Azul S.A. (AZUL54) Earnings Call Transcript & Summary

[Audio Gap] Is with fuel tax in each of the individual states, and we use our Caravans to be able to lower our fuel cost by $100 million a year. And we just got this amazing team of people that are just -- can adapt to challenges as they come up. It's really a testament to what we've built. Today, we're the only airline in about 90% of our markets. Abhi has all those statistics that he'll show you. And we fly in 155 cities. Our nearest competitor, I think, serves 55 cities. So we have 100 cities where nobody else has. So we have this amazing sustainable model. There's a reason why when -- LATAM went bankrupt and GOL went bankrupt, where we had the opportunity to help protect our public shareholders and negotiate with our debt holders because we had -- the foundation of our business was so strong. We had one of the most profitable airlines in the world going into COVID. And as we accumulated debt to try and get through COVID and to try and to get through that process, obviously, it weighed the company down. But the core company is 70% bigger in terms of revenue, 35% bigger in terms of ASMs than it was going into COVID. And the only challenge we had is generating huge amounts of cash, but it had a huge amount of debt that we had accumulated. We often fantasize about being in the United States during COVID, where the airlines received $57 billion from the U.S. government, of which we didn't receive support from the Brazilian government at that time. But to be able to kind of -- to be where we are today, 70% revenue higher than we were going to COVID, to be able to renegotiate with our bondholders and to turn a huge chunk of that and with our leaseholders, to turn a huge amount of that debt into equity to lower our cash flow obligations over the next few years, we are really in a great position today. And I just can't really -- I can't thank enough John and Abhi and Alex and everyone who works at Azul for having my dream of making a big difference in Brazil come to reality. And I know our better -- the best days are ahead of us. And I just want to thank all of you that have been long suffering and patient as we've gotten through this COVID period. Those of you that are coming in now as shareholders, we won't disappoint you. We have a great management team, and we can really adapt, and we can -- we've been through a lot, and we're really good at it. So thanks again, and I'll turn the time over to John.

Thanks, David. We're going to kind of walk through our business plan today, what makes us different, and Abhi is going to spend the bulk of the time speaking with you today, but these are kind of the strengths of our business model. The network that David talked about, 100 cities that only Azul flies to, dominance in the cities that we operate in. We're going to walk through how we've grown in our hubs and kind of walked away from places that are not profitable, right? And I think that, that's something that's really key to what we do. We have this flexible fuel-efficient fleet. If we see demand growing in a market, we can add a larger aircraft. If demand is weaker, we could swap for smaller aircraft. We have -- David mentioned it, but we have the best crew members in the world. Those same crew members I remember in COVID, we had 11,716 of them took an unpaid leave of absence in order to ensure that Azul was viable, right? And so that's the type of dedication that you have from even the frontline crew members at Azul. There's a lot of opportunities to grow in Brazil. I get a lot of questions on should we be growing, and we should have that debate today, and we're going to walk you through some of that. And now finally, we have an optimized capital structure. It kind of reminiscing a little bit. When David talked about the founding of Azul, the exchange rate was 1.5:1. I joke I was tricked into moving to Brazil at that time, right? GDP was growing 8% a year. The exchange rate was 1.5. And this airline has been tested through the most diverse challenges that anybody could imagine. And you can see even in 2019, where the exchange rate was, where the average fuel price was and what our EBITDA was. And then 2020 was COVID, COVID 2.0, the Ukraine war, which had a spike in fuel prices as you can see there and what happened with the exchange rate, the recovery and then the challenges that we had this year, which was all of a sudden one day to the next 10% of our network was knocked offline. One day to the next, their currency devalued 15%, right? And how do you survive that? You survive that by having a great core business, a management team that's able to adapt. And so we've faced some significant challenges, but I've never been more excited about our future than where we are today because we have great partners. And some of those partners are in this room with us here today, but our lessors have converted their obligations into equity. Alex will walk you through that, right? And then we did a broader deal with our debt holders, right, where we're converting just over $1 billion of debt into equity into the business. But as part of that, our debt holders said, "Hey, let's do something even more innovative, right?" Like let's give a carrot and also the stick to go back to everybody and generate cash in this business, right? Now I want you to use us converting our debt into equity as an opportunity to go after all of our partners, OEMs, lessors to get an incremental $100 million a year in cash flow. And that was the right partnership model, right? When you think about it, when you have a debt holder that's saying, "I'm going to drop in the cap structure, and I'm going to become an equity holder", what they wanted to do is they wanted to ensure that this equity was going to start to run. They want to ensure that this equity was going to be protected and the best way for that equity protected is to address the cash that this business generates. And so through this deal that we've done with our lessors and bondholders, we're really addressing, as you start at Azul, many of you know that Azul generates a lot of EBITDA right? This year, it's going to be $6 billion, next year at $7.4 billion. But it always got eaten up in 3 main things. It was rent, it was interest expense, and it was CapEx, right? And that was where all of our cash was going. Last year, we renegotiated all of our leases to ensure all of our leases were market leases. And this year, we're addressing CapEx and interest expense as we're dropping interest expense by over $100 million a year, and we're addressing our CapEx by negotiations with an incremental $100 million a year. And with that, we delever the business and we become a much stronger airline as we move forward. As this debt that's on the balance sheet becomes equity, yes, there's dilution, but the company is much stronger going forward as a result of that. And so even in all of this, and why are our debt holders willing to do this, because we have a great core business. And that's what David continues to talk about. This is only possible. We were only able to avoid a Chapter 11 process because our core business is very strong. You can see in the third quarter, with all of the challenges of the OEMs and Porto Alegre being offline, we had record revenue, record EBITDA, record RASK and obviously, record EBIT as well. So the core business is very, very strong. And as we exit 2024 into 2025, we feel very good about where we are even with the devalued currency. And we're going to walk you through why the business model is so strong going forward. But there's 2 great assets that Azul has. First are our people that David talked a lot about, and the second is our network. This network is powerful, over 150 cities. But look at these statistics here. We're the only carrier in 82% of our routes, that's powerful. We're the leader in 91% of our routes. When Azul goes into a city, we go into a city to dominate that city. We want to be the lead carrier in that city. We also have 8 international destinations. 1,000 flights a day is what we operate at Azul. Our next closest competitor is around 750 flights a day. So you can see we are today the largest airline in Brazil by number of airplanes, departures and cities served, right? This airline didn't exist 15 years ago. And today, we're the largest airline serving all of these various destinations all throughout Brazil. We're going to walk through what makes Azul significantly different, our loyalty program that we have, our high-margin customers, our packaging business, our vacations business that we've built, our cargo business and Azul Tech Ops. And so Abhi will walk you through each of these business units and the value that they bring to Azul. But I want to talk about why I'm in Brazil, okay? I, obviously, am American. I grew up in Connecticut. But after walking the streets of New York, I much prefer the weather in Sao Paulo. It's 80 degrees all year around. I actually spent -- Abhi and I were on the beach together for Thanksgiving, much nicer than being in the cold Northeast. But the reason why I'm in Brazil is because Brazil still is a market that has tremendous growth opportunities. Look at where it is compared to Chile. Look at where it is compared to Colombia. Look at where it is compared to Mexico. Now Brazil has challenges that we all know, but you cannot talk about the challenges without looking at the tremendous opportunity that Brazil has to grow this market. And so even with these enormous challenges and the high barriers to entry that Brazil has, we see opportunities to grow the Brazilian market. And we've shown this in the past, but I think this is really important to highlight. Just remember, Azul is the largest airline in Brazil today in terms of departures, in terms of cities served, in terms of aircraft, okay? If we grow Brazil to be where Mexico is or Colombia is, you need 3 more Azuls. Now certainly, we're not inviting 3 more Azuls to start up in Brazil, but I do believe that there's an opportunity to add more aircraft in Brazil, right? And so -- and these are not -- we're not thinking that Brazil is going to become like the United States, but look at this is compared to their other Latin American peers. And so there's a lot of growth opportunity in Brazil today. And we could talk about some of the challenges as to why maybe Brazil hasn't grown as much as it should because of the high jet fuel prices and because of some of the economic challenges that Brazil has faced over the last decade. But Brazil is still a growth opportunity for sure as we move forward. And as we've mapped this out, Abhi has designed over 200 cities that he believes should have air service in Brazil. You can kind of see where that is today. We are already in 100 cities that nobody else serves. But there's an incremental 50 cities that Abhi sees where we can add service with and Azul aircraft over the coming years. I highlighted this, but this is -- our most important asset is our people. I talked about what they did during COVID. I talked about the unbelievable teamwork that we have. This airline was the most on-time airline in the world in 2022, the second most on-time airline in 2023. TripAdvisor voted us the best airline in the world. And it all starts with our fantastic people. And so with many of them that are listening today, I want to thank them for all that they've done. The rest of today, Alex is going to walk you through the deal we've done with our bondholders and the financials of Azul, some of our competitive advantage on our cost side, and then Abhi will walk you through the details of our business plan and the competitive advantages that we have as an airline. Alex?

