Feb 24, 2022
Operator
Hello, everyone, and welcome to Azul's Fourth Quarter 2021 Results Conference Call. My name is Hannon, and I'll be your operator for today.
[Operator Instructions] I would like to turn the presentation over to Thais Haberli, Investor Relations Manager. Please, proceed.
Thais Haberli
Thank you, Hannon, and welcome all to Azul's fourth quarter earnings call. The results that we announced this morning, the audio of this call and the slides that we reference are available on our IR website.
Presenting today will be David Neeleman, Azul's Founder and Chairman; and John Rodgerson, CEO. Alex Malfitani, our CFO; and Abhi Shah, our Chief Revenue Officer are also here for the Q&A session.
Before I turn the call over to David, I'd like to caution you regarding our forward-looking statements. Any statements discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance constitute forward-looking statements.
These statements are based on a range of assumptions that the company believes are reasonable, but are subject to uncertainties and risks that are discussed in details in our CVM and SEC file. Also, during the course of the call, we will discuss non-IFRS performance measures, which should not be considered in isolation.
With that, I will turn the call over to David. David?
David Neeleman
Thank you, Thais. Hi, everyone, thank you for joining us for our fourth quarter 2021 earnings call.
As always, I would like to start by thanking our incredible crew members. Thanks to their efforts, we delivered in Q4 another industry-leading quarter with record revenues and significant growth in our network and earnings.
Our competitive advantage led by our unique network and diversified fleet resulted in a record BRL 3.7 billion in net revenue for the fourth quarter well above 2019 levels. If you remember back in the fourth quarter of 2019 that actually was our best revenue quarter ever.
Until now so the base was high and we are proud to be one of the few airlines worldwide to surpass pre-pandemic revenues in 2021. More importantly, we earned over a BRL 1 billion in EBITDA during the quarter with the dollar at 5.58 and few around $80 a barrel, all with international and corporate travels still recovering.
This gives you - this gives you a clear indication as to the earning strength of our airline and why we are so excited for 2022 and beyond. While we did experience some short term challenges from Omicron, during the first quarter 2022 that way, now it's clear to behind us.
In fact, we saw much lower hospitalizations versus previous infection waves. We had only one crew member hospitalized in January 2022.
As you can see, in Slide 4, we experienced a peak of sick calls that were seven times higher than normal. As a result, we adjusted our network for both January and February to maintain our operation.
I'm happy to report that the wave which peaked during the middle of January is now as I said behind us and our operation is running normally and our NPS scores for this month is highest -- is the highest it's been in the last 12 months. With Omicron behind us and with the forecast confidence from the fourth quarter of 2021 we're looking ahead.
Slide 5 reminds you that aviation in Brazil has doubled over the past 10 years. And we were responsible for 60% of this growth.
As I've been saying, since we founded Azul in 2008 Brazil Travel is significantly less than countries such as Colombia or Mexico, and we at a Azul are doing our part to fix that. We are now flying to almost 150 destinations, a remarkable addition of more than 30 destinations compared to 2019.
And there is much more to come. We serve more than a third of our flights flown by our E1s.
So there's a lot of capacity to be replaced by our next generation aircraft. Here on Slide 6, Slide 6 we just want to remind you of all the upside from our fleet transformation.
We have already reduced fuel consumption for ASK by almost 20% since we started the fleet transformation. We are going to continue and as we continue replacing the E1s with next generation aircraft, we're going to reduce fuel consumption for ASK and continue to significantly reduce our unit costs.
With that I will pass the word over to John who will give you more details on our outstanding fourth quarter. John?
John Rodgerson
Thanks, David. I'd also like to express how proud I am of our crew members who once again were responsible for delivering great results during the quarter.
As David mentioned, in the fourth quarter, our net revenue reached a record BRL 3.7 billion more than double the fourth quarter of 2020. And then impressive 15% up compared to our pre-pandemic level in 2019.
RASK increased 18% compared to 4Q 2019 and 43% compared to 4Q 2020. During our third quarter call, we told you that trends were positive.
Our unique network delivered record revenue performance from both leisure and corporate segments. The key drivers were discipline capacity deployment and higher fares.
In addition, our logistics business at Azul Cargo also delivered record revenues. On the cost side as you can see on Slide 8, CASK in the quarter reached 33.91 cents up 33% compared to the fourth quarter 2019 mainly due to a 51% increase in jet fuel prices.
The 35% depreciation of the Brazilian real against the dollar and 15% inflation over the last 24 months. Yes FX and oil remain challenging.
And that's why we must remain focused on our productivity gains as we rebuild Azul as a more efficient airline. Moving to Slide 9, we're clearly making progress in key efficiency metrics.
In fourth quarter 2021, we generated 24% more domestic ASK per FTE compared to fourth quarter 2019. Our fleet transformation strategy has also contributed to our efficiency gains.
As David already mentioned to you, we reduced our fuel consumption per ASK by almost 20% Since we started our fleet transformation, and as we continue replacing those E1s with next generation aircraft, we're going to reduce even more our unit costs going forward. The combination of strong revenue performance with the cost inefficient is implemented allowed us to achieve positive operating income and EBITDA in the quarter.
As you can see on Slide 10, our EBITDA was again the highest since the onset of the pandemic, operating income was BRL 525 million results in the quarter, representing a margin of 14.1% while EBITDA already reached over BRL 1 billion in the quarter, representing an impressive margin of 27.5%. This clearly demonstrates the earnings power and the potential of our business going forward as our annualized EBITDA exit rate is now over BRL 4 billion.
