Earnings Call Transcript - CPA Q3 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings' Third Quarter Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this call is being webcast and recorded on the 18th of November, 2021. Now, I will turn the conference call over to Daniel Tapia, Director of Investor Relations. Sir, you may begin.

Daniel Tapia, Director of Investor Relations

Thank you, Laurie and welcome everyone to our third quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings; and José Montero, our CFO. First, Pedro will start by going over our third quarter highlights, followed by José, who will discuss our financial results. Immediately after, we will open the call for questions from analysts. Copa Holdings’ financial reports have been prepared in accordance with International Financial Reporting Standards. In today’s call, we will discuss non-IFRS financial measures. A reconciliation of the non-IFRS to IFRS financial measures can be found in our earnings release, which has been posted on the company’s website, copa.com. Our discussion today will also contain forward-looking statements, not limited to historical facts that reflect the company’s current beliefs, expectations, and/or intentions regarding future events and results. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions subject to change. Many of these are discussed in our annual report filed with the SEC. Now, I’d like to turn the call over to our Chief Executive Officer, Mr. Pedro Heilbron.

Pedro Heilbron, CEO

Thank you, Daniel. Good morning to all and thanks for participating in our third quarter earnings call. Before we begin, I’d like to thank all our co-workers for their commitment to the company and recognize their continuous efforts and dedication to keep Copa at the forefront of Latin American aviation; to them, as always, my utmost respect and admiration. As you may have seen in our earnings release published yesterday, we're glad to report improved financial results for the third quarter. The increasing vaccination rates and reduced travel restrictions in Latin America are positively affecting air travel demand in the region, enabling us to grow capacity quarter-over-quarter while improving load factors. Since restarting operations in Q3 2020, we have increased flights from almost zero to nearly 70% of our pre-pandemic capacity in Q3 2021. Going forward, we expect further relaxation of travel restrictions and a continued demand recovery, which should allow us to deploy additional capacity in the fourth quarter and 2022. But of course, COVID has not gone away and we've seen in other parts of the world that additional waves of the virus could affect demand in the future. So, we will remain focused and flexible in terms of capacity, adjusting our plans as needed. Now, I'll highlight some of our third quarter results. In terms of capacity, we reached almost 70% of third quarter 2019 ASMs compared to 48% of 2019 capacity in the second quarter. The load factor came in at 79%, an improvement of two percentage points compared to the second quarter on nearly 50% quarter-over-quarter ASM growth. Revenues increased by 46% over the previous quarter to $445 million. Our ex-fuel CASM decreased from $0.76 in Q2 to $0.62 in Q3, reaching 2019 unit cost levels at 70% of 2019 capacity. We reported an operating profit of $59 million and an operating margin of 13.3% in the quarter. Excluding a $10.4 million passenger revenue adjustment, the company would have reported an operating profit of $48.6 million and an operating margin of 11.2%. We had a cash buildup of $54 million and ended the quarter with a cash balance of $1.3 billion and total liquidity of over $1.6 billion. On the operational front, the company delivered an on-time performance of 89.4% and a completion factor of 99.8%, once again among the best in the industry. This result is a true testament to our employees' continuous commitment to delivering a world-class product to our passengers. With regards to our network, we're excited to start our first new destination since the beginning of the pandemic. Beginning in December, we will offer service to three new cities: Armenia and Cucuta in Colombia and Atlanta in the U.S. By the end of the year, Copa will provide service to 72 destinations in North, Central, South America, and the Caribbean. We expect to recover service to the rest of our pre-pandemic network during 2022, strengthening our position as the most complete and convenient hub in Latin America. During the quarter, we agreed with Boeing to accelerate the delivery of 12 737 MAX 9 that were originally intended to be delivered starting in 2025. We will receive two of these aircraft in 2022 for a total of seven MAX 9 deliveries next year, and the other 10 aircraft will be added to Copa's deliveries from 2023 through 2025. In closing, I'd like to reaffirm that we have a proven and strong business model based on operating the best and most convenient network for intra-Latin America travel from our hub of the Americas, leveraging Panamax's advantageous geographic position, with the region's lowest unit cost for a full-service carrier, best on-time performance, and a strong balance sheet. Going forward, the company expects that the top of the Americas will be an even more valuable source of strategic advantage. Now, I'll turn it over to José who will go over our financial results in more detail.