Thanks, John. So we're going to explain -- we talked about the transaction already, right? We first announced it, then we talked about it during our earnings. We're going to talk about it again because it's very important to understand it. It is complex, right? But it is complex because once again, we were able to get through the support of all of our stakeholders, a comprehensive solution that addresses the challenges that we have been facing in a way that really maximizes value for all shareholders, right? We're all stakeholders. We're protecting the equity, right, in a way that nobody in Brazil has been able to because we're the only airline in Brazil that has never filed for Chapter 11. We're very proud of that, and we wouldn't have been able to do it without the strength of the business model and without the support of our stakeholders, where we also are raising additional capital. We're also preserving the assets of our lessors, right? So everybody is coming together to really support this really strong business model, right? So we're going to go into detail here, but just to kind of give you the overall picture, right? First, we took a component of the restructuring that we did last year, which was an equity instrument that would fluctuate with the price of the shares, right? As shares went up, we were going to issue less shares, and if shares when -- prices went down, we will issue more, so that we would give $550 million back to our lessors. Where does that money come from? Some of it came from COVID deferrals. But most importantly, a lot of that came from rent reductions that our lessors gave to us. Last year, when we had a similar conversation with our lessors, there were a lot of people that said, "Oh, lessors are not going to help you. They're going to get the aircraft back", right? If you try to get any concessions from lessors, there is an aircraft shortage in the world. Your lessors are not going to support you, right? That was the bet that a lot of people had. Not only our lessors supported us, not only they gave us more aircraft as we were negotiating with them, they actually reduced our rent to get to market rates, right? Because we promised them, we would pay them back. And that -- but that structure kind of created an overhang. And the first thing we needed to address to protect the equity and be able to have a currency, again, was to fix that structure. So the Lessors agreed to exchange that $550 million IOU into a fixed number of shares, right? So we know what that number is going to be. At the same time, we are getting our partners, all of our partners, not only the lessors that had the bonds and the equity, but all the lessors, but also all the OEMs and other suppliers as well to support us and improve our annual cash flow by $100 million, right? We'll talk a little bit more about how we're going to do that. Doing that, we're going to accomplish 2 things. We're going to be able to raise even more capital to increase our liquidity level. So everybody is comfortable with the liquidity level that Azul has. And we're going to equitize another $807 million. We're going to eliminate another $800 million in debt from the balance sheet on top of the $550 million, which was also debt on our balance sheet, right? And then we already got $150 million of that $500 million, but it's a total of $500 million that we're raising an additional cash into the company to increase our liquidity. And so the total result of this, differently from what we did in 2020 when COVID hit and differently from what we did in 2023, those 2 instances, we essentially bought time, right? The main benefit of the negotiations that we did in COVID and negotiations we did in '23, we're buying time, which had its merit, right? Buying time is not just kicking the can down the road. We increased our EBITDA by about BRL 1 billion every year. So we increased our cash flow generation by almost BRL 1 billion every year. So buying time gets us BRL 1 billion better, right? Buying time gets us to, for example, the FNAC line, which is what the government has approved in terms of new capital for Brazilian airlines, right? Buying time gets us a year closer to maybe strategic opportunities. But we're going beyond that. We're not only buying time this time. We are deleveraging right, which is what a lot of you when you talked about Azul, you'd say, look, Azul is great, you have a great business model, great EBITDA generation, but you're a highly levered company. This time around, we're not only getting liquidity, we're also addressing the balance sheet and significant -- we were going to delever organically over time. Now in a fell swoop, we're decreasing leverage by over 1.5 turns all at once, right? So what are the components of this deal? So first, the $550 million. This was going to be either dilution or cash. Most likely, it would be cash because of just the amount of shares that would have to be issued. So everybody was worried about this. This was creating a huge concern about Azul's liquidity, and it was creating a huge overhang on the stock, and we were able to address it and getting the lessors to give up what they had, which was essentially a claim of $550 million on Azul in exchange for a fixed number of shares, $100 million Azul for shares. These are the shares that trade that make up all of our float and all of our equity value, right? So this was a huge, I think, development in our negotiation and a huge sign of support from our lessors. Again, not only the lessors are not asking for their aircraft back, they're giving us more aircraft, and they're saying, "I'm okay being an investor in Azul," right, which shows their faith and their reliance in our business model because they're looking at the overall lifetime value of Azul, right? We spend about $600 million a year in rent, right? So $550 million is roughly a year's worth of rent. But when we're talking about the lessors, the lessor is looking at the next 10 years, the next 15 years, the fact that we're the fastest-growing airline in Brazil. We're going to show -- Abhi is going to show the exposure that we have to Brazil, right? Brazil is a country that's growing about 3%, 4% a year, which is okay. But the Brazil that we serve is the Brazil that grows a lot faster than that, right? So the lessor looks at that and says, "Hey, there's huge potential for business here. So when they look at the overall lifetime value of Azul, they see that this is a business that's worth supporting and betting on, right? But what's happening to the balance sheet, just in terms of lease liabilities? We're eliminating that $550 million in IOUs to the lessors, which on the balance sheet because this is a lease liability, it was PV, but this is BRL 2.3 billion of debt that was on our balance sheet, which is essentially disappearing. And at the same time, as part of this comprehensive transaction, we are also addressing a 2030 unsecured note that we have on our balance sheet, right? So there's another BRL 800 million of debt that comes off the balance sheet through this overall negotiation, right? So a huge reduction in liabilities just from the lessors, right? But on top of that, like I said, through conversations with all of our partners, right, lessors, OEMs, suppliers, everybody is seeing that, "Hey, this is a company that's going to be almost 1.5 turns less levered than before. So that is -- they are willing to help us create that company. So this isn't necessarily a concession. Sometimes people ask us, "Hey, but the lessors have already done so much. Why are they giving you more concessions?" This is different, right? This is everybody pitching in to create the Azul that we always thought Azul should be, right? A great business model with great EBITDA generation, but where actually some of that cash stays -- sticks around, right, after we pay leases after we pay CapEx, after we pay interest. So by doing that, the company gets a lot healthier and everybody gets to share in the perpetuity of the company. So we're going to improve our cash flows by about $100 million through contributions, through participation of all of our commercial partners. Some of this is coming from the lessors. But not only the lessors that held the equity and the debt, right? That was about half a dozen lessors. But we have another 20 lessors that didn't have a stake in the equity in the bond. We're also helping us, right? They're helping us with, for example, improved delivery conditions or they are helping us by saying, "Hey, a company that's 1.5 less levered, maybe I can contribute some of the maintenance reserves that I'm holding towards preserving my asset, right?" They know that we need cash and they know that their asset should be -- they want the asset to be preserved, and we want to utilize that asset. So some of them are giving maintenance reserve offset to help us get to that company that is a lot healthier.

Alex, if I could just highlight something as well. There's a global problem with OEMs today, right? None of the engine manufacturers are coming anywhere close to how they should be performing. That's Pratt & Whitney, that's GE, that's Rolls-Royce. And over the last 2 to 3 years, what Azul has asked for was payment terms, right? We asked for help from a cash flow perspective. Now that we're fixing the balance sheet, majority of this $100 million in incremental cash flow that will get over '25, '26 and '27 is going back to those OEMs with our partners, with the bondholders that are now turning into equity holders and saying, "Hey, this engine is not performing to the standard that we signed up for". Therefore, we want to be compensated fairly for it. And so it's not a cash flow discussion on payment terms anymore. It's actually getting the compensation that Azul deserves for the poor performance of the reliability of the engines. And so that's another big thing that, that was not addressed with the lessors in the past, but that's now being addressed and that's the majority of the $100 million cash flow improvement in '25, '26 and '27. That's why I said this time, we're really addressing the CapEx, right? About 85% of our CapEx today is engine CapEx, and so the engine manufacturers and the OEMs have to step up because of the poor performance from an engine perspective.

Yes. And that's a conversation that was again, enabled by this overall deal, right? Because if you're dealing with a situation where OEMs have restricted capacity to manufacture an engine or to overhaul an engine, right? If you go to them and say, "Hey, I want that capacity to come to me. They will do it if you're the horse they want to bet on, right? And if you're asking for improved terms, to pay for that overhaul at a time when overhaul is at a premium, they're going to do it if they see a lifetime value that is worthwhile, right? So by enabling an Azul that's going to be much healthier financially, you're able to get those concessions from OEMs. You're able to get that spare engine that you want. Are you able to get that overhaul capacity that you want? Are you able to actually get improved terms on the overhaul? And so with that, then comes the cash, right? Because again, lessors are only going to exchange debt on the balance sheet for equity, if they feel that the company is going to have enough liquidity, right? And like we said, everybody was looking for an Azul that has not only less leverage, but also more liquidity, and this is where the capital raise comes from. And so we have up to $500 million that's coming through this transaction. $150 million has already come in, but we have an incremental $350 million to come in between now and January. And with that then comes the significant part of the deleveraging, right? Because we already eliminated $550 million of debt from the lessor equity obligation, but then we can equitize another $807 million, and that's a total that takes us to 1.5 turn reduction in leverage. And this is when -- what needs to happen for the equitization. So there are stages for those of you that read the details on the transaction, there are essentially kind of 4 tranches of when that equitization happens, but the majority of it comes with the -- we're working to get that incremental $350 million kind of all at the same time. But there's a plan to also -- now that we have an equity instrument. Once we're done with this, we have an equity instrument that is something we can use again to raise capital, right? We don't go always to the debt side of the balance sheet to try to get liquidity. Now we were able to use equity as well. And with that, we're planning a future capital raise, and that's when the last tranche of the $807 million gets converted. So with that, what this enables us to do is, again, get us to a company that generates cash reliably, right? Again, another feedback that we would get off. Great business model, great strategy, but you need to generate cash. And it's been hard, right, because like during the pandemic, right before the pandemic, the real was at BRL 3.90, and now we're talking about a real that's at BRL 6. So the goal post has been moving, but we have been getting closer and closer to that cash generation level. And in 2025, we can reliably say that we will generate cash. A lot of it because we will be reducing interest payments significantly from a projected BRL 2 billion a year to about BRL 1.2 billion from just a partial equitization of the '29 and '30 notes. But also from a reduction in the outstanding amount of the lessor notes. But the cash generation is not only going to improve from that. And we'll talk a little bit more about how else we're getting improved cash, right? And this is kind of how the debt stack looks like. So we paid down the 2024 senior notes that matured in October. We have a little bit that's remaining on the '26. But you can see here that essentially, we're exchanging and then we're going to be creating a new super priority note with the issuance that we're doing of the $500 million. But that, again, is a reduction of about BRL 2.2 billion in debt plus the incremental cash that's coming into the company to significantly increase our liquidity position. So this is what the gross debt looks like after the transaction. This is pro forma based on 3Q '24. But again, you can see the significant reduction in leverage. Again, something different from what we did in 2020 and 2023, right? We're not only just raising capital, which is always welcome, but we're also addressing the balance sheet and reducing leverage. And with that, we're going to go back to the leverage levels that we had essentially in the pandemic, but with a significant difference. This slide -- most of our debt, both the leases and the financial debt are dollar denominated. That 3.3 was at a time when the dollar was at 3.9, right, to 1. And now we're going to be essentially at the same level in leverage, but with the dollar much higher than that, right, with the real much more [ devalued ]. This is what we've been able to accomplish against dealing with all the effects of the pandemic without government health, without having to resort to Chapter 11. And when you drill down on that 3.4, only 1.4 is really financial leverage. 2.0 is really the present value of our leases, right? And this is something where when you're comparing across airlines, you have to do it very carefully because Azul has new aircraft and next-generation aircraft. That means that I have a lot of months of lease liabilities on my balance sheet, right? IFRS 16 requires you to recognize all the lease contracts that you have already committed to. So if I'm an airline that has a 3-year old aircraft, that means I still have -- if you're talking about a 12-year average operating lease, you're going to have 9 years of debt on your balance sheet. If I'm on the opposite and if I'm an airline that has old aircraft, maybe I have an aircraft that's 10 years old and originally, it was a 12-year lease, I only have 2 years of debt on my balance sheet. So when you're comparing an airline that has a young fleet, like we do, to an airline that has an old fleet, like some of our competitors do, you can -- it's not an apples-to-apples comparison, right? So when you extract the lease liability from the leverage, you see that our financial leverage is only 1.4, right, which is significantly better than anything that we've had in the past.

I think it's also important to highlight that the airline is significantly larger in 2024 than it was in 2019. So we've added aircraft to the fleet since 2019. I think we have probably a total of 35 aircraft that were added since 2019.