Slide 11 shows some of our valuable drivers of profitability going forward. Our business units Azul Cargo, Tudo Azul and Azul Viagens.
These are fast growing high margin businesses that will help us expand our margins. Moving to Slide 12, Azul Cargo our unmatched logistics solution, which now serves more than 4500 cities and communities across the country, 2000 of which we can deliver in 48 hours or less.
Azul Cargo reached BRL 1.1 billion in net revenue in 2021, surpassing our ambitious target to double cargo revenue compared to 2019. When we generated revenues of BRL 481 million.
We recently announced the launch of the world's first Embraer Class-F Freighter fully developed in-house a unique logistics solution that will deliver competitive advantages for our clients. On Slide 13, you can see how the new solution and how it more than doubled our cargo capacity on E1s.
We currently have for E1s converted into this new configuration, just as we helped transform the Brazilian passenger market we strongly believe Azul Cargo will do the same in the logistics market. On Slide 14, you can see how well Tudo Azul performed in the quarter.
Our wholly owned loyalty program has 34% increase in gross billings in the fourth quarter '21 compared to fourth quarter 2019 with almost 14 million members at the end of the year. We've been surprised by the engagement of our customers throughout the pandemic and even this year.
Slide 15 shows how well Azul Viagens performed in the quarter. Our vacations business is another important driver of margin expansion going forward.
In 2021, we sold almost 30% more travel packages compared to 2019 mainly by leveraging the uniqueness of our network and the flexibility of our fleet. During weekends for example, when utilization is normally low for airlines in Brazil, we dedicate 25% of our capacity to fly exclusive leisure nonstop routes, which are ideal for our Azul packaging business.
Our diversified fleet allows us to capture leisure demand with the right aircraft title. As you can see on Slide 16, the fourth quarter our operation generated 900 million in cash inflows minus operating expenses.
During the quarter we also made significant payments and leases, debt deferrals and CapEx. It's important to highlight that we ended the quarter with immediate liquidity of BRL 4.1 billion up 41% compared to the same period in 2019.
And more than BRL 600 million above our guidance, mainly due to the strong revenue performance in the fourth quarter. As a reminder, we ended 2019 with around BRL 2 billion in cash and we have no significant debt repayments over the next two years.
This liquidity position ensures that we can focus on the many opportunities we have ahead of us in this market. Leverage also came in a turn better than our guidance on Azul day.
And we're made confident that we can end 2022 with leverage that starts with the five. Actually with our annualized exit rate of over BRL 4 billion in EBITDA in the fourth quarter we already have a five handle and will continue to reduce from here.
Moving to Slide 17. We know our business is a key driver of sustainable development for Brazil by bringing people, businesses and communities closer together.
ESG has long been a commitment of ours and most recently, we have been included in the corporate sustainability index of the B3 Stock Exchange. At the same time, we also improved our CDP score to be highlighting our engagement to environmental initiatives.
Finishing with Slide 18. Our strong fourth quarter results give us confidence in our business model.
Our annualized EBITDA exit rate of over BRL 4 billion rise is 10% above our best EBITDA ever. Yes, FX and oil remain challenging.
But even at yesterday's levels, we would have generated more than 1 billion of EBITDA in the quarter. We are sharply focused on executing our business plan for 2022.
With the full recovery of corporate and international demand still to come, we see exciting opportunities in our passenger loyalty and logistics business and look forward to sharing those with you throughout the year. With that David, Alex and Abhi and I will answer your questions as I turn the call back over to the operator for Q&A.
Operator
[Operator Instructions] Our first question comes from Savi Syth with Raymond James.
Savanthi Syth
Hey, good afternoon. Could you and maybe for Abhi, can you provide a little bit more granularity on you know what you saw in the kind of the domestic market in terms of leisure and business both kind of before Omicron.
And as David mentioned, like lately, since the recent recovery following Omicron?
Abhi Shah
Yes it's Abhi sure. So 4Q was strong in corporate and leisure.
Leisure was over 100% recovery. As demand came back post second wave.
Our corporate recovery was around 70% of 2019 levels, which is good given that 2019 had a very high base at the end of the year. And our small and medium business category was actually over 100% as well.
So I would say large corporates around 70%, small medium business over 100% and then leisure over 100%. The key of course was average fares and that we were talking about you know with you guys our 3Q call as well and corporate discounts.
We were very conservative and our level of corporate discounts is half right now, what it was prepandemic, I think the industry overall was disciplined in taking fare increases last year, which helps. And of course, having our network the way it is, we're also able to manage that ourselves and control a little bit, our own destiny.
So I would say is a pretty conservative playbook, but it worked really well post, second wave demand. And so that was responsible for the higher risk, what we're seeing right now is actually quite similar.
Our January was messy because of the staffing issues with Omicron. But the last two weeks, for example, we are seeing corporate revenue recover already close to the 70% number.
Our corporate fares are actually much higher than 2019, 30%, 40%, higher than 2019. The industry has made adjustments in response to the fuel prices in terms of capacity has come down from March and April, which is very positive and the industry has pushed up fares as well.
So I think you know, the industry is doing what's needed to capture the demand and to prepare the market because we are right now in this pre-carnival period. And we are pretty optimistic about return to work that got pushed off because of Omicron comes back March 7 and onwards.
And so, I think we are doing the right things, when it comes to preparing the demand and revenue environment for taking advantage of the post Omicron bounce. Brazil market is resilient.
It rebounded nicely post first wave rebounded even stronger post second wave. And we're expecting that for March and April post Omicron.
So I think we're setting the stage to take advantage of that.
