Nov 15, 2007
Executives
Joseph Putaturo - Director of Investor Relations Pedro Heilbron - Chief Executive Officer Victor Vial - Chief Financial Officer
Analysts
Jim Parker - Raymond James Mike Lindenberg - Merrill Lynch Rodrigo Goes - UBS Alexander Green - Citi Investment Research
Operator
Ladies and gentlemen, thank you for standing by. Welcome toCopa Holdings Third Quarter 2007 Earnings Release Conference Call.
During thepresentation, all participants will be in a listen-only mode. Afterwards, wewill conduct a question-and-answer session (Operator Instructions).
As a reminder, this call is being webcast and recorded,November 15, 2007. Now I will turn the conference call over to Joseph Putaturo,Director of Investor Relations.
Sir, you may begin.
Joseph Putaturo
Thank you very much, Cynthia, and welcome everyone to ourthird quarter earnings call. Joining us today are Pedro Heilbron, CEO of CopaHoldings and Victor Vial, our Chief Financial Officer.
First, Pedro will open up with an overview of the thirdquarter highlights, followed by Victor, who will discuss our third quarterfinancial results. Immediately after, we’ll open up the call for questions fromanalysts.
We kindly request if you could limit yourself to one question with abrief follow-up so we can accommodate most questions. In today's call we'll discuss non-GAAP financial measures.
Areconciliation of non-GAAP to GAAP financial measures can be found in our thirdquarter earnings release which has been posted on Copa Airlines' website,copaair.com. In addition, our discussion will contain forward-lookingstatements, not limited to historical facts that reflect the Company's currentbeliefs, expectations or intentions regarding future events or results.
These forward-looking statements involve risk anduncertainty that could cause actual results to differ materially and are basedon assumptions that are subject to change. Many of these risks anduncertainties are discussed in our annual report filed with the SEC.
Now I would like to turn the call over to our CEO, PedroHeilbron.
Pedro Heilbron
Good morning to all and thank you for participating in ourthird quarter earnings call. I would like to begin by thanking all of ourco-workers for their continued efforts.
It is their hard work and dedicationthat makes us a world-class airline with a solid business model. For the third quarter, Copa Holdings net income came in at$46.8 million, excluding an $8 million non-recurring gain related to insuranceproceeds in excess of aircraft book value, net income came in at $38.8 millionor 4.2% above third quarter '06.
Diluted earnings per share came in at $0.89. Despite high fuel costs and lower yields, Copa Holdingscontinued its profitable growth through an 18% capacity expansion, whileremaining one of the most profitable airlines in the industry.
For the quarter,Copa Holdings operating margin came in at 17.6% and net margin at 14.7%. During the quarter, our team made significant progress inconsolidating Copa Airlines' position as the leading intra-Latin Americancarrier.
Copa Airlines began service from its Hub of the Americas inPanama City to four new destinations. On July 15, we began service toWashington, D.C.
and Punta Cana in the Dominican Republic. Washington, D.C.
is our fifth U.S. destination with a largemetropolitan area, which is not well connected to our region.
Our new flight to Punta Cana is our third destination in theDominican Republic and seventh to the Caribbean region. On July 18, we began service to Guadalajara, Mexico's secondlargest city and one of its principal centers of industry and culture.Guadalajara is our third destination in Mexico.
On August 15, we began service to Cordoba, Argentina'ssecond largest city and a major industrial center. Copa Airline also providesservice to Buenos Aires twice daily.
We're very pleased with the performance of these new routes,which nicely balance and increase the scope of our network, which now serves 40cities in 21 countries throughout the Americas, offering more and betteroptions for intra-Latin American travel than any other airline. We're also very pleased with the strength in demand fortravel in Panama and the region, no doubt a resource of continued economicgrowth, as well as increased regional commerce, trade and tourism.
Panama's economy in particular is growing at a rate of morethan 9% this year; even before the full start of the Panama Canal expansionwork and several other major projects, which should positively impact theeconomic growth in the coming years. Strong demand and a growing preference for Copa Airlinesnetwork for intra-Latin American travel allowed the airline to grow capacity byalmost 23% during the quarter, while maintaining very strong load factors.
As we mentioned in our second quarter earnings call, CopaAirlines did experience lower yields during the third quarter, due to severalfactors which include the deployment to new destinations and frequencies in thethird quarter and a significant increase in average length of haul. Yields were also affected by some challenges we encounteredin revenue management and actions by competitors in selected markets.Nevertheless, in the fourth quarter we expect higher yieldsquarter-over-quarter as we have addressed these revenue management issues, inaddition to having successfully increased fares and fuel surcharges in severalmarkets throughout our network.