Yes. So this is a much larger airline as well with a lot more aircraft. And Abhi is going to show just how much of our capacity comes from next-gen aircraft, which is another competitive advantage, especially in a country, where fuel prices are very high. Brazil has the highest jet fuel price in the world. So this is a country where a next-generation aircraft makes sense. If there's anywhere in the world that you should be flying next-generation aircraft, that has low fuel burn, it's Brazil, right, because of the high cost of fuel. So this is for your models, but to kind of show you the breakdown of all the changes in our cap structure, what -- that is getting eliminated, the new debt that's coming in and how we get to that leverage reduction of down to kind of 3.4 that we showed you before, right? And if you kind of increase the lessor liability, you get to the 1.5 turn that we've been talking about. And this is really where -- what changes, right? So not only we are getting back to a leverage level that everybody was comfortable with, right? Pre-pandemic, I think everybody was saying, look, Azul is an airline with high growth, right? So being in the low to mid-3s is acceptable, is reasonable, especially when most of that leverage is coming from aircraft leases, which is your revenue-generating assets. But now we're also reliably going to be generating free cash flow, right? So when you look, again, very high levels of EBITDA generation, but all that money was going to pay for rent, CapEx and interest, but with the reduced level of rent that we negotiated last year and the reduced level of CapEx and interest that we're negotiating this year, we're starting the year expecting to generate more than BRL 1 billion of cash. And we've never had that expectation before. When we finished our restructuring last year, because we essentially just raised capital, we reduced rent as well, but we were essentially aiming for a breakeven year in terms of cash flow, right? That was our projection for 2024 when the year started. And then Porto Alegre happened and the OEM issues happened and then the real devalued, so we went from breakeven to needing to raise cash. This is different now, right? So our starting point is a lot stronger, is a lot healthier to begin with, right? We're going to be facing challenges, right? Brazil is never a dull place. So we know that there's going to be challenges still, but we're starting from a much stronger position than we ever started before. And obviously, we need to do our work to be as efficient as we possibly can, right? So one thing that we're also doing now that we're done with all of these negotiations with our partners and raising capital is turning all of our focus into the company and all the opportunities that we have to become even more efficient, right? Because, yes, our EBITDA margin is already kind of best-in-class, but it doesn't mean that we can just rest on our laurels and just accept the cost structure as it is, right? We need to look at every opportunity that we have within the company to be more efficient. And we've been able to do that already. So since the pandemic to today, for example, when you look at the capacity that we generate per crew member, we have had an increase of over 10%, right? Some of it comes from upgauging, which is why we're so excited about the fleet transformation that is ongoing, and Abhi is going to talk about that as well. We're also looking at technology. We're looking at processes right? We're looking at just management in general to make sure that we're removing as much cash and increasing our productivity everywhere we can. And we're going to talk a little bit about the [ Elevate ] plan that we announced, I think, a couple of quarters ago and how that's going, right? We're also making sure that the aircraft we have is flying as much as we can, right? So we are significantly reducing ground time to make sure that these assets are in the air, which is where they generate revenue, right? So we went into each fleet type and through a lot of redesigning of processes and some investment in technology, we are significantly reducing the amount of ground time across our whole fleet, and that just generates free capacity, right? These are aircraft that we're already paying for. We're paying for the rent. We're paying for the maintenance. And so we can generate a lot more capacity by just reducing the ground time in the fleet. With that, we got to a situation that was never part of the business plan, right? Because we have a diversified fleet. That's part of our strategy. The reason that we can fly to 3x as many destinations as our competitor is because we have a diversified fleet. And obviously, with diversified fleet comes some complexity, right? And you lose a little bit of economies of scale. So we should have the highest unit cost in Brazil, right? Also because our average aircraft size is smaller than our competitors. Obviously, the bigger the aircraft, the lower the cost per seat, right? So if your average aircraft size is bigger than your competitor, your unit cost is going to be higher even if you're just as efficient as they are. But we're so much more efficient than our competitors, that today, we have the lowest unit cost in the region even with a lower aircraft size, and we -- even with the additional complexity that having a diversified fleet brings. So this is a huge source of competitive advantage.

And this is -- go back a slide, Alex. This is something that we did during the pandemic. We did not have the lowest unit cost in Brazil in 2019. We didn't. But now we do, right? And I think that's a great thing that we've been able to do as an airline is -- and a lot of people said, "Oh, well, you have the lowest unit cost because you have more next-gen fleet." That's why we also showed it on an ex fuel basis here, right? Obviously, if you have a next-gen fleet, it's easier to have lower fuel burn on a relative basis. If you're flying head-to-head against a ceo or an NG when you have a neo, right? But we actually do it not only on absolute CASK, but also on CASK ex fuel.

And this is another way to look at this, right? Because we do not compete with a large narrow-body. Like if our competitors are flying an A320 or a 737, we do not compete with them in that market with an ATR or an Embraer, right? Normally, the ATRs and the Embraers fly in the Azul exclusive markets, which are usually a little less dense than the high-density routes in Brazil. So when we compete with a competitor 737 or A320, we compete with our A320neo. So when you look at our blended CASK, you're seeing this dotted line here, and you're seeing how it compares to the industry aircraft. But we know what our unit cost on the A320 and the A321 is, which is even lower, right? So when we're competing head-to-head, we have a huge cost advantage against the other players in the industry.

But we don't really compete that much head to head.

When we do, we do it. But that's important. We cherry pick, right? There are markets that we just don't go into, or we go into it, and we see that the market is not that profitable. It doesn't earn the returns that we're thinking of, and there's a better use for that asset elsewhere. That's fine, we let our competitors on that market. We're not going to enter a market just because we want to be there. We're going to enter that market if it's profitable, right? If it has enough demand for 3 players to make money consistently. Otherwise, we're happy not being part of that market, right? That's great opportunity like for strategic deals in the future. But in terms of operation, we're happy cherry picking and flying only in the markets where we can make money, right? And we still have a lot of our capacity coming from old generation Embraers. You're going to see more details into that. As we exchange that capacity into E2, that unit cost advantage is going to become even stronger, right? Because we get reductions between 26% and 34% per seat when you move from an E1 into a next-generation aircraft. And like I said, it's not enough just to have the fleet transformation. We're just looking at every piece of their organization, every part to make sure, I mean, we've seen what it feels like to be struggling because of the pandemic because of no government help, right? We've seen the importance of generating cash. That is something that has really been, I think, incorporated by the whole organization. And so we're looking at every part of the organization to really change our mindset, right, and make sure that we are doing only the things that make sense, right, only the things that are valued by the customer and making sure that the customer is paying for those things that we are offering, right? So for example, like WiFi. We didn't charge for WiFi. But maybe that was something that was sustainable when the real was at 3:1. It's a dollar-denominated technology, dollar-denominated service, with real at 6:1, and this is something that the customer appreciates and values, yes, then we need to figure out a way to monetize it, right, be it through our loyalty program, be it through fees, right? But it's something that has to earn its right to exist, right? Fuel is by far our biggest expense. And again, in Brazil, we pay the highest cost per gallon of jet fuel in any relevant country in the world. So any kind of efficiency that we can get in fuel burn has a huge return. So we're looking and the whole organization is together looking at every opportunity and just adding up. We spent a lot of the last kind of 4 years, just trying to make the company survive, trying to deal with the balance sheet, trying to deal with the pandemic. Now we have the ability to pursue all of these different opportunities here. And with that, what we're really excited about is that we're resuming just this natural trend in EBITDA expansions that we've had since the beginning of Azul, that was only interrupted by the pandemic, right? We kind of stopped in 2019 at BRL 3.6 billion, but we exited the pandemic with BRL 5.2 billion, and we are guiding to BRL 7.4 billion of EBITDA in 2025. So if you just eliminate exactly, we are only -- the only reason why we have the balance sheet that we have or what we had, right, that we now restructured is because of that hole that was created from those kind of 3 years of subpar EBITDA generation and no government health. But now we can see that the business model has been preserved and even enhanced, and our EBITDA generation continues to be even stronger going forward.

Thanks, Alex. Can you guys, hear me? So I just want to clarify one thing that John said. It is true we went to the beach, but our families were there as well. So in case compliance, ethics, anyone is listening, I just want to make sure, it was -- John is my boss. I do report to him. But I'm really excited to talk to you guys today about the business itself and the strategy. John, Alex talked about the heavy stuff, about the restructuring. But there's just so many exciting things that we're doing on the business side, on the strategy side, that are really setting us up to have long-term advantages. Everything we do is to create or to build or to extend our advantages, whether it's a network, whether it's the fleet, whether it's a business unit, whether it's the cost, whether it's the upgauging, all of these things contribute to what makes Azul strong and stronger and especially now given the challenges with currency. Everybody is asking, the currency is at 6, what are you going to do? What are you going to do? Well, we got to use all of the tools in our toolbox to be able to make sure that we continue on the path that we're on. And it starts, of course, with the network, right? We do have the broadest network in Brazil by design. We've designed it this way. We combine the network with the fleet, so that it's very similar to the U.S., the right aircraft for the right market at the right time. Our competitors, on the other hand, have a very concentrated network, which is why they have more than 80%, 85% overlap with each other. While we are is exact opposite, 80% of the routes that we fly, we have no competition. So our revenue generation capabilities is very much in our own hands, which is why we are now 69% higher in terms of revenue now versus 2019. Half of that is capacity. We've grown the most to the pandemic, not because we set a target of growing the most, but because we use our fleet flexibility in our network as a strength and half of that is from unit revenue expansion. Average fares have gone up as we've grown. Unit revenue has gone up as we've grown, and it stayed there, and it's going to stay there. And it's because of the breadth of the network, the connectivity that we provide. I'll give you an example, the month of October was one of the largest in the history of Azul. We had about 2.7 million, 2.8 million customers. We transported, we flew them to 8,000 different combinations of origins and destinations. Many of them have less than 1 passenger a day, 2 passengers a day, 10 passengers a day. But this is demand that we access that our competitors don't. And that's a result that we can capture this revenue and grow in a very, very sustainable way. John said that we were responsible for the majority of the industry growth over the last 15 years. That is true. About 60% of the Brazilian market growth is because of Azul, but we do it with high fares. We actually have the highest fares in Brazil. And so we've grown the market through the network through service and that gives us the base for a competitive advantage. It starts with our hub in Sao Paulo, which is Campinas. There's a great photo of David, staring at the screen, and there was nobody around you and there were no flights. And David is like, this is ours, and it scared to everybody. But it actually worked out. And now we have 170 departures in Campinas, 60% connecting. It's our Southern South Sao Paulo market, very, very strong. Our international base is there as well. And obviously, we have 98% market share. It's the largest single airline hub in South America and very, very strong in terms of local demand and very strong in connecting the south of Brazil to the Midwest and the North. We've also significantly grown our mid-continent hub. Think of this in the U.S. as an Atlanta or a Dallas or Houston. This is Belo Horizonte. It's the Brazil's third largest city. It's our mid-continent hub, where we have now 140 departures a day, very, very strong for us, slow to come back from the pandemic, but really accelerating the last one year. And this is a market that we had competition, and I'll show you how the overlap has evolved. But if you remember back when we went public in 2017, 70% of the markets that we flew had competition -- did not have competition. Now it's 82%. So as we have grown and as Alex talked about the next-generation fleet, we've actually gotten less and less competition, the bigger that we've gotten. And Belo Horizonte is a good example of this. And Recife. Recife is our West Coast hub. Think of it as San Francisco or Los Angeles or Seattle. It's our Northeast hub. Each of these hubs do a different thing. Their job is not to steal traffic from each other, but their job is to bring new traffic into our network, right? So very geographical, the Northeast hub connects every capital city in the northeast of the country. The mid-continent hub connects all the different small cities around the center and the Southern hub, which is Sao Paulo connects to south of Brazil. So each one has a very specific task. Each one has a different mix of aircraft. As of now, they all have some international as well because the markets have grown. In each one of them, we've added significant capacity since 2019. This is where we've invested in our growth. Our growth has not been in competitive markets because our hubs, our markets are big enough for our own growth. And this is where we have better margins. This is where we have better unit revenues and better performance. And so this is where our growth has been, this is where our growth will be. I remember back in 2017, 2019, people were saying, well, as you grow, you will face more competition. Actually, the opposite has happened as we've grown, we face less competition because of the next-gen fleet and because we've invested so heavily into our own hubs. And the last example is Guarulhos. If many of you fly to Sao Paolo, you most likely you fly into this airport. It's the international airport, which is highly contested between GOL and LatAm. And in the peak, we had 50 departures a day pre-pandemic. Now we're down to 20, 25, right? And this is -- we're leaving this market for GOL and LatAm. As Alex said, we're going to fly where it makes sense. We're going to fly where it's profitable. So this is a clear example, and this is public, you can go online, you can check the schedule data, how we've focused our growth into where we are strong and not where we're not, and this is actually a good sign of industry discipline overall. LatAm, for example, used to fly at our hub in Campinas. They don't today. So each airline in Brazil is focusing where they are strong. And this is a really positive evolution of the entire industry. The industry is not trying to kill each other. The industry is not trying to put one out of business or grab market share because it's fun. The industry really is trying to do what makes sense for each, right? And this is an indication of us doing what we think is good for us. And there are many examples of our colleagues at GOL, LATAM did the same as well. So overall, we see a very disciplined industry I have for the last couple of years, and I think that's going to go forward. We grow where the country is growing, right? So when we first started Azul in 2008, Sao Paulo to Rio did not need more capacity. So Paulo to Brasilia, the capital, did not need more capacity. Just like New York to Boston doesn't need more capacity or New York to L.A. But for example, our version of Chicago to Miami, had no nonstop service. Today it does because of Azul. And we've invested our growth where the country is growing. If you think about the Midwest, that's where the Agro business is growing. Azul is by far the largest airline in this region.

