Nov 13, 2015
Executives
Paulo Kakinoff - Chief Executive Officer Eduardo Masson - Financial and Investor Relations Director
Analysts
Michael Linenberg - Deutsche Bank Savi Syth - Raymond James Pablo Zaldivar - GBM Josh Milberg - Morgan Stanley Ravi Jain - HSBC Kevin Kaznica - Citi Duane Pfennigwerth - Evercore ISI
Operator
Good morning, everyone, and thank you for waiting. Welcome to GOL Airlines’ Third Quarter of 2015 Results Conference Call.
With us here today, we have Mr. Paulo Kakinoff, CEO; and Mr.
Eduardo Masson, Financial and Investor Relations Director. This event is being recorded and all participants will be in a listen-only mode during the company’s presentation.
After GOL remarks there will be a question-and-answer session. At that time further instructions will be given.
[Operator Instructions] This event is also being broadcast live via webcast and maybe accessed through GOL’s website at www.voegol.com.br/ir where the presentation is also available. Participants may view the slides in any order they wish.
The replay will be available shortly after the event is concluded. Those following the presentation via the webcast may post their questions on our website.
They will be answered by the IR team after the conference is finished. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of GOL 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 conditions related to the macroeconomic conditions, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.
Now I will turn the conference over to Mr. Paulo Kakinoff.
Mr. Paulo, you may begin your presentation.
Paulo Kakinoff
Thank you. Good morning, everyone.
And thank you for joining us for the third quarter ‘15 earnings release conference call. We will start our presentation on Slide #3, which includes important data on the current economic situation, which directly influences our results and those of the Brazilian aviation sector as a whole.
The past quarters we’re marked by a significant drop in Brazilian economic activity with an increase in inflation and higher credit restrictions, as well as exchange rate volatility. These factors have been holding down the growth in demand and produced a direct impact on the performance of the Brazilian commercial aviation market.
In the first table on the last of the item, we highlight the devaluation of the real by 62% over September 2014. In the same comparison, the average fall of the real against the dollar was 55% in the quarter.
It is worth noting, I am sorry, it is worth noting that between July and September the real had a minimum price of 3.09 reais and a maximum price of 4.2, a 37 variation -- 37% variation within 90 days, fact which brings remarkable challenges to the company’s planning processes. In the following item, we mention the decrease of the corporate passengers compared to the same period last year.
Since June, however, we are seeing monthly growth of this volume even it is less. In the fourth quarter this year, the increase in the capacity of the Brazilian industry only occurred because of the comparative base.
Just to remember you, the supply was greatly reduced during the FIFA World Cup in 2014. I highlight the dynamics of supply since September, when GOL’s capacity was reduced by 2.7% and that four of our main competitors was at sixth.
When we compare the capacity accumulated into September 2015 against the same period of 2011, we reduced 4.5 billion ASKs, higher than our main competitor that has reduced it 4 billion. When we analyze it, it means that we reduced approximately 7 billion ASKs, also ahead of our competitor.
Its worth to mention that the two remaining competitors have neutralized this capacity reduction by increasing both combined more than 14 billion ASKs over the same period, bringing to the industry a growth of 2%. We will talk later about the trend in 4Q ‘15, but I can already tell you that the adjustment in the domestic supply by the end of the year we will be between 5% and 7%, and now I am talking only about the fourth quarter.
The price of aircraft fuel was 2.13 reais per liter in 3Q ‘15, a decrease of 13.1% compared to 2014. The reduction, however, was much lower than that observed in the international market due to the exchange rate impact we had here, since the price of fuels in Brazil isn’t exact in U.S.
dollar. On the same slide on the right, we show the operating performance achieved in the quarter, maintaining our strategy, which has been implemented with total focus and discipline.
On the first item, anticipating the effects of the economy in our operations and in order to maintain our strong liquidity position and the continuity of projects, we completed the capital increase of 461 million reais in the quarter, mainly performed by our controlling shareholder and Delta. We also completed the issuance of long-term loan of $300 million with Delta as the guarantor.
The previous quarter’s cash plus the resources of these two transactions led us to reach 3.1 billion reais in cash, which represents 31.2% of our net revenue in the last 12 months. This percentage is one of the highest pace of all global aviation industry.
On the next slide, we highlight an increase of almost 13% in ancillary revenues, which accounted for 12.6% of our total sales mainly due to the sale of GOL+ Conforto seats and a better performance of the cargo area. Another important item in the period is the maintenance of our leadership in the number of passengers, transported in Brazil -- Brazilian domestic market.