José Montero, CFO

Thank you, Pedro. Good morning, everyone. Thanks for being with us today. I hope you're doing well. I'd like to join Pedro in acknowledging our great corporate team for all their efforts and great spirit during these many months of the pandemic. I will start by going over our third quarter results. Our capacity came in at 4.4 billion available seat miles, which amounts to 69% of the capacity operated per quarter of 2019. The load factor came in at an average of 79% for the quarter, an increase compared to Q2, while operating 49% more ASMs. We reported a net profit of $8.2 million or $0.19 per share. Excluding special items, we would have reported a net profit of $29.9 million or $0.70 per share. Special items for the quarter are comprised mainly of an unrealized mark-to-market loss of $32.1 million related to the company's convertible notes issued in 2020 and $10.4 million in revenues related to unredeemed tickets, which we are not including in our underlying results as they correspond to sales made during 2019 and early in 2020. We reported a quarterly operating profit which came in at $59 million. Excluding the $10.4 million in unredeemed ticket revenues, we had an adjusted operating profit of $48.6 million for the quarter. Our operating margin was 13.3%. Excluding the passenger revenue adjustments, we would have reported an operating margin of 11.2%. The unit cost excluding fuel was better than in the second quarter at $0.062 per ASM, driven by a quarter-over-quarter capacity growth of 49%. We continue with our cost savings initiatives and we are now targeting to achieve a unit cost below $0.06 once we reach above 90% of our pre-COVID-19 capacity. Our yields for the quarter came in at $0.12, a decrease of 3.4% compared to the second quarter while operating more ASMs. During the third quarter, we had a cash buildup of approximately $54 million, driven mainly by increased sales during the period. As a reminder, for our cash build measure, we exclude all extraordinary proceeds from asset sales, but include CapEx and the payment of our leases and other financial obligations. I want to spend some time discussing the balance sheet and liquidity. As of the end of the third quarter, we had assets of close to $4.2 billion, and our cash and short and long-term investments ended at $1.3 billion. We also ended the quarter with an aggregate amount of $345 million in unutilized committed credit facilities, which added to our cash, brought our total liquidity to more than $1.6 billion. In terms of debt, we ended the quarter with $1.6 billion in debt and lease liabilities at similar levels to the ones reported for the end of the second quarter. Turning now to fleet. In July, we finalized the sale and delivery of our last Embraer 190, and during the quarter, we delivered two Boeing 737-700s to their new owner, ending the third quarter with 87 aircraft: 68 737-800s, 13 737 MAX 9s, and six737-700s. These figures include aircraft currently in temporary storage that we plan to reactivate in the upcoming months. During the fourth quarter, we expect to receive two more 737 MAX 9s, ending the year with a total of 89 aircraft. For the remainder of the year, based on the current state of the demand environment and air travel restrictions, we can provide the following outlook for the fourth quarter of 2021. We expect capacity to be approximately 83% of Q4 2019 levels at about 5.1 billion ASMs, and we expect our operating margin to be approximately 4%. Our Q4 2021 outlook is based on the following assumptions: revenues of approximately 80% of Q4 2019 levels at about $545 million, CASM ex-fuel of approximately $0.61, and oil price of $2.50 per gallon, an increment of approximately 17% quarter-over-quarter. Given the uncertainty, it is still premature to give full year 2022 guidance. However, for the first half of the year, we preliminarily expect our capacity, measuring ASMs, to be approximately 92% of the capacity operated during the first half of 2019. Thank you. And with that, we'll open the call to some questions.

Operator, Operator

Thank you. Our first question is from Hunter Keay of Wolfe Research. Your line is open.