Savanthi Syth
That's really helpful, thank you. And then if I might just quickly I might have missed this, but on the F-Class freighters, you have one now.
Do you have any idea of how many of those type of freighters you want to add to the fleet?
Abhi Shah
Yes, so we have four right now, three are flying one is in conversion should be ready very shortly. I mean, our goal is to keep adding those as much as we can.
We are showcasing them to potential customers, we have one large customer already flying, and we are entering new markets. In fact, we're flying to cities that we don't even fly with our passenger networks, like in the North, Northwest of Brazil.
So I'd be disappointed if this fleet doesn't grow. I think it has really important advantages in terms of trip cost.
And really good flexibility in terms of the infrastructure, it can access the secondary cities that it can access. So, we certainly want to keep growing that fleet and we're on the road, showing it off.
Savanthi Syth
Thank you.
Operator
Our next question comes from Alejandro Zamacona with Credit Suisse.
Alejandro Zamacona
Hi thank you, thank you for taking my questions. Just a quick comment or quickly a question on yields I mean, we saw a strong yield environment in the quarter.
So what can we expect for 2022 and how we see would you say it is for you as a company to do a pass through of higher fuel prices to customers?
Abhi Shah
Yes hey Alejandro, I think as I said, the industry is a working in the right direction, you know, everybody's obviously looking at their results. Azul, we have the competitive advantages of our network.
So we are able to recover those yields, faster in many ways. Our corporate demand is much more diversified than the larger cities in Brazil, we have much more much more exposure to different parts of the country, especially small and medium businesses.
So I'm expecting that, post carnival, I'm expecting that process to continue. As I said, our corporate fares right now, are significantly higher than they were during the same period of 2019.
So I think that the trend should be similar, obviously we've to adjust a little bit for seasonality given first quarter and second quarter. But I think that we are, laser focused on making sure we recapture as much of this In terms of yields, in terms of all our revenue businesses, whether it's cargo, whether it's loyalty, whether it's vacations, and also on the passenger side as well.
So, the recent trends have been encouraging on the yield side. And I expect that to continue, as we come back from carnival, and we have a good corporate month in March.
David Neeleman
Alejandro the increase in fuel prices as well will, drive a more disciplined market going forward with capacity across the entire industry. As many of -- ne of our competitors went away in the fourth quarter went bankrupt, which was Eata, that also has helped to kind of make sure we have a more stable market going forward.
And I think the industry as a whole is focused on increasing yields, and getting to profitability.
Alejandro Zamacona
Okay, thank you, gentlemen. And second question if I may in terms of potential labor efficiency, labour expenses 7% low pre-COVID with the capacity of 98% pre-COVID.
So, continuing the inflation for these couple of years, this is a meaningful bridge right? So do you believe going forward to assume normalization at some point or do you believe that Azul can emerge more efficient after COVID in terms of labor?
David Neeleman
Alejandro so the gains that you see are permanent, right, there's nothing temporary there, but they're certainly more that we're going to pursue. Where do the gains come from, a lot of it is the fleet transformation?
So the upgauging does allow us to be more efficient, we can serve more customers with the same number of crew members. So that helps productivity, we're also investing a lot in technology, there's been a change in customer behaviour, which we believe is also permanent, right now.
Customers have learned to buy more online to check in themselves, the process is becoming more and more streamlined, which also helps us to be more productive on the personnel front. You're actually seeing some additional personnel, in those numbers, because we have in-sourced, a lot of maintenance activities, right.
So if we didn't have those in sources, you would actually see in the salary line, you would actually see an even bigger reduction, right. But it made total sense for us, because it's a lot cheaper, more efficient for us to do maintenance in-house.
We reduce foreign currency exposure, we reduce the need to fly the aircraft, abroad to do the maintenance events, so a lot of good things, but a lot of good things coming ahead of us as well. We're going to continue working on new processes, investing in technology, and looking for every opportunity, we have to be a more efficient airline, as we promised, we wouldn't be coming out of the pandemic.
Abhi Shah
And I just want to give a shout out to a few of our team members team members are -- our airports are 30% more efficient. That's pretty remarkable, you think about it right?
We're obvious but less flights in but more escapes because of the up gauging. But our airports are more efficient, our call centers more efficient, our headquarters are more efficient, with 25% less directors in this company than we had in 2019.
And we're producing the same amount of RASK and actually more revenue, right. And so we've gone through and have rebuilt this airline for a new environment, which has higher fuel prices and a devalued real.
So no, absolutely, we cannot get back to the level that we were in 2019, in terms of salaries, the math just doesn't work. Airlines need to be more efficient today, especially in Brazil from where they were, and that'll be continued to be our focus moving forward.
Operator
Our next question comes from Gabriel Inagaki with Itaú BBA.
Gabriel Inagaki
Hey, David, John, Alex, and Abhi morning. We have two questions here.
First, regarding the recent news flow on Ukraine and its impacts and eating tax prices. It will be very helpful if you could walk us through and remind us what are the assumptions behind your $4 billion EBITA guidance for 2022?
And if Omicron impacts in the first quarter as well as these higher oil prices could prevent you from achieving that figure. And also our second question regarding aircraft leasing payments.
You booked 3.8 billion in our lease rotation scheduled for 2022. That figure was at 3.5 billion in the third quarter.
Was this increased solely related to new aircraft joining our fleet or does it reflect potential payment postponing from 2021 as well? And also would it be possible to negotiate some kind of deferral for these three points given bigger spark 2022.
Thanks.
John Rodgerson
So there's a lot of questions in there. So I think Alex and I will -- will split it.