Abhi, if I could just tell a quick story. There are 4 Tiffany jewelry stores inside of 1 square mile in Sao Paulo, okay? And I was there -- now there's 4. And I walked into the Tiffany store and said, who in the hell is buying jewelry at Tiffany's in Sao Paulo because it's 3x what you could buy it in New York. So I called the manager over and said, "I just want to know who your customer is". And I thought, hey, somebody that cheated on his wife last weekend, maybe he's in here rushing in to get something. But he said it's the Midwesterners of Brazil that come in. We are their Miami, right? And so what Abhi is talking about is this agro business, right? And when you talk about the real being 6:1, those are the customers that come into Sao Paulo on the weekends and are going to Tiffany's and buying jewelry at the Tiffany store. It kind of flipped my mind a little bit to understand the dynamics of who is in Brazil and who our customers are and who are after. And so when Abhi talks about, we grow in these regions, this is the bread basket of the world. right? The largest protein producer in the world is in Brazil, the largest soybean producers are in Brazil. And all of these places are where Azul is very, very strong. And that network that we have 100 cities that only we serve is the strength of what Azul does, and those high-value customers fly us on a regular basis into Sao Paulo for the weekend and stay at some of the top hotels and so much so that there's 4 Tiffany stores in 1 square mile in Brazil.

Yes. And also the Northern Brazil, a lot of infrastructure, a lot of mining. A lot of industry in the Northeast, fabrics, technology as well. So we really have focused our network growth away from the classical Sao Paulo, Rio, Brasilia, triangle, right? And as a result, we have less competition. We use our fleet flexibility. I'll talk about that in a bit, and how really matching up the right market, the right size, bring a lot of connectivity into our network. So it's a different network by design, and we've extended that advantage over the last 15 years. Our international network is also evolving. We actually just started Paraguay yesterday, we had Paris last year. And this is an evolving network, obviously, with wide-body aircraft. It takes a little bit longer to grow internationally long haul. We are much more of a believer in international long haul. Then for example, we are in Latin America. I think, Latin America is well served, doesn't need that much more service. But we do see good opportunity on the long-haul side. So we have a really great selection of destinations for Brazilian customers. These are very, very relevant, resilient destinations. South Florida, obviously, we are the largest airline that brings Brazilians to South Florida, especially Orlando and Fort Lauderdale. I'll talk about Disney, for example, and Universal, how strong our partnership is. On the European side, we have Lisbon, great relevance to Brazil and Paris as well. And we're always looking for other opportunities. But a great side effect of this, in addition to these markets doing really well the last couple of years, we all know how strong International has come back post pandemic, especially international long haul, Europe, especially has come back so strong. This gives us the ability to get revenues outside of Brazil. right? So we've significantly grown year-on-year, what we call point of sale ex Brazil or point of sale outside Brazil. And we do this with distribution systems and our growth in ex Brazil sales in dollars or euros has come through direct connections, which are much more cost efficient, not coming through the regular GDS. So we're very happy with how the International network is growing and how we're able to capture revenue outside of Brazil, in U.S. dollars, in euros to help offset some of these costs. We have a great network of partners as well from United from JetBlue, from Copa, from TAP, from Air Europa. We serve them in Brazil or Canada as well. And they also serve us with our long-haul network in U.S. and Europe. Obviously, we have the GOL codeshare, which we can talk about as well. So we're happy with this network. It's always growing. We have some great partners lined up for next year. And so we are relevant to partners flying into Brazil. TAP, for example, we serve them in 8 cities, 10 cities around Brazil. United, Copa, we serve them in Rio, in Sao Paulo in other cities as well. And so we are a very relevant partner for their connectivity in Brazil, but for us, for our long-haul fleet, our long-haul markets, it's equally important for us to have that connectivity in the U.S. and in Europe as well. Transitioning from the network to the fleet. And I'm going to try and connect all of these stories, because they're all relevant to the end, which is how do we build a really resilient business that continues to add to its advantages. And of course, the network is the base, but the network only works with this fleet. And this fleet is diverse for a low-cost airline. As Alex said, this does produce some complexity in terms of maintenance, in terms of training, in terms of pilots, but it allows us access to demand that would otherwise be impossible. It allows us to have the network that we do. And all of these work hand-in-hand. You cannot have a flight to Paris if you don't have ATRs connecting you to small cities and bringing that demand. You cannot have A321s if you don't have caravans and Embraers, right? As David said, we started with the E1s because we wanted to play the trip cost game and then we migrated small then big, then very big, and we've kind of explored every single segment of the market. But this fleet really works hand-in-hand with the network, deliver the revenue that we have. And it's all about the right aircraft at the right market at the right time. And I remember post pandemic, we had some markets in the north of Brazil that we had no idea what the demand would be. Is demand coming back? Is it not coming back? So we actually started with the Cessna Caravan. And now that same market flies double daily A321s from 9 seat to 214 seats, and that gives us the ability to always be testing demand, always be optimizing the network for what demand is. And so we're always changing the aircraft on the market, time of day. Some other examples, the downtown airport in Sao Paulo, Congonhas. It's a high-yield corporate market. But there are times of days and days of week that you don't need a large aircraft, Tuesday afternoons, Wednesday afternoons, you're flying because of corporate schedules. So instead of having only one option in your fleet, you can put an eject, which is what we do. Right? And so you can keep the same revenue, but you can have 40% less cost. And so we play all the time with low cost per trip versus low cost per seat. If it's a longer, thinner market, as we call it, then you want to have a low trip cost, which is you want to spend the least amount of absolute money possible to bring that demand. But if you have a very dense market with lots and lots of customer, a lot of traffic, then you want to have a low cost per seat. So you want to spend the least possible you can per seat to drive that traffic to your network. This kind of flexibility in the U.S., it's very common. You are not flying to Bozeman, Montana on the same airplane that you are to Los Angeles, right? But in Brazil, this hasn't been done still. It's still only Azul. And as a result, we have 150 cities. As a result, we went from 18% market share in 2019 to 32% right now. As a result, we have the largest corporate revenue in the country. And this is an example of how we allocate this capacity. So there are two interesting data points here. One is comparing pre-pandemic to now how our percentage of capacity is represented by the next-gen fleet. So across the board, we have more next-gen aircraft. The first phase of our fleet transformation was the A320s and A321s, and we have 57 of these aircraft. The next phase of this is going to be the E2s, which I'll talk about next, right? So we are significantly more represented in terms of next-gen capacity than any airline in Brazil for sure, and I suspect the region. In addition, how do we allocate this capacity? As Alex said, we allocate the most efficient capacity in the most competitive markets, right? So when you compare us to our competition, you're not comparing our blended unit cost. You're comparing their unit cost with our most efficient unit cost. So that allows us to compete very, very efficiently where we do. And where we are the only carrier, the main carrier, which is where we dominate in terms of frequencies or departures or destinations. And metro competitive is where we have an airport in one city and also a different airport in the same city, right? So we allocate our -- over time, these will all become equal, but we are allocating the most efficient aircraft in the right places to make sure we're the best competitor we can be in, and that's what this shows. So let's talk about the E2. We're very, very excited about the E2. We have 24 E2s now. We're expecting with Embraer to be by the end of next year up to 40 E2s right? So we really are reaccelerating our E2 deliveries. And I'll show you that we are soon going to be in a position where we have more E2 departures than we have E1 departures which is a really important milestone for us in terms of the next stage of our fleet transformation. A very, very efficient aircraft in terms of fuel burn, in terms of ownership, in terms of maintenance, really able to fly longer, thinner routes that you would not be able to do with an E1, E2 long or 320. The aircraft is too big. So you're able to explore so many new markets and a great customer experience, 2x2 seating, no middle seat, individual IFE, WiFi, all those kinds of things. So a great aircraft that's really going to drive the next stage of earnings growth and fleet transformation at Azul. A reminder of the economics, the aircraft is very, very efficient, 18 extra seats on lower absolute trip cost. So you actually spend less total money to get 18 more seats and more cargo space. So we actually don't even have to sell the seats. Obviously, we will, and we do, but you don't even have to, because the aircraft is more efficient. In addition, it flies more hours in a day because you can access more markets, you can fly more on weekends, you can fly more at night. And that allows us to have longer stage lengths, longer -- higher utilization makes the aircraft very, very efficient. As you can see here, utilizations increasing E2 versus E1. You can access different markets, you can access longer markets. The aircraft spends less time on the ground, more time flying and really opens up a whole new world of markets that were not just previously unserved by us, but were unserved by anybody, because nobody has this aircraft and nobody could put this aircraft into operation. So this is what's really, really exciting as we look ahead. So far, Azul, we've had more E1 departures than E2s, and that's going to flip next year. That's going to flip next year. And the E2s have roughly doubled the EBITDA per departure than the E1. And that's because more revenue-generating capabilities on a much lower cost, not cost per seat, but cost per trip as well. And so this is going to be very, very -- and again, we only have 24 of these right now. We're going to be at 40 by the end of next year. So that makes '25 powerful, makes '26 even more powerful, and we're reaccelerating our E2 deliveries with Embraer. So we're very, very excited about this. This is a transition point in the next stage of our fleet transformation. And this is going to be a really big driver. It is a big driver. It's going to be a big driver as we go forward in our margins and our EBITDA generation. So we fly about 80 routes with the aircraft today, but we've mapped out another double at least. None of these routes today have the ability to be served by our competition. Either the route is too thin, which means not enough traffic, not enough demand. And so the aircraft that they have is just too big or the route you want to fly at night, you want to fly at weekends, and the E1 is not as efficient as you need it to be. And the E2 really provides that sweet spot. So a lot of growth to be coming with the E2s in our hubs, in our network, very, very efficient. And again, lower cost per trip. So you actually spend less money making the same departure and you have 18 more seats to be able to sell. It's a very, very powerful for our growth going forward. And as we talk about our growth, we have grown over the last several years. Probably we've been impacted by the OEMs as well. John talked about the engines. We have had issues with GE, with Rolls Royce, with Pratt & Whitney. We are working with them. So that has impacted our growth for this year. We had delays in A330s. Our wide-bodies for this year that finally, this quarter, now we are growing. If you saw our first three quarters this year, we grew about 3% to 4%. But as you look now at the fourth quarter, that number is going to jump up, right? So we are finally again, being able to grow, and that's very, very exciting, because there's a lot of benefits that's going to come. How are we allocating this good? This is a question that I get all the time. And our growth is in our markets. Our network now is so big and so broad that we have many areas to grow that do not affect the competition. So I showed you Guarulhos, right, GRU, the International Airport in Sao Paulo, where we've reduced capacity. So that's in this gray bar here. We've actually reduced capacity in some competitive markets. Where have we added capacity? In between our hubs, we call it widening the pipes. And as you widen the pipes between your hubs, you're able to generate more demand, carry more connecting traffic in your network which makes everything else stronger as well. We've added a ton of capacity in our hubs as well. I showed you the three hubs Campinas, Belo Horizonte and Recife, all up 20%, 30%, 60% in some cases. Very, very strong for us. And in these three categories, really, there is no airport to airport competition, right? This is not where the competition is. This is within our own network and new route destinations like Paris, for example, right? So really very, very disciplined growth, discipline in our own network where we're able to get the best results. And so as you can see, our overlap is very, very small, right? Again, it's a different network by design. We've designed it this way, and we've grown it this way. We've maintained it this way. And so more than 80% of our routes, we're the only carrier and more than 90% of the routes, either we have the most departures or the most seats depending on the market, right? So that's what we consider to be a leadership position in the round.