In the third quarter, Copa Airlines continued its fleetexpansion with the delivery of three EMBRAER-190 and one Boeing 737-800. Sincethen, Copa has received the remaining aircraft scheduled for delivery in 2007and will end the year with a fleet of 37 aircraft consisting of 26 Boeing 737NGs and 11 EMBRAER-190.
Also, another important matter we brought out during ourlast quarterly call was our pilot situation. As we mentioned, global demand forpilots has created some retention issues which combined with our growth needsand some delays in our training pipeline, while all manageable factors haverequired us to make some operational changes and minor capacity adjustments for2007.
With this in mind, we entered into early negotiations withour pilots' union and reached a new collective bargaining agreement in Novemberthat will be in place for more than four years with next negotiations notcoming due until August of 2012. We believe this new agreement will significantly improve ourability to retain and hire the pilots we need to continue growing withoutcompromising our Company's long-term cost structure or competitiveness.
We're also pleased with the progress we continue making inthe pilot recruitment and training fronts. Our training pipeline is currentlyfull and we believe we're in a good position to carry out our plans for 2008,which we expect will result in an over-20% capacity growth for the airline.
During the quarter, our team has also kept focus on futureopportunities by entering into several long-term strategic alliances. In August, Copa entered into a comprehensive codeshareagreement with AeroMexico, whereby Copa has placed its designator code onAeroMexico operated flights beyond Mexico City to 17 Mexican cities andAeroMexico in turn has placed its designator code on Copa Airlines operatedflights between the Hub of the Americas in Panama City to Mexico City, Cancunand Guadalajara.
In September, Copa Airlines formally entered into the globalSkyTeam Alliance. As part of the global alliance, among many other benefits,Copa Airlines passengers earn OnePass miles on all flights operated by SkyTeampartners and are eligible to redeem their OnePass miles for reward tickets onany of SkyTeam's 790 global destinations.
On a more recent note, in October, Copa Airlines and KLMannounced a broad codeshare alliance, which will enable passengers of bothcarriers to travel more easily between both airlines' networks. This agreementcame at the same time KLM announced direct flights between Amsterdam and PanamaCity to begin in March of 2008.
The new service, which conveniently connects with Copa'safternoon bank, will offer numerous connections to beyond flights operated byCopa Airlines from its Panama haul. These alliances continue to significantly expand the globaland regional scope of our network and commercial appeal of our product.Additionally, Copa Airlines also continued receiving important recognitionduring the third quarter.
The Airline was named by SkyTrax for the fourth consecutiveyear as Best Airline in Central America and Mexico and the Caribbean, as wellas Best Cabin Staff in Central America and Mexico and the Caribbean. Copa was also included in Fortune Magazine's top five bestcompanies for leaders in Latin America for 2007.
Now turning to Aero Republica. During the third quarter, wealso continued enhancing our consolidated network by further increasing theinternational connectivity and fit into Copa Airlines' hub.
In July Aero Republica began a second daily frequency fromBogota to Panama City. Copa and Aero Republica combined now serve thisimportant route four times daily.
More recently, in October, Aero Republicabegan service from Columbia's fifth largest city, Bucaramanga into Panama City. Although Aero Republica's international load factors in thethird quarter have performed quite well, they did experience a year-over-yeardrop in load factors during the third quarter.
Mainly as a result of weaknessin the Columbian domestic market, mainly the leisure market and increasedcapacity and promotional activity, including for discounts in the domesticmarket from their main competitor. I should add that despite this weakness in the domesticmarket, which resulted in lower year-over-year load factors, Aero Republica'sfinancial results have improved significantly, benefiting from higher domesticfares, growth in their international operations and a stronger local currency.
For the third quarter, Aero Republica's year-over-yearinternational capacity as a percentage of total capacity doubled to 12% withinternational load factors coming in at 68%, significantly higher than itsdomestic load factors. Aero Republica is also benefiting from the renewal of itsfleet as this modern gauge EMBRAER 190, which for the third quarter represented24% of their total capacity, is significantly more efficient in fuelconsumption and maintenance costs.
Aero Republica's top line growth for the quarter was 28% ona modest 2.6% capacity expansion. As a result, Aero Republica came in with a16.8% operating margin for the quarter.
