regions that we're talking about, Campinas, Belo Horizonte, Recife, are all growing. Partly thanks to us, partly thanks to the fact that Brazil is growing in these parts of the country. And so we have more O&D traffic, more generating traffic in these cities, right? And that means higher yields. It's better for the operation, higher NPS scores. So the more disciplined strategy means that these hubs, which are becoming more and more local, as we say. So generating more demand on their own or receiving more demand. And that's just better for the business overall. So Campinas is our South, Southeast hub. Think about it as New York in the U.S., really caters to the southern part of the country, Sao Paulo. For domestic traffic, we actually don't count on Sao Paulo demand, right? In fact, we price differently from Sao Paulo. You can go to any OTA, you can go to Google Flights and just do a search, Sao Paulo to any city in Brazil. And you will see that this market has priced differently. I know Michael loves to look at pricing. I encourage you to do that, go to Google Flights, do some searches. And you will see how we price differently. The same as Newark, right? Someone that's living in the New Jersey, Newark, west of Manhattan, where Newark is your captive airport, you're going to see a different price, right? It's very, very similar. And so we price domestically like there's no exchange of traffic between Sao Paulo and our catchment area. And that means a premium. Internationally, a little bit different because you have longer length of stays. If you're on a 15-day trip, an extra hour, people will drive, and we actually want some of the international traffic as well. So this is really a key to some of the average fare premiums that we have in Brazil. Bella Horizonte has grown significantly. Our mid-continent hub. Think about it as Atlanta. Really great positioning for the north of Brazil, shorter flights, Northeast of Brazil as well. And a lot of mining, energy, agro businesses around this region. Very, very high income, low profile, right? But these customers really have taken to Azul. We've grown significantly in this market. And again, you can do some searches on Google Flights. Just look at the average stage length. So our flights, compare pricing and confines into other cities and you get an idea of what those premiums look like. But we're very happy with Bella Horizonte. We have Orlando now as well 5 times a week. And then we hope to grow more international as well as Coral, Montevideo. Batelochi, for the ski season right now in July. Recife are Northeast hub. Think about it as San Francisco, really connects to all of the capital in the Northeast of Brazil. Recife, we think, is the best demographics in the Northeast in terms of corporate, a big center for technology, for automotive generates traffic on business as well as leisure and really allows us to connect to all of the Northeast of Brazil as well as Mana is here kind of going over the top. We fly to Orlando as well in the peak season. And we also fly to Madrid and Porto in Portugal as well. So each hub does a different mission, right? Each one is designed to cater to its own set of markets, its own set of O&D traffic, its own set of local traffic. We have some overlap, but we try to minimize the overlap to make sure that each market, each hub is doing the job that it's designed for. This is really, really important because post restructuring, we made, as John mentioned, a really conscious decision on our growth rate going forward. We were 11% CAGR growth airline, probably even higher than that, kind of pre-pandemic for sure. But the decision that we made was we just want to build a lot of resiliency into the business. We know Brazil, we know Latin America, we know a fuel challenges. We know currency challenges. So let's just build in layers and layers of resiliency into the business. So we had the opportunity, unique opportunity, right, in the restructuring on the fleet side that you don't get and that we took that chance, that opportunity and we've now gone to a lower growth rate for the next 5 years, averaging 3.4%. 2026 is actually even lower than that. We'll talk about that when Anton will talk about fuel. But this was all about really creating resiliency in the business going forward. And we're very happy that we did that, especially given where fuel was, fuel is. But this is sort of a new philosophy going forward. And this growth rate allows us to be very selective in our demand, right? When you're growing 11%, 14%, 15% a year, you have no choice. You take any demand that comes your way, right? High quality, low quality, you're just focused on volumes. Now when you're growing 3%, in fact, this year was only 1%, you can be a lot more selective in the demand. And that's really what we're able to do. So this is a huge change in how we're thinking about it. It's already in place. In fact, has been placed in place since July of last year. We've been operating under this network. But it really gives us a lot of resiliency to handle any situation that gets to ads. The business units, right? John talked about how they've been growing. They are just a very, very significant part of our business. So 23%, almost 25% of our unit revenues coming from the business units. Here, we're talking about ancillaries. We're talking about the loyalty. Chris is here, by the way. She runs loyalty. She's awesome. Our cargo business, our vacations business, tech ops, media, charters, we call those on demand. All of this adds up to about 25% of our unit revenue. So it's growing. It's got great margins. And as John said, allows us to monetize the business even when we're flying, even when we're not flying. And the key really is, as this chart shows here, cross-selling customers amongst this universe. Starting with loyalty. We just crossed 21 million members. We're very happy about that. 1.2 million monthly active users. Very, very strong in terms of demand generation, in terms of Azul tickets. Pretty much endless demand for points redemptions. So we manage that. The same team that does Azul revenue management, does loyalty revenue management as well. Does vacations revenue management as well. So make sure that we really are choosing the highest value for the seat because these members have infinite demand for seats. But we're very happy with not just the seat availability on Azul, but how we've diversified, how they use their points, right? It used to be 90% of redemptions was on Azul, and now that, that number has come down significantly to other products and services. As you know, in Brazil, loyalty is an open game. The customer chooses who they want to transfer their points to. So it really pays to have the best program out there with the best products with the best services, so the customer chooses the end points your way. The growth in the members and the growth in the billings as well, so 7x, so very, very large. And really driven by the credit card. We're very, very happy with credit card. As John mentioned, we have over 1 million credit cards in Brazil. The total spend on the credit cards, I know Delta likes to say this number, but we're at 0.5% of Brazil's GDP is spent on our credit card, right? Not on Azul, obviously, but in the entire system for the credit card. Another amazing stat is that more than 70% of the credit card base is Infinity or Platinum. So high value, right? As John talked about, premium customers. And a lot of the initiatives on the customer service side are driven by loyalty, right? Our top tiers get the concierge service. We have a tier called Unique that has 24/7 WhatsApp service, right? So you want to change your flight, you want to change your seat, you want to check something, right? Those kinds of services are really bringing in more customers to the credit card and bringing more revenue into Azul as well. So this is just one of the entry points, but a very powerful entry point. And Itau, if you remember, this is a strategic partnership with -- for them. They've mentioned us on their earnings call as well. So we're very, very happy with this partnership, and it's only going to be accelerating from here. Again, it's all about products and services, right? So you really want to present the best possible program to the customer. So that means more opportunities for earning and more opportunities for burning. The credit card is one, but we have a huge set of partners and banks, travel, core hotels. Our core hotels in Brazil is by far the largest hotel chain. I think they are larger than the next 2 or 3 or 4 combined in Brazil. And they only have 3 partnerships in the world where you are able to interchange loyalty. One is with Qantas in Australia, the others with Qatar in the Middle East, and we're #3 in the world, right? And so they've chosen us to have this very, very deep and strategic partnership where you actually have an interchange of loyalty points between Azul and a core hotels. You have ancillaries, our vacations business. I talked about cross-sell. The second largest channel for vacations is actually loyalty, right? You want to take a weekend trip. You got some points, you burn them on hotels. So a lot of usage between the programs and the products as well.