But as we look at today's events, it's very disappointing that our team worked really hard in the fourth quarter, and then to wake up this morning and have a war in Eastern Europe is not the way we wanted to have an earnings call today. Obviously, fuel going to $100 a barrel, it's not normal.
We don't expect it to last, we saw great movement in the Brazilian real, which yesterday was 10%, stronger than it was on December 31. So we need to put things in perspective, right, things were getting significantly better in Brazil.
So even with crude prices going up to around $90 a barrel, the Brazilian real was actually traded below five yesterday. And so, we're not going to manage our business based on one day today.
But what we will want to show you is Abhi increased our unit revenue by 18%, in the fourth quarter, without all of his corporate demand back. He was able to do that with about 40%, of our international network flying, right.
This is the business model that we have that's quite unique and different than any other airline in the world, right. And so, as we look forward, obviously, we don't update our model based on the last two hours, right.
But, we were very confident in our ability to execute, obviously, Omicron had an impact in our first quarter results, we pulled some flying down, we had to cancel some flights, but want to talk about what's a normalized Azul going forward. And I think what you saw in the fourth quarter is a normalized Azul, what most likely will happen is the real will probably be a bit stronger than it was in fourth quarter, and WTI will be a bit higher.
And we wanted to highlight that if you looked at yesterday's WTI, and yesterday's exchange rate, we still would have delivered over a billion real in the fourth quarter. And that's before we continue to go forward with our fleet transformation plans.
And so, I'll let Alex kind of talk to the lease payments and where we're at. But I think we've got very good partners that believe in our business, and we're going to continue executing upon our plan.
Alexandre Malfitani
Yes, hey, Gabriel. So just complimenting on the modeling, you guys know, sort of what assumptions we normally use, for our forecasting, we use the Bloomberg curve, for oil we use the central bank focus survey for FX, but you always have to talk about three things together, fuel, FX, and fares, right?
They all go together you can't have an assumption for one without having an assumption for the other. And as we've demonstrated over the last 14 years and counting, we have the ability to pass through cost increases to fares, it's not immediate, but it is certainly something that we've been able to count over all these years.
And, like we said, we were more profitable, with the real at 4 than we were with the real at 3, and we had record revenues with the real at 560, because they are correlated. So you always have to think about those assumptions together.
We talked about this on the call, right. Even with yesterday's levels, for fuel and FX, we would have had over a billion real of EBITDA in the fourth quarter.
So, these numbers are all related. But, it's clear that we can generate profitability and high EBITDA, even in a challenging fuel FX environment.
Regarding aircraft lease payments, yes, the majority of those lease payments are translated from dollar to real at an exchange rate of 558 price much higher than it is even today with the volatility in the Ukraine. So the actual number that we're going to pay real, it depends 100%, on what the exchange rate is going to be.
But one thing that I think we also demonstrated over the last two years of the pandemic, is that, like John said, we have [GradeMark Partners], right? The partnership between us and our list stores is a long term relationship, where it has to be sustainable for both of us, right?
We know we have the ability to pay, we have to honor our commitments, as we have done over the life of the pandemic and even before, but if we need their support, we know that we can count on them. So, it's something that has to be sustainable, has to be agreeable to both.
But one thing that we don't need to worry about is whether we will have enough cash because we've demonstrated that we have the ability to count in support of our suppliers, we have the ability to count on the capital markets, regardless of what conditions are. So obviously, we're not going to discuss sort of what our strategy is going to be exactly regarding future deferrals.
But, it's something that you can look at the last two years to see that we're going to do what needs to be done and works for us and works for our suppliers and partners.
John Rodgerson
And I think we've built enormous credibility over the last two years with our partners, right? We've been very upfront, we've been very transparent.
And we'll continue to do that. And when, we had to access capital in the market, we did that, we communicated that to them.
And so, credibility matters. And we continue to manage this business for all of our stakeholders.
Gabriel Inagaki
Okay, got it very clear. Thanks, John and Alex.
Operator
Our next question comes from Michael Linenberg with Deutsche Bank.
Michael Linenberg
Hey, morning, everyone. Can you hear me?
Right? Great.
Hey, just following up, I guess John on Gabriel's question just a few minutes ago, you did highlight sort of what your EBITDA was kind of annualized with what you did in the fourth quarter your exit rate. I noticed in the piece, there was no sort of forecast for what you thought you could do for 2022.
I know the EBITDA forecast has sort of been better than '20 -- what we've done in 2019, I think was BRL 3.6 billion and, we've seen sort of the squiggly line 4 billion, is -- is it because of just the events over the last 12 hours or so and the surge in energy prices, and we've had a lot of volatility with FX that you didn't feel comfortable putting a forecast out there or, when you think about sort of the puts and takes and the various levers that you can utilize that for 2022, that BRL 4 billion is still very much within reach. If you can comment on that.
Thank you.
John Rodgerson
Yes, Mike, I think the events over the last 12 hours, kind of, I think we I think in my script I mentioned 4 billion, probably four or five times, right? So that's what we're focused on.
Obviously, some of the impact in the first quarter, may make that slightly less, what if Abhi continues to outperform it as he's done, maybe we're above it, but that's our focus. We don't want to stick it out there at this time, just because there's way too much volatility, but that's what we're marching towards.
And so we wanted to show in the fourth quarter, without corporate demand fully back without our international network fully deployed, we produce 1 billion of EBITDA, on the last week of December, we received five aircraft, Mike, and those five aircraft are next generation aircraft, there's 2H321 in there that are going to help us produce more EBITDA in 2022. And so I just think, putting it out there right now, with everything that's going on, we're happy to talk to it.