For another quarter, the company extends its lead over our main competitor. Moving on to the next, we retained our corporate sales lead with more than 32% of passengers flying for business purpose according to the data published by the Brazilian Association of Corporate Travel Agencies, ABRACORP.
In October, we have also maintained in the quarter and in the year, our on time performance leadership in the domestic market, which is very important for customers traveling on business. On Slide #4, we show total revenues growth of 1.1% in the quarter.
Operating result EBIT was 8.9 million in the period with a margin of 0.4%, a decrease of 143 million reais or 5.8 percentage points compared to the third quarter 2014. I highlight here the evolution of 12 percentage points compared to the EBIT for the second quarter 2015 reflecting the initiatives already in place in the company.
EBITDAR reached 377 million reais with margin of 15.2%. In the first nine months of 2015, this indicator accounted for 937 million reais and a margin of 13.12%, a decline of 5 percentage points versus the same period 2014.
The fact is that in the last two quarters, the company and the Brazilian aviation industry have been facing one of the hardest periods in the past decade due to the combination of the country’s economic scenario with the significant decline in corporate demand. On the operating side, as you can see in slide five, we increased the domestic supply from January to September by 1.6%, while demand grew by 3.8%.
Consequently, the load factor expanded by 1.7 percentage points compared to the first nine months of 2014 reaching 78.7. GOL’s increase it capacity was lower than the industry average and on the other hand, it was the airline with the highest demand growth increasing efficiency, because of disciplined management, the load factor in the company’s flight expanded by 0.9 percentage points above average.
Moving on to Slide #6, I highlight GOL’s ongoing structural initiatives in relation to the new phase of the Brazilian airline industry. The main points are lower capacity, network readjustment, fleet reduction, optimization of cost and expenses and initiatives related to our workforce.
We will talk about it in more detail in the next slide. Slide #7, we reaffirm our supply guidance for 2015 down by 1%.
To accomplish it, since we have increased capacity until September by 1.6%, we will reduce supply in the domestic market to between 5% and 7% in the fourth quarter. On slide eight, to ensure the recovery on the profitability, you have noticed the readjustments in our network, some already implemented since October and others in effect by early 2016.
We redesign it to, sorry, we redesign our network with diversification of destinations and since October 25th we are already operating new routes from Congonhas in São Paulo to coastal cities of Salvador, Porto Seguro, Ilhéus and Florianópolis, which are very popular destinations during the summer. In addition, we expanded operations to Maringá, Londrina and Presidente Prudente.
For the high season, we will operate direct flights from Santos Dumont airport to Navegantes and Florianópolis. We will also connect more cities to Porto Seguro with direct flights departing from Belo Horizonte, Rio de Janeiro and Brasilia.
From Campinas, we will have operations to Natal, Fortaleza, Salvador, [indiscernible] and Maceió. In international market, we will adjust our capacity to Miami and Orlando in United States, which will be seasonally operated from February 19, 2016.
We are also conducting studies on feasibility of operations in Caracas, Venezuela. We have already registered the frequency to one flight per week.
On the other hand, in order to capture opportunities in the region in profitable markets and routes, we are studying the possibility of operating in new international destinations, including Havana and Cuba. And of launching new operations to Buenos Aires departing from other cities in the Northeast of Brazil, keeping in mind that today we have flights from Fortaleza and Natal to the Argentina’s Capital.
Continuing with the development initiatives of our operational performance in the slide #9, in relation to our fleets on item #3, we highlight the change in 2016 and 2017 aircraft delivery schedule, which provided for the delivery of 15 units. After negotiations with our partner Boeing we obtained the approval and postponed the delivery of 11 aircrafts to 2027.
Therefore, in the next two years only four aircrafts will be delivered maintaining the low average age of our fleet. We will be intensifying the subleasing aircraft during the low season in the southern hemisphere.
We had committed to sublease 12 aircrafts in 2016, compared to seven in 2015. This kind of transaction is important due to a lower demand showed during the low season allowing us to adjust the fleet accordingly to the market.
Although, the initiative does not generate any profit, it reduces expenses such as rental payments, maintenance and other items made by the [indiscernible]. In the next item, #4, we highlight the optimization of costs and expenses with new processes and tools to improve crew and airport teams working schedule to new and more modern software.
We also have a group that is revisiting the contracted suppliers in several areas of the company in order to adjust them accordingly to our needs in the coming years. These contracts cover 100% of GOL’s cost structure.
