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Edited Transcript of GOLL4.SA earnings conference call or presentation 20-Feb-20 3:00pm GMT

Q4 2019 Gol Linhas Aereas Inteligentes SA Earnings Call

São Paulo Mar 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Gol Linhas Aereas Inteligentes SA earnings conference call or presentation Thursday, February 20, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Paulo Sérgio Kakinoff

Gol Linhas Aéreas Inteligentes S.A. - President & CEO

* Richard Freeman Lark

Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer

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Conference Call Participants

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* Alexandre Pfrimer Falcao

HSBC, Research Division - SVP

* Bruno Amorim

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Daniel J. McKenzie

The Buckingham Research Group Incorporated - Research Analyst

* Marcos Barreto Guerrero

Citigroup Inc, Research Division - Research Analyst

* Michael John Linenberg

Deutsche Bank AG, Research Division - MD and Senior Company Research Analyst

* Savanthi Nipunika Syth

Raymond James & Associates, Inc., Research Division - Airlines Analyst

* Victor Mizusaki

Banco Bradesco BBI S.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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Welcome to the GOL Airlines Fourth Quarter 2019 Results Conference Call. (Operator Instructions) This event is also being broadcast live via webcast and may be accessed through the GOL website at www.voegol.com.br/ir and MZiQ platform at www.mziq.com. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of GOL's management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that events related to macroeconomic conditions, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

At this time, I will hand you over to Mr. Paulo Kakinoff. Please begin, sir.

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [2]

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Good morning, ladies and gentlemen. And welcome to GOL Airlines' conference call. I am Paulo Kakinoff, Chief Executive Officer; and I am joined by Richard Lark, our Chief Financial Officer.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [3]

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Good morning. It's my pleasure to be with you all today.

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [4]

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This morning, we released our fourth quarter figures. Also, we made available on GOL's Investor Relations website 3 videos with the results presentation, financial review and preliminary Q&A.

We have once again delivered on our guidance, thanks to the dedication and engagement of our Team of Eagles. Despite several operational challenges in 2019 such as the MAX delays and the unplanned maintenance on some NGs, gross net revenue was BRL 3.8 billion in the quarter, the highest ever recorded by the company, an increase of 18.8% compared to the same period in 2018. In 2019, net revenue reached BRL 13.9 billion, an increase of 21.5% compared to 2018. GOL's net revenue guidance for 2020 is approximately BRL 15.4 billion. Record revenues this quarter rounds out what has been an outstanding year in our history.

The superior experience provided to customers combined with GOL's low-cost operating model and sophisticated fleet management have driven our growth both in domestic and international markets. In this quarter, recurring earnings per diluted share were BRL 0.88, and recurring earnings per diluted ADS were $0.43. GOL's 2020 EPS and earnings per ADS guidance is BRL 2.65 to BRL 3.15 and $1.25 to $1.50, respectively.

Recurring pretax margin was 22.9% in the fourth quarter of 2019, increase of 60.8 percentage points quarter-over-quarter. In the full year 2019, recurring pretax margin was 6.5%, a growth of 23.4 percentage points year-over-year. GOL's 2020 pretax margin guidance is approximately 13%.

Recurring EBITDA margin was 38.5%, an increase of 22.2 percentage points quarter-over-quarter. In 2019, recurring EBITDA margin was 31.5%, a growth of 11.5 percentage points year-over-year. GOL's 2020 EBITDA margin guidance is approximately 30%.

The company returned BRL 800 million of cash to its capital partners in the fourth quarter, mainly comprised of BRL 617 million of debt repayments, BRL 50 million of interest on own capital and BRL 102 million of share repurchases. GOL has a high level of fuel hedging protection in place with around 90% protection in the first quarter of this year and 68% hedged in 2020.

Once again, we improved our operating indicators. RPK increased 5.5%, totaling BRL 10.8 billion in the quarter, driven by an 8% growth in the number of transported passengers, while ASK growth was 6%. The strong passenger demand and dynamic revenue management enabled GOL to manage the increase in unit operating costs, achieving the four indicators: one, average yield per passenger of BRL 0.332 an increase of 13.8% compared to fourth quarter '18; two, average load factor of 81.5%; three, average aircraft utilization of 12.2 hours a day, an increase of 6.1% quarter-over-quarter; and four, flight completion of 99.2%, a growth of 0.6 percentage point compared to same quarter 2018, according to Infraero and data from major airports.

We continue to drive strong revenue growth. The net was BRL 3.8 billion, the highest for a quarter ever recorded by the company and an increase of 18.8% quarter-over-quarter. GOL carried 9.7 million customers in the quarter, with 9.2 million in domestic market, an increase of 9.5% over same period 2018, and 0.5 million in international market.

Net revenue per available seat kilometer, RASK, was BRL 0.287, an increase of 12.1% over fourth quarter last year. Net passenger revenue per available seat kilometer, PRASK, was BRL 0.27, an increase of 13.3% quarter-over-quarter. We have used our fleet plan flexibility to accommodate the increase in demand for our passenger transportation services and to manage the MAX delays and the recent unplanned maintenance requirements on some of our NGs. We have used our fleet plan flexibility to accommodate the increased demand for our passenger transportation services and to manage the MAX delays and the recent unplanned maintenance requirements on some of our NGs.

In the fourth quarter, we added 16 aircraft to the fleet. We have the expectation of the MAX returns to service in our network in the beginning of second half of 2020.

With that, I'm going to hand you over to Richard, who is going to take us through some additional highlights.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [5]

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Thanks, Kaki. I would like to comment about our controlled cost environment caused the lowest unit costs in its markets. Unit costs based on cost per available seat kilometer, CASK, excluding nonrecurring expenses, decreased by 12.8% from BRL 0.242 in the fourth quarter of 2018 to BRL 0.211, partially impacted by a 17% decrease in the average fuel price and a 2% reduction in fuel consumption per flight hour. Fuel cost per ASK decreased 15.6%, mainly due to a reduction of fuel taxes.