And by way the loyalty program, if you see on average, we are very close to the U.S. airlines with regards to participation. This is above 10%, 11% to 13% on average.

Thanks. This is kind of the different elite tiers that we have. Elite tiers are really critical in bringing in the high-value customers. We have an invite-only Azul one level. Unique, which is our earned highest level status, where you get 24/7 customer support active and also you get services at the airport like the electric cars and boarding and stuff like that. But really, this is where we are pushing the revenue, right? The sort of the giamanchi to the right with products and services to really attract them to Azul. So we're seeing some really interesting numbers. In fact, the first quarter, we saw 12% growth in premium revenue, even though we cut capacity by 2.7%. So it's a good start in how this premium revenue is accelerating. 2Q looks even higher than this. And we'll get to that in the 2Q earnings call. But this is really customers appreciating this experience, appreciating the status and bringing revenue to Azul as a result. We also have a very, very unique partnership redemption model. So you're aware loyalty programs can make agreements with other airlines where they have this thing called award availability and then you can redeem your point. So Azul, we have that with United, for example, you have award availability, we have Emirates, for example, and then you can use your point. But we actually have set up a very, very unique. I think it's the only one in the world that I've seen where you can travel on any airline in the world. And what I don't want to give it a secret sauce, but we basically buy point -- buy the tickets in the public market. And in real time, we convert them into points for customers to use. So you can actually travel any airline in the world using Azul points, right? And that really opens up a huge opportunity for our loyalty customers as well. Again, when you provide this type of opportunities, then they're going to be sending points our way. Our loyalty, our cargo business, just been renamed logistics because it never was cargo, to be honest. It always with logistics. And why do we say logistics, and not cargo? Because it's not the cargo that you normally think about. It's not big palletized cargo or containers that you just load up and then you unload at the next airport. This is truly logistics where we do first mile, middle mile and last mile, right? So Amazon Marketplace. We are, by far, the largest air provider for Amazon in Brazil. Their marketplace, logistics is driven by us, right? So if you're selling a watch or a shoe, we'll go to your -- the seller's apartment house, we'll pick it up, we'll take it to our warehouse, transport the middle mile and then we'll have a network of our franchisees that do the last mile as well. So this truly is logistics, and we're very, very happy to be a very, very deep partner with Amazon. We have a network around the country, right? These are exclusive Azul logistics locations. Not ours, they're exclusive partners, but they only deal with Azul Logistics. And they -- think about them as mini warehouses. They can accept packages to ship into our network, but they also deliver for us. So each of these neighborhoods, each of these small towns, I have deliveries on bicycles, on motor bikes, on cars, on vans, whatever of these. Each one of these entrepreneurs just handles Azul Logistics traffic. And this gives us the network to deliver in 2 days anywhere in Brazil to anywhere in Brazil, right? And that's using the air network as the backbone on the middle mile. So as you can see here, first mile is a network of partners, middle mile is the air and the last mile is deliveries as well. So it's -- and what we do that there's incremental margin every step of the way, right? So when we go to Amazon and we say we will take care of the marketplace. When we go to Samsung and we say, we will do logistics for all of your brand stores. All of Samsung's brand stores in Brazil are fulfilled by us. When we go to Natura, and we're still going to do all your e-commerce, right, we mean that we will actually do the entire network from first mile to last mile. And why is that good for us? Because each one of these steps, we had a little bit of margin, right? It's having 3 opportunities to add margin as opposed to just one. Our cargo fleet is growing. We just about 6 months ago, retired the 737s late last year and put in 2 A321s. We're very happy with them flying 11, 12 hours a day. That fleet is going to be growing, but we also have some ATR quick change and some caravans as well for the subregional operation. The freighters are doing really, really well. We're very happy with the reliability, with the performance. And as a result, we're going to be increasing the freighters from 2 to 4 by the end of this year and to 6 by the end of first quarter next year. Overall, we transport 26 million packages a year, huge numbers in terms of value. Like every single new Samsung launch is fulfilled by us. All of their brand stores fulfilled by us, right? So a lot of high-value goods are being shipped in our network. Shoppe is kind of our next big fish, as we like to say. As you know, Chinese e-commerce very, very strong, growing significantly in Brazil. So not a close second, but a very relevant second to Amazon in Brazil in our network and growing very, very quickly. So very happy with how that's going, and that's just going to give continued momentum going forward. Our vacations business, very, very meaningful. In fact, we are Brazil's second largest travel agency after CVC. And the real opportunity in the vacations business is how we use the network on weekends, right? Brazil is primarily a corporate market, so very low demand on Saturdays and Sundays, but high demand for leisure traffic. So on the weekends, we completely shift our network to serve just a plethora of nonstop beach destinations from cities that have never had this type of service. And this allows us to -- the customer put together a 7-day package, a 4-day package where they can then come back on a connecting flight or some other dedicated flights. So our vacations business basically rents out the fleet on the weekends to provide this type of unmatched connectivity for customers anywhere that's not a beach basically, right? And that really is one more port of entry for customers into our universe and then they can fly us on the network, get the credit card, sign up for the club all those kinds of things. So a really, really powerful tool to attract to reach our customers. So we are a very large -- we are the largest seller of Disney in South America, largest seller of Universal in South America, you've seen the airplanes. We have some photos here as well. And so we generate a lot of traffic inside of Brazil and to Orlando as well. We have a full range of products on the vacation side. So cruises as well, rental cars, hotels, theme parks, all that kind of stuff. These are our 5 Mk airplanes that we love, flying around Brazil. Every time you're flying them, the airport makes a special speech, which is fun. People take photos. So again, deep partnership with an amazing brand like Walt Disney World, right? So really -- we have a really great ecosystem of brands that work with us and want to work with us, like Amazon, like Itau, like Accor, like Walt Disney World. Fabio. Conecta?