In item five, I highlight the redesign of our organizational structure, eliminating executive layers and making the decision making process more agile and direct. And to finish with the initiatives taking the response to the current scenario, we decided to freeze new hires from now in order to increase our operational efficiency and not replacing the natural turnover of the company.
We are taking into consideration the size of our operation and the demand for our clients. On slide #10, we continued to show GOL’s evolution and efficiency and productivity since 2012.
From the UN Resources perspective, the net revenue per employee ratio increased at the most -- almost 32% in the last 12 months. Fixed demand number per employees grew 16.2% on the same comparison basis.
On the operational side, GOL also presented continue evolution and per share net revenue generation per flight by approximately 36% since 2012 and improved the fuel consumption ratio by almost 14.2% in the last four years and here we are talking about fuel consumption without any gain in the fuel prices. Now, I would like to hand over the presentation to Masson.
And further we do not have the participation of Edmar today because he is under medical item until Friday, tomorrow. Next week, he will be back.
And now I’d like to hand it over to Masson. Please Masson?
Eduardo Masson
Thank you, Kakinoff, and good morning, everyone. I’d like to invite you to look at slide 12.
The highlights that make up the company’s results have already been discussed by Kakinoff, but I would like to mention again the currency devaluation by as much as 62% at the end of the quarter and 55% on average, if you look for year-over-year, that reflects the economic slowdown in Brazil. If you look to the revenue number, in this quarter has increased by 1%, while the costs grew by 7%, impacted by exchange rate devaluation and inflation.
But offset by the fuel price in dollars and the slightest lowers in real. This margin has impacted our EBIT by -- EBIT by margin by 5.8 percentage points.
Remind you that the EBIT margin at the third quarter over the second quarter at 12 point -- percentage points higher. Consequently, the EBITDAR is lower by 3.6 percentage points, achieving 15% at the third quarter.
According to our valuation, this clearly reflects the scenario where we had -- where we in despite that the company has been done. I would like to remind that in the first quarter 2015, the EBIT margin was above 60%.
We should also highlight the impact of our foreign exchange variation in our -- results, 1.4 billion reais in the quarter -- within the quarter are almost 70% of our losses. In nine months of 2015, the exchange rate accumulate is 2 billion reais.
The year starting remember, however, the year starting at 2.66 reais per dollar and ended the third quarter roughly at 4 reais per dollar or 3.98. This represents almost 50% higher than the beginning of the year.
Regarding the pricing and the demand, it’s easier if you look for the indicators of minus 2.6% of yield and 1.3% minus of [RAC] [ph]. Clearly it seems in this quarter, we were working to mitigate the cost pressure with capacity management since August, through the end of the year and gradually increase the yield, trying to mitigate the margin issues.
Moving now to slide 13, I’ll make a comparison with 2013, where we are in the beginning of our recovery. Although, the economic situation in Brazil has deteriorated since then we remained a high level of almost 10%.
If you compare to 2014, PRASK was lower 1.3%, but compared to the previous quarter, PRASK was 13% higher with 11% improvement in yield and 1 percentage point in the load factors. Now moving to the page 14, this slide explains to the market what happened in CASK within the company.
The CASK is ex-fuel or this is excluding fuel and the exchange rates in our operation impact by 1.12 of reais. Particularly, the issue of employees, we ended the bargain agreement and also that had been operating our graded number of flights, passengers and destinations with the same numbers of employees.
We have in comparison more destinations depending on our network change. In terms of leasing, although it would be of this chart, there is reduction in almost in dollars due to the contract renegotiation, but in line of this is -- this line is 100% impacted by exchange variation.
Provision of services, the highlight of the Smiles program, which buys tickets from other airlines, but turn it into revenues and therefore helps the company’s results, giving almost 37% reais, this corresponds to more than 40% of this variation. In the next slide, I will -- we see the maintenance in the letter -- at the letter B, in terms of maintenance, with the renewed maintenance process, again the lower number of events fundamentally depends the company’s management and even if this line has been impacted it’s mitigated by the new process in detail.
The last thing to highlight the increase opted of the costs primarily driven by improving the catering service the other costs -- sorry, it’s the last letter of this short, letter E and its impacted and primarily driven the improvement of catering service international flights. Turning now to slide 15, we show what I had anticipated.
With the fuel at different levels, our entire cost base is exported in dollars by about 15% and the international price of fuel has been reducing the participation that mitigates the exchange rates impact and exposure at our costs. Turn now to slide 16, the slide shows the results from ongoing work in showing the CASK ex-fuel adjustment to our average levels.