CASK ex fuel, excluding our recurring expenses, increased by 11.1% primarily due to increased productivity, operating efficiency, aircraft utilization and increase in ASKs and a reduction in aircraft maintenance expenses due to a decrease in aircraft returns in this quarter, partially offset by, one, a 32.6% increase in depreciation due to the addition of 16 aircraft in the fleet and a reduction in the depreciable life of capitalized engine maintenance of large components; and two, a 23.8% growth in personnel expenses mainly due to an increase in the federal payroll tax rate to 20% and the hiring and training of 819 new employees due to the expansion of operations, new routes and new bases.

Our margins remain healthy. Due to strong cost control, capacity and yield management, the company earned operating profits for the 14th consecutive quarter. Good demand enabled GOL to achieve a recurring EBIT margin of 26.5%, the highest achieved by the company since 2004. Recurring operating income was BRL 1 billion in the quarter and BRL 2.6 billion in fiscal 2019. Such figures were BRL 830 million and BRL 1.6 billion higher than in the same period last year and 2018, respectively. Recurring EBITDA margin was 38.5%, an increase of 22.2 percentage points quarter-over-quarter.

Lastly, we would like to share the continued success of our balance sheet and liquidity strengthening. GOL reported operating cash flow generation of approximately BRL 1 billion in the quarter. Total liquidity was BRL 4.3 billion, BRL 230 million higher in comparison to September 30, 2019, and BRL 1.3 billion higher than in December 31, 2018.

In the fourth quarter of 2019, the company repaid BRL 617 million of principal debt and leases, BRL 50 million of interest on own capital and repurchased BRL 102 million of stock. The net exchange and monetary variation gains in the quarter totaled BRL 372 million. Net debt, excluding our perpetual bonds and exchangeable bonds to LTM EBITDA, was 2.4x at December 31, 2019.

Now I would like to return to Kakinoff.

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [6]

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Thanks, Rich. Summarizing, in 2019, GOL accomplished a number of significant milestones in its business strategy to be The First Airline for Everyone and to grow its network, both international and domestic. Our commitment to the continuous improvement in results has proven the strategy effectiveness of offering a differentiated and high-quality product while relentlessly focusing on cost efficiency.

We remain committed in offering the best experience in air transportation, which is due to the services to customers on new and modern aircraft that connect our main markets with the most convenient schedules. We are focused on prudent management of our capital structure and liquidity, maintaining cost leadership and continuing as a preferred airline for our customers while driving sustainable margins and returns for our shareholders.

And to conclude, we remain optimistic for the first quarter of 2020 with a scenario of increased air travel in Brazil and our continuous capacity discipline. Making our company The First for Everyone is what drives our best-in-class Brazil aviation team.

Now I would like to initiate the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question we have will come from Michael Linenberg of Deutsche Bank.

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Michael John Linenberg, Deutsche Bank AG, Research Division - MD and Senior Company Research Analyst [2]

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I have 2 questions. First, I want to ask a question about your new agreement with American Airlines and how that ramps up at the same time that I believe you'll be winding down your Delta agreement. And so is there anything that will be noticeable in -- whether it's the March or the June quarter, where revenue will either come under pressure and then it will start to ramp back up? So can you talk about the timing and the mechanics of that? And then maybe even compare and contrast the 2 agreements, which one -- maybe from a big picture revenue perspective, where you see the agreement with American getting you maybe 1 year or 2 out from now.

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [3]

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Michael, it's Kakinoff here. Thank you very much for the question. Actually, we announced the new partnership agreement 2 weeks ago. And to give you a better guidance on how much it's going positively impact our company, the seat availability to the United States will be 2x as big as we had before with Delta. So I mean we have a much larger seat availability base than we had before. We are ramping up the revenues because, as you know, we are selling seats in advance. So by replacing one provider by another, one partner by another, we are also shifting the natural traffic generated by GOL from one company to the other, which is going to take some time.

What I can tell you, for sure, due to the much larger number of seats available is that revenue-wise, the day after the replacement, we had already the same amount of revenue created or sourced by this partnership. It can only get better, okay?

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Michael John Linenberg, Deutsche Bank AG, Research Division - MD and Senior Company Research Analyst [4]

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Okay. Great. Then my second question, and it's just really 2 quick accounting questions, maybe to Rich. In the guidance, you do call out the minority interest line for 2020 and 2021. But presumably, you will at -- in the not-too-distant future, you will own 100% of Smiles, and so that line goes away, and I'm not sure if that was there for illustrative purposes. And then the other question I have is just on the diluted share count. So maybe to Rich on that.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [5]

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Yes, sure. Yes, Mike. We've been providing that line item for a while now in our guidance, so it's nothing new. That's part of the architecture there in the guidance to help us be able to talk to the market about earnings. So we have to provide all the information. So everything we talk about with you guys is -- everybody has the same access to all the info, and that just kind of helps you understand how we're producing earnings. And so we're now focusing more on providing, let's say, recurring, fully diluted earnings guidance. And that's an important component. And so in addition to that, you also have the tax effects as well.

But that line item there, that just reflects what's been there. That comes out of our accounting. It gets excluded out of the consolidated results. That's where that piece comes out. And yes, we have, next month, a shareholders' meeting, where the Smiles' minorities will decide if they want to accept the proposal that's out there. If that happens, that would probably liquidate it in May. And then the merger would happen during the third quarter, where that line item, if you will, would be zeroed out.

So that's immediately earnings accretive -- it's immediately earnings accretive to GOL on a consolidated basis. And then there's the other effects, which relate to better tax efficiency, improved business processes and also some potential improved yield management on a consolidated basis. But overall, improved competitivity. I mean you've seen our cash flow generation already, and that's going to get even stronger in that respect.

But yes, so that line item there is just to help you and others understand and have visibility on our earnings because one of the things we've been trying to do here at GOL, Kaki and myself, is give the market better earnings visibility. And so we've been -- as you've seen over the years, we've provided a significant amount of line item detail, probably more than any other company out there, and we're committed to that. I mean this is how we're thinking about managing the business. This is how we're managing the business. But obviously, it's guidance. It's guidance. It's our guidance. You guys also have to come up with your own numbers.