For the full year, we expect AeroRepublica to hit the high end of the 5% to 10% operating margin to which we’veguided earlier in the year. These results are as, on a standalone basis, so when youfactor in their fleet traffic to Copa Airline; their contribution is even moresignificant.
During the quarter, Aero Republica continued with its fleetmodernization plan, taking delivery of two additional EMBRAER 190 aircraft andcurrently have a fleet of five EMBRAER 190 and eight MD-80 aircraft. During the fourth quarter, Aero Republica will receive twoadditional EMBRAER to end the year with seven EMBRAER 190 and six MD-80.
As aresult, by the end of the year, the airline will have the youngest and mostmodern fleet in Columbia, having reduced its average fleet age from more than17 years at the end of '06 to slightly above seven years by the end of '07. So in summary, Copa Holdings' third quarter was marked by asignificant fleet capacity and network expansion, lower yields, which show aconsiderable improvement in the fourth quarter, better year-over-year resultsat Aero Republica, despite lower load factors, and more importantly, continuedexecution and strengthening of our business model.
For 2008 we expect a strong demand environment, drivenmainly by solid local and regional economic growth. Our preliminary 2008guidance, which Victor will discuss further, calls for significant capacityexpansion with increasing unit revenues and stable X-fuel (ph) unit cost.
Therefore, and despite anticipating continued high fuelcosts in 2008, we expect Copa Holdings will continue delivering industryleading margins and earnings growth next year, driven by a fundamentally strongand proven business model which is being executed by a world class team. Thank you.
Now I will turn it over to Victor, who will goover our third quarter financial results.
Victor Vial
Thank you, Pedro, and good morning everyone. Thanks againfor joining us today.
As always, let me begin by joining Pedro in thanking allof our co-workers for their efforts and hard work. I'm pleased to report thatfor the third quarter Copa Holdings net earnings, excluding an $8 millionnon-recurring gain, reached $38.8 million, which represents a 4.2% year-over-yearincrease and diluted earnings per share of $0.89.
Capacity for the quarter increased 18% compared to Q3 '06 astotal ASM reached approximately $2.1 billion, with Copa Airlines, which accounted for80% of it's total, growing almost 23% year-over-year, while Aero Republica'scapacity grew 2.6% On a consolidated basis, load factors for the third quarterdecreased approximately 1 percentage point year-over-year to 74.4%. However, ona segment basis, Copa Airlines' load factor for the quarter remains strong, at78.5% compared to 79% in Q3 '06 while Aero Republica came in at 58.2% for a 5.3percentage point decrease.
Yields during the quarter declined 1.6% year-over-year from$0.162 to $0.159 driven by a decrease of 8.2% in Copa Airlines' yields, whichwere impacted by new destinations and frequencies added in 2007, whichaccounted for 8% of Copa Airlines' total capacity for the quarter. A 7% year-over-year average length-of-haul increase, morecompetitive activity in Mexico, Central America and some Caribbean markets, andrevenue management challenges we faced as a result of our transition in Junefrom a two bank to a four bank up-structure.
This transition involved adjustments to our flightschedules, which resulted in changes to historical traffic flows, making demandforecasting more difficult, which in turn resulted in allocation of moreinventory to lower-fare classes despite strong underlying demand. It's worth noting that the necessary measures have beentaken and we're seeing a significant improvement in yields, which should carrythrough this fourth quarter.
With respect to Aero Republica, the yields for thequarter came in 32% above last year as the result of an increase in domesticfares, growth in international capacity and the strengthening of the Columbiancurrency. Operating revenues for Copa Holdings increased 14.7%compared to Q3 '06, reaching $264.6 million.
On a segment basis, Copa Airlinesoperating revenues increased 11.6% or $21.1 million, while Aero Republica delivered a28% or $13.7 million increase. Regarding passenger revenue, which accounted for 94% of ouroperating revenues, Copa Holdings saw an increase during the quarter of 14.5%or close to $32 million, from $218 million in Q3 '06 to $249 million in Q3 '07.
From the standpointof unit revenues, route revenue for available seat mile, or RASM for Copa Holdingscame in at $0.126, reflecting a 2.7% year-over-year decrease. RASM for CopaAirlines came in at $0.121 for a decrease of 9%, which on net of adjusted basistranslates to a drop of 6%, while Aero Republica's RASM increased 25% to$0.146.