We also present our recent published figures showing that we remain very competitive. In the following slide, the number 17, I would like to talk about the leverage.
Leverage increased due to the exchange rates. We understand that it affected the -- that will impact the company’s numbers, but I would like to realize the competition of quarter of 2012 which is [indiscernible].
With that in dollar, it’s quite the same and it’s stable if you compare from the second quarter of 2015. But we increased by $300 million and the turnover that we issue with Delta’s guarantee at the third quarter of 2015.
And the debt in reais, if you compare quarter-over-quarter, the third over the second quarter of 2015, the debt in reais will reduce about 200 million reais. The company has been controlling leverage, watching the total debt and amortization’s schedule.
So there is no pressure in the short-term also in controlling the liquidity of the company. That is exactly what we see in the slide 18 with 3.1 billion reais in cash is a comfortable position of liquidity for us for the next year.
Now in the slide 19 relates to our cash position compared to the sector. This is also one of the company’s pillars.
The high liquidity ratio is part of our financial strategy. Today, GOL is one of the most liquid companies in the industry regarding to the liquidity over the last 12 months revenues.
Now I’ll give back the floor for Kakinoff to comment the resulted guidance for 2015 and we will end the presentation. Kakinoff, thank you.
Paulo Kakinoff
Thank you Masson. On slide #20, as disclosed yesterday to a material fact, I will comment on the new operating margin EBIT guidance for 2015 with a range of minus 2% to neutral.
This revision reflects the Brazilian economic scenario mentioned above, which had an impact on GOL’s costs and expenses and on the revenue front transportation of passengers due to weaker demand, with mix of leisure and corporate customers has changed. The new guidance also includes the variation in exchange rate and fuel prices in reals for 2015.
We took into account the change in currency and in commodities to October and the guidance for the fourth quarter. We predict that the average dollar will remain between 3.40 reais to 3.30 reais in 2015 and fuel prices between 2.15 reais and 2.25 reais.
The final message in slide 21 therefore is that we are focused on the recovery of our operating results and to keep the liquidity with the reduction of our capacity and improvement of our network due to the market conditions. We will continue to focus on expansion or considering revenues and seek continuous efficiency gains and strict cost control despite the exchange rate pressure.
Finally, we will maintain GOL’s strong liquidity position, essential to go through difficult periods like the current one with more confidence and assertiveness. I would like to end the presentation by thanking you all to join us during this session.
We’ll move to Q&A now.
Operator
Thank you. [Operator Instructions] First question comes today from Michael Linenberg with Deutsche Bank.
Please go ahead.
Michael Linenberg
Okay. Everybody, good morning.
I have a couple questions here. Maybe I could start out, Kakinoff asking you about some of the route changes or some of the network changes.
Can you talk about the decision to start flying more out of Campinas. I know historically you’ve actually had a very low presence.
When I look at the five markets that you’ve targeted from Campinas, today those are markets that are exclusively served by Azul. What’s the rationale and I always sort of thought that it made the most sense for you to concentrate your flying out of either Congonhas or Guarulhos.
So if you could talk about that decision?
Paulo Kakinoff
So Michael, good morning. Actually we are adding capacity in Campinas only on the routes where our equipment has more advantage in comparison to Azul’s.
I mean this 737 can fly to between -- long haul distance within Brazil with much more efficiency. Therefore, we are extremely competitive on those routes mainly during the leisure high season where the demand for such tourist destinations is pretty high.
We are now already verifying nice sales trends on those routes in Campinas. So it means a more strategic movement to extract the most of our aircraft, which is more competitive on those selected routes.
Regarding Guarulhos and Congonhas to mention that, I need to step back, while, I am sorry -- I need to come back to some months ago when we analyze what has happened to the Brazilian industry and GOL itself. You should remember that in the first quarter of this year, we reached 6% positive EBIT margin and then in the second quarter, it’s dropped to minus 12%.
So the corporate sales scenario changed dramatically and very fast, basically between the first and the second quarter. As you know, GOL has built along the last three years, the most attractive and competitive corporate network within the Brazilian industry, but that demand almost from one month to another has reduced by 35%.
Our inventory is available for sale 330 days in advance. So you can imagine and understand the inertia to change in the short-term, our fleet size and our networks simultaneously.
This is something that we could only manage to implement in the third quarter this year. And it’s a process predicted to come to an end by the second quarter next year.
We are fully redesigning our network in order to achieve a higher net utilization over the next year and to compensate this corporate demand drop we are facing today. So Guarulhos and Congonhas, they are surely part of that strategy because they are among the most important corporate airports in Brazil.