In terms of the earnings per share count, I'm not sure if I understood the question, but the fully diluted share count that we're using in our earnings reporting on a diluted basis is 391 million shares and 195.5 million ADSs. That includes the conversion of all existing stock options and includes the -- and as is converted for the convertible bond that was issued. And so that's fully loaded for all of the potential dilution effects based on what's currently issued, be it stock options or the convert, which is in our release denominated exchangeable notes.

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Michael John Linenberg, Deutsche Bank AG, Research Division - MD and Senior Company Research Analyst [6]

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Okay. Yes. And I just -- my question on that was that you have the 391 million for the quarter, but for the full year, you have 392 million. And yet the deal was done in the middle of the year. And so presumably, you were including 392 million on a full year basis pro forma for a January 1 offering. I mean that's kind of how I saw it. And that was actually the question I was going to ask, that you probably had it in there...

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [7]

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Yes. That's correct. That's correct.

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Michael John Linenberg, Deutsche Bank AG, Research Division - MD and Senior Company Research Analyst [8]

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That's all that is. Okay.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [9]

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And I thought you were talking about -- going forward, so for the 2020 and then the '21 guidance, if you're talking about the fourth quarter, yes, it's the full effect for the Q4. And if you were to go back for the full year retroactively, 2019, it would be -- there would be a slight reduction there. Correct, yes.

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Operator [10]

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And next, we have Dan McKenzie of Buckingham Research.

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Daniel J. McKenzie, The Buckingham Research Group Incorporated - Research Analyst [11]

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A few questions here. First, I guess just a housecleaning question on the revised outlook for 2020. It did fall off here, and that's despite the incremental revenue upside from the codeshare with American. So I'm just wondering what that factored in. Does it potentially factor in a slower GDP outlook for the country or -- I'm just wondering if you can speak to that.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [12]

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Dan, you were saying a slight reduction in the revenue forecast for 2020. Was that your question?

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Daniel J. McKenzie, The Buckingham Research Group Incorporated - Research Analyst [13]

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Yes, that's correct.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [14]

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That's a tiny calibration there it's nothing material. It reflects what's going on with our capacity situation. Like, we have been -- as you saw last year, we beat our revenue guidance by about BRL 300 million with about 3% less overall ASK growth, and so it's the same effect. We've now gone back up to near 13 block hours a day of utilization. And so we're at record utilization, record load factors. You see what we've been getting on the RASM side.

And so what that reflects is, I'd say, a little bit more conservative outlook on the return of the MAX and what we can do on capacity. We've reaffirmed our capacity guidance, but you've seen a shift there also between domestic and international. So what that really affects is the issues we've been dealing with on the fleet side of the equation in terms of being constrained in that regard. Don't read into it any more than that.

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Daniel J. McKenzie, The Buckingham Research Group Incorporated - Research Analyst [15]

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Yes, understood. And it does not reflect the revenue upside from the codeshare with American?

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [16]

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Actually, when we -- it's Kakinoff here. Actually, when we provide you the revenue guidance for the year, we were already assuming the partnership with another airline. So if you consider that both, either United and American Airlines, they are much bigger in Brazil than Delta. We did assume something in between both to have our revenue guidance being made public to you. So there is no additional impact from that.

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Daniel J. McKenzie, The Buckingham Research Group Incorporated - Research Analyst [17]

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Yes, understood. Okay. Good. Bigger picture, Rich, I'm wondering if you can talk a little bit about depreciation. When you take a look at Southwest and other U.S. airlines, they are depreciating the aircraft over 25 to 30 years. I'm just wondering if you can remind us what the average useful life is that GOL is using, and if GOL were to use assumptions similar to what U.S. airlines use, what impact that might potentially have on your CASM or on your cost.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [18]

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Yes. I mean we're assuming around 18 years on aircraft, which is -- obviously, as you said, it's less than Southwest and Ryanair. But the bigger chunk in our -- larger effect in the -- what you've seen with -- which has been going on in the depreciation line has been more based on the depreciation of capitalized engine maintenance, okay, and the effects because of what we had to do to manage the MAX situation and the pickle fork situation. And so what happened in the -- people sometimes forget that a big chunk of the value on the aircraft is not the airframe. It's the engine.

And so while we're depreciating the airframes over 18 years, what we've seen happen because of the MAX issue and the pickle fork issue is if you go back to 2018, we had an average depreciable life on the engine portion of the assets of around 7 years. And last year, because of the technical calculations and the discussions with auditors in terms of how this has to work, if you're going to be faithful to what the accounting legislation dictates, we have to do that. We subject ourselves to the rules of the game in terms of making decisions on impairment and provisions for returns for aircraft and provisions for future maintenance, we have to follow those rules, right? And that caused our -- those issues caused our average life on engine maintenance to be reduced from 7 years to 4 years, okay?

And so this year, as we have the return to service on the MAX and as we get that behind us and as we normalize our forward engine maintenance schedules, that will go back to 7 years, okay? And that's the big chunk of that effect there. Now yes, you're right in your first point, is that we are following IFRS. Ryanair and Southwest -- sorry, Southwest follow slightly different accounting rules, and they have a longer depreciable life even though we operate the exact same aircraft. And so this is something that we're discussing internally and eventually we'll discuss with our auditors. And so you should also expect that to extend and that to therefore reduce the average depreciation component in the unit cost component.

But the big overwhelming effect here is when we got into the MAX issues in the second quarter of last year, and they were confounded by the pickle fork issues in the third and fourth -- in the fourth quarter, that, based on following what's permissible by the accounting rules that dictate that you basically have to calculate what your maintenance costs are going to be until you're going to be returning the aircraft. And there's a lot of these aircraft that we've contracted, this capacity work that we've done over the last year or so to match with market demand, many of these leases have been short term. And so we've been forced to provision that.

And also with these unplanned and temporary additional costs on the maintenance side to keep our NGs air-worthy and flying, we've had additional engine overhaul charges and things like that. So all those have kind of gone into -- in the CASM line, if you will, that's showing up in depreciation.