Abhi, if I can just add, sometimes when you're talking to a kind of U.S.-based audience, it's good to highlight this, right, because growth in the U.S. seems to be like a 4-letter word. In Brazil, when you look at the industry growth, you really have to eliminate the Azul growth, right? Because like Abhi demonstrated the growth that we are doing is not in the competitive markets. It's not where GOL and LATAM fly. It's in our hubs that we have nobody competing with us, and it's in the Azul markets, right? So that growth is purely coming from the fact that these markets are very immature. We're just starting to serve, like Abhi said, sometimes they start with 9 seats a day and go up to 400 seats a day in no time, right? That growth is not a zero-sum game. Right? Because those markets are exclusive and they allow us to grow. So when you look at overall capacity growth in Brazil, you have to really eliminate that growth from the overall capacity. And when you look at it, the Brazilian industry is essentially flat, right? And we'll probably continue to grow much less than the potential could be, because of all the OEM issues, right, because there is a shortage of aircraft, because there is a shortage of engines. So we can expect this rational behavior to continue for a very long time.

In addition to our growth, we've delivered the revenue as well, right? I remember post pandemic, people talking about pent-up demand, the demand is going to come, but then it's going to go away. Well, the demand has stayed, right? So we are now 66% larger in terms of revenues than we were before. Our unit revenue is up 32% than it was before. And it stayed. It's not pent-up demand, it's consistent demand. And this is as we are 35% larger. So putting all the pieces together, you have the network which has strong competitive advantages. You have the flexible fleet which is the right aircraft at the right place at the right time. You have the E2s coming driving the second step of our fleet transformation into next-gen capacity. You have the fact that we've been able to produce consistently higher, significantly higher unit revenues, right? So unit revenues, you can think of it as average fare, that's fine. We think of it as unit revenue because it's not just passengers. It's the business units, which we'll talk about next, that are a significant driver of our unit revenues as well. So putting all of these pieces together, you get a sense of how resilient and how many competitive advantages that we have, not just now but for the future as well. So we've been able to grow and increase average fares and increase unit revenues, and that's a trend that's continuing. One of the key strategic things that we've done over the last several years to drive that unit revenue expansion is diversify our revenue base, right? And this is all driven by our business units, which I'll get to next. But we used to be 87% dependent on the passenger business, which is we just need higher fares, higher fares, higher fares, if something were to happen. Now we're down to 78%. And that's because of things like ancillaries, it's because of our vacations business, our loyalty business, our logistics business and all the other business units that we have. And this has been a strategic decision that we've made to diversify the business so that we have multiple levers to pull that we are not just dependent on one thing that we're able to use many different aspects, all built on the strength of the network and the fleet to consistently drive unit revenue. So when you look at 2025, 2026, you could say, well, do you need average fares to go up forever? Well, we will always maximize revenue, always, regardless of currency, fuel, whatever it is, we will always maximize revenue. But we have so many other tools at our disposal that are peers don't have, that in the region do not exist that drive unit revenue expansion. So the fact that we're up 32% in unit revenue is because of average fares, yes, but it's also because our business units, our ancillaries have grown so much faster than the business as well. And that's a key source of growth going forward. I'll turn this part over to Alex. Because, this is a really interesting study on how we've been able to keep up with the inflation that comes from currency, comes up from fuel and some that we're not giving back any time soon.

Thanks, Abhi. So obviously, we have a currency exposure, right? We essentially sell to Brazilians who earn in reais and we have rent that's dollarized, fuel prices dollarized, parts, insurance, right? I always like to remind our broker who's here that, he is a big part of our dollar problem. But what is the problem, right? Let's break it down. Let's look at it kind of mathematically, right? If you have a devaluation of the real against the dollar of 5% to be breakeven, to be indifferent on a cash basis, right, to generate the same amount of cash, we need fares to increase 3%. We're not talking just about operating expense. We're talking about rent. We're talking about interest, we're talking about everything, right? So 5% devaluation, we need a 3% increase in fares. When you look over the long run since we started Azul, since the famous time when we decided that going into Brazil with the real of 150:1 was a good idea. The real has devalued on average by about 6% a year, right? That's the CAGR over these 15, 16 years is 6%. So with 6%, you would need roughly, call it, 4% increase in fares to be indifferent. And in our fare CAGR has been 8%. Right? So we were able to far increase fares a lot more than was necessary to offset the currency devaluation, right? And this is very important because a lot of it comes from our exclusive network, right, the fact that we fly alone in so many of these markets. So a lot of this comes from the fact that, look, air travel in Brazil is an imported service, right? There's just no two ways about it. The exposure that we have is the exposure that everybody has, right? And so we need to have these fare increases, but we're able to increase fares a lot more than that. And that's why we've been able to expand EBITDA and we've been able to get closer and closer to cash generation and now next year going for an actual -- a very positive increase in cash. And if you -- the problem is, so why is currency a problem, right? The problem is that it's not perfectly indexed. It's not like the reality values 5% today and obviously able to increase fares across the board, 3% tomorrow, right? It happens over time. But it does happen, it happens and it happens very consistently. And sometimes, like you look at the recent past, when you had fuel prices going down, normally, you would see fares going down as well. And you've seen that in a lot of markets in the world that as fuel prices have come down over the last couple of years, fares have come down also. But in Brazil, fares have continued to go up, because the market needs higher fares to earn a reasonable return on our invested capital. And that applies to us. That applies to GOL, that applies to LATAM. So one question we often get is how much is too much, right? Is the Brazilian market going to continue accepting these fare increases. And given like what John said about who flies in Brazil and where Azul flies in Brazil, we believe so. And I think the recent past or since the pandemic -- actually since the beginning of Azul, we have demonstrated that the Brazilian market absorbs those fare increases, because we are an imported service. And that's the cost. Those are table stakes, right? That is the cost of producing an airline seat in Brazil, right? Who flies in Brazil? It's essentially the wealthiest 15 million Brazilians. They are the guys that are going to the Tiffany stores. They are the guys -- when vacation time comes around, fares may be higher this year than they were last year, but they're not -- these people are doing well, right? These people have good jobs because unemployment is at a historical minimum in Brazil. These people have their savings usually in government bonds, which are earning inflation plus 6%, right? So in Brazil, you can get 6% real interest with no default risk essentially, right? So these are investors. These are people that feel wealthy, high investor confidence, high-end consumer confidence, high employment. And that's why you're seeing the strength in demand and this resilience of fares and our ability to pass through cost increases to fares over time, right? It doesn't happen day to day. It doesn't happen immediately, but it does happen and it happens very reliably.