Yes. And I will say that after soccer in the World Cup, Disney is definitely the second passion of Brazilians. I will tell you that. I guarantee you if Brazilian have ever been in Florida, they'll say as I have ever been to the Amazon, they'll probably say no. So it's actually interesting. This is what John often a lot, he says that a lot, actually. But Connectors is a business that I'm very passionate about. I truly believe in this business. It is what we call the subregional operation because it's really -- the smaller airplanes flying into the super tiny cities. What started as a way for us to reach further pockets of demand in places where infrastructure wouldn't allow for a jet or a larger aircraft actually turned into a completely different business. By doing these flights, of course, Conecta is also responsible for a lot of the incentives that Azure Mainline get. In fact, Conecta is responsible for about 30% of all the incentives that mainline gets overall. -- and by operating really cheap operating costs to have an aircraft, right, like the [indiscernible] events. But this business actually transformed itself over the past few years. And what we learned is that there are some really obtain margin contracts that we can get as a service provider with general aviation, and that's where Azul Conecta is kind of moving towards. Just to give you guys an idea our ex-Azul revenue with Azul Conecta will actually be 6x larger than 2023 by next year. And Azul revenue will go from about -- represent about 95% of the revenue of the regional carrier to only about 70%. So it's really turning into an independent business, bringing a lot of incentives to mainline. And I think the highlight of it is the new strategic customer that we just recently got, which is Petrobras, everybody knows Petrobras, of course. They have a lot of oil exploring operations in the north of Brazil in the Amazon and we just got a contract to transport their people all around of the Amazon. This was not only a great contract because of margins, but also because it allowed us to bring a new type of aircraft into the Conecta family, which is a 19-seater ideal midterm between an ATR and a [indiscernible] care event that will be able to use to this contract and others. And it also really showed the interaction between Azul and Azul Conecta because when we got the contract for the caravan operations, it also allowed us to get a contract for an ATR operation and continue to expand. So we're really bringing more value to the entire Azul family. Azul tech ops, which is one of our newest business units as well. As John mentioned, largest hanger in Latin America is our kind of based in Campinas. Some of you guys here have already visited is really quite impressive. Fits about -- not about, exactly 2 wide-bodies and 8 narrow-bodies at the same time, doors closed, which allows us to do a lot of maintenance, which also start, of course, as an in-sourcing of maintenance. Do maintenance outside of our ecosystems are expensive, bringing it in saves us a lot of costs, as John mentioned as well earlier today. Labor costs in Brazil are actually more competitive than other parts of the world. So this actually attracts a lot of international customers as well for us to perform services to maintenance services. this business actually has a very interesting contract. We actually maintained the 2 A330s that the Brazilian Air Force has a long-term contract. And it's that kind of contract that we already have and we're continuing to secure because it brings us constant streams of revenue, secured streams, those revenue as well. Here are some of the partners that our tech ops business as I mentioned, the Air Force, but also pretty big names, Vale, largest mining company in Brazil and Anders as well. And our Brazil Media business. And I think this one to me is really special because picture yourself going into an airplane. What are you looking at, right? You're either on your phone, you're either on the back seat screen, or whether you're looking at the magazine or you're paying attention to the flight attendants. We control 100% of what a customer can see or cannot see when they're boarded through the aircraft, right? So that has a tremendous value to media partners. And that's really what Azul brings. And I think some of the pictures here a tremendous example. For an example, as you can see internally with the bins and everything. But we control 100% of whatever is on board's time and what they're looking at or not. So this has a tremendous revenue potential for strategic media partners, and we have a lot of them will go through them a little bit. But it also -- and this also allows us to monetize the information that we have on our customer, right? So we know a lot about our customer, where he flies to, what are his priorities when he's flying or not. So that starts giving us the ability to sell to particular partners that are looking for a particular type of customer population that they want to reach. So we get personalized marketing as well through our media platform. And we're not -- we're surrounded by some pretty heavy weight brands. And I think one of the big push at Azul that transforms was looking for are really these important partnerships with important brands. And you can see here that we're really doing a good job so far, and I think we'll continue to expand as well. Yes, Abhi.