And so I'll even give you some -- kind of an additional kind of info there. There's -- if you look at our run rate depreciation today over the last couple of quarters, we have around BRL 300 million to BRL 500 million extra depreciation that's being expensed in the last couple of quarters and will be expensed in the next couple of quarters that is related to these temporary effects. And so somewhere between 3 -- when this gets normalized again, which we expect will start to happen in the second half of this year, there will be between BRL 300 million to BRL 500 million of run rate depreciation annual, which will then kind of phase out as we normalize the depreciable life of the engines to 7 years, which is the depreciable life of those engine maintenances.

When we do the engine maintenance, we basically then have a maintenance holiday until the next maintenance event, which is roughly 7 years. But last year and this year, we've been doing a lot of unscheduled and intermittent maintenance that caused the average depreciable life on that portion of the asset, which is the engine piece, to be reduced by 3 years, 7 to 4 years. So that's been a significant effect.

But thanks for asking that question because it's a technical question. It's something that you see because you're looking at how that's going into Southwest and Ryanair, which are our, let's say, best benchmarks for GOL, Southwest and Ryanair. I mean they're our brothers in terms of operating model. The type of asset we operate are highly similar. And we also operate at very high levels of utilization. So meaning that, that should also be reflected in the amount of depreciation we have, and so the differences are very similar.

But what I would say is as we kind of get beyond these events of last year, which we're continuing to deal with through the first half of this year, that will kind of phase out of the business and the temporary effect. We're following the accounting guidelines and the accounting rules, and we're not going to take any shortcuts on that, and we're going to be very transparent about that. But I appreciate that question.

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Daniel J. McKenzie, The Buckingham Research Group Incorporated - Research Analyst [19]

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Very good. No. That's great clarification and agreed, of course. If I can squeeze one last one in here, compensation from Boeing, I'm wondering if you have had any preliminary thoughts about how that might be used or how that might be reflected in the financials as we move forward here.

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [20]

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This topic is under discussion at the moment. And you understand that I wouldn't like to bring any kind of disturb to this conversation by anticipating any results or any output on it. So I hope you can understand that I wouldn't like to comment at the moment that we are discussing those terms and issues with Boeing.

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Operator [21]

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Next we have Savi Syth of Raymond James.

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Savanthi Nipunika Syth, Raymond James & Associates, Inc., Research Division - Airlines Analyst [22]

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Just curious, I know there's a lot of uncertainty here around kind of Boeing and MAX, but I was kind of curious, once the ground -- it's recertified, how much would there be, from a training period, but more importantly, what do you think is kind of realistically the number of aircraft that maybe you can get delivered from Boeing in like 2020 and 2021?

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [23]

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We are assuming in our planning the official target informed by Boeing, which is to have the plane returning by this year, between July and August. That's the forecast we are considering, which is built into that project. So to give you a clear understanding on where we are going to be the day after, you should take into consideration the following figures. We have 7 MAX planes grounded here in Brazil plus 12 in Seattle already available to be -- to fly to Brazil and come into service.

We do not know how much time it's going to take for Boeing to unground all those planes (inaudible). So giving you just an idea, which might change a lot, having more clarity as close as we're going to be to the (inaudible) service day, we are considering for this year to have definitely the 7 planes here in Brazil back, plus more or less 15 aircraft coming from Seattle in a mix of the already produced ones and those units that are being produced into the end of this year. So by the end of 2020, we believe that our MAX fleet would be around 20. That's the forecast we can share at the moment.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [24]

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In terms of -- I mean in terms of -- yes, I mean we will have a small group of pilots that will go through some additional simulator time, and we already have that taken care of. I mean we don't yet have MAX simulators in our own, but we have 3 NG simulators here in São Paulo, but we use the MAX simulators that are located at the Boeing facility in Miami. And we'll have about a 1- to 2-week period where they'll go through that training as it relates to the return to service. So we've also got that in our planning.

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Savanthi Nipunika Syth, Raymond James & Associates, Inc., Research Division - Airlines Analyst [25]

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That's helpful color. And just kind of curious with the 11 NGs, with the sale leaseback, and just maybe just how many kind of NGs do you have on kind of short-term leases? And what's the decision point on kind of if you kind of extend those leases or kind of return them in like this 2021 period?

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [26]

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Yes, yes, yes. We can at our sole discretion decided to further extend those leases or return the airplane at a particular time.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [27]

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We have -- I mean what was your question on the NGs?

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Savanthi Nipunika Syth, Raymond James & Associates, Inc., Research Division - Airlines Analyst [28]

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Just kind of curious as to when those decisions need to be made and just how much flexibility you have in there. And I guess that -- maybe that's what was in that slide deck, where -- what you can kind of flex up and flex down based on those returns.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [29]

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I see. On those -- well, yes, those -- the portfolio, obviously, for example, you take those NGs specifically, those have 2- to 8-year terms on those. So those aircraft are getting phased out based on our fleet plan. So it's 2 separate decisions. We have the fleet planning decisions and then the -- we have the fleet planning decision and then we have the financing decision, okay? So the sales of the aircraft relates to the financing decision, and you saw the results of that.

They are the -- those aircraft are still with GOL. They're flying, and they will be phased out over a period of 2 to 8 years. And all of the other inventory of NGs that we sourced on a temporary basis, as a temporary short-term leases, generally, kind of a 2-year -- kind of 18-month to 24-month period, those also can be extended and maintained with us. And so if you want to include the NGs in that component right now, these NGs that we've sold and -- are you still on, Savi? Sorry.

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Savanthi Nipunika Syth, Raymond James & Associates, Inc., Research Division - Airlines Analyst [30]

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Yes. I am.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [31]

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Sorry, I just got a message that the line went out. And that's why we were jumping around here. I wasn't sure if I was talking to myself. But the -- so if you want to take the NGs that we've monetized plus the grouping of NGs that we source from the market on a global basis, that right now is close to 1/3 of the fleet. And so those are the aircraft that are going to go out. As the MAX gets normalized, those immediately go out. I mean we can actually -- so we can accelerate the redeliveries on those or we can delay it.