Looking at the expense side, operating expenses grew in linewith capacity, increasing 17.6% year-over-year or approximately $33 million. Unit costor cost per available seat mile, CASM, decreased less than 1% year-over-year to$0.104 while CASM X-fuel remained flat year-over-year at $0.07 and decreased4.1% compared to Q2 '07.
Now turning to Copa Holdings main operating expensescompared to the third quarter of '06, fuel expense increased 17% as a result ofa 16% increase in gallons consumed, due to increased capacity and a slightyear-over-year increase in the all in average price of jet fuel, which Net ofHedges went up from $2.33 in Q3 '06 to $2.34 in Q3 '07. Salaries and benefits increased 23.6%, mainly as a result ofan overall increase in upgrading headcount to support increased capacity andthe effect of the Columbian currency appreciation against the U.S.
Dollar. Passenger servicing increased 33%, mostly as a result ofincreased capacity and passengers carried and costs incurred as a result ofmore weather related cancellations and delays.
Commissions increased 1.9%, formost part a result of a 14.5% increase in passenger revenue, partially offsetby a lower average commission rate. Reservation and sales increased 28.7% mainly due to morepassengers carried and additional costs related to global distribution systemsat Aero Republica as a result of increased international flights.
Maintenance, materials and repairs decreased 2.6%, mainlydue to fewer major maintenance events at Aero Republica, partly offset byhigher capacity and additional major airplane overhaul events at Copa Airlines. Depreciation increased 39.4% due to additional aircraftrepairs.
Aircraft rental decreased 3.9%, primarily driven by an adjustment tothe aircraft rental line in Q3 '06, related to supplemental rent in the AeroRepublica segment, in addition to less aircraft and engine rentals in Q3 '07. And flight operations, landing fees and other rentalscombined, increased 26.5%, for the most part due to increased capacity and moreinternational flights at Aero Republica.
Other operating expenses increased16.3% year-over-year, mainly related to lease termination costs of two MD-80aircraft in the Aero Republica segment. Other non-operating income and expense totaled an income of$4 milion in Q3 '07.
This balance is primarily composed of the $8 millionone-time gain we mentioned earlier. Excluding these non-recurring gains, thetotal is a non-operating expense of $4.1 milion.
Looking now at the Company's earnings, Copa Holdings' thirdquarter consolidated earnings, excluding the $8 million non-recurring gain andbefore interest, taxes, depreciation, amortization and aircraft rent, EBITDAR,increased 10% to $75.5 million, while EBITDA margin decreased only 1.2percentage points to 27.4%. With respect to operating earnings, Copa Holdings operatingearnings for the third quarter increased 3.3% year-over-year to $46.7 million,while operating margins came in at 17.6%, again delivering one of the highestoperating margins in the industry.
Moving on to the balance sheet, total property, plant andequipment increased approximately $100 million in the quarter to $1.1 billion,mostly as a result of the acquisition of five aircraft, three EMBRAER 190s andone Boeing 737-800 delivered to Copa Airlines, in addition to an EMBRAER 190delivered to Aero Republica in September. Debt and capitalized leases at the end of the quartertotaled $1.1 billion, of which bank debt totaled $830 million, out of whichapproximately 44% is U.S.
Ex-Im Bank guaranteed debt. 40% of our Ex-Im Bankdebt has been fixed for 12 years at an average rate of 4.7% and our aggregateblended rate to date stands at 5% and 3.75%, one of the most competitive costsof financing in the industry.
Lastly, liquidity remained strong, with Copa Holdings endingthe quarter with $288 million in cash, cash equivalents and investments andapproximately $34.5 million in committed lines of credit. Total liquidityincluding committed lines of credit at Q3 '07 represent approximately 33% oflast 12 month's revenue.
So in summary, we saw some pressure on yields during thequarter the necessary measures have been taken and we're seeing a recovery ofyields, which we expect to continue during the course of the fourth quarter. Asa matter of fact, October yields for Copa Airlines show an increase already, inthe range of 9% over Q3 '07.
Demand during the quarter continued strong at Copa Airlines,resulting in stable load factors and significant capacity growth. We continueto strengthen our balance sheet and liquidity position.
Aero Republica isprofitable and continues to expand its international operations, therebycontributing to the strength of our network. And again, Copa Holdings continuesdelivering some of the highest margins in the industry.
Looking forward, with respect for our full year 2007results, we're updating our guidance as follows. Our capacity guidance remainsunchanged at plus-or-minus 8 billion ASMs, representing a year-over-year growthof 16%.