What we have done here you see this movement being intensified over the following three months is to keep our corporate network advantage at the same time that we can increase our fleet utilization. So diluting cost and achieving lower CASK is our primary movement today related to the network redesign.
So what we are introducing to the market today -- since yesterday through the press release is the first stop of this network redesign in order to keep our advantage among the corporate airports but simultaneously increase our aircraft utilization. We are basically taking advantage of one of our most valuable assets which is our fleet flexibility, operating a standard fleet of 737 700s and 800s.
e can adapt ourselves faster than any other competitor to address the changes in the market demand. So this is exactly what we are doing now.
So you see every month some important changes in our network design. We have just started.
Did I answer your question?
Michael Linenberg
Yeah. That’s actually that’s very helpful because -- so we should anticipate additional changes to the network between now and like you said, it’s going to play out through June of 2016.
So, that makes a lot of sense given the decline in corporate. Along those lines on international, there was a plan to increase international and even to increase dollar denominated revenue, which this quarter it looked like it hit just under 14%.
But when I look at some of the changes in the international markets like maybe scaling back service to Orlando and Miami. Is that -- how should we think about the growth of dollar-denominated revenue.
Is that going to flatten out over the next couple of quarters or is that number still on a trend to get us to your goal which I think in the past was to try to get that number closer to 20% over several years.
Paulo Kakinoff
Michael, thank you very much for the question because it brings me the opportunity to clarify a quite -- I’d say controversial topic related to dollar-denominated revenues. Let me tell you a little bit more on our strategy and what’s going on in Brazil.
We have increased our dollar-denominated revenue which is pretty important basically by increasing our international network and in parallel attaching to GOL’s network the demand and the sales coming out of our partners like Delta, Air France, KLM and all the other 76 airlines in the world with whom we do operate either a code share or interline agreement. That’s something that makes at least from now a perspective much more sense and even more sense in the current scenario, why?
If you do follow the fare prices mainly connecting Brazil to the United States, do you verify that the economic tickets have dropped from $950 on average in 2014 to the current $350. That’s the fare price to get a seat to fly from Guarulhos to Miami, Orlando, New York and so on.
So even our competitors having a broader network -- international network, which would allow them to get more dollars at the moment, they have cut the price in dollars by two parts. So it means there is no positive effect in having such type of dollar-denominated revenues coming out such depressed international longhaul flights as we are facing today.
So we will continue to expand our international -- I am sorry, our dollar denominated revenues. But getting the advantage of having strong partners selling in their home countries the tickets to fly to Brazil and connecting with GOL.
Because from that direction, point of sale United States, point of sale Europe as a whole. There was no fare reduction but South American Airlines, they are mostly selling their tickets in Brazil.
And in Brazil their willingness to fly to North America and even to Europe due to current exchange rate is dramatically reduced, which brings us another opportunity reflected in this network change, they are just introducing now. We have more leisure travelers choosing to fly within South America and mainly in Brazil during the leisure high season than any other year before.
So that behavior matches -- perfectly matches our current network structure because GOL is pretty dominant in Brazil and a very important player in South America. So that’s the reason why we are now reducing our offer to Miami and Orlando.
The point of sale in Brazil has been much less attractive than it was before. Sometimes and I do believe this assessment is true to our competitors too.
We cannot even pay variable costs in those flights. So we will operate then only during the leisure high season which means in Brazil the periods between November and February and June to August that’s our plan.
So the new international routes being in consideration now they are mostly within South America and they have Havana as a promising destination which will be implemented only after we will manage to get the proper departure and arrival times in Havana, something that we didn’t achieve it yet. Is that okay?
Michael Linenberg
That’s very comprehensive Kakinoff. Thanks for all the detail.
I really appreciate it. Thank you.
Paulo Kakinoff
Thank you, Michael.
Operator
Next question comes from Savi Syth with Raymond James.
Savi Syth
Hey good morning. I just wonder if you could provide what the mix of 800s and 700s are in your 2016-2017 plan.
And maybe more importantly with the changes that you’re doing to delivery and planned subleasing. How should we think about 2016 capacity plan?
Paulo Kakinoff
Hi Savi. I am sorry.
There is an information on page 13 of our results report which could be understood, somehow misleading. Because there you have the fleet size over the following years and the PDP amount.
They are not exactly matching. And I’ll tell you why because the fleet size still reflects what is retained on the 20-F, the SEC referential document.