And so that's why we're going to get back on track over the next 4 or 5 years. What that means is that we will get back on track in terms of our plan of having roughly half of the fleet operating with the -- in the MAX format. But right now, obviously, we're in a holding pattern. We've been sourcing our additional capacity on an incremental basis every month with NGs that are available in the market. And that's coming from a lot of different places.

And the monetization decision that has happened in terms of the -- what we'd be doing on monetizing the portfolio, those aircraft that you saw go out this year, those 11, we would have did that last year in our original plan were it not for the MAX situation because the demand for that asset continues to be very good, and we've had some interesting opportunities on that for a while. And so once we got a little bit better visibility on getting -- on the other side of -- a portion of the MAX situation, we decided to go ahead and transform those from assets into leases, if you will.

And then we realized the gain on that. And then we paid off all the liabilities on that, and we have some cash left over on that, which is also matched into our liability management program, which was kind of basically be the source of funds for even further reduction of debt on the unsecured side of the balance sheet. So that's how it's kind of like package that whole deal there.

But on the fleet plan side of the equation, it's important to remember that our fleet plan is a function of what we're doing in terms of growth, demand and our matching capacity. It's independent of the financing situation and also independent of the asset disposition decision. Because we're already locked into what our -- we're not transforming from an old aircraft to a new aircraft or a different type of aircraft model to a new type of aircraft model. We're just doing effectively a true up-gauging within the fleet from the NG to the MAX. And so all this work we've been doing contractually in the direct leasing market has just been to basically bridge the gap in this up-gauging that we're doing.

And so this also won't create for us -- it will neither create a shortage of capacity and neither create an excess of capacity because we can match -- very easily can match the deliveries of MAXs into the fleet. It's perfectly matched with the redelivery of an NG back out to our partners, which are these -- we have a portfolio of over 20 leasing partners that we deal with. And so they're working with us very closely to match their availability and also their ability to replace the NGs out there as the MAX goes back to service.

And so -- and we think -- as we've kind of highlighted, we think this is the kind of a competitive advantage for GOL, this ability to kind of flex our capacity not just throughout the cycle with demand but also inter-year seasonally. And obviously, the other half of -- the counterparty on that is the leasing companies and our subleasing partners that do that. And so we have a great partnership there that allows us to kind of almost make endogenous, if you will, any volatility we might have either on the demand side or on the supply side. It's obviously not necessarily a perfect match, but we think GOL has the most mature fleet management process, which gives us kind of a leg up on all of this.

If we didn't have this process, we wouldn't have been able to deliver the numbers we did last year. It would not have happened. And so I think that the proof is in the pudding. The proof is in our numbers, not just on the operating side, but also on the equity value that we've realized on our own aircraft assets, right? I mean, we have that as a -- almost kind of like a side component that creates value for all of our shareholders. And that's been consistent.

If you look at the aircraft monetizations we've done since 2016, as we ended -- we came to the end of the financing cycle on the first order of 80 aircraft we did with Boeing, which we did back in 2005, we've monetized 100% of those 40 aircraft that we had in finance lease formats with the Ex-Im Bank guarantee at significant value creation for the company and for all of our shareholders. And that also puts us in a unique category, along with the companies that we were mentioning before, along with Southwest, along with Ryanair because the source of that value is the type of aircraft and also our position as one of the top 5 owners and operators of those aircraft on a global basis. That's kind of like a hidden asset, if you will, that we've always had in the business. And we think -- I think some of you now are kind of starting to give us credit for that.

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Savanthi Nipunika Syth, Raymond James & Associates, Inc., Research Division - Airlines Analyst [32]

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No, we have -- definitely kudos to the team for not only kind of monetizing it but also kind of introducing it operationally as well. That's pretty great.

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Operator [33]

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Next we have Victor Mizusaki of Bradesco BBI.

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Victor Mizusaki, Banco Bradesco BBI S.A., Research Division - Research Analyst [34]

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I just had one question. On Slide 10, you show a table with load factor evolution. And after several quarters of -- for bookings basically showing load factor expansion, now -- I mean that you showed the slide basically, we see flat load factor for February to April. So I'd like to understand here that if this kind of result from, let's say, the other airlines having much more capacity in the system. And if you can also comment a little bit about yields.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [35]

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Yes, sure, Victor. Yes, thanks for the question. Yes. I mean first comment is that, yes, we're guiding, if you will, or showing kind of -- I mean that's based on what we can see today, right? I mean we have a good visibility for the next 90 days. You guys also -- for those of you who invested in the deal system, you can calculate this stuff also. We -- that's the fact that we're guiding flat load is neither positive nor negative. And we're at record all-time highs for load factors in the industry.

Structurally, it's very difficult to have revenue maximization RASMs, if you will, and load factors much higher than that. It's just not structurally possible just based on how networks -- how our network works, how Brazilian networks work, where we still have a large portion of flights which are not point-to-point flights. They are connecting flights. That's point one.

To your second question, which has -- I mean those load factors, as we see in the short term, are decent, flat. I mean I don't think that we would think that they -- if they went up a little bit or down a little bit, it doesn't change the second, I think, question that you're asking, which is on the capacity side, which is something that, obviously, we're concerned about.

I mean we're -- GOL is growing its capacity at or below industry demand. That's what you have with us. That's how we manage this business. And that is -- a lot of people ask us about our hedging program. But the value of the hedging program is a complement to what we do in capacity management and revenue management. And so we work to get the capacity question right. We work to optimize revenue management and then we complement with hedging.

Our 2 competitors, LATAM and Azul, are growing at twice that rate, independent of what the industry is doing. LATAM is putting seats into the market in the first quarter here at a rate of 2x what GOL is putting in. I mean if you look at -- and part of the interesting thing now and part of what we can talk about as well is you have -- this will be the last quarter where the year-over-year comparisons include Avianca Brasil in the denominator. Now as of April in the second quarter, that will be out of the situation. Now in the first quarter of last year, Avianca Brasil has -- was offering about 3.3 million seats in the market.

In the Q1 of this year -- I mean all this is public information -- publicly available information, if you guys -- if you guys invested in the deal system. This year, if you go into the deal system, you have about 4.6 million seats there, okay? So that's an increase of about 1.3 million seats. We are adding about 1 million seats year-over-year. LATAM is adding about 2.1 million seats year-over-year and Azul is adding 1.5 million seats year-over-year.