We're slightly reducing our load-factor guidance fromplus-or-minus 75% to plus-or-minus 74%. This represents a 1-percentage pointincrease with regards to 2006 and a significant capacity increase.
We areincreasing our RASM guidance to plus-or-minus $0.127, which represents a 2.5%year-over-year RASM increase. And we're maintaining our CASM Ex-fuel guidanceat plus-or-minus $0.069, which represents less than a 2% year-over-yearincrease.
However, mainly as a result of higher Jet fuel prices, weare lowering our operating margin guidance from a range of between 19.5% to 21%to plus-or-minus 18.5%. Today, we're also providing Preliminary Guidance for 2008 asfollows.
Capacity growth of 17% from a range of 8 billion ASM to a range of 9.3billion ASM. Load factor of approximately 75%, up from approximately 74% in2007, RASM in the range of $0.129, up from a range of $0.127, CASM Ex-fuel, inthe range of $0.07, slightly up from a range of $0.069, and operating margin inthe range of 17% to 19% compared to plus-or-minus 18.5% in 2007.
With that, I'd like to turn over to Pedro for closingremarks.
Pedro Heilbron
Thank you, Victor and again, thank you all for joining ustoday. While we're pleased to report these third quarter earnings results andthe progress we have made on several fronts, we're also very much focused andcommitted on effectively tackling the challenges ahead.
Our team, supported by a successful and proven businessmodel, strong and growing regional economy and progress made at Aero Republica,gives us confidence we can continue delivering world-class results goingforward. At this time, we will be happy to open up the call forquestions.
Operator
(Operator Instructions) We will take our first question fromJim Parker with Raymond James. Please go ahead.
Jim Parker - Raymond James
Good morning to all. It appears and I underline the word"appears", but it appears that in Columbia, with regard to AeroRepublica, based on the aviation authority figures, that Aero Republica'smarket share is declining in perhaps the third quarter, at least September,it's down like six percentage points and I'd like to know why this ishappening?
And while you're suggesting that it's doing very nicelyfeeding international traffic into Panama City, would you assess this loss ofmarket share and is it troubling to you and what do you intent to do about it?
Pedro Heilbron
Okay, James, this is Pedro. It's not troubling to us.
Therehas been a reduction in their market share. I don't know if it's as high as sixpoints, but there has been a reduction.
If you can recall what we've said aboutAero Republica from the beginning, it fits nicely into Copa Airlines' networkand into our strategy. We never intended to dominate the domestic market that's notwhere we see the potential of their profitability and our main local competitorhas been increasing its domestic capacity.
We have not; we have beenemphasizing Aero Republica's international expansion. So, what's going on, Aero Republica is expanding internationallyat a nice pace, actually doubling versus last year the percentage of itsrevenues that come from international routes?
They're also adding the EMBRAER190s, which accounted for 24% of their flying this quarter versus zero theprevious quarter, a much more efficient aircraft. So, when you add that up and include also higher fares,domestically, which already may have an impact on market share, versus acompetitor that has been more aggressive, it ends up yielding better results.So again, to summarize, Aero Republica is yielding better financial results andwe're not out to conquer the domestic market.
We're going to have enoughpresence to fit our overall strategy and grow internationally.
Jim Parker - Raymond James
Okay. Just quickly, a second question regarding fuelsurcharges.
Do you have an assessment of the net impact of this surchargesyear-to-year what they might be?
Victor Vial
When you look at surcharges that we've been implementingsince last year, they represent roughly 9% to 10% of our total revenues. Andsince the last call, we've been increasing surcharges pretty effectively.
When you look at the year-over-year increase in jet fuelprices and you try to figure out how much of the surcharges. How much of theincrease is being called a surcharges, I would say it's roughly in theneighborhood of about half of the increase.
But you also have to take into account that we've beenraising fares as well. So you can't just look at it in terms of the fuelsurcharge, but also fares are contributing to cover the increase in fuel.
Jim Parker - Raymond James
Yes. Okay.
Thanks.
Operator
And we'll take our next question from Mike Lindenberg withMerrill Lynch. Please go ahead.
Mike Lindenberg - Merrill Lynch
Yes. Good morning, all.
A couple questions. With theentrance into SkyTeam, Pedro or Victor, have you come up with, you think, theannual net contribution will be, whether it's revenue costs.
And obviously, youprobably have to invest. There's probably some CapEx in order to get your systems upsort of in-sync with the SkyTeam standards.