One thing that I'm spending a lot of time on, and I -- John has been challenging us a lot on how do we grow and stay more efficient, right? How do we grow? And produce higher quality work, right? So obviously, we're leaning into AI very heavily. I'm spending half my time now just on this topic. I meet with every area at Azul every 15 days to see what the progress is. And it's really interesting because there is a lot of noise about AI, about the promises and things like that. But we're just focused right now on we say just small victories, right? Just give us small victories but in every part of the organization, right? So we've deployed it across the organization with varying levels of success. But we're certainly able to see already some really concrete gains. So John challenged us about a month ago. He said, "I want to know on every flight customers to apologize to because we missed something up the previous time and 5 customers to delight, right? Every single flight." That's what I want to know. Now we have that, right? And we have that using the data that we have and using AI on top of that to help us give intelligence on who are the customers we need to take care of and also to apologize. Another example, tell me who's going to -- who is at risk of misconnecting in the next 4 hours. But not only that, tell me if that person has more than 1 million members subscribers on Instagram because there's a chance that they're going to be posting about it, right? We have that today. I have that. I can give you a name right now of somebody who is at risk of misconnecting, but also has 1 million members on Instagram, right? And our operation is now going to take care of them because of that, right? So those are some small victories that are already enabled. Our lawsuits, right? We've talked a lot about legal claims. We've seen roughly a doubling of our win rate on lawsuits. Part of it was helped with Fabio and the Supreme Court and the initiatives that we did. But part of it is just having better defense. So I'll give you an example. Let's say we delayed a flight, right? But the delay didn't happen at that location. It was caused by weather 2 stations before. How do you connect that and make that into a convincing argument to win the lawsuit, right? Now we're actually doing that. How do you identify repeat fencers either with travelers or lawyers? What are the patterns in the lawsuits? Now you can actually do that with AI, and we are doing that. And we've seen a doubling of our win rate. CRM, right? How do you communicate effectively to acquire more credit cards? So a lot of areas at Azul have changed forever. They will never be the same again, right? And others are changing as well. So we're really just focused on small victories across the board, but it is powerful. Our challenge is that we're a physical operation, right? We physically deliver to the customer a flight. So how do we integrate this in a way that takes the digital to the physical and allows us to actually action it, but I'll give you an interesting example.

Fabio, I just want to kind of highlight something there. We have large corporate accounts like with Itau, Vale, Petrobras, and our team was looking at this at a global level, right, and kind of say, okay, this XYZ customer spent $3 million with us last month, $3 million this month. That's in line, and then we kind of were moving on. And then I started to say, "No, I want to know who is traveling on the corporate account? I want to know who -- name by name, who's traveling on the corporate account?" And we found one of our customers on our Itau account traveled with us 93 times in 2024 and only 6 times with us in 2025. So I told my team, I said, I hope he died, right? Because I want to know why that individual stopped traveling with Azul, right? And so the AI technology that we have today allows us. And then a simple phone call to that individual, he was frustrated with an event that happened on Azul, right? And so going to that level of detail is critically important to getting the customer. And so I think a lot of people think that AI is about having a machine talk to the customer. We believe it's about getting the customer even closer to us, right, and having the ability to truly connect with that customer. So then when Abhi talks about the delight for a customer, who do we want our flight attendants to write a letter to? Who do we want to the airport manager to meet at the curb, right? It's using that data to do customer recovery and bringing us much closer to the customer. Yes, Antonio.

So we -- it's -- by the way, I'm going to talk later why I'm here. But before I go to my shop here, we want to bring you [indiscernible] about 2026 that probably you're all curious of what's happened with the parabolic fuel price development and this and this and this. And he is where is our current focus and my focus here, and we are talking more or less every day about that with this RASK maximization during this period here. We could capacity in Q2 went. Again, you're navigating during this crisis on the fuel. We just mentioned about AI. And we do see under both sides AI, we also see as an enabler to unlock resources to go to the RASK, create more revenue and also to reduce the cost. We want to do more with the same team you have. And also very focused right now in this environment, we are is just protect our cash. It's no more than that. And if we go to the next one, you see here the -- by the way, is already outdated this curve here. I hope that Mr. Trump is able to say some nice words today that goes down again. But guys, the Q2 is going to be quite modest. You see this spike and is more or less double, we were talking today, it's double than a year ago. And the worst seasonality in Brazil, Q2 is the lowest season in the aviation in Brazil and we serve basically Brazil. And we do have an effect that we do believe we are not going to recover in Q2, and we have a time lapse to recover in the future. You could also mention something Abhi if you want. But again, we are revising that. We are also revisiting a hedging strategy, but do hedge, what is the real time and moment you hedge again. It's -- now we have limits. We are discussing that. But during the current volatility, volatility is even worse than the hike on the fuel prices. That's more or less the situation we are living right now. That's why our Q2 is going to be modest and don't have a higher expectation because we are reducing capacity, you see here. But assuming that we are in a traditional, we are going to offer more ASKs in the future and rebuild our network for capture the full potential of Azul starting Q3 onwards.