Hunter Keay, Analyst

Good morning everybody. Pedro, what is your level of involvement around capacity and growth decisions? Does every new market that you add or remove need your approval?

Pedro Heilbron, CEO

Yes, definitely. We're a relatively small team and we're all very involved in those kinds of decisions.

Hunter Keay, Analyst

Okay. What is your level of involvement in the budget process, including both setting and monitoring spending? I'm not asking about COVID specifically; I'm interested in how you managed this before and how you plan to approach it after.

Pedro Heilbron, CEO

I think if you ask the team, they'll tell you that I'm too involved, and I have always been very involved, maybe to the point of obsession, and that really hasn't changed. We haven't had to adjust because we've always had that culture of being very involved, looking after the details, looking after every item in the budget. Same with route planning and the whole thing. Again, we're a small team and we're all very involved in everything.

José Montero, CFO

But Hunter, during the pandemic, the focus has been even stronger on these items. And so we have been even stricter and more careful in the way that we spend our money and how we track that. And so there's quite a bit of involvement from everyone involved, and Pedro mentioned his own personal time on this.

Hunter Keay, Analyst

Can you give me an example of maybe a lesson learned from a cost perspective that you're going to keep in place going forward, even when things get better?

José Montero, CFO

I believe a good example is the fleet. The decision to transition to an open fleet over the past several months has proven to be very beneficial. This move not only provides advantages in terms of capacity but also simplifies cost execution across various areas such as flight operations, airports, and maintenance. Overall, this has been a very positive development for us.

Hunter Keay, Analyst

Thank you very much.

Operator, Operator

Thank you. And our next question is from Savi Syth of Raymond James. Your line is open.

Savi Syth, Analyst

Thank you. Good morning everyone. Just in the context of cost execution, it has been pretty remarkable here, and José, I missed if you said you would get to $0.06 or sub-$0.06 when you got to 90% of 2019 capacity. If you can clarify that. And then just along those lines, I was wondering if we can start thinking about maybe sub-$0.058 as you get to 2019 capacity. And what some of the tailwinds and headwinds that you might see over the next two years? For example, I'm guessing performance bonuses will start up again next year, if the current trends hold. So, just kind of curious if you can give a little bit more color on how you're thinking about unit cost?

José Montero, CFO

Yes, Savi. Currently, we expect that when we reach 90% of 2019 capacity, our costs will fall below $0.06. We have several ongoing projects that will contribute to this. If we focus on fleet consistency and add more MAX 9s, it will enhance our performance. Additionally, we've renegotiated contracts and made savings that have significantly reduced our overall costs in recent months. We're actively working on this every day, and as we continue to grow, there will be further opportunities to lower costs. However, we'll focus on these details in 2022 when we approach the target, but I believe we're on the right path to achieve a figure below $0.06 and potentially even lower.

Pedro Heilbron, CEO

And Savi, you're right, there will be expenses that maybe we haven't had to the same level during the pandemic, like performance bonuses, but those are always based on surpassing our targets and on much better performance and results. So, they pay for themselves.

Savi Syth, Analyst

Is there a level that you think is too low that you can't reach? What's the ideal target in terms of what you can achieve?

José Montero, CFO

Yes, I would say for now, we'll keep it at $0.06. Somewhere in the high $0.05 range is something that is very doable.

Savi Syth, Analyst

I appreciate it. Thank you.

José Montero, CFO

Thank you, Savi.

Operator, Operator

Thank you. Our next question is from Mike Linenberg of Deutsche Bank. Your line is open.

Mike Linenberg, Analyst

Yes. Hey, good morning, everyone. Maybe we could just start on the cost side. José, you were guiding to $0.066, you came in at $0.062. Congratulations on being flat to 2019 on slightly less than 70% capacity, which obviously underscores the operating leverage tailwind of your story. Where did you make up? Like, what were the positive surprises on the cost side? And are these timing benefits that maybe dissipate over the next couple of quarters, or are these things more permanent? Can you just run through because it was a pretty visible cost speed?