Do you have any estimate of that?
Victor Vial
The investment is not material, Mike. On the top-line side,it's very tough to say because you don't know how much of that you're alreadyrealizing from inter-line.
But we do know there is going to be incrementalrevenue. We'll have a better idea during the course of the year in 2008.
But right now, we're not too sure, tough to say. And it'snot included in our RASM guidance for next year.
Mike Lindenberg - Merrill Lynch
Okay. And then, my second question.
Pedro, I think youtalked about some of the benefits of AeroRepublica and you talked about thefeed traffic to Copa. Do you have an estimate of what percentage ofAeroRepublica traffic that, what percentage gets fed into the Copa system?
Pedro Heilbron
We do. I'm not sure when I'll give out those numbers.
I dohave to think a little bit but it's meaningful and it makes the investmentworthwhile.
Mike Lindenberg - Merrill Lynch
Okay. And then, just my last question, what is the age ofretirement for pilots in Panama?
Is it 60 like the U.S.?
Pedro Heilbron
It's 65.
Mike Lindenberg - Merrill Lynch
Okay.
Pedro Heilbron
And as, with the advance of medicine and healthcare, aperson at 65 today is healthier than a person at 60, 20 years ago.
Mike Lindenberg - Merrill Lynch
I know. I just, I was hoping it was 60 so that maybe you hadthe opportunity to go to 65 and then it would mitigate the pilot retentionissue.
But you're already there. And I guess based on the rules that went intoplace last year, they're free to fly into the U.S.
It's not a problem, right?
Pedro Heilbron
That's correct.
Mike Lindenberg - Merrill Lynch
Okay. All right.
Great. Thank you.
Pedro Heilbron
Thanks.
Operator
And we'll take our next question from Rodrigo Goes with UBS.Please go ahead.
Rodrigo Goes - UBS
Good morning, guys. Just one question.
You mentioned in therelease that you're seeing more competitive activity in Mexico, Central Americaand some Caribbean markets. Would you give a little detail a little more, wherethat competitive pressure is coming from?
What airlines in particular are addingcapacity and what specific routes?
Pedro Heilbron
Yes. Hi, it’s Rodrigo.
It's basically a couple of theCampos. In the third quarter, we saw a lowering of fares by TACA inintra-Central American markets.
It's not a significant percent of our revenues,but it was a small factor. We also saw, earlier in the year a new flight from Mexico toPanama from Mexicana.
And also we saw from TACA, new flying from their San Josehub to Santo Domingo and Havana in the Caribbean. So that's basically the additionalcompetitive pressure.
Rodrigo Goes - UBS
Okay. Not much from American Airlines just yet from the U.S.and would you anticipate them being a bit more aggressive in netting capacity?
Pedro Heilbron
Well, American has announced a new flight from Dallas-Fortworth into Panama, but we do not compete in that market, so that will havehardly any effect on us. And Delta has announced a four times per-week flightfrom JFK to Panama.
That will be competition but, again, it's four times a weekand it's a small percent of our ASMs.
Rodrigo Goes - UBS
Okay. Perfect.
Thank you very much.
Operator
(Operator Instructions) We will take our next question fromAlexander Green with Citi Investment Research. Please go ahead.
Alexander Green - Citi InvestmentResearch
Hi. Good morning everyone.
Pedro Heilbron
Hi Alex.
Alexander Green - Citi InvestmentResearch
Hi. Can you just talk about the improvement that you expectthen, in November and December, because of the October numbers weren't.
Iguess, won't get you to the full-year guidance. How much of an improvement doyou expect there?
Victor Vial
Well, when we look at yields in October compared to thethird quarter, you're seeing approximately a 9% improvement compared to thethird quarter. And we think that is going to continue to be the case.
We still see a strengthening of yields, further in Novemberand December. So, we expect yields to be approaching the levels that we wereseeing before in the second quarter.
Alexander Green - Citi InvestmentResearch
All right. Thank you.
Operator
(Operator Instructions) And gentlemen, it appears we have nofurther questions at this time. Mr.
Heilbron, I will turn the conference backover to you for closing comments.
Pedro Heilbron
Okay. Thank you all for participating in our third quarterearnings call.
We look forward to seeing you participating in our fourthquarter call early next year. Thank you all.
Operator
Ladies and gentlemen, this will conclude today's conferencecall. We do thank you for your participation and you may disconnect at thistime.