And this latest bump up in currency, right? The industry is already reacting. So we just had Black Friday last week. But before that, we had hit record high booked average fares right? So the industry has already started to react to what's happened in the last couple of weeks, and that's a very good sign. The industry should react. And it's going to continue to react. We are heading into our peak summer. As Alex said, there is a booking curve. It does take time to catch up from book to revenue to flown revenue. But as you can see here, the history is very, very reliable. And we're very confident that thanks to our advantages we can absolutely keep up this trend. And as I said, a key part of this is our business unit. So I'll go through the biggest three in some detail, because they are so important to our strategy. Our loyalty program, first of all, has just passed 18 million members. So we're very, very happy about very active number of monthly users, great diversification in terms of how members are using their points, how they're accruing their points and how they're using their points. And remember, I talked about diversifying our overall revenue base. So that strategic decision we've also made within each of the business units. So each business unit itself is also diversifying how it does business and its revenue base and I'll explain why in a second. So as I mentioned, 18 million members. Our gross billings ex airline, really very, very strong. The loyalty program is more relevant than ever. Our doubling in capacity in Sao Paulo's downtown airport, significantly helping this. Our credit card, which is very, very strong. We believe the largest Airline co-branded card in Brazil, I'll talk about that, very relevant to this. Our international network, adding places like Paris, also very, very relevant to growing our loyalty base and keeping these members really, really loyal to us. We also have a great recurring revenue program called the Club Azul, which is where customers pay, members pay a monthly fee. And what's great about is that 68% of them are not just paying every month, but they've signed up for the annual subscription. So even though we hit the credit card every single month, they've actually signed up for the whole year. It's not like in three months, they can then cancel. And so, we have a really reliable revenue stream coming from our recurring revenue service, which has seen very, very strong growth this year, and we think a lot of potential going forward. Our credit card, right? This is the second largest -- between the club and the credit card, they're about equal in terms of monthly revenues, both very reliable and both recurring. Our credit card is very, very strong in Brazil, and it's a very high end premium credit card. So more than 60% of our base is in the Infinity or the platinum right, which is a very protected high-spending client base. And I'll talk about premium demand in a second, but we're starting to build a competitive advantage around premium customers and premium demand. And our credit card is the gateway for us to be able to access this market. Our credit card is very relevant in Brazil. And if you add up the yearly spend of our card members in their lives, grocery stores, restaurants, travel, it's roughly equal to 0.5%, the GDP of Brazil is on our credit card itself. I know Delta has a similar stat here in the U.S. We have a similar stat in Brazil, which is 0.5% of the GDP of Brazil is spent on our credit card in the lives of our cardholders. So very high end. And you can see how the 60% increase in spend year-over-year. So we're very, very happy. And this is sort of the beginning of building together this advantage with premium demand and premium travelers. So a large increase in number of Platinum and Infinity card members, which has the highest yielding card members and how much they've spent in growth continues to far exceed any other metric. And if you look at Itau, is our partner, if you listen to their earnings call, you will hear the CEO specifically talk about the Azul partnership and how they have reduced their co-branded portfolio. They are reducing their breadth in their portfolio and focusing on specific number of partnerships and he specifically mentions Azul as part of one of their strategic initiatives. And Itau, as you know, is the largest bank in Brazil. So we're very happy with how the card is doing. And together with this premium demand base, we are putting together products and services that cater to this premium demand. So whether it's upsell, in terms of ancillaries, whether it's our business class on our international long haul or it's premium markets, markets like flying to the winter ski season in Argentina for 6 weeks in July, whether it's flying to Curacao in the Caribbean or Paris, these kinds of -- or a month of a day for the summer beat season for rich Brazilians. So we really have a selection of premium markets that cater to this type of demand, which is very resilient and is bringing loyalty and a layer of demand that we can count on every single month. So it's recurring club revenue, very reliable recurring credit card revenue, which is very reliable. And these credit card members use the card to buy tickets on Azul, which again is growing every single year and gives us a base of demand, a premium demand which is a competitive advantage to what our competitors have. So we're really building up this premium market. Noronha is another great example. If you've been to Brazil, it's an island of the Northeast Coast, very premium, very remote, but also caters exactly to this type of customer. We have lots of great airline partnerships for the loyalty program, whether it's Copa, TAP, Turkish, United, Emirates, Air Canada, many more in the pipeline. So what's important about these business units, is that there are ways for them to grow outside of the airline, right? The airline itself is going to be able to grow at some percentage, 10%, 12%, 15% a year. But the airline is not going to grow 30% a year. But we want these businesses to grow much faster. So having this flexibility, having the range of partners, whether it's travel, whether it's retail, allows a diversification on how customers earn points and most importantly, how they redeem their points. And every time they redeem points, there's a margin on top of that, that we keep. So if we have a loyalty member that's redeeming their points on Emirates, on Air Europa, on KLM, on Air France or any one of these partners, there's a margin that we can get. That does not depend on an Azul seat. And so we're finding sources of growth away from Azul. And a key part of this for loyalty members is air travel. And we have a great and huge list of partners. In fact, one of our largest redeemed markets is Lisbon to Madrid, which we don't even serve, Azul doesn't even serve that market. But it's inside Europe, a lot of customers travel and they use our partner network to do that. And so what's happening is, if you look on the left side, what used to be about 80% of redemptions dependent on Azul now is only 65%, right? So what does this mean? Less Azul seats, more ways for this business to grow that don't depend on Azul seats, so they can grow faster. And if you look to the right, if you break this down, a big part of this is the next business that I'll talk about, which is our Vacations business. That's where David started his entire career. And with our -- the marriage of our Loyalty and our Vacations business, has given another outlet for customers to use their points in addition to hotels, in addition to retail, in addition to traveling on our partners. So this diversity in our overall revenue base, but each business unit is also diversifying that allows it to grow much faster than the airline. And that's why they will contribute more unit revenue going forward, because you don't need seats for that, right? Redeeming on a partner airline, redeeming on a hotel, you don't need seats, but each one contributes a little bit of unit revenue. And so as these businesses grow, our unit revenues grow as well. Our Vacations business, that David inspired us to many years ago, is now the second largest Vacations business in Brazil after CVC. It's grown incredibly over the last several years at 74% compared to last year. And we have a whole range of products and services from not just vacation packages, hotel, cars, air, which is Azul, but cruises. We are the largest seller of Disney in Latin America, in South America. We're the largest seller of Universal in South America. Theme parks, insurance, all these different products that people need to complete their vacation. And we give people reasons to travel. Obviously, we have Orlando, obviously, we have Disney and the theme parks. But we have special initiatives for concerts, for marathons, for different events around the country. And that drives -- John talks about this a lot, give people a reason to travel. And combining these experiences with our vacations business. We just had Madonna came to Brazil. That was a big opportunity to do vacations. Paul McCartney was in Brazil, we have special tickets just for that experience. And so this is giving people reasons to travel. We do have a network of physical stores for our vacations. Vacations business, the ticket is very high. You're talking about a family for 7 days, right? It's a high-value ticket. So customers want to have that physical interaction. These are all partners, right? This isn't Azul, but we have a network of exclusive entrepreneurs that invest in these stores, and we give them the content for them to sell and to market. So in addition to obviously selling, these are marketing touch points. These are retail touch points that are present all over Brazil. And you combine this with our Logistics network, which is very, very broad, we really are reaching all over Brazil. We also have a dedicated network for our Vacations business. Corporate demand, as you would imagine, on weekends, drops off significantly. And so we have a network just on weekends that caters to our Vacations business. Our 20% of our capacity on weekends is dedicated to this. 7% overall, right? And this provides aircraft utilization and this provides ways for these customers who maybe normally would not travel Azul to enter into our universe. And from then, they do the loyalty program, the credit card, the club, all the different products that we have. So a really strong growing business that brings new demand and new customers into our universe. We have a great partnership with Disney, as I said, that we are the largest seller of Disney in South America. We, by far, bring the most Brazilians to Orlando. We have a special fleet of five aircraft dedicated to the main Disney five characters, which -- these characters never get out, right? So this is very, very rare. And there is no other fleet like this in the world. So we're very, very proud of this, and we actually just launched the fifth one, Goofy, a couple of months ago. There's a little bit of orange in the front. We kind of debated that. But in the end, it is Goofy. It is what it is. Universal as well, we are the largest sort of universal tickets in South America. So obviously, with our Orlando network, we're very, very relevant. And we like this, right? We want to give people a reason to travel. And finally, almost finally, our Logistics business. This, I would say, is our oldest business unit vacations. Loyalty has been on for a long time, but Vacations really has grown significantly. Logistics had a boom during the pandemic has now leveled off. But still a big part of our revenue. We are the largest belly air logistics provider in Brazil by far, 34% market share. We have a network of 320 stores locations around the country. Again, their partners, their representatives, who use them, they invest their money, and we provide the content, we provide the volume and we've reached 94% of the population of Brazil. So a very, very unique model. And this is not your traditional cargo model where we just shipped cargo. This is Logistics, I'll talk about that in a second. We manage the risk in the Logistics business with about 80% shipped via the belly of a regular scheduled flight. So very high margin, right? The airplane is going anyway. You already have the crew, you already have the fuel, you already have the passengers. You're adding some incremental weight, which is very small, but you're getting a lot of incremental revenue. So very high margin on the belly. And as we've grown the aircraft size with the 320s, 321s and now the E2s, we are giving ourselves a lot of extra belly space for which to take advantage. So you will see significant growth in Azul Cargo the next couple of years as we're getting larger and increasing our average aircraft size. And we also balance out the 20% with dedicated freighters, right? So we like this 80-20 balance, we think it's optimal in terms of maintaining high margins for this business. We recently got two A321s. We have two 737s that are at the end of their life and our two A321s will start flying in February of next year, significantly higher capacity. And most importantly, our Boeing 737s can fly 4 hours a day because of reliability, the A321s can fly 11 hours a day because they're new aircraft, very reliable and have total synergies with our crew, our operations, because we already fly the A321 aircraft. This is where we are all over Brazil from a Logistics store business. These partners, they deliver for us, they handle for us. They drive revenue for us. They do middle mile. They do last mile. They do first mile. So it really is an end-to-end value proposition that nobody in Brazil has. Very few airlines around the world have this type. You see, Delta is starting to do this a little bit, Air Canada starting to do this a little bit, and we've had benchmarking calls and they wanted to understand from us how we do. But it's not common for an airline to have a Logistics value chain. FedEx has one. Sure. But airlines don't. Airlines do cargo. But you're starting to see this a little bit, Indigo in India is trying to do this as well. But we are the pioneer in building this end-to-end value chain.

Yes, Abhi, just to highlight, it's a third party, right? So it's not necessarily Azul investment in these 300 stores. It's franchisee model, where they invest their capital to be an Azul representative in these cities.

Yes. Absolutely.

FedEx is the same thing. FedEx Ground.

Yes. We also serve the international market. And in fact, international over the last couple of months has really come back strong. It had a boom in the pandemic, thanks to constrained capacity, leveled off and now has grown again end of this year and -- end of this year. So obviously, we use our capacity to Europe. Zara is a huge customer for us. Volvo is a huge customer for us. Fiat is a big customer of ours. And so a lot of different traffic from Europe to Brazil, and north, south to the U.S.

Yes, Abhi, I'd like to highlight, if you eat a Mango in the south of France, it came on an Azul aircraft. If you eat sushi in Miami this weekend, it came on an Azul aircraft, right? So that's just how broad it is at what we do. And we literally -- we take food out and bring stuff in like from Zara and auto parts and the like, but it's a very, very broad cargo network that we have.

We deliver everywhere, right? And we're actually very, very proud of this. There are regions -- some of the great photos here. This animal rescue operation, top left.

It's a manatee, Abhi. I know you can't say it.

I'm not really sure, it's a manatee, but okay. But it's either Azul cargo delivery or it's like 4 days by boat, right? And that's true of Logistics. It's also true of the passenger business. Amazon did a press release. You can go back and look it up, where we jointly did a press release on starting deliveries with Amazon.com in the Northeast of Brazil, not Western Brazil, actually, in this Amazon region, right? And that's -- we're very proud of this. Obviously, it's part of our business. It's a key part of our business, but it really does change people's lives that live here. And this is what I mean by the end-to-end chain, right? So if you are an Amazon marketplace customer in Brazil and you go online and you buy, we will come. By we, I mean, one of our partners, exclusive to Azul Cargo will come to your house or your apartment to pick up the package and take it all the way to the buyer's location, right? So it's not just Azul, it's not just cargo like you'd like to see at the airports. It's first mile, it's middle mile, it's last mile. It's -- and all along the way, we track it with our system and our performance guarantees. Right? And so this is very, very unique. This does not exist in many places around the world for an airline. As David said for FedEx, yes, this is what they do. But for an airline to have this kind of a value chain from first mile to last mile. And we add value along the way, right? So every step of the way we're adding value for the customer, and we're adding value to ourselves. And this is where we actually generate the high margins for the Logistic program. And in the middle mile, which is the air, 80% is a regularly scheduled flight, right? So very, very high margin. And thanks to our network, our broad network we're able to access so much of the country and deliver this result. Amazon.com is our largest Azul Cargo customer. We are their largest air transport customer in Brazil. It's been a great partnership over the last couple of years. They've done some airplanes with us as well. So it's been two years now, we've transported millions of packages and we're going to keep growing with them, looking at dedicated aircraft as well, growing the brand association. So we've done Amazon Prime activations, and so if you remember, we had Mercado Libre in the past, and now we've transitioned over to Amazon, and I think it's worked out great. We've helped them grow significantly in Brazil. As you know, the faster you deliver, the more people buy on you. We've helped them grow significantly, and they've helped Azul cargo grow as well. So very, very happy with this partnership. Almost at the end here, we also part of our other business units, we also have an Azul Media platform, which is where we sell media access. We do what 32 million, 34 million passengers a year, very qualified customers, right, high yield, high spending and so we have a media platform where we do what we call logo jets, that's Amazon Prime up there. Prime Day, whether it's a TV on board, WiFi, our magazines, sampling on board, United launched something similar, Kinetic, that they call it, this year. We've had this for a couple of years and really something that growing and brands are loving having their brand associated with ours. Azul is a very, very relevant consumer brand in Brazil. And so we have Coca-Cola. As you can see here, we have Amazon, Sky TV, tons of different brands, doing activations with us. And finally, Azul tech ops, our MRO business, as you know, MRO capacity all over the world, very, very restricted and having our own hanger, having the capability to do all our heavy checks, landing gears, different types of events, maintenance in-house, significant savings, and we also have external customers like the Air Force, like the French presidential airplane was there as well. And so growth in this space is inevitable. This capacity is constrained the world over, and so we're really able to build up this capacity and build up this business. It's our newest business unit in terms of generating revenue, but we're very, very excited about its potential going forward. And with that, John, to finish.