Now you're an analyst, I mean, you can calculate things about supply and demand and how that might impact unit revenues. You saw our guidance for the Q1 on unit revenues. We're expecting it to increase at a rate of 4% to 6%. That's based on our management, right? And so the overall market, I think, is going to have a tough time with that because there is a significant increase in capacity.

But remember, this effect that you're looking at, which still includes the Avianca Brasil in the Q1, that's going to disappear in April, okay? And the stark reality is going to be -- you're going to look at a much higher industry demand -- I'm sorry, industry supply growth rate in the year-over-year comparisons. And so that's what I would say. But I don't know if Kaki wants to complement that.

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [36]

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Yes. Victor, actually Richard gave you the long answer. If you -- we would like also to offer the short one. And that one is me repeating over and over that, we will always prioritize yields instead of fighting for capacity. You see our load factor projection considers that we will do whatever it takes to protect our healthy yields and our health RASK protection, okay?

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Operator [37]

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Next we have Marcos Barreto of Citi.

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Marcos Barreto Guerrero, Citigroup Inc, Research Division - Research Analyst [38]

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Just if you could correct me on this, regarding foreign carriers launching domestic service in Brazil, don't consumer laws need to change first for that to happen? And what are your views on that?

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [39]

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Actually, the market is open. And we have no, I mean, concrete info on newcomers. I mean the company is already, for 19 years, defending the idea that the market should be open and the foreign capital restriction should be least what happened. We're not afraid of any kind of competition. And I need to tell you that none of the information already spread to the press, to the news, is really confirmed. So I wouldn't like to add more speculation on something that is not presented to ourselves as the concrete action from a new competitor.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [40]

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Yes. Brazil is already a very highly competitive market. I mean we have 58 domestic, 58, 5-8 domestic and international airlines operating in Brazil. Brazil is already a very highly competitive market. And then Brazil has structural characteristics, with a very highly concentrated demand, a passenger that has certain needs and characteristics and things like that. And the GOL work here that we've been working over the last 20 years has been constantly adapting our product to be the most attractive and the most competitive from a customer perspective in the market, okay?

That's kind of the -- one of the secrets to our success is we have the best product in the market. And we don't take for granted the cost side of the equation, as you can see. One of our policies is to maintain a significant differential on the unit cost side of the equation. So that's how we manage that.

I mean that is -- Brazil's an open market. It's competitive. It will continue to be and this shouldn't be news. And what you're seeing is just a reflection of that. And I think it also reflects the fact that Brazil is back in terms of demand and value creation and attracting investment domestically. We're investing. We're the main -- we make the most investment in the Brazilian aviation sector, us.

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [41]

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Yes. That cost side, there is something, too, I'd like to share. Last year, we sold 37 million tickets, 21 million of those were sold at maximum fare around $35. So if I would translate that into a new airline, that airline, I mean, coming to the market and selling 21 million tickets at that low-level -- low-fare level to transport the passengers in average daily length around 1,100 kilometers, that airline would need to start its operation having at least 42 Boeing 737s or 44 A320s or even 62 Embraer's E-Jet.

So the company is already offering, by far, the largest number of, if you will, seat low-fare availability. And that's our, I mean, stronger -- or the strongest possible protection we could get is really a low-cost company at the same time that we are also offering to the high-yield customers leather seats, additional legroom, WiFi, even snacks for free and this kind of stuff.

GOL created a very -- a strong fortress. And that fortress has been tested by our already strong competitors in the market. And if you consider our performance last year, we have another proof of how strong that business model is. I mean we cannot control the market. It's open. Anybody can come. I think that the company is pretty prepared to further compete in that market.

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Operator [42]

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And next, we have Bruno Amorim of Goldman Sachs.

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Bruno Amorim, Goldman Sachs Group Inc., Research Division - Equity Analyst [43]

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I have 2 questions. The first one on the outlook for the first quarter. You are guiding for 4% to 6% growth, a much lower pace versus prior quarters. And as Richard well pointed out, this is the last quarter with, let's say, easy comps. So the question is, does the 5% RASK growth expectation for the first quarter means you expect much less than 5% unit revenue growth in the full year 2020? And if so, how comfortable are you with the margin guidance for the full year?

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [44]

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Come on, Bruno, you're asking me what I think about the guidance I just provided? That's not a question, right? I mean our guidance we provided to help you guys think about this is how we're managing the business, right? I'm not going to give you a qualitative evaluation of the guidance. That's not a fair question.

But I think what you're asking about -- again, we're providing you guys an understanding of how we're managing this business, okay? And it's not a question of being confident or not confident. It's how we're managing the business. We're in a highly competitive business, all right? A big chunk of what we do depends on industry rationality. You guys know that, okay? We haven't provided second quarter guidance or anything. We're giving you much more information, I would argue, 500% more information than you're getting from our competitors, okay?

So I think your question needs to be directed to some of the other guys, okay, because we've given you our information. Now you have our -- a lot of guidance out there. That's how we're managing the business. And I think if you look back over the last couple of years, you have your answer to that question. We're committed to that. That's how we're managing the business, right?

We've had trucking strikes. We've had -- we've got now coronavirus that's happening. We've had -- if you go back to the beginning of January -- go back to beginning of 2018, end of January, we had a BRL 3.15 exchange rate. Now we're right now sitting on all time -- an all-time low of the value of the Brazilian real, if you will, what you would say, an all-time high of the Brazilian real, and you can see our profitability there. So I think you have the answers to these questions.

We're performing better, and we're managing everything under our control, right? And we're at these levels of profitability at the all-time weakest point in the history of the Brazilian real, okay? So that's really all I can kind of say about that.

But another thing that I have spoken to the market about is that -- and this is kind of the -- kind of interesting way to think about it is that the Q2 already, as you know, in Brazil, that's our low seasonal quarter, right? Just seasonality-wise, it's post-Carnival. And it's kind of in between the end of the summer season in Brazil, which this year will end kind of next week, really. This is -- we're ending summer season right now. Weather here is great, by the way. For those of you who aren't here, it's been fantastic. Sunny and high 70s, low 80s.