Yes. Yes, this is interesting. So this is our plan for 2026, 1% capacity growth as part of our post restructuring capacity profile. We've taken about 5 points of capacity out of the network. So that takes us to minus 4.5%, if you will. So a lot of it is going to be now 2Q and 3Q. So you'll see 2Q down high single digits, about 10%. 3Q, a little bit less. And then 4Q gets back to 0 again. But really, what we want to do is we want to get back to what we had in our exit plan kind of by the second half of 2027, right? So there will be growth again, 2027, 2026 sort of low to mid-single digits, probably mid-single digits. But we've been, again, very, very proactive a very, very conservative on the capacity side. We have taken out the capacity exactly when fuel price was at its peak. That really reduced the exposure, allowed us to accelerate the unit revenue, to protect unit revenue, take a lot of risk on unit revenue on the average fare side. And then we will get back to the plan sort of late 2027 onwards. So again, very, very rational and very, very disciplined in terms of capacity. And this chart is very interesting. I'll spend some time on this. This kind of takes us back several years. This is every single quarter RASM, right, total RASK. And you can see a couple of -- well, the big trend is the upward slope. So if you look over the last 6, 7 years, this slope is a 7% unit revenue expansion per year, okay? That's sort of the mean, if you will. Now some sort of interesting effects here. If you look in 2022, right, that was the Ukraine war. February 2022, you had a huge bump in expected, which was the RASK, the red and what actually happened, which was the blue. So that was the recapture that happened during the Ukraine war. A couple of effects, similar and different as well. A lot of urgency on the industry side, right, with fuel prices spiked as well. Fuel prices came back about 15 months later. So you can see the revenue recapture. Also, you had 2022 post Omicron, right? So you had a very strong balance in traffic post Omicron as well. And the industry was smaller. The industry today is a lot larger than it was in 2022. So you were able to see -- what happened? What are we looking now for this year, right? Kind of red is what we had pre war, if you will, and then green is what we are targeting for. So it's about a 10 to 12 unit revenue year-over-year increase every quarter, okay? If we can do that in 2Q, we're not about 2Q here, but we're going to do that. And again, I think this actually applies to the industry as overall. In Brazil and probably in the U.S. as well, to be honest with you, everybody needs about that unit revenue increase, 10% to 12%. If you can do more great, but you at least need that much, right? And what's -- obviously, fuel was up 80% in 2Q, right? So it's not enough for 2Q. But as the fuel curve is coming down, as Antonio showed, when fuel is up 30%, 40%, that means CASM or CASK is up 10% to 15%, right? That's when you start to get 100% fuel recapture. So at these unit revenue levels, up 10%, 12%, by the end of the year, as fuel comes down, then you get to 100% fuel recapture. Now why is that even more interesting because I don't believe that these pricing levels are going to change. right? We don't know what the fuel curve looks like in 2027. But as it comes down, and we know that in 2027 with the fuel that's already come down, CASM will be lower in '27 than '26, right? We already know that based on how the curve has come down already, okay? But pricing is not going to come down. These unit revenues are not going to come down. So what you're actually -- the market is being set up is higher unit revenues for longer as the fuel curve normalizes and CASM and CAS comes down. That's going to lead to a more positive 2027 and beyond, right? So you can see structurally, we get unit revenue increases. It's just part of inflation as part of the actions that airlines do as we have done here. This is Azul data. You get fuel recapture in the short term. But most interestingly is that as the pricing levels remain and after every crisis, the pricing levels have remained. As the fuel curve normalizes, in 2027, you're going to have lower unit cost, lower CASMs and lower CASK, but you're going to be able to maintain the unit revenues. And that's going to lead to a stronger '27. So yes, it's tough right now with 2Q with fuel up 80%. It's tough for everybody all over the world. You cannot get that back in 1 quarter, but what you're setting up for is the future recovery as the fuel curve normalizes and the pricing level remains. Antonio, over to you.