It's, we're right around that number, right. Is it, 100 million to the less or 100 million more, that's about where we're at right now.
And we're focused as a team to get in there.
Michael Linenberg
Okay, make sense. And then just my second question to, to Alex.
Look we had great EBITDA the quarter. Obviously, interest expenses is high, what was it over BRL 900 million, but I'm sure FX was a big driver of that.
If we think about just kind of size it, with the real versus the dollar, you know, recently trading down five, it looked like it was actually going to break through five and today, it's just above five. If we think about maybe five versus 5.6.
What would be -- what would that number be, would that be something on the order of 600 million? I mean, I'm just looking for back of the envelope to get a sense of how we think about interest expense for the rest of the year.
Thanks.
John Rodgerson
Yes, no, that's a great question, Mike. And a good thing to highlight because, as we pointed out between the end of Q4, and where fuel and FX were trading yesterday, EBITDA is kind of neutral, even for the year, but cash is much, much better, right?
And that's one thing that IFRS 16, confuses things a little bit, because it's harder for you to see if you're just looking at the P&L, but yes, real five or 510 is a lot better, and helps us a lot more on cash than the oil at $90 a barrel or more. So, yes, you're talking about something in magnitude of what you said in terms of help towards cash, using a lower real for sure or from a real.
Michael Linenberg
Okay.
Alexandre Malfitani
But again, Mike, you you're talking about interest expense, but you're -- you also get the help significantly on the operating leases as well, right.
Michael Linenberg
Yes.
John Rodgerson
Yes, we can help on lease and help on cut back and get help on deferred leases, we get help on -- we are exposed to the dollars we're just we're essentially an imported service, right. And so, when the real gets stronger, our cost gets a lot lower and our cash improves a lot.
Michael Linenberg
Absolutely, and I -- I'll just add on, you guys did a fantastic job on the revenue performance. I know that didn't show up in my questions, but that type of, vast growth on sort of your capacity basis, probably leading among all carriers that we've seen report thus far, so well done.
Thank you.
John Rodgerson
Now we're paying for Arby's Subway sandwich today.
Operator
Our next question comes from Daniel McKenzie with Seaport Global.
Daniel McKenzie
Good morning, guys. Good afternoon, actually, it's a heck of a data report, honestly.
But it's great to have you visible and, I echo Mike's sentiment on the revenue performance. Great job.
I guess, with respect to the outlook this year, could you just clarify what the growth rate is this year that you're contemplating at least as of today, and then the CASK that's embedded in that outlook? And, just given the volatility of the depreciation light item, line item, can you clarify what the full year depreciation ultimately, it's going to look like?
Alexandre Malfitani
Okay, hey, Dan, in terms of capacity, obviously, we're adjusting as the events unfold, like I said, we have brought down March and April, in response to the -- every, every airline has a [indiscernible] And as fuel goes upand one good thing a little bit about the higher fuel is you can manage it, right. You can actually adjust capacity.
So, I would say that, our focus is going to be domestic growth, we don't have a full year ASK guidance out there. But what I can say is that domestic growth relative to 2019 are similar to what you saw 4Q annualized so, if you take the 4Q, domestic AKS, and use annualize that, it will come down a little bit because of Omicron in January and February, and because of some cuts that we made in March and April due to fuel.
So, around what you are seeing in 4Q and what you see in the traffic reports, in January and February in terms of domestic ASK, so kind of like in the 20s, if you will. Internationally, we're you know, again, we can adjust that our international recovery so far has been very conservative, about 40% recovery, 45% recovery, I don't expect that to change too much.
And so, around 50%, it depends on how fuel goes. If it comes back down towards the end of the year, we can bring that up, but we're not expecting major changes to international throughout the year.
So I would say domestic, what you're seeing right now in the 20s versus 2019 and international about 45% recovery, versus 2019.
Daniel McKenzie
Got it and then CASK ex fuel?
John Rodgerson
So CASK ex fuel should remain kind of where it is while you know we do as then we don't like to look at CASK ex fuel we like to talk about CASK, the assuming a certain level of fuel and FX. So CASK controlled for fuel FX, now compared to 2019, is actually obviously a lot lower than what we're seeing.
And it's going to depend a lot on what assumptions you have for fuel and FX. But what I can tell you is the additional growth that we're going to have as you annualize our capacity, as we get bring in more international capacity that reduces CASK as well, right?
Longer stage lengths and international CASK is lower than domestic CASK. The productivity gains that we're going to continue to deploy throughout the organization, all that is going to help.
And one thing that we're discussing here to try to provide more granularity to everyone, there's more than two centavos of CASK that comes from cargo, right? There's more than three-and-an-half centavos of [indiscernible] that comes from cargo.
So cargo is obviously very profitable. But when you look at CASK alone the tremendous growth that we've had in cargo and all the success that we had with that business unit, it does add almost 7% of CASK to our number without producing -- it adds cost, but it doesn't add as ASK, right.
So that's something also worth highlighting that when you compare our current CASK to our 2019 CASK. Obviously, there's dollar, there's fuel, there's two years of inflation, but there's also a very good, outcome or good, very good result, which is the growth that we've had in our cargo business.
Daniel McKenzie
Very helpful. That's terrific.
And then if I get a second question here, Abhi, if we could go back to 2019 and you know, just peel apart domestic and international pricing so not precise. Just if you could help us ballpark it is, or just remind us, if they're international flying was lower or higher yielding versus domestic.
And then looking ahead, as we see international begin to come back, how should we think about the yields netting out, again, is that international flying is restored?