So we are going to update it but you can make yourself the following calculation. Instead of subleasing five aircrafts, we will sublease 12 in 2016.
We are now postponing new aircraft deliveries from Boeing in the number of 11. So you get only four from the previously forecast 15 aircrafts.
And we will also get some 727 700s. At the moment, we are considering additional queue in order to achieve the desired mix between the two families.
So the net effect of that is that during the Brazilian low season, we will reduce the number of flying aircrafts to 123. And we will as always keep you in -- I am sorry -- as a spare aircraft/maintenance program utilize aircraft.
So in comparison to the high season and the low season, we are taking out roughly 15 aircrafts.
Savi Syth
Okay. That’s helpful Kakinoff.
And so for 2016, I know the -- holding on to spots is a concern and maybe felt like the others has a lot of wiggle room on the capacity front that is, is the thinking then that the capacity cuts that you’re seeing in the fourth quarter carries on to 2016 or -- and may be obviously more so in the maybe 2Q period. How should we think about the capacity plans as you move into 2016 in domestic versus international?
Paulo Kakinoff
Savi, as you have already mentioned, we have some constraints now related to further disclosure once we are not giving any official capacity guidance to 2016. But I can share with you our thoughts related to industry behavior.
We see that it’s pretty much unlikely that the industry could prevent itself of further capacity reductions, considering that the Brazilian economic outlook we view remain the same or even become marginally better than it is today. I believe that this capacity reduction movement is supposed to continue over 2016.
This is our thought based on the current industry trend.
Savi Syth
That’s very helpful. And if I can switch on the cost side, the rent expense.
As I looked at what you did in 2Q and given the -- which was already benefiting from the kind of new rates and given the devaluation you saw, I would have expected kind of greater pressure on rent. Were there any benefits, kind of incremental benefits in the quarter that wasn’t there in 2Q?
Paulo Kakinoff
We have discussions in place right now regarding the contract. We cannot give any kind of disclosure because we are protected under the non-disclosure agreements, but I think that we have still some room for further improvement.
Savi Syth
Thanks again.
Paulo Kakinoff
Thank you.
Operator
Next question comes from Bernardo Velez with GBM. Please go ahead.
Pablo Zaldivar
Good morning, it’s actually Pablo Zaldivar filling in for Bernardo. We have a couple of questions.
For starters, after your network re-work if we can call it that way, what is your yield outlook going forward? I guess that changing the routes and the frequencies should aid you to achieve better yields.
So what are you expecting for the next quarter and maybe for the next year?
Paulo Kakinoff
Hi Pablo. Our network redesign is pretty much focused in two issues and that’s the calculations we have made, to further increase our use and to increase the amount of utilization.
So that’s the disclosure we can give to you right now without also damaging our strategic movements because we wouldn’t like to give any strategic information in advance to our competitors.
Pablo Zaldivar
Okay. Thank you.
And the other question, regarding your debt outlook, during the quarter, we saw that you restructured your debt, kicking most of the amortization forward, do you expect any more changes on the schedule or do you think that as it is, it could work out for the time being and considering the current economic scenario do you expect anytime going forward?
Paulo Kakinoff
We do not expect any significant change once the Brazilian economic scenario and the Brazilian credit scenario does not allow any kind of thoughts related to that. Anyhow, we do believe that we are in a good shape, considering our cash amount and the debt profile over the following five quarters.
Pablo Zaldivar
Okay. Thank you very much for taking my questions.
That would be all.
Paulo Kakinoff
Thank you,
Operator
Our next question comes from Josh Milberg with Morgan Stanley.
Josh Milberg
Talking about good weather, good morning and thanks for the call. Just a question related to your updated full year guidance.
Your new 2015 EBITDA margin range implies that the fourth quarter profitability could be similar to what we saw in the third quarter or even worse, just taking into account that in the first nine months, you were at a negative 1.2%. In the fourth quarter, you’ll have the benefit of better seasonality, but also likely negative effect of a weaker average currency on costs.
So just wondering if the currency effect is what explains your guidance, or if there are other factors that could pressure cost in the fourth quarter like expenses related to returning aircraft. Any color you could give on that would be great?
Paulo Kakinoff
Hi, Josh. Good morning.
Actually, probably the missing information, which made you not able to come yourself to that conclusion is the lag between the international oil price and the Brazilian jet fuel prices, which takes on average 30 days to reflect it. So, we are considering already that lag and surely, we are going to have an average dollar in the fourth quarter likely even higher than we had in the third quarter.
