Low cost airline future in the Americas

Transcript

Anita Mosner:Good afternoon, everybody. My name's Anita Mosner, and I'm a partner with Holland Knight in Washington, D.C. But to reassure you, I— prior to coming to H&K, I spent 10 years on a consulting platform doing things like network planning, alliances, actually business restructuring, and a number of other things. So I am very much a hybrid. This panel is going to be informally run. We'll be asking questions of each other, and the one thing I would say is the only bad question is the question not asked. So I'm going to encourage people to engage with the group. I've got an extraordinary panel with me, and we represent 3 different countries. Going to the man in the center who really needs at this point no introduction, is David Neeleman, the CEO and founder of Breeze and also numerous other airlines, who is in fact an icon in the industry. So thank you for participating in this panel as well. Hailing from Brazil, we have Abhi Shah, the president and CEO of Azul. And then we have from Canada, Matthias Wilck, who is the president of Flair. And the thing that will become apparent during this conversation is we've got 3 different countries, 3 different, very different airlines, even though they're all sort of thrown into, for the purpose of this conversation, an LCC. But I think Michael Bell raised, I think, the first question, which is, what is an LCC? Because at this point, The variations we're seeing across the marketplace are so broad. Just leading off, Abhi, when we spoke initially, you talked about the fact that you offer— you have a mixed fleet, you offer cargo service and others. Talk a little bit about your airline, your product, and how that has worked for you.

Abhi Shah:Sure. Thanks. Hey, everyone. First of all, David is the founder of our airline. Give him props for recognizing that back in 2008. We are an LCC, but we're a very, very different LCC to what you would imagine. Obviously, we try to manage costs like an LCC, whether it's FTEs per aircraft and things like that, but we have— it's a very different model. It's very adapted to Brazil, the demographics, the geography. And the fact that we really wanted to grow the market. So, you know, in 2008, when David first went down, Brazil had 50 million passengers is all, the whole country. Now it has 100 million. Of that 50 million growth, Azul alone is more than 30 million of that growth. So we're responsible for more than about 60% of the growth of the entire market. But we've really adapted ourselves to cater to that market. We have something like 7 different fleet types, which is not common at all for an LCC. We run very much a connected network. It's very, very connected. It's hub and spoke. We have 3 big hubs. We have focus cities. We have long-haul. We fly to Europe. We fly to the US. We have widebodies. We have a big logistics business. We have a big vacations business. We have a big loyalty program. We have a maintenance tech ops business as well. So we've, over time, I think we had an initial business model, but we've really been able to adapt and capture all of these advantages. And our mantra is very simple, is to build and create competitive advantages all the time. That's all we do. Anything that we're doing is to build and extend competitive advantages. And We're just trying to find different ways to capture demand and bring demand into our universe so we're not just dependent on one thing all the time.

Anita Mosner:Okay, thank you for that. Masij, you were talking when we were speaking about the Canadian market and shifts in the market. Can you talk a bit about what you're seeing and what sort of opportunities and challenges that will pose for you?

Matthias Wilck:Well, first, I'm constantly being reminded that Canada is this graveyard for a failed ULCC model. So we're here, or there for that matter, in Canada to finally lift that curse and, and make the— this, this business model profitable finally in Canada, because Canada truly needs it. The really surprising thing about Canada is this is like one of the most developed, most, um, the wealthiest country, one of the most wealthiest countries in the, in the world. However, it is deprived of this, um, affordable air travel, um, contrary to literally every other market globally. LCC or ULCC business model has been immensely successful all around the planet, but for some reason not in Canada. Um, and obviously there might be multiple reasons for it, but My key thought is that actually it's less about like the textbook business model that you implement or so, but it's more about finding the right recipe for the specific market. Exactly as my colleague said just a minute ago, Brazil allowed for a development of the business model from the very roots as an LCC. On the other hand, my company learned the hard way that simply copy-pasting of the European ULCC model of the Canadian grounds won't work, and it hasn't worked. We're just in the process of redefining the strategy, redefining the model to find this unique recipe that will actually work in the Canadian market, which used to be this graveyard for LCC, but not anymore.