Abhi Shah
Yes, so in general, because of stage length, right, you're talking about a 4000 Miles stage length, at least for us internationally, because we don't have right now. Any short haul International, we have one route, basically, we aren't flying to bonus IRIS anytime soon.
So because the statement, the yields are lower, but international pricing has actually been our international fares, I would say, right now are double what they were in 2019. And so it's actually been resilient, at least in the market that we fly, which is Florida and Portugal, which are big, big local markets for Brazilians.
And I do expect sometime in the next month or two, a reduction in the pre departure testing requirements. France has done that, Italy has done that, the U.K.
has done that. And that should help further as well.
So I think that -- I think they're going to be pretty, pretty resilient, actually. And we only will add the capacity that -- that's warranted, right.
So if we can get the yields that are similar, or at least in terms of the contribution, to domestic, then we'll add capacity, but we don't have to, we are using our A330. For example, in March, five times a week to Brussels, for cargo and we actually sacrifice the Orlando route a little bit to ensure we can continue the Brussels route, because that was a long term contract.
They're paying in dollars, and we pass the fuel through completely to our customers. So we do have options when it comes to our long haul network.
And we will only bring back the capacity to make sure that their margin contributions are similar to what we're seeing domestically. And domestically, as I said, corporate fares right now, in last couple of weeks are 30%-40% above 2019 levels, the same week in 2019.
So I think, we are being very aggressive on the fare side, in a good way are conservative. And I and obviously our Network helps us to do that.
And I think the industry overall is trying as well. I think the last couple of weeks, the industry is trying to set the stage for a good revenue recovery in March and beyond.
So I think overall, the right things are being done.
Daniel McKenzie
That's terrific. Great job, you guys.
Thanks.
Operator
Our next question comes from [Philippe Newson with Citibank].
Unidentified Analyst
Hello, everyone. Good morning or afternoon depends on where everyone is.
But I have two questions on my side. I'll start with the first one, I wanted to ask regarding price.
The tariffs that you're seeing in low density routes and the mainline routes, is this growth in tariffs is sustainable is going to keep occurring during 2022 and beyond. And how is the difference between low density routes and mainline routes in terms of tariffs?
And is there any competitor trying to be aggressive in pricing at this time in the markets?
Abhi Shah
Yes, that certainly is our intention. And I think us and the industry have no choice.
As John talked about efficiencies, airlines have to be more efficient. I think we have to be more aggressive in terms of fares and lower discounts.
And yes, I think it will continue. You have some seasonality, of course, but I think the customer adjusts, the customer adjusted last year.
And I think they will adapt as well to the new environment. I think people want to travel by air, the obvious - they see the value in it, the convenience of it.
So I think the customer will adapt. We have a different network than our competitors.
And so that allows us to behave differently. We do take fair premiums in our markets.
That strategy has not changed and will continue. And I think that actually brings discipline overall to the market as well.
And in terms of competitive nature, I think that everybody realizes what needs to be done and, is going to be disciplined. We look at the capacity that was reduced in March.
You know, in April, I think that the airlines are focusing on their hubs. They're focusing where they are strong, avoiding unnecessary interactions, with other airlines.
And I think that's the best way to get the best results. Honestly, we - I'll take Guarulhos as an example.
We had 55 departures a day in 2019. Today, we have 20, maybe 18.
And we have absolutely no desire to increase that number, because we're focused in our network that brings - the same best results. And I think our competitors are focusing in what works for them as well.
Unidentified Analyst
Okay, great. And I have a second question.
It's regarding to Azul loyalty program. What are the earnings contribution contributed from this, this loyalty programme to the revenues in the coming years?
And what is the incremental revenue opportunity for that business in terms of revenues?
David Neeleman
Hey Philippe so the story with Azul is very similar with all, of our sort of high growth, high margin businesses, but they leverage the network presence that we have. And they take advantage of the structure that we already have in place, to fly our passenger network.
So Tudo Azul, Azul Cargo, Azul Viagens, they are all higher margin business than the airline itself, we don't break up, you know, the profitability of each individual one. But as the revenue for any one of those businesses grows, you will see margin expansion, right cargo, certainly, like I said, just from what I said, in terms of how much cargo helps RASK and how much it increase as CASK, you can kind of see what kind of profitability you get from these additional businesses.
And they will certainly continue growing, and outpacing the growth of the airline because they are all kind of below what their fair market share would be. Tudo Azul it's very strong, obviously, where we fly.
But loyalty in Brazil is primarily still a, you know, Sao Paulo, Rio and Brasilia are phenomenon, but there's no reason why people in Belo Horizonte or competing us or could achieve a couple of grand, grand you don't want to fly for free by using their credit card, right. So as they become more and more familiar with those mechanics, we see the growth in Tudo Azul.
Tudo Azul is - getting closer and closer to its fair share, and helps us expand margins, as it does so. And we also have a lot of new products that we want to launch in Tudo Azul a lot of products that we launched fairly recently, like our new, co-branded credit card, which is doing tremendously and there are a lot of more products that we want to launch in Tudo Azul to take advantage of the relationship that we have with our customers and the network presence that we have in Brazil.
Unidentified Analyst
And very clear thank you very much for the answer.
David Neeleman
Thank you.
Operator
Our next question comes from Pablo [indiscernible] with Barclays.
Unidentified Analyst
Hi, guys, thanks for taking my question. I just have a quick one, can you please share with me your CapEx estimate for 2022 and 2023?
Thank you.