So, we are considering all those aspects to give you this guidance and this guidance suggests at least the same operating profit that we achieved in the third quarter or higher.
Josh Milberg
Okay. But there’s nothing extraordinary on the cost front that would be a source of pressure?
Paulo Kakinoff
No. Not at all.
Josh Milberg
Thanks very much.
Paulo Kakinoff
Thank you.
Operator
The next question comes from Ravi Jain with HSBC.
Ravi Jain
Hi. Good morning.
I had a couple of quick questions. One was more on how you see the industry and the strategy of GOL in that sense.
The last time GOL was aggressive in capacity deductions. Domestically, it was kind of filled up by smaller players and things like that.
I just wanted to kind of read your mind and your thoughts on how you see this industry managing this crisis and how you see GOL’s position after that. Do you kind of see the smaller players kind of getting a little larger and is that what you see at the end of the crisis, or do you think that you’ll continue to have the same industry structure that you have today?
Paulo Kakinoff
Ravi, it’s quite hard to talk on competitor’s mindset and movements. But I’d say the market is giving -- I am sorry the industry is giving to the market clear signals that there is a different behavior related to capacity.
The major difference in comparison to the first capacity reduction cycle, we believe that since 2011, is that now the pressure on demand does not allow any capacity increase even coming from the other competitors. So, I do not see -- personally, I do not see room for the same effect to happen next year.
Ravi Jain
That’s helpful. And the quick -- the second question that I had was on your negotiation with the labor unions.
Any color that you could give us to what is your expectations of employee costs going forward would be helpful?
Paulo Kakinoff
Unfortunately, not yet. We are just starting all the discussions and negotiations.
Ravi Jain
All right. All right.
Thank you so much.
Paulo Kakinoff
Thank you.
Operator
The next question is from Stephen Trent from Citi.
Kevin Kaznica
Hi. Good morning.
This is Kevin Kaznica stepping in for Steve. First of all, Steve and I send our regards to Edmar and hope that he is okay.
Our first question is what would be your view on the competitive landscape, I guess just circling back to that looking in the quarter what competitor seems to have some of the pullback from recently launched long-haul flying? And the second one seems to have tried to and failed to merge with another carrier and another one finally got some capital from a foreign carrier after repeatedly failing to IPO.
How do you see these competitors’ responses to the current environment?
Paulo Kakinoff
Hi, Kevin. If I understood you correctly -- I am sorry because there was some noise in the lines.
We do not have the same clarity on our competitors’ figures, at least not at the same time that we have from other leased airlines. So it’s really hard to comment on the financial situation in order to predict what would be their movements now.
I do not see, regarding the capital markets, we do not see room for IPOs in Brazil and since already months, there are no movements regarding that subject. So, I am sorry for being pretty limited to answer your question.
Kevin Kaznica
No, that’s helpful. And maybe I guess just kind of to hammer that point home.
Do you see, I guess the movements in the industry by competitors as kind of being really, really defensive and desperate?
Paulo Kakinoff
It could be. It could be, but honestly I couldn’t say.
I don’t think it’s substantial regarding that subject. Sorry.
Kevin Kaznica
Okay. No, thank you.
And then I guess my next question would be, is it possible that, I guess reduced political policy uncertainty in Brazil in the future, maybe like next year could give you guys the comfort to cut more capacity aggressively or are you pretty much comfortable where you are right now?
Paulo Kakinoff
I think the hardest thing in Brazil since the beginning of this year has been to make predictable plans happen because the volatility was never so high, as it has been today with the political scenario, not even came close to any stability. So a lot of discussions could change this scenario again.
So nobody would bet on the current macroeconomic scenario in October last year and it happened. So what we have done here is to prepare ourselves to move even faster in case that the scenario further deteriorates.
Personally, I do not believe so but in case that it happens, I think that in our competitive position would make us have some advantage and this is exactly what we are reinforcing now.
Kevin Kaznica
Thank you for the color.
Paulo Kakinoff
Thank you.
Operator
The next question is from Duane Pfennigwerth with Evercore ISI. Please go ahead.
Duane Pfennigwerth
Hey, thanks. Thanks for the time.
You touched on it earlier. Can you give us some directional guidance on CapEx for the company in 2016 and 2017 given these deferrals?
Paulo Kakinoff
We think that we will achieve a range between the same level of 2015 or less. We have redesigned and we are just implementing a new maintenance program delivered by Boeing, which took us 18 months to be fully implemented.
We started in June this year. So it’s likely that it could even reduce.