Yes. Just finally, I think it's really important as I was talking -- I think, I was having a conversation with Savi and talking through the structure that we did, it is a comprehensive final fix to the balance sheet, right? And so it's done. Now we could look forward. And I think as we talk today, why did we focus so much on Abhi's part of the presentation is because it's back to being Azul how it was in 2019. That's where we are. We're no longer focused on the balance sheet because the cash is coming in. We now have the new partnership, which $100 million in reduced interest expense a year, $100 million in incremental cash flow outside of just a great growing business. And as we enter into 2025, it's the first time when E2 departures pass E1 departures. As Abhi said, it's double the EBITDA production of the E2 versus the E1 and then the business units that we spend a lot of time on today kind of drive the additional margin expansion as we go forward. 2024 was a challenging year, right? As I said earlier, going into a year, we were very optimistic. But we had our currency devalued 20%, and we had 10% of our network knocked offline. In hindsight, it was probably a blessing for us because we went through a comprehensive fix with the bondholders. We've really rightsized the balance sheet as we look forward now, brought in new capital into the business. And now we have a company that's very, very strong going into 2025 and beyond. And so we feel very good about where we are. We are very confident in the guidance that we've projected of BRL 7.4 billion. We showed you the devaluation of the currency. Yes, it's at BRL 6, BRL 6.05. But it's interesting, people focus on that but we wanted to highlight to you our ability to pass through, right? And we've proven over time that our average fare has increased faster than the devaluation of the currency. Don't forget that GDP in Brazil was projected to be 2% this year, then 3% and now it's going to be 4%. Unemployment in Brazil is at record low levels that never have ever been seen before in Brazil. And a lot of the Brazilian economy does really, really well when the exchange rate is weaker, right? All of that Midwest of Brazil that depends so heavily on exports is really our true customer base. And so we're very excited about where we are. We're excited to be talking about core Azul again and all of the great things that are happening. And as Alex said, we're glad to not be managing the balance sheet anymore and managing the business again, managing the business opportunities because we still see a lot of growth in our business units, a lot of growth in how we deploy capital going forward. But with that, we're here to answer any of your questions that any of you may have. I'm sure there's some coming in online [indiscernible] . (103:54)But we also have some microphones here. So any questions for the 4 of us.

Can you talk about some of the initiatives that the government could do to improve the structural profitability of the industry? And my second question is, are there any assets or businesses that you feel you could monetize?

Yes. So let me -- I've met with President Lula on a couple of occasions. The Airline Association is now United, Azul reentered the Airline Association. We have meetings with -- there's really 3 main things in Brazil today. And the good news is that these are already in our cost structure. And we have 0 upside going forward from any of these 3, okay? And so the first is we have the highest jet fuel prices in the world, as Alex mentioned. We have a meeting with the President of Petrobras on December 9, the 3 presidents of the Brazilian airlines will be with them, facilitated by the government, helping set that up to kind of understand why that is the case and how we can potentially grow the Brazilian market if we had jet fuel prices that were lower. The second is the high litigation that exists in Brazil today. We're working closely with the Supreme Court on setting precedents because there's legal claims that have just exploded in Brazil today. It's cost the industry about BRL 1.3 billion across the 3 airlines. And so we're working jointly on that to kind of set precedent so that you can't sue for moral damages for a delayed flight, right, especially if it's not the airline's fault. How it exists today if the flight is delayed 2, 3 hours because of an airport closure, somebody can sue us. And it's actually the lawyers that are suing. It's not actually not even the customers. They actually buy the claims. And so that needs to end. And so I'm very optimistic that, that can change as well. And the third is access to capital, right? And so there is a line now approved its law at the Brazilian government, [ Finac ] Line that will give access to capital on an annual basis to the airlines. And so we're working jointly with the Brazilian government to get that line in place. We're hopeful that it comes online probably in the first quarter of 2025, we've been working very closely with them on that. What I will tell you is, I mentioned earlier, we are the only airline to not file for Chapter 11 in Brazil's history. Not just in recent times, in the history of Brazil. And so that was a discussion that I had with President Lula and said, look, there are some structural differences in Brazil that need to change in order to grow the market. In order to get Brazil to fly like Columbia flies, like Mexico flies, like Chile flies. And so we can make this a win-win. If we address these structural issues on fuel price. If we address these litigation claims, we can get fares at a more reasonable level to grow the pie in Brazil. And so for the first time in my 16 years in Brazil, I've seen a government that's very open to listening and working collaboratively. They want us to grow. They want us to continue to buy Brazilian made aircraft. And so they are listening to us. And so I think that's a good thing. I'm not putting it in my forecast. I just want to be clear, but I will say that the 3 airlines are extremely united on this agenda, and we talk about it on a weekly basis together.

Yes. So to clarify, BRL 1.2 billion, right? -- of claims across the industry. And like John said, the BRL 7.4 billion includes no assumption for any of that improving, but we are confident that the upside exists. And we think it makes sense even for Petrobras. Because today, Petrobras is maximizing the cost of a gallon of jet fuel. I don't think they're maximizing their profitability because we do consume less jet fuel because the cost is so high, right? It doesn't make any logical stance for Brazil to have the highest -- the most expensive jet fuel in the world. We're not the most -- we're not the wealthiest country in world. So why is -- unless you want aviation to be only accessible by the elite, jet fuel should not be the most expensive in the world. And then in terms of monetization, I think we demonstrated -- I think other airlines had monetized their loyalty program by spinning them off, right? But then they saw that it was very inefficient. I think in Brazil, both of our competitors spun off their loyalty programs and benefited the Brazilian IRS tremendously, right, because their loyalty programs were profitable with no NOLs, right with no tax credits. And so all that profitability from the loyalty program, 35% of that went to the government. Then they regretted that and kind of brought those programs back in. We never did that. And then I think through the pandemic, you saw some airlines using their loyalty programs to raise capital, right, with a lower cost of capital, which we did last year. And then this year, we did it with cargo, right? And when we first started, offering cargo as an asset to raise capital at a lower cost than we would raise on an unsecured basis, I think a lot of people are skeptical they said, "Hey, I get loyalty, but I don't get cargo. And then in the end, we saw a lot of competition for capital to be provided to Azul using cargo as collateral. So I think that's an efficient way to monetize the product. We don't believe in spinning them off and selling them. I think they're highly synergistic to our pro, they all benefit from the network. They all benefit from the fleet, they all benefit from the customer experience. So I think it makes sense together, but we only are demonstrating that we were able to raise capital using just the cash flows and essentially the IP of those assets.

And we're selling some older aircraft that we own and are on the balance sheet today. And so you'll see us do that type of stuff in any major business unit now.

Just the TAP bonds, when do that TAP bonds mature?

2026.

How much is that?

It's about $165 million today.

Savanthi Syth, Raymond James. Could you talk about with the Real going, John, you mentioned this like the Real going higher, you have shown over time the ability to recoup that. Has there been kind of a greater urgency in kind of what you've seen in the industry today? Or is it kind of similar? And is that -- is it a 6-month kind of process? Or how long does it take to pass it through?

Yes, there's definitely more urgency, just the last couple of weeks, we've seen fares significantly go up. I think there's urgency of the industry overall. And also it is not just the fact that you take a fair increase, but the discipline to keep the fare increase as well and not roll everything back in promotions and things like that. Black Friday, for example, everybody sales were significantly less aggressive than they were last year, right? So our average freight yesterday on Cyber Monday is higher -- was higher than a normal day without any Cyber Monday sales. So yes, absolutely, there's more urgency. I think everybody is feeling the urgency. And I think the industry is doing everything it can. We catch up, I think, a little bit in 1 quarter, the next quarter a little bit the next quarter. So what we are selling now, we're going to see it in 1Q, a little bit in January or February and March. But I'm very confident that the industry is doing everything it can.

Savi, I think one other kind of important point when the Real went from [ BRL 5 to BRL 5.50 ]. It was in the weakest quarter of the year, and then Porto Alegre was taken off-line, right? And so it took us a little bit of time to put Porto Alegre back on the map that happened in the fourth quarter. And so as those 2 factors, the fact that now we have 100% of our network we're selling into one of the strongest quarters of the year allows us to get that pricing power.

Exactly. I think we used that 6 months as a rule of thumb. But what John said is very important, right? I think a huge devaluation in our weakest sales quarter. At the same time, the 10% of your capacity comes off-line, it's very difficult, right? It makes it that much harder for us to pass through. Now the demand is strong, and we're actually into a good period in terms of seasonal sales, I think, gives us more I think confidence that those fare increases will stay -- so on average, we are 6 months, but I think the seasonality is a big determinant on how successful will be and how quickly that could happen.

Savi, we talked a lot about the impact on the business from the exchange rate going up and up and up. Our average fares are less than $100 a segment. So it's not like we're turning to pedal $500 fares or we have anything near. I mean, last week, we reached $135 average fare. And these guys -- we're still under $100. We have -- we really do have a long ways to go. It's not like it's a hopeless situation when you add 3% on to $90 or 4% or 5% on the $90 or $95. It's -- the base is really low. And obviously, people make less in Brazil. But our labor costs are a fraction of what they are. So there's some offsets for the high price of fuel, but still so many millions and millions of people that are making a lot of money from the -- like the farmers all that. The largest BMW dealership kind of in the world is out in Cuiaba. [indiscernible] BMW. So there's tons of money in Brazil and the fares are still really low.

Good points. That's super helpful. And if I might just ask one last question. I appreciate all the kind of diversified revenue streams you've highlighted here, and you -- I feel like every year, you have a little bit more that you talk about. And -- and some years, obviously, you're excited about one more than the other. Could you give a little bit more color on the kind of magnitude of these and where you could see it going? I know it might be -- take different time lines, but...

No. Yes. So you can already see, as of now, they are 22% of our revenue, right, of our unit revenue. Looking ahead, for next year, I see a lot of growth in cargo because of the freighters, right? So we have two A321s that can both fly 11 hours a day and take 27 tons each. Combine that with our Amazon partnership. So there's going to be a lot of growth on a percentage basis on Azul Cargo. And second, I see a lot of growth in our Vacations business next year still -- our international capacity next year is up much more than our domestic capacity because we have four A330s that came in this year by the end of this year. So we're finally back to our full Orlando schedule. We have pulled down a lot this year. And so next year, I think Cargo and Vacations will grow more. I think loyalty grew a lot this year in 2024. So I think it's going to be more steady state next year. So, you're absolutely right. In terms of ebbs and flows, Cargo was gangbusters in pandemic. It leveled off. Loyalty was super strong before that. Vacations are super strong now. So they each kind of have their moments, which is actually perfect. That's exactly what we want. We want to be able to lean on these different businesses at different times, so it really make us more resilient. So for next year, I would say it's Cargo and the Vacations.

What's the goal for same 2 business?