Carnival's next week, and then Brazil kind of gets back to work. We've got 3 months of intense business traffic, but a lot of the leisure travel kind of drops off until July when we have the -- our winter school vacations in Southern Cone and things like that. And so the second quarter, I think, is going to be kind of the first test -- first real test post the industry rationalization that we're going to have here on how everybody is doing.

And so if you were to ask me that question, I do think we're going to outperform in the second quarter, relative basis. I think on a full year basis, you have what we're working towards. And we're going to spare no effort to deliver what we're guiding to our investors, to our investors, to the GOL investors, right? We're not delivering that to the market. We're delivering it to the GOL investors. And those who decide to be our capital partners, be it on the equity side or on the bond side, we're extremely committed to that.

Also on the bond side, as everyone knows, we're committed to get the company back to a BB rating and we already have the credit ratios that speak to that. We are already are at a BB, if you just look at our credit ratios and also the industry quality. And so you can read into that, that yes, we do expect to go back to being a BB, but that doesn't depend on us, okay?

And so what our competitors do, LATAM and Azul, which are growing at twice our rate on the capacity side and arguably more than twice the rate of the demand in the market, you just look at the Q1, right? You back into those numbers there. Our capacity is up in the low- to mid-single digits. And you've got LATAM and Azul in the high teens to low 20s, right? You don't need me to help you kind of work through that math there, right?

But I think it is going to be an interesting quarter, the second quarter, for all of us to see how we kind of manage through that. And I think there are going to be stark differences on profitability. And the main source of that is going to be the differential business models, for sure. And then the second source of that is going to be how each one of us have approached capacity and revenue management. And revenue management also depends on what you got on the product side.

And then -- but our protection is not that. I mean we're only 40% of the market. Our protection is what Kakinoff was mentioning, on the cost side. That's our -- our protection is everything we're doing on the cost side to keep this differential on unit cost of 20% to 25% versus our next competitor. And the way we manage the company here is we're never satisfied with that. I mean even though we've ended at 25% in the past, it's not good enough.

And so I mean this is what you can expect from us, but I'm sure there's going to be more trucking strikes and more coronaviruses and more -- other disruptions that this company is going to have to manage through. And so all I would do direct you to there is kind of look at how we've managed through these things over the last couple of years.

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [45]

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Bruno, the capacity variable is that, yes, capacity is a variable what we need to worry about. So that's something we need to take proper care. And there is a yellow to orange light ahead of us looking forward to the green level we are noticing for the second quarter. This capacity add on top of the market increase is really the matter we need to also take care of, okay?

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Bruno Amorim, Goldman Sachs Group Inc., Research Division - Equity Analyst [46]

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Thank you, Kaki. Yes, I think at the end of the day, that was the question, right? So from second quarter onwards, the year-on-year growth in ASK will be much stronger than in the first quarter. So if RASK is going up by 5% in the first quarter, my guess was that it should grow by much less than 5% going forward. But I think you have answered the question.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [47]

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Bruno, on that it's important to say, I mean the -- that's a mathematical equation. The Avianca Brasil has not been operating in our market in terms of impacting yields since April of last year, okay? So be very careful with that because even though it's in the denominator mathematically because you look at the year-over-year comparisons, that's not what impact yields. Yields are affected by what's going on sequentially, okay?

And so for example, second quarter yields are not determined by second quarter 2019 capacity, okay? No impact whatsoever. That's like on the other side of the universe, okay? Second quarter yields are going to be determined by the trends that have evolved since the first quarter of this year, where we are right now, okay? So -- and all of us have flexibility on capacity in terms of different ways of managing our capacity to adjust.

For example, in the GOL case, what I can tell you is that our mature process, we generally take out of our fleet in the second quarter, we remove as much as 10% of our capacity and put it into structural maintenance, painting of the aircraft, maybe a retrofit on interior, things like that. And so we actually -- we also match -- we have the ability to match our Q2 capacity with Q2 demand, our Q2 demand, okay? Not everybody has that ability. Everybody has different ways of managing their businesses.

And so like -- what I think we're also trying to say, and Kaki was saying, is that we're matching our demand -- sorry, our capacity with demand, okay? And so please don't put everybody into kind of this generic box, right? That's not -- it's not correct. And I'm just trying to make sure that you guys have the full information about this and be very careful about thinking that Q2 2020 yields are going to be determined by 2Q '19 capacity (foreign language)

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Operator [48]

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(Operator Instructions) Next we have Alex Falcao of HSBC.

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Alexandre Pfrimer Falcao, HSBC, Research Division - SVP [49]

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My question is regarding the VAT tax in Brazil. In your planning and your guidance, how much do you guys actually put in there? And we're seeing almost week after week news regarding that we're going to see not only fiscal things in the federal level reduction, but I think that's probably for 2021, but also Rio just outpaced São Paulo on a reduction there. So where do you think is the endgame here? And basically, does it change logistically? Where do you refuel your aircraft? And there is any upside to that?

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [50]

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With regards to the GDP calculation, we do assume a quite sophisticated model into our forecast because, as you know, the country is too big and there are different GDP growth in each of the regions. So giving you just a parameter, which is not fully explaining our calculation model, we were considering a GDP growth between 2% to 2.5% in a national basis. And at the moment, if you take the first quarter demand and the second quarter bookings, I think that the market might be slightly below that level. But it's still too soon to determine whether our assumptions should be revised or not. I don't think so at the moment, okay?

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [51]

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Alex, I think -- that's an interesting question because -- and also, what we've been seeing over the last couple of years since Brazil emerged from the 2015-'16 recession, remember, that was a 3 -- 7% GDP contraction, which resulted in a 15% collapse in demand. We've been -- since 2016, when we started recovering, and now we're kind of back to this low 2s run rate.

And there's a couple of factors there. One, it appears to be a higher-quality GDP. In other words, it's based much more on the investment in production side of the equation than the government and the consumption side of the equation. And so -- and that has implications for our business. For example, we continue to have very robust demand from the business client, the corporate client, okay. And -- but we -- were kind of still waiting for the increased demand from the leisure customer, which is based on other factors.