José Montero, CFO

Absolutely, Mike. I want to begin by mentioning that we've been engaged in a company-wide effort to reduce our costs. This has always been part of our culture, but we have made improvements over the past year and a half. Specifically for Q3, we experienced restart-related expenses that ended up being lower than our initial projections. We could say this is partly due to timing, as we initially anticipated some expenses would be higher. Looking ahead, we have provided guidance for Q4 at $0.061. I believe we will remain around that level, at least for Q4.

Mike Linenberg, Analyst

Okay, great. My second question is probably for José or Pedro. Now that you have 13 737 MAX 9s and will soon have more than seven additional ones, this aircraft will significantly expand your fleet. This model has historically been unique to Copa, particularly because of the lie-flat seat feature. Considering the reduction of service in the region and the ability to connect through Panama to fly from San Francisco to Sao Paulo with lie-flat seats, I've refrained from asking this question in previous quarters due to the limited aircraft availability. However, regarding the demand in the premium cabin, what are you experiencing? Are you seeing better pricing? Is it comparable to what some U.S. competitors offer, or is it aligned with non-stop services? This is your flagship product, and it seems like a great opportunity to capitalize on customers willing to pay for it. Any insights you could share about this product would be appreciated because I believe it's an excellent offering. Thank you.

Pedro Heilbron, CEO

Yes, thank you, Michael. A few comments. So, we need to have enough shells, as you well said, to guarantee the service on a given market. So, for example, a San Francisco and a Sao Paulo will have a guaranteed Dreams, as we call it, our product, guaranteed Dreams service. So, once it's guaranteed, we can price it better consistently. And so far, we've been getting a premium for the Dreams product. And also I should say that our costs are better than options through other hubs or non-stop options when they are usually not that many. So, we can do well even pricing it below what was available before for a similar product.

Mike Linenberg, Analyst

Great. Thanks everyone. Great quarter.

José Montero, CFO

Thank you.

Pedro Heilbron, CEO

Thank you.

Operator, Operator

Thank you. And our next question is from Alejandro Zamacona of Credit Suisse. Your line is open.

Alejandro Zamacona, Analyst

Thank you. Hi, Pedro, hi José, Daniel. Thank you for taking my questions. Just a quick question on yield. What can we expect for 2022? I mean, considering that on one side, you're expecting further significant progress and capacity, and this could push yields lower, but also the business traffic hasn’t recovered and this could help to have a better yield environment. So, any thoughts or clarity around this may be useful? Thank you?

José Montero, CFO

Yes, Alejandro. It's still early; we haven't provided full year guidance for 2022, but I would say that system-wide, the yield environment has been improving. As we increase capacity, for the first part of the year, we could see offers in the mid-single-digit range, which would be a comparison to 2019. Although it may still be challenging, it will be at a lower rate than most of 2021.

Alejandro Zamacona, Analyst

Okay. Thank you.

Operator, Operator

Thank you. And our next question is from Duane Pfennigwerth of Evercore ISI. Your line is open.

Duane Pfennigwerth, Analyst

Hey, good morning. It's nice to see that sandbaggers don't die; they just take a little break.

Pedro Heilbron, CEO

Thanks for your question, Duane.

Duane Pfennigwerth, Analyst

Okay. Sure. Regarding the restart, can you share some examples of what you're planning? Are there areas where labor availability is particularly tight? Perhaps you could discuss the situation with pilots, for instance?