So before I start, just want to highlight. Yes, it's a great pleasure to stand here and represent Azul for the first time. And by the way, thanks for coming. I want to first to highlight the reason why I joined -- I decided to join Azul. By the way, next week, are going to complete 3 months. It looks like 3 years, but 3 months. And by the way, I read in the speed of the airline because I gave my Gardner live was a very long one. I gave my batch on April 30, Jimbaran got a new one in April 14. Means my garden live was 6 hours leaping -- it was a good one. So if you listen, everything has been said here, some motivations. If you see the value proposition of this company here and if -- from the investment is difficult to copy this. If competition wants to do the same, they're going to spend the decades and billions of reals to do the same. I would say, from the investment is you have a uniqueness in the market we operate. That was first motivation for me. Second one, I was following Azul as a supplier, okay? Now I like our buzz as well, but I continue to say is a nice machine. But I admire Azul since the start of Azul, not just for Embraer. Second point, for me to combine my OEM experience with airline was a challenge but also an opportunity for me as a carrier. And I realize a lot of value as well. It means fits well for me as a professional, as a private person and also as a challenge and I've emotive and thanks for convince me you join here. I'm really happy to be here. And for sure, it's not easy as well. That was the fourth motivation. It's tough. It is as more motivated to do this. okay? I like challenge. That's why I'm sitting here. And in regards to Azul and also other motivations, doing that strictly was not a failure. It was strategy. It's not a one-off. It's a continuous process that we are doing important things, we preserve the franchise Azul. That's the most important thing in this process. And now with true corporation, hence increase our fiduciary responsibility of our stakeholders. That's also important. And I came from a true corporation with high standards of governance that was for me another motivation as well. So that leads to, again, capital structures to start to reshape, to reset the company is a good one, but it continues to work. It's not a one-off. It's a continuous process for delivering the risk of the business. We are going to see probably less moderate growth, but highly focused on growing the bottom line and also raw cash generation, real cash generation. That's our focus. And also how we deploy the capacity in the profitable way. And with the strong partnership with American, United and based on a governance model, I would say, is a nice starting point of this process to reshape the company. And again, I'm not here for 2 years. I'm here for the perpetuity of the business. That's the way I think, okay? So -- and focus on long-term value creation. That's our job here and how we, as a management team, are committed to that very simple and I like simple things. Maybe some of you going to like this. That's our corporate targets for the next 2 years, very simple. We need to reach net debt to EBITDA ratio below 1.5x by 2029, okay, which helps the CFO to put pressure on the team. And also we are -- maybe is going to make some of you have even further, more or less on the 50% of the market we have today, okay? There are 2 commitments we all have, okay? And we are committed to that. And I do believe I have enough. You saw the value proposition for this company here. We have, I would say, all to how to do it. Just to deliver both here, not a big promise. Just deleveraging the risk and bring valuation. That's the one talks to each other. And we also realize and I like when you said we cannot work with airline business in Brazil with a higher leverage ratio. It's too risky because it's volatility every year. And having a company with 1.5x net debt-to-EBITDA ratio give us -- provide us the flexibility we need to navigate under this environment. That's why it's important. And you are going to see more value creation by doing that than just hyper growing the revenue side then destroy the balance sheet again. That's not the name of the music right now. So priorities for Antonio right now, and I was talking, he's quite busy right now is improving credit profile. I'm going to show some example how can we do it? Thanks for that. Okay? We do have a chance a lot to improve our credit profile and discreet with active holders with the bankers, with the debt holders in order to introduce myself also to try to help Azul. We do have a unique chance to reduce our cost of capital. I'm going to tell you as well, accelerate, delevering really bringing focus on generating cash. That's our -- I would say, our target, but my main focus right now, okay? And just to give an example, you saw this already, the initial balance sheet derisk it heavily on the loans, finance and leasing liabilities and the net-debt-to-EBITDA ratio at 2.4x without the money of America, if not it will be 2.2. Probably at the end of this year is going to be a little bit higher because of the fuel impact, but I would say we do have enough sources of liquidity to navigate. I tell you in a moment. So some transformation, the balance sheet and some opportunities we have. Again, from the starting point, lowest leverage since IPO, optimized capital structure and balance sheet, 40% less through our interest and payments post restructuring. This year is a transitional year. We still have some pre-Chapter 11 payments to be performed during this year. But that's why we said that 2027 is the full Azul potential in, I would say, linear base. Also one important point, we reduced a lot our commitments with the OEMs, and we also discussed this. If you buy an aircraft today, you pay the progress payment, then you get the aircraft in 4 or 5 years. Who knows in this room here, how is going to be the Brazil for 5 years. Nobody knows this. What you are trying to do is to shorten the cycle, start to spend money for new aircraft very close where we start to generate revenue. That's sometimes not easy, but that's what we are trying to do right now. Again, continues to use the positive bottom line results to deleverage the company and allowed us to be able to navigate and have autonomy about our decision if we have a nice deleveraging in the company. Again, the support from American United is very important for us also on the governance side. And I want to take one top here is the Brazilian government has provided some real for the first time, and I've seen this support to the airline sector, not on Azul. We are talking about around BRL 5 billion that we want to tap those credit lines in Q3. I would say, quite confident you are very close to do it. Some of you guys are helping us as well, okay? And just by doing that, I do believe we are able to reduce our capital cost in 200 basis points, just for the beginning, okay? And the one that we are taking right now. Maybe you want to comment this, Fabio, as well.

Sure. Thanks, Antonio. Some of you guys have heard a lot about the government alphabet soup in Brazil, right, Fnac, FG, ABGF, MDIC and the whole Saban to process. But I think it's here, right? The government has fulfilled everything that we've asked them to our restructuring process when we talked about not only -- it's not an immediate support, a momentary support. It's actually the Brazilian government has understood that it needs to support the airlines in the long term, and there were structural changes that will now allow airlines to have access to government-backed financing, whether it's through FTE, where you get the collateral, government collateral, so running Brazil risk and available in local currency, so which helps us reduce our dollar exposure as well as Fnac, which is cash available from the fund through BNDS to the airlines at a very, very attractive rate. So I think for first time, and I'm happy to be doing this with Antonio now is we're already talking to the banks. We're already figuring this out, and we'll have very, very good announcements to be making here in the next upcoming few months. So we're very excited about it. Not only that, I think one of the things that also shows and helps get the government a little pregnant as well as by the end of second quarter, they already provided part of the loans that they're going to be doing for the airlines. They already provided BRL 300 million to Azul. And that will be repaid by the end of the year, which helps us get all the other lines through the finish line as well in which we're very much focused on. So thanks, Antonio.