David Neeleman
So in terms of CapEx, or the recurrent level of CapEx for the airline is similar to what we had in 2019, which is in the neighborhood of, you know BRL1.5 billion a lot of that depends on demand and a lot of that depends on the dollar. So we have some flexibility to go up or down, to spend, to accelerate maintenance events or to postpone maintenance events, depending on the demand and depending on the dollar.
But you can use sort of that as a recurrent number, you know, if it doesn't include sort of the deferrals or any kind of one-time projects.
Abhi Shah
And there's also a good portion of that that's financeable as well, right it's talking about engine overhauls and stuff. And so, I think offline analysis and kind of walk you through, the possibility to finance some of that CapEx going forward.
David Neeleman
Yes, those are gross numbers, not necessarily net numbers, so, yes we can certainly provide more detail if that's not clear.
Unidentified Analyst
Okay and just a follow-up, trying to understand Abhi's answer about yields. It's incredible how resilient your yields are.
And it will be key if we see a higher oil price for this year, it is fair to assume that you're at a higher yield environment for you depends on your ability to expand into different markets. Because, Abhi said that you're also adding new cities?
And when you're adding new cities, you're probably testing the water and having a high yield. Is that fair to assume that the higher yield environment depends on you adding to new destinations, or it's under the same routes that you already operate, in which you have a high market share?
Thank you.
Abhi Shah
Yes, thanks. So we are adding new cities, you are correct.
Many of those cities are small markets that we're adding with either our ATRs, or our caravan operation. Those do help on the yield side.
But primarily, we're adding those cities to provide incremental demand to our network. And some of that demand is actually very small right now.
But it is how we want to grow the market in the future by bringing new demand to our market. And yes, every time you add demand to your network that does give you a little bit of more pricing power that that does allow you to grow your yields as well.
So I would say that is a small part of it. But the other part of it is just the connectivity, we have in our network, and the sort of access to different types of demand we have, whether it's small, medium businesses, whether it's different sectors.
I'll give you an example in Q4 2021, financial services segment of our demand recovered 50%. But construction recovered over 100%, oil and gas was 85%.
And so because our network is so diversified, and has access to such different parts of the country, we have ability to access different types of demand. And that - that's what gives us the resiliency on our yields.
Unidentified Analyst
Perfect, thank you very much right.
Operator
Our next question comes from Nicolas Fabiancic with Jefferies.
Nicolas Fabiancic
Hi, guys, thank you to the Azul team for the clear disclosure and congrats on the results. Just a comment on the bonds, which are still trading at stress levels for whatever reason, I think it'd be useful to really emphasise the point around your liquidity.
If you could give us some more color, their breakdown of your liquidity position, sources of additional liquidity and how we should be thinking about some of the near medium term maturities like the 2024 bonds or the converts? And then just a follow-up question you mentioned this BRL4 billion squiggly line EBITDA and we talked about the CapEx.
Could you walk us through the rest of free cash flow, lease payments, tax dividends working capital for this year? So we could help dimension the cash burn?
Thanks.
Alexandre Malfitani
Yes, they all go together, so it's good to kind of walk you through the cash proceeds then and use so yes we're going have. So we have a squiggly line of about BRL4 billion is going that.
But for example, if you look, you know, compare our revenue to our cash inflows, which we have on the chart on the presentation, that cash inflow outpaces revenue, right. So there's an actual working capital good guy from the fact that we're recovering our network, we still have capacity to add.
So we're always selling an airline that's slightly bigger than the airline that we're flying. The opposite happens when you shrink the airline.
But when you grow the airline, you actually have a good guy on the capital side. So that - you're going to be above BRL4 billion in terms of operating cash generation, we have the rent which is in the neighborhood of BRL4 billion.
So with the operational cash flow, we can pay for rent. We can pay for finance leases, we can pay for interest, and that leaves you with essentially CapEx, it leaves you with, you know, debt repayment, and deferral repayment.
The rent, again BRL4 million is sort of a number that's tied to the exchange rate of 558 right. And so if you're thinking about five, the BRL4 billion is going to be significantly lower, and the cash is going to be dramatically better, like we mentioned to Mike earlier.
So you have to kind of figure out what your FX assumption is - to estimate a lot of these numbers. And like John said, for example, CapEx we can finance or we can decide to do or not do depending on the demand environment, if the demand environment is good, and I need the aircraft and probably I can't finance CapEx, right?
If I can't finance CapEx that probably means the demand environment is bad, and I don't need the aircraft. So they all kind of go together.
And they they're sort of a natural hedge in terms of cash needs, as we kind of bring the capacity back or need to have the resources to fly our network, that we have, for example, bank that is very low. And we were able to roll over bank debt when the situation was much more complicated than what it is today, right before we had vaccines.
Before we were flying our network the way we were flying before we were producing BRL1 billion in EBITDA. So we're very confident that if we need to roll over bank debt we can do it.
And we also have a very strong cash position. We ended the year with BRL4.1 billion, and as we mentioned on the call our cash position going into the pandemic was around BRL2 billion.
So I can also kind of go back to more normal levels of liquidity as the situation also goes back to normal, and use some of that money to pay the obligations that we have. So, I think it's clear when you saw our, when we called the management plan, right to get through the pandemic, remember Azul did not have any help from the Brazilian government as American and European and Canadian airlines had, we did not file for Chapter 11, as multiple airlines in the region did.
And so we had to, create our own credit and working capital, and we were able to count on the support of all of our stakeholders. But we preserved, our bonds, obviously, right, because we want to have access to the capital markets.