Pedro Heilbron, CEO

Yes. Okay. So, your first comment I had to pause and think about it, and I should say that we're not trying to sandbag. Honestly, this pandemic has been very difficult to predict. And even three months ahead, it's like two years in normal times. So, demand came back, at least in this quarter, and what we're seeing in the next few quarters is much faster and stronger than what we would have expected some months ago. So, I think that's important to keep in mind that times are very different. In the old days, we could predict things, but we grew capacity quarter-over-quarter by 50% and it was hard to tell how demand was going to react. Back in November of 2020, which seems like 10 years ago, we grew capacity quite a bit from Q4 2020 to Q1 2021, and demand did not materialize, so we had to pull back. So, that's kind of the things we're dealing with in this pandemic. It's always good for demand to remain strong, and that's kind of what we're hoping or what we're seeing right now. In terms of labor, we think we're okay. In the next maybe month and a half or two months, we will have brought back from furlough all of our pilots. We have already brought back all of our flight attendants and we're even rehiring flight attendants that took voluntary leave programs. After that, we started hiring new flight attendants. So, in pilots, we will soon bring back everyone that was in furlough. We have pilots that took voluntary leave; we've contacted them and a high percent of them are willing to come back. We're also strengthening our own in-house pilot academy. So, we're growing that also. Right now, we feel we're fine in that respect. But again, we're always cautious and always alert because this pandemic is always full of surprises.

José Montero, CFO

And Duane, flexibility is key in all aspects. In this way, we've been managing it for the last four months.

Duane Pfennigwerth, Analyst

That's all very fair. And if I could just ask maybe a little follow-up on the folks that are coming back from voluntary leave. When you reach out, when you call them, when you email them and say, 'Hey, let's get back, demand is recovering,' is the rate at which they are productive consistent with your expectations?

Pedro Heilbron, CEO

Yes, totally. And we have a very, very strong training center and we have very good instructors, and they're dedicated and committed. If someone is not up to par, then that person won't pass the filters. So, the people that join the company are always at the highest levels.

Duane Pfennigwerth, Analyst

Okay. Thanks very much for the thoughts.

Pedro Heilbron, CEO

Thank you.

Operator, Operator

Thank you. And our next question is from Bruno Amorim of Goldman Sachs. Your line is open.

Bruno Amorim, Analyst

Thanks very much and congratulations on the performance this quarter. So, I just have a very quick follow-up on the cost performance. We saw wages, salaries down by 40% versus the third quarter of 2019, which implies that on a per ASM basis, this number here is around 13% below pre-crisis level. So, considering everything that was discussed, the potential increase in bonuses and everything going forward, do you still expect for this cost line on a per ASM basis to be below pre-crisis levels on a sustainable basis or not? Thank you very much.

Pedro Heilbron, CEO

Yes, we expect it to remain below pre-pandemic levels, primarily due to overhead adjustments and operational efficiencies. As we increase ASMs and flights, overhead will rise, but we anticipate that capacity will grow at a higher rate, allowing us to maintain our current ratio. Even if there are some changes, likely due to performance bonuses and the need to bring some staff back, it will still be below pre-pandemic levels.

Bruno Amorim, Analyst

Thank you. And if I may just a follow-up on the competitive environment, what can you comment on what are you seeing from your competitors, maybe new initiatives from players who were maybe not direct competitors in the past? I know you don't comment on a specific case, but if you can comment broadly, what are you seeing from a competitive landscape perspective that would be great? Thank you very much.

Pedro Heilbron, CEO

There is quite a bit of activity in the region, particularly from new entrants to some of the markets. This is why we have always focused on keeping our unit costs low, ensuring they remain below any full-service carrier and very close to low-cost carriers, which we believe is crucial for future success. Additionally, we are committed to maintaining and growing our strong network, achieving world-leading on-time performance, and delivering a strong product. We have a very strong hub in an ideal geographic position, and as long as we continue to execute everything effectively, we should be able to succeed in the future, even with new competition, which is something we are accustomed to.

Bruno Amorim, Analyst

Thank you and congratulations again.

José Montero, CFO

Thank you, Bruno.

Pedro Heilbron, CEO

Thank you.

Operator, Operator

Thank you. And our next question is from Pablo Monsivais of Barclays. Your line is open.