So in a nutshell, if you see, we closed with immediate liquidity around BRL 4.7 billion. It's going to be lower in Q2 because of the jet fueling price increase. But we have enough liquidity to navigate, let's say, do you -- Azul needs BRL 5 billion, for sure, we are going to make the best use of it. Just to give you an example, today, 90% of our debt are denominated in U.S. dollar, have unique opportunity to turn to swap to reals, okay, and reduce our FX exposure for the debt in Brazil and also have a type of revolving credit for silly means, liquidity should not be seen as an issue for Azul for the coming quarters, coming years because you have enough credit and pre-hep to see some bankers here. They are supporting us in this project right now. And that leads me to reducing the capital cost, you see our rates here, minus B for Fitch and S&P or B2 for Moody's. We want to be -- take [indiscernible] expiration to be BB rating, which is going to provide us better rates in the future, reduce our leasing liabilities as well. That's more or less our plan to, again, derisking, reduce the exposure on the U.S. dollar base. We have other ideas that we are developing right now, but they are the main focus right now, what we are doing. Important, we have access to credit. Again, we are just reengaged with the stakeholders, the bankers and the financial community and is quite happy to see the support we're getting right now. You want to comment something? So in regards to your long-term value creation, that's another point. You see here, we put here 2019 because at the time, the company has a market cap of $5 billion in 2019. And you see the net revenue moving up and we should see based on what you said about the RASK, you see -- you should see the revenue going up and the RASK as well, which, I would say, not as a hyper growth. It should -- it's going to be a moderated growth, but our business unit, they are growing faster than the total business, which is a good news, okay? And by the way, the margin of the busy news, they are accretive to the consolidated market. We do not rate here. And the same way we are doing the CASK, I do see opportunities to continue to lower down our costs, especially in the CASK. You see here what we announced in Q1 6% compared with 1 year ago for the CASK without future. And using AI as an enabler, I'd say we still have a chance to be more efficient in the cost position as well, going up with our RASK and have a nice spread between RASK and CASK in order to improve our margin. That's more or less what the value creation issue will come from. So then the EBIT expansion that's much faster by the way, than the revenue side. Let's take one example here that for Sanofi to be relaxed here. Last 12 months, EBITDA was 7%, okay? Let's guess, with the fuel price, maybe are going to 6%. That's more or less, we needed around about BRL 3 billion leasing liability, BRL 2 billion recurring CapEx for aging overhaul and BRL 1 billion interest and debt payment is more or less our breakeven means. Guys, there's nothing to be concerned. And again, we still have the measures to improve this situation, for sure. If you capture the full potential of this company, probably next year, probably are going to fulfill our target to delever the comp of 1.5x is a nice -- I would say it's a nice baseline. If you see 6 billion units, more or less breakeven, less than 7 billion. Is worth a type of proxy. What I can tell you right now with regards to cash generation, okay? That give us confidence that we are able to generate 2029 more or less BRL 5 billion in order to reach our target. That's more or less the number I have in my mind on the cash flow, sustainable cash flow, overall cash flow, okay, without any -- no recurring items and this is. Well, we brought this chart back just to show it that is an indication. Q1 was the level that before the crisis, if you see here, we generate BRL 1.7 billion EBITDA, and we paid our CapEx for engine overall, especially we do not have a bigger project with other types of CapEx. We paid the aircraft ownership. And then assuming that we reduced capacity in my calculation, BRL 3 billion plus BRL 2 billion plus BRL 1 billion, I didn't commit working capital. I keep working capital stable zero. But if you see what's happened in Q1, we have a bad guy on the net working capital because presale was going down because we offer less ASKs. Now we are moving to the different side of the equation here. Q2 is going to be probably breakeven on the ATL, the air traffic liability. But we're assuming that we are offering more ASKs in Q3 onwards. We're going to see also a contribution for the working capital and the traffic liability for the presales, okay? Just to give you a flavor, the proxy show we are able to generate cash in this company here. That's everything we want to listen in order to reduce the leverage and create the value to the shareholders. So to summarize here, again, people are asking me, Antonio how you want to generate value for me? It's really focus on profitable operation really bottom line net profit there. You saw we have a unique opportunity to expand the EBITDA faster than the revenue with our business unit is a nice fit, discipline and cash flow. And that's my, I would say, my main priority in this company. And delevering the risk, the balance sheet, we believe we put it all together is a nice opportunity to hit our second target is mark cap and creative value to those shareholders. And I hope you could also enjoy this trip we are doing right now, but it's not a one-off approach. It's 3 years -- minimum 3 years, 3 PR that we are seeing right now. And we know what you have to do. We know what to do and my opinion as a CFO, that's my last motivation why I joined Azul. We have the right ingredients to do this. That's our people. As you're looking here, the devoted crew members have, that's amazing. That creates value a lot also for our shareholders. They are the drivers to make this transformation here. Thank you.

I think the -- I think we'll open it up to Q&A before I make closing remarks. So if there's any questions, I'll start with Mike.

Great presentation. Great to see everybody. Welcome back to New York. I guess I have 2 questions. First one, I really want to touch on aircraft ownership because I feel like that that's been a hallmark or one of the successful tailwinds that we've seen with some of the more recent or actually some of the recapitalizations and restructurings that we've seen. Or some of your competitors have that benefit, and that benefit does last at least for some through the end of the decade, maybe early into the next decade. Can you talk about the duration of those potential savings? I know, Abhi, when you were talking about the wide-bodies, you talked about the leases and the debt coming down because they were short term. And so it does sound like that at some point, there's going to be a re-up on your wide-body fleet. I know it's small, it's 10 airplanes, but I would like to know when that becomes a potential headwind. And tied to that, coming into this, you always had great economics on engines. And it feels like that in the industry right now, that is a real pain point. And I think as a company or companies that do not have their engine deals in place for some time, and I know the manufacturers aren't writing them anymore. But if you can just talk about where you are on the engine side. I realize it's a very multipronged question, but it's going to be top of mind for investors.

Yes. So Mike, let me take those. I think our restructuring that we did and going to a low-growth model allowed us to extract as much value as we could from the lessors. And I think if we showed a hockey stick of growth, would not be able to get the aircraft lease liabilities down, right? Because they know you want to grow, right? And so as you take 1/3 of the aircraft rent out, we basically had to tell people, we were willing to get smaller, right? And so all of that's been done on the narrow-bodies and the wide-bodies just permanent savings. There is no step-ups in any of our lease deals currently, zero. Now there are shorter duration in older wide-bodies, but there's no step-ups, right? And so I just want to make that very, very clear. So all of the lease liabilities that we did, they're all permanent savings. Now there are some aircraft that were lessors are paying for the engines. And so we're not paying for the aircraft until the aircraft is fully operational for us, right? So we've kind of separated airframe with engines until they come back into the fleet. But I just want to make that's a very important distinction. Now when we're talking about the wide-bodies, a wide-body transition, right? We went from pretty expensive neos. And we have -- interestingly enough, we got -- we're getting 2 neos this year, 330 neos. And we're going to pay less rent than what we were offered to keep those neos that were 6 years old. So we're excited about the fact that these newer aircraft are coming in have a lower ownership cost in them. And then taking older wide-bodies allows us to be more opportunistic. We don't need to fly these 20 hours a day, right? And so I'll let Abhi kind of talk to that, and then I'll get back to the engine deals.