I am talking only the maintenance line, the CapEx for 2016. For the other lines, we are not able to give further color beside the natural PDP reduction once we are postponing deliveries from ‘16 and ‘17 to 2027.
So those are the only two lines of the balance where I can give you colors.
Duane Pfennigwerth
Okay. I guess it would be helpful to know when you can -- what cash CapEx is expected to be in 2016.
It feels like a pretty big variable. It’s a small number for you, but it looks like your cash in Venezuela increased slightly.
Can you explain what drove that?
Paulo Kakinoff
This is really --
Eduardo Masson
FX variation. Hi Duane, this is Eduardo.
Paulo Kakinoff
It’s FX variation and it’s marginal effect. So there is no, I mean any additional cash being raised in Venezuela.
Duane Pfennigwerth
Okay. And then what percentage of Smiles do you still own that is not pledged as collateral to Delta?
Eduardo Masson
Duane, it is Eduardo. We do not disclose how much we pledge for Delta.
Okay.
Duane Pfennigwerth
Okay. Thanks for the time.
Paulo Kakinoff
Thank you.
Operator
[Operator Instructions] The next question comes from Matt Roberts with Raymond James.
Savi Syth
Hey. Good morning.
This is Savi actually. Just two follow-up questions here.
On the average price that fuel has been fixed in the next two quarters, is it possible to kind of provide some color? I think you talked about what it is in fourth quarter guidance implicitly, but how should we think about 1Q on the fixed portion?
Eduardo Masson
Hi, Savi. It is Eduardo.
Savi Syth
Hello.
Eduardo Masson
Hey. How are you?
It depends -- the fourth quarters, it depends on the facts. As we already mentioned, we do not expect to have any increase in the international prices.
So to talk about the fuel prices in the first quarter, we are still waiting what’s going to happen in the currency here in Brazil. But probably if we are at the same level, dollars per reais or reais per dollar, probably we’re going to face in the fourth quarter of 2016 the same level as we have in fourth quarter of 2015.
Okay.
Savi Syth
That’s helpful. Thank you.
And then just on the rent line, was there any kind of sale leaseback gains that were recorded?
Paulo Kakinoff
In this quarter, in the third quarter?
Savi Syth
Exactly, yes.
Paulo Kakinoff
No, we do not have.
Savi Syth
Okay. Great.
And then my last question was just on the -- Kakinoff, you mentioned about the kind of the international doing less U.S. and then more South America.
But South America trips are also priced in U.S. dollars or they priced in kind of local currency.
Paulo Kakinoff
The point of sales in Buenos Aires, Chile, all the countries we are flying, they are dollar denominated.
Savi Syth
Okay. Great.
Eduardo Masson
Savi, only to remember, when we cross the board, typically we use the global distribution system to sell and since we sell through the global distribution system, we set the price in dollar.
Paulo Kakinoff
The dollar becomes the working currency. Okay.
Savi Syth
Okay. Very helpful.
All right. Great.
Thank you very much.
Paulo Kakinoff
Thank you.
Eduardo Masson
Thank you.
Operator
The next question comes from [Mary Lewis, Bluebell] [ph].
Hello.
Paulo Kakinoff
Hi, Mary. Hello.
Hi. Thank you for taking my question.
I just wanted to ask you, I joined just now, so I don’t know if you had already answered it. But about the negative book value that you have and any unsecured debt apart from maybe the bond with the banks if you have any, do you think the banks will get spooked by this and potentially this can raise some liquidity issues or you do not expect such thing?
Eduardo Masson
Hi, Mary. It’s Eduardo.
We don’t have any kind of constrain in our debt related to our negative equity. So in this case, we do not expect to have any pressure over the debt terms related to that, if it’s clear from your question, sorry.
Yes. I think this was clarified before that there is no constraint as in there is no covenant pitches or anything like that if your book value of equity turns negative.
But just thinking about any roll over that you would need in the next coming couple of years. I am wondering if you think this can be a problem when you try to roll any debt that you have and I think that it’s mostly the unsecured debt that will be more problematic.
Eduardo Masson
No, I don’t think so.
Okay. Fine.
Thank you.
Operator
Ladies and gentlemen, this concludes today’s question-and-answer session. I would like to invite Mr.
Paulo Kakinoff to proceed with his closing remarks. Please go ahead, sir.
Paulo Kakinoff
Behalf of our team, I just would like to thank you very much for your attention and time. Have a nice day.
Operator
This concludes GOL Airlines conference call for today. Thank you very much for your participation and have a nice day.
You may now disconnect.