And our stakeholders want us to have access to the capital markets. So, I agree that the bonds, if you ask me personally, I do think they are, trading much lower than they should, because, we're going to, obviously, continue with the same approach that we had, and we're in a situation that's much better now than when we, for example, issued our 2026 bonds, you know, and essentially, 7.5 yields.
So that's how we're going to continue managing our cash, our cash position.
Nicolas Fabiancic
Thanks, guys. Congrats again.
Alexandre Malfitani
Thank you.
Operator
Our next question comes from [indiscernible].
Unidentified Analyst
Congrats for the numbers. I have two questions here.
The first one I mean, it's kind of a follow-up on the cargo business. I mean, I'd like to understand what is next for these operations.
A lot of news talking about some M&A is happening in the sector. So if you see an opportunity here, and the second one, in our recent meetings with ANAC, the regulator said that maybe in the second quarter, they may release new rules for reports like distribution in Brazil.
So if it happens, how important is this for Azul?
Abhi Shah
Yes, I can take those sure, Victor. So regarding Azul Cargo so we've been pretty open that we want to keep evolving our capabilities in the sector, right, of course, we have our route network, which carries 80% of our of our cargo.
We have our 730, but now we have our Embraer E1s as well. But we want to keep building up our capabilities.
And that includes, first mile, middle mile, last mile, we have no intention of buying trucks or anything like that. But we definitely want to have deeper relationships with our ground transport providers on all sides of the logistics chain.
And so we are looking at all opportunities, there's nothing to announce nothing to say. But we want to you know, be the FedEx of Brazil, and that FedEx has done in the U.S.
and that means having closer ties with different partners. We already have a network of 300 representatives around the country.
And we want to make those ties even stronger so that we have access to the capacity that we need for pickups and deliveries and in all geographies around the country, whether it's the South, North, Sao Paulo, Rio, all those kinds of things. So we definitely want to keep building out logistics capability so we can deliver the more cities even faster.
And so that's something that we're going to keep looking at and we'll do what makes sense. Regarding the slot distribution rules you are correct ANAC is reviewing the rule process.
Obviously, we are very engaged, as are other interested parties like the other airlines in Brazil, the one that the airport that it impacts the most is Congo Aeneas, because that is an airport that is completely saturated, and also closed right? It's saturated, close and concentrated, in our opinion and those were the arguments that we have made.
And we will make those arguments, very similar to what we made when the Avianca Brazil slots, were up for grabs back in 2019. So no major change to our position and we will see what happens.
None of that is in our baseline plan, whatever is a result of that will be an addition to what we are planning for 2022. We have no you know, expectations, but certainly we are making the arguments for that - similar to what we made in 2019.
And really, what we are focused on is concordance. [technical difficulty]
Operator
Our next question comes from [Isabella Lomas with UBS].
Unidentified Analyst
Hi all and congratulations on result. I have two questions here.
The first one is follow-up on CASK yields. Specifically on the dynamics for this quarter because as we saw CASK into that 9% quarter-to-quarter we weren't expecting it would help us come across a region as well.
However, we saw an increase in CapEx for the quarter of around 9%. And we were wondering what could be the reason for this situation?
And how we could behave in the next year? I would appreciate if you could give us some color on this.
And the second question is on the expensive adjustment regarding the COVID vision at around BRL 600 million. Could you first give us some more detail of what exactly it is about and efficient possibilities as we're not expecting this?
Thank you very much once again.
Alexandre Malfitani
So the bad guys in cash, what was the dynamic in cash right? We're certainly more productive now more efficient now than we were before.
And what's offsetting that more than offsetting, unfortunately, it is dollar, FX and inflation and cargo like I said, right. Dollar effects, inflation, obviously, are bad guys.
And the whole industry needs to deal with those. And that's a main you're one of the drivers, one of the reasons why we are all trying to pass through cost increases to fares.
If you control for all of those, you would see CASK going down for sure. [technical difficulty], you know, we mentioned the domestic international mix.
But you know if you could look at the core cash and just see, you know as it relates to the cost of operating the airline. You certainly will see improvement as we add capacity back from the reduction of 100 flights [technical difficulty] to Brussels in the fourth quarter.
[technical difficulty] responding to a previous question, [technical difficulty] dedicated flights, and that also has a component that impacts our CASK.
Abhi Shah
Yes I said, we're going to try to provide, you know, [technical difficulty] an important and relevant business that, you know, it's producing [technical difficulty] what's actually helping to cast because again, as we mentioned before, our airports are 30% more expensive, right, our fleet reservation are more efficient. Our fleet transformation dramatically reduces CASK again.
And that's why we don't like to use CASK ex fuel. Because one of the big advantages of having a modern next generation fleet like ours, is a dramatic reduction in fuel, you know, so you should look at constant fuel prices CASK, as opposed to CASK [technical difficulty] serving and not capturing the dramatic reduction in fuel burn that we've had, [technical difficulty] lower fuel burn, you know, with the aircraft that we have today.
And in terms of the provision was worth highlighting that it was [technical difficulty] accounting numbers. The big number there is the reversal of the one impairment and offsetting that partially, it's all non-cash one-time revisions to provisions and COVID related expenses.
So absolutely, they should be one-off and non-recurrent. And they are all non-cash as well.
Unidentified Analyst
That's perfect guys. Thank you very much.
Operator
Ladies and gentlemen, this concludes today's question and answer session. I would like to invite John to proceed with his closing statements.
Please, sir, go ahead.
John Rodgerson
Thank you for joining us today. If you have any follow up questions [technical difficulty] happy to answer any questions you may have.
Thank you.
Operator
Ladies and gentlemen, that does conclude the Azul audio conference for today. Thank you very much for your participation and have a good day.