As high as possible. I mean what I don't want to be dependent on is just -- you just see higher fares and higher fares. Again, we will always maximize revenue. We always will. But I don't want that cloud hanging over our head because these businesses can grow without Azul. You don't need an Azul seat for these businesses to provide unit revenue to Azul. That's the beauty of this. And that's sort of the secret sauce here. So the more they can grow outside Azul, you can keep growing unit revenue and not occupy an Azul seat, and that's the power.

Two questions. Going back to the point-of-sale non-Brazil, so U.S. dollar, Euro, I think you said it was up 46%. Where are you today as a percentage of Reais on a revenue basis versus non-reais? And as I think about some of your growth businesses, I saw that you have some third-party MRO business. I'm not sure if that's priced in dollars. I know Cargo business historically internationally is priced in dollars. Where are we today, not on a unit revenue basis, but like on a true revenue split? And where do we think we're over the next couple of years? That's my first.

Yes. So you're right. MRO is priced in dollars, which is great. So I would say today, if you combine the passengers and all these other ancillaries, we're probably at 90-10, right, which is better than what it was. But I still think we significantly underachieved. I consider Azul, an airline -- a Brazilian airline that flies internationally, I don't consider us yet an international airline. I consider LATAM an international airline, I consider United an international airline. So there's still a lot of progress that we have to make, especially in our B2C channels to sell internationally. Our loyalty program needs to be a lot easier to be able to get international customers. So there's a lot of work that we have to do in terms of product, in terms of technology, in terms of messaging and sort of our posture overall to be more of an international airline. We're a really great, resilient airline that flies to great Brazilian international destinations. But I wouldn't consider us yet an international airline. I think when we get there, I think that number can double.

Great. And then just my second question. I mean, I always sort of think that when I look at loyalty in the U.S. versus loyalty in other parts of the world, Brazil, for example, we look at exclusivity there between the credit card programs and their banks. And it's always -- it seems like it's always been so much more fragmented down here where you do business with multiple banks. Through your presentation, you did talk about the fact that Itau was reducing, I guess, the number of co-brand programs, number one. Number two, that you -- it seemed like that you guys were getting closer with them. Are we on a path? I guess as the Brazilian market evolves, and I think we didn't talk about it in any of the presentations, but there's been enough headlines out there about we see markets around the world, consolidating that there's a real interesting opportunity where if you're a credit card company or a bank, I should say, you want to tie up with 1 or 2 of those maybe 3 remaining carriers in a certain marketplace. Do we see an opportunity there to extract more value from loyalty?

Yes, it's a great question. I use to always joke that loyalty in Brazil was the opposite of loyalty because there really was no loyalty at all. Anybody could transfer to anybody.

It was more of a channel.

Right. Which still is the case, but you definitely are seeing alignment like us in Itau, for example, are very, very close and focusing. Now the generic Itau credit card, that's not co-branded, you can still transfer points to any program, right? And so that's part of their product offering as well. Do I see that going away anytime soon. I don't see it going away, but I certainly see a better alignment between partners, right? So for example, when Madonna coming to Brazil was still kind of a secret -- if I would call John and said, "I want you guys to be our partner on that special event, right? So I think things are lining up in that sense. You do have better conditions when you transfer to the partner than when you don't, it could be a deflator, it could be a minimum account balance. So you do see those kinds of things happening. But I don't see it going away. I do see strengthening of partnerships.

And I also think, Mike, that the strength of the airline gives it leverage with a lot of these banking partners as well. And as we were in COVID in the last couple of years, they would take advantage of them, hey, you want to do a prepurchase at a discounted rate. And as we look forward into 2025 and beyond, with a new balance sheet, that leverage kind of shifts back to us, right? And I think that our network is very, very powerful. And so there's an opportunity to expand margins using our loyalty program on a go-forward basis when we're not having to ask for cash and advance from these guys.

Great. And by the way, I'll keep it on the download that you're a huge Madonna fan.

Any other questions?

Can you talk about potential consolidation within the airline industry in Brazil. There's been talk about that. And obviously, the chart of the lack of entirity of some of the airlines?

Did you notice that chart. No, -- it's no secret. I think we've been public about that there are conversations that are happening. Nothing to announce today, but I think it gets a natural progression for the Brazilian market. And I think -- we believe strongly in consolidation, we always have. We've made a couple of runs at it with LATAM in the past. We've obviously been in conversation with GOL and with ABRA. And I think at the right time, we'll talk more broadly about that. But today is about the Azul and what we've done to kind of fix our balance sheet and going forward, I think the need to do it is less now, but to get the greatest shareholder return, consolidation is the best way to do that because there's significant synergies in consolidation, and we know that. And so we continue to look at it. We continue to have conversations. And at the right time, we'll make announcements to the market if something evolves beyond that.

And obviously, it was important for us to fix ourselves before we gave in -- get serious about that. So we had to do that to be in the best possible position if there was some kind of merger. So I think that was really critical and important that we had to come out of -- from a position of strength.

And talking about GOL [indiscernible] Misuzaki from Bradesco is asking if you can comment about the performance of our codeshare agreement with GOL.

Yes. But the codeshare is doing well. In terms of revenue, it's -- we're pretty happy with it. We have not grown it yet because we are balancing kind of the discussions that we're having with ABRA, as we've talked about and the timing of the 2 events. But the codeshare is in place. It's working really well. Customers are using it. The systems are doing well. So more to come on both topics. Thanks, Savi.

Alex, more of a question for you. So this as kind of John mentioned, this is like a complete addressing of the balance sheet here. But one of the kind of feedback we get from investors is, again, the complexity of the uncertainty about the dilution. How do you see that? It seems like we should get a lot of color on what that is come first quarter. But what could you do more to kind of provide a little bit more clarity to investors as to kind of what's coming down the road? And how do you kind of envision presenting the portion that's not converted yet versus that still needs to kind of be diluted over the next kind of 12 months or so?

Yes. So I think a lot of what we're talking about here is what we can do, right? I think we -- how do you get to the fair value of an Azul share, right? You kind of start with EV, you subtract net debt, you divide it by the number of shares, right, very roughly speaking. I think we have everything here, but the number of shares and the number of shares is going to be determined by the market, right? So we're doing everything we can to support the equity. Again, being the only airline in the history of Brazil that hasn't filed for Chapter 11, right? The equity has been wiped out or will be wiped out in other situations. And here, we're doing everything we can to protect the equity by increasing the value of the enterprise, right, through everything that we talked about, high growth, high margin and then making sure that, that margin translates into cash by minimizing the amount of net debt so that we have a very high equity value left over. And the final number that we need to figure out is the number of shares. And I think that's -- it's going to be based on market price. So it's really the market is going to determine what that number ultimately will be. But I think everything that we can do in terms of maximize enterprise value, minimizing debt to make sure we maximize equity value is what we're talking about here and why we're so excited about this, right? And eliminating sort of noise that could be present elsewhere like the equity structure with the lessors and demonstrating also the sustainability of this business, right? We've demonstrated over and over again that we're that we can generate a lot of EBITDA and that our partners will support us, right? We've had multiple instances where our partners came to demonstrate that support, right, and add their commitment to Azul, right? But I think a lot of it is actually getting the message out there that we couldn't be more excited about the enterprise value and the equity value of the company, and that should translate into a high price per share.

If you look at it this way, what we're doing with the balance sheet will increase the value of the company. Now obviously, someone is getting some room for that. And that's what you're talking about, the dilution. But the way I do the math, and I'm one of the large shareholders, obviously, is that even if this -- the stock price stayed the same as it is today, and that debt converted into equity, and it was diluted, the value of that percentage of the company is going to be worth a lot more. So if the stock goes up from here, it's even going to be better. So we're trying to get the word out as to -- this is really a great company. And certainly, those that are converting into equity want the shares to go up where our interests are aligned. And so I think to me, it's a great entry point because you can't really lose because the value of the company is going to be higher because of the fixing the balance sheet, the cash on the balance sheet, it's going to be higher. And so the dilution will happen -- today's price is still a great deal, but if the stock were to go up, it would even be a better deal because they have a higher percentage of the company. And -- there's also the $100 million of incremental cash flow a year, plus the $100 million reduction in interest expense right? So there's a lot of good things. And then what happens next, right? And I think that that's what we're looking at. Dilutive, absolutely it is dilutive but we fixed the balance sheet once and for all with this. And I think that's -- that's a great testament to what we've done as a management team and what our partners have done. And we see how much leakage we've seen from other kind of companies, and that value still exists inside of Azul today. There was no leakage to others. Now we've covered the 2 elephants in the room.

So I have some questions from Dan Mackenzie from Seaport. How about CapEx by year through 2027? And gross debt in dollars targets in '25, '26 and '27. And outside of aircraft, what investments we need to make over the coming years. So either airport or IT and what would need to be financed and if we would need to finance these investments?

Yes. So we provided, for the first time, a very granular look at free cash flow generation, right, for 2025. And I think what Dan is asking is how does that look going forward, right? We haven't provided guidance on that. But speaking about it conceptually, I think when we talk to the market, everybody expects EBITDA to grow further, right, it's not going to stop at BRL 7.4 billion. And what is fair to say is that EBITDA growth will be higher than growth in the outflows, right? So is the fleet going to increase for us to continue to increase EBITDA? Yes, but it's not going to increase more than cash inflows, right? Same thing with CapEx and interest actually, hopefully, we will reduce it even further, why? Because as we continue to generate cash, we'll be able to pay down debt, we'll be able to reduce our leverage. So out of those 3 big components of cash outflows; rent, CapEx and interest, rent and CapEx will increase, but they will increase much less than EBITDA, and interest should stay flat to down, right? So the BRL 1.1 billion of cash generation that we guided to should be an even better number going forward. Right? In terms of -- and there are a lot of initiatives that we're pursuing, like all of the things that we talked about with the OEMs and the lessors, we're finding some very creative ways to finance that CapEx, right, because we all want to preserve the value of the asset. And we're doing things like parting out the ones that we haven't done before that helps us to reduce CapEx, right? There's a famous GE engine overhaul line that we've talked about. We only started drawing on it at the end of 2024, right? And we haven't even drawn the full $200 million that we can draw, and we expect that to be a kind of a permanent kind of revolver, if you will, right, of $200 million of capacity that's going to be available to us permanently going forward so that we can perform maintenance overhauls in Brazil. So there are a lot of new initiatives that we haven't pursued before. They're coming online now, to help to keep that CapEx number down.

I think one other thing, Dan, I think is really important, is about 85% of our CapEx is engine CapEx. And it is a strategic advantage today that Azul has all of its engines under PVH agreements. Think about that for a second. Our Rolls-Royce engines on our widebodies, our A320 engines, our E1 engines and our E2 engine. So it is a known deal. That is not the case from any airlines worldwide. And many airlines worldwide would kill to have an engine deal like we have right now. And I think that, that's a competitive advantage as we roll forward. And our CapEx is known because we know how much we're going to pay by the hour, and we've locked in the rate on a go-forward basis. And most airlines worldwide cannot get anywhere close to those deals right now. And I think that, that's a significant advantage that we have.

And they're not giving them anymore. I've had calls several CEOs around the world saying, "Can you talk to Pratt or can you talk to GE and help us get an engine deal, because they're not giving it. They're not giving them any new ones. The ones they signed with us, they would love to tear them up and start over again, but that's not going to happen.

Any other questions? No? I think, you're done. Yes.

Great. Thanks, everybody.

Thank you.