But there's other components today that I think are interesting with Brazil that we also didn't have in the past. I mean we've never had this situation today in Brazil of very low single-digit inflation and interest rates, and it's not necessarily translating into higher consumption. Part of that is the Brazilian consumer is still -- the Brazilian individual, people like us, we're still recovering from the '15-'16 recession in terms of security and disposable income and savings. We're still refilling the coffers of our bank accounts and our economic stability. We're still recovering from that here in Brazil.

And so we see probably a higher-than-normal historic elasticity on the corporate side. Corporate is growing 3 to 4x GDP, where historically, it would have been more 2.5x. But we're seeing a much lower contribution from the leisure side. And so within the GDP component, you kind of got to look at it from that perspective.

And then what Kaki was mentioning as well is that the way I like to say it is don't -- please don't try to put Brazil into this box of like it's good or bad or it's -- the whole country. Now Brazil is also growing internally, regionally. And that's why we've also been expanding our reach intra-Brazil, inside of Brazil. I mean you see what we're doing internationally and expanding our reach to where Brazilian consumers are traveling internationally. We're also expanding regionally. And that's also based on what's going on economically regionally.

And so outside of many of the mean urban areas that historically were always the real drivers of Brazil, you're seeing much higher growth rates above this overall GDP growth in other areas such as the northeast of Brazil. We see demand growth in the northeast of Brazil, which is in the teens, in the low teens. And so also what you're getting with us in terms of our network is we're constantly seeking out markets based on our holistic, unified, one single fleet type aircraft network and seeking out how to maximize our return on capital.

And so it's a little bit more than just kind of Brazil GDP, which is a good thing. I mean we're becoming a more complex -- Brazil is becoming a more mature economy in a lot of respects. It's still highly concentrated, by all means, don't -- we're still a long way away of saying that we're not highly concentrated and not a highly natural resources, raw material based economy. We are, and our corporate customers continue to be the Petrobrases and the Vales and the companies that are based on the natural resources chain. And so we will go by the way of Brazil. And Brazil is going by the way of what's going on with commodities.

I mean if you want to oversimplify it, that's how it is. We're also seeking out competitive differentials in terms of our network management and our product management that we think also are, if you will, turning a little bit of this Brazil volatility a little bit more endogenous than it was in the past. I think that's reflecting the fact that we're seeing our demand growth be much higher than the historical elasticity rates.

I would just kind of add that on there in terms of those of you who might not be necessarily day-to-day on Brazil and are thinking about how we're thinking about the Brazilian economy factor in our projections and in the management of our network in the short term, meaning, kind of this year or next year. That's kind of what's -- even though, yes, we are using kind of low 2s GDP forecast in our projections, that's true. There's a lot of other factors that come in there in terms of how we make our network decisions and our capacity decisions. And it's all focused on maximizing return on invested capital. That's what you get with us.

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Alexandre Pfrimer Falcao, HSBC, Research Division - SVP [52]

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Okay. That's super helpful. Can you just touch base, if you can, a little bit on the ICMS reduction on the state levels? Is that factored in your guidance? Or is that something that eventually there's some upside to that? And if you can also comment in the federal tax. There's news that we're probably going to see a reduction on fiscal things. I'm not sure it's going to be effective for this year. And what does that mean? Is that pure profitability for you guys? Or it's basically -- since it's an industry-wide thing, you think everyone is just going to pass through this to prices?

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [53]

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Yes, thank you very much for the question. We are not assuming any further ICMS reduction on top of those valid today, okay? So we will -- because those state-level negotiations are not predictable on a time line. So therefore, we are always considering only those ICMS agreements already in place.

Regarding the federal taxes, I need really to highlight how positively we are welcoming the initiatives from the government, the reforms and mainly the policies applied to the civil aviation sector in Brazil, mainly highlighting those initiatives to reduce the additional cost in place in our country, mainly in comparison to the most developed markets. I would like to mention the -- mainly the tax burden on fuels, the infrastructure investments and also discussions on the legal disputes on not (foreign language)...

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [54]

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Yes. A lot of these efforts is -- there's a lot of work in progress. And these things are going to improve the overall competitivity of the sector. There's a lot of work in progress in a lot of areas. Like Kaki's talking about there is that there's a big effort and focus on also, let's say, reducing the consumer claim cost that we have in our business. And so there's tax reform that's going to reduce those impacts on the overall kind of weight of the infrastructure in our business and then on the legal claims that come from the consumer, which in Brazil is enormous.

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [55]

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Yes. I'm just highlighting the absurd of having the airline being obligated to pay a kind of legal indemnification for the customers whenever the flight is canceled due to weather conditions. We are the only country in the world where this kind of penalty is applied to an airline. So we do see a clear, good view coming from the government in order to address those structural, let's say, disadvantages of our market. Therefore, there's a very -- a high expectation that positive outcomes will appear over a certain period of time. I mean those are challenging issues to be addressed, but clearly, this government is trying to address all of that.

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Richard Freeman Lark, Gol Linhas Aéreas Inteligentes S.A. - Executive VP, CFO & IR Officer [56]

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We're going to have to now -- we're going to now switch over. We're going to close out this call. We have to switch over to our Portuguese-language call. And so if anybody else, some of you continue with us, some of the local analysts continue with us into that other call. And so I would ask if there's anyone else who -- because we have some other people that are kind of showing up here wanting to, at the last minute, ask some additional questions. We have to shift over now to our Portuguese-language call. But please, as I can see analysts, they're all of the ones that are additional that want to speak, are also native Portuguese speakers, and so please join us on another call. We're going to shift over to that right now.

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Paulo Sérgio Kakinoff, Gol Linhas Aéreas Inteligentes S.A. - President & CEO [57]

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Thank you very much for your attention. I hope this session was helpful to you all, and have a nice day. Thank you.

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Operator [58]

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And thank you, sir. This concludes the GOL Airlines conference call for today. Again, we thank you all very much for your participation. Thank you. Take care, and have a great day.