Pablo Monsivais, Analyst

Hi, Pedro. And thanks for taking my question. I have kind of a follow-up question on the revenue side. I am very curious to learn what type of passengers for the demand segment is driving such strong performance? Is it just leisure-driven, perhaps faction tourism or is corporate coming back quicker than expected? What is driving this result? And also going forward, do you think that, for example, if you're thinking about leisure, how leisure would look like when we return to normalcy perhaps in the first half of next year? Thank you.

José Montero, CFO

Yes, Pablo, José here. I would say that the big drivers are our leisure and VFR traffic, more so than business. Before the pandemic, you could argue that the breakdown of traffic for us was about a third each segment. Now there's probably more of a 40% leisure, 40% VFR, and about 20% business; business is off versus where it was before. But it isn't vaccine tourism anymore. Vaccine tourism, at least in our region, occurred I want to say back in the second quarter. Today, it's more just real leisure, with people wanting to go on vacation after being locked up for a long period of time. So, that's kind of what we're seeing in terms of the patterns.

Pablo Monsivais, Analyst

And, for example, do you think about that leisure market driving demand? If we take into consideration a higher inflation in the region and weaker currencies, should we expect that this demand from the leisure market is sustainable for 2022?

Pedro Heilbron, CEO

It is what we're seeing right now. We are seeing no signs of demand slowing down, and we think we're going to stay on this path at least, that's how we're seeing it right now when we look at future bookings.

Pablo Monsivais, Analyst

Terrific. Thank you very much, guys.

José Montero, CFO

Thank you, Pablo.

Operator, Operator

Thank you. And our next question is from Josh Milberg of Morgan Stanley. Your line is open.

Josh Milberg, Analyst

Great. Good day, everyone and thanks for the call. I had a follow-up on the issue of competition and wanted to ask if you could comment on how much your yields have been helped by either U.S. carriers, regional ones, bringing capacity back at a slower pace than you guys on overlapping routes? And then a related one is also I believe that Avianca's new CEO made comments in the press recently that that airline is shifting to a point-to-point strategy, and just wanted to hear your views on the relevance of that announcement for Copa?

Pedro Heilbron, CEO

Yes, so they have announced. I mean U.S. carriers have brought back capacity to a higher level than pre-pandemic. Most, if not all, U.S. carriers are offering more ASMs now than what they offered in 2019 in Latin America. Some of the major hub-and-spoke carriers that are going through chapter 11 procedures, they are below, but then everyone else is above 2019. So, it's a mixture there. Yes, Avianca, as you well mentioned, made declarations, and I think they even published their chapter 11 exit plan or something. It's going to be more of a low-cost strategy with densified planes, point-to-point service, and lower yields. So, yes, we've heard that, and we're confident that we will be able to maintain our cost advantage and be able to compete under any scenario. We are prepared for that and we're preparing further for that kind of competitive environment.

Josh Milberg, Analyst

Thank you very much, Pedro.

José Montero, CFO

Thank you, Josh.

Operator, Operator

Thank you. And our next question is from Stephen Trent of Citi. Your line is open.

Stephen Trent, Analyst

Thank you for taking my question. My first question is a follow-up to Pablo's. Regarding fare stickiness, particularly on some of your low-density routes, is it accurate to say that there is still significant pent-up demand resulting in strong fare pass-through, even among non-business travelers?

Pedro Heilbron, CEO

What we're seeing right now, I'm sure I would call it pent-up demand. What we're seeing is that people want to fly and travel like they did before the pandemic. In a way, it's been surprising to the degree that this is going on because we are not seeing the fear of traveling that we expected maybe a year ago or nine months ago. I think it's just regular demand. It's just people going about their business, going about their lives, and just getting out and traveling as much as they can afford or they want to. So, I would not call it pent-up demand right now.

Stephen Trent, Analyst

Okay, very helpful, Pedro. And as my follow-up just very quickly, appreciate the color and 2022. Any high-level view for next year, how many flight banks you guys might be running out of, or is it still too early to say?