Yes. So the ex-American airplanes, right, that have bee proxy in 2019, it's an 8-year lease, right? So we have -- it's not like next year. It's not 2 years away, right? But it's versus a neo that was 12 years, right? And it's less than half the rent. So you're able to actually maintain the same capacity just at much lower risk. So we have some time. It's not a cliff that's happening now.

Michael, just one comment that's important for the overall presentation. If you take the airbus and the Embraers, the average age of the fleet is 7 years. That's also a strange. We don't have bigger needs to replace all their aircraft.

I am finishing the topic on aircraft ownership, 1 of our local competitors did their Chapter 11 during COVID and had a lot of very cheap 319s, cheap wide-bodies. That cycle is now ending, right, as they're taking 40 new aircraft this year to replace some of that stuff. And so they rode that wave for the last 4 or 5 years, and it generated a lot of cash kind of doing that. And so I think our moderated growth going forward allows us to ride this wave. Now we didn't have a CO wave, right, from a narrow-body perspective. But then getting to engines, right? I think we are the only airline in Latin America that has all of our engines under an engine deal, right? And it's great to have Antonio come over, and he can't tell me, but he smiles when he looks at our engine deals compared to what he was seeing when Embraer was trying to place incremental aircraft. And we always look at what's available in the market. There's 220s available and you have to have an engine deal with Pratt. And so we compare our engine deals. I happen to be on the board of another airline. And so we get to see flow on engine deals overall. And we have very competitive engine deals on our LEAP 1As on our GTFs, on our E2s and the TCA with Pratt as well. And I think that, that's really, really important as we go forward because that is the big risk in this industry.

And that's true for the wide-bodies as well. right? So we don't -- Rolls-Royce, we have an engine deal with 2 airplanes. And the price is the same, actually. So -- and even the CEOs are going to be just to pay for the burn and that's it.

Great. And just my quick -- this is actually a quick second one, and I don't mean to put Antonio on the hot seat, but you were at Embraer when Embraer did close the deal to sell the 190, 195s to Lat Am, right, one of your competitors. And I think there is a concern out there that with that airplane that they may deploy it into markets where today, Azul has this unique position, anything that you either know about that? I mean they've already announced some routes. Any potential concerns, maybe put that to rest.

Yes. Let me start, and I'll go to Antonio. He signed something that he can't say too much. I want to give him a minute to think through his thoughts.

We'll have drinks later.

No, I think it's Look, we made a bet on this aircraft a decade ago. And what's happened since one of our competitors bought it is the liquidity in the space and the aircraft and the leases that have actually gone down. So it's a great thing. I often say you can fly on their E2, but you'll have a TV on my E2 earlier. But let's not kid ourselves, Mike. The E2 is a large narrow-body. It's 136 seats, right? It's larger than a 319. And I think they're operating 27 319s today. And we talked about what the ownership cost of those 319s is and where they've decided to deploy those aircraft initially is mainly into their hubs, right? It's Godless Brazilia. And the E2 is not a regional airplane, right? The ATR is a regional airplane, right? The Cessna Caravan is a subregional, but E2 is a large narrow-body, right? And so sees a lot of capacity. And so -- but again, we've got the lowest unit cost. We're very confident in what we're doing. We think them taking the aircraft is shows that we made the right decision previously. And again, they're swapping out a low ownership aircraft for a more expensive ownership aircraft. And we've seen them to be very rational competitors in the market, and I intend for them to continue to be rational.

They could [indiscernible] to our routes. But it's not the case. They're going to connect who...

Maybe that's...

But the answer is it's more for replacement than anything else that I can say this.

This is Jans from Morgan Stanley. Well, 2 questions on capacity and the capacity reductions you have been making. So first of all, there's like a big divergence between you cutting capacities and your competitors are not. So first of all, what's your view on that? Do you think being responsible to do it in that environment for your competitors? I mean I know there's very little overlap between your network and theirs, but still interesting to see what your view is on that? And secondly, on how you have been decreasing capacity, I think -- I mean, your fleet size has been relatively stable. So I guess, it's mostly utilization of the existing aircraft. Does that mean that you could potentially increase capacity without increasing your fleet size if demand materializes or the fuel environment just improves?

Yes. Let me start, and then I'll let Abhi. I think the best run airlines in the world, and I've said this, are cutting capacity, right? Take a Delta, United, American, you don't have a doubling of your fuel price and want to fly the same amount, right? I think that's idiotic to do that, right? And I think as we look at situations like the second quarter, I was talking to a reporter yesterday, this is the time when you put your chest on the ground because there's bullets flying, right? And you do not want to take risk in this environment because war is on, war is off, war is on, war is off, right? And then so if you're deploying double-digit capacity growth, taking risk, that's just not our strategy, right? And so I think what we did through our Chapter 11 is we derisked it. We've got no problem left when other people are going right, right? And I think that, that's -- we're very focused on Azul. We manage Azul the best way possible. And we manage Azul looking forward, not looking -- what is gold going to do? What's Lat Am going to do to make our decisions, right? And so we were the first ones to proactively cut capacity. I think everybody thought this war would be over in 3 weeks. And here we are now 3, 4 months into it. And so I think we made the right choice. And it's not fun to cut capacity, right? And so -- but we have the ability to add that capacity back at the right time. And as Abhi said, I think we'll be much better positioned into 2027 for the decisions we took in 2026.