Pedro Heilbron, CEO

Well, we run six flight banks, and I don't think that's going to change. We've been doing it for a while. We're still not all the way back to the number of flights we had pre-pandemic. We still have to restart a number of destinations, and that will happen throughout the year 2022. So, I think 2022 is a year where we need to get back to what we were in 2019 in terms of the size of the hub, the connectivity, and the number of flights. So, that kind of what we'll be doing most of the year.

José Montero, CFO

And always looking for new opportunities from the hub, as we mentioned in this quarter, we are adding cities into the network that are interesting and unique.

Stephen Trent, Analyst

Okay. Let me leave it there. Thanks very much, guys.

Pedro Heilbron, CEO

Thanks, Stephen.

Operator, Operator

Thank you. And our last question is from Dan McKenzie of Seaport Global. Your line is open.

Dan McKenzie, Analyst

Hey, thanks for squeezing me in here. Just following up on that last question on pent-up demand, I think the rule of thumb historically in Latin America has been two times GDP. Are you thinking that once things normalize, it might still be two times or could pent-up demand drive it to something higher, like say, three times or even higher than three times?

José Montero, CFO

So, I think, Dan, it's early to say where it's lined up, but if you look at the macroeconomic factors, the economies are in a particular level where yes, I think air travel demand will grow eventually at two to three times GDP growth. I think that that level of where the Latin American economies are still maintains itself after COVID. So, yes, in the longer term, I believe that that's going to be the case. But still, COVID is not over; that's the newer thing, right? You have to be mindful that it's still an environment that might have some movement or volatility over the next several months.

Dan McKenzie, Analyst

Yes. And that actually gets my next question here, and it just sort of ties to operations for the current quarter and how you've been managing operations over the pandemic. With respect to the current quarter, I'm just wondering how the network plans have evolved. So I'm looking at Brazil; I'm seeing some cuts to Brazil, for example. It looks like you're managing flights based on demand trimming when you need to add where you can. And so yes, it doesn't look like it's new to the quarter, but where I'm going with this is do the changes weigh on profitability, or do they actually help with profitability?

José Montero, CFO

I would say that we're looking at it very carefully, almost constantly. But I think that we are always looking for the opportunities to improve on our profitability. Also, it's all about building back the network. I think that the key factor here is ensuring that we build a network as quickly and as effectively as we can to get to a point where the capacity of the network is as close to where it was prior to the pandemic, and that's, I think, the driving factor that we're looking at.

Pedro Heilbron, CEO

What you're saying, which is true, it's also a result of what I was saying earlier about the difficulty in predicting what's ahead during this time. So, we've had to make more changes and adjustments along the way than we're used to. Hopefully, in the next few quarters, we'll be able to have a more predictable and stable operation and just stick to it.

Dan McKenzie, Analyst

Yes, understood. If I could just squeeze one last one in here. Mike and I actually have the same question on Dream seats here. If I could just elaborate on that question. I'm just wondering, if today you're selling it as an actual lie-flat first-class seat or just simply as a generic business class seat at this point. I guess if you're not really selling it as a flagship product, what is the timeframe for when you might feel like you're ready to go live with that?

Pedro Heilbron, CEO

We do sell it for a premium when we can guarantee it in every flight in a given market. So, there are a few markets where we can already do that. It all depends on the number of shells we're operating. So, as we get more MAX 9s, we add the number of markets. Right now, it's probably somewhere around five markets, I think it's like four or five markets where we guarantee the Dreams product, and in those cases, there is a premium we charge for the product.

Dan McKenzie, Analyst

I see. Okay. Thanks for the time, you guys.

José Montero, CFO

Thank you.

Pedro Heilbron, CEO

Thank you, Dan. Operator? Go ahead.

Operator, Operator

Yes, there are no further questions. Do you have any closing remarks?

Pedro Heilbron, CEO

Okay, thank you, operator, and thank you all. This concludes our earnings call. Thank you for being with us. Thank you for your continued support. Have a great day, and we'll see you in the next one. Thank you all.

Operator, Operator

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