Anita Mosner:That's great. David, the premise of this entire panel was LCCs are struggling. succeeding and thriving in Latin America and not in the US, but it's from after hearing from you this morning, it sounds like you are very much bucking the transition. Tell me about what you see about the challenges and opportunities in the US market and where are the pitfalls that we should be looking for?

David Neeleman:Yeah, I'm sure you're all sick of hearing from me by now, but I just want to add something that Abhi talked about. And it's because it does relate to the US market. Abhi talked about there were 50 million people, 50, 5-0, people traveling in Brazil, actually 47 million, just to round up. But it was only to 45 cities.

Abhi Shah:Yep.

David Neeleman:Today Azul has service to 150 cities. So that's really relevant. And when we When we came in with the Embraer 195, we saw that we had a 20 to 25% trip cost advantage to the incumbent carriers that were there.

Anita Mosner:And then we—

David Neeleman:but we didn't stop there because we looked at the ATR and it had a 40% lower trip cost advantage to the 195. And that's what allowed us to go into all these cities. And then we even have caravans, you know, even lower than that. So You know, I think, and it was relevant to what John Slattery talked about with Alex Wilcox this morning, you know, how do we continue to get— because we know that, I mean, in Brazil, you've got infrastructure challenges. You either are going on a 2-lane highway, or if it's a big highway, it costs a lot of money. The tariffs are— the tolls are—

Matthias Wilck:Right.

David Neeleman:They're ridiculously expensive. So how do we bring airports closer and closer to people that they can fly? Because in some places in Brazil, you'd have to drive 4 hours just to catch a flight. In the Amazon Basin where we serve, you were going 2 days on a boat or you fly on Azul. You know, those are the— those are your 2 options. So, you know, as Kristin talked about, you know, 600— Allegiant serves in 600 markets. They've identified several hundred more, 1,200 more, huge number of markets. So I think it's just trying to stimulate traffic in areas where, you know, the big guys see us scraps. We'll take all their scraps.

Matthias Wilck:Sure.

David Neeleman:And, you know, we'll hopefully do about $1 billion in revenue this year, just picking up little scraps, flying to airports that are closer to people, flying them nonstop. We've done that tremendously successful in Brazil, creating 30 million new travelers a year compared to what existed there before. You can do it. It just takes a lot of hard work, the right aircraft type to be able to harvest these scraps.

Anita Mosner:You went through, of course, a number of different startups in the United States. Obviously, when you first started, JetBlue and also with Morris, the market was much less mature. Of course, Brazil is a very immature market. How was your experience with launching Breeze different from like your first few launches?

David Neeleman:Yeah, it's much different, obviously. And my team is pretty much a legion. Lucas Johnson, Max Burroughs, You know, they did— Lucas kind of was at Allegiant where they launched about 500 routes. And so it took some getting used to for me to say, geez, we're not going to fly daily? What are people going to do if you don't fly daily? And I'd really like to have 5 flights a day if we could. You know, it's like we have one route where we have 2 flights a day. Everything else is— we have some daily routes and some others. So It was really a change in mindset to understand. And they said, you can fly Tuesday if you want to, but you're going to lose all the money you make on Sunday and Monday if you want to fly Tuesday. But I will say that the advantage of having a lower trip cost airplane like we have, we do a lot more Tuesday, Wednesday flying because with a 25% lower trip cost, we can actually break even on those days or make a little money where others would really—

Matthias Wilck:Mm-hmm.

David Neeleman:Lose a lot of money. So that's what was different about, you know, because even at Azul, there are markets— what's the most frequency we have in a market? Maybe 6 or 7 flights a day? 10 flights a day. 10 flights a day. And now we're doing 2 flights a week. So it was a big mindset change. But taking all the learnings we had in Brazil, getting with the Allegiant guys, and understanding the new market was Being able to create profitable markets that mature really quickly and become profitable.

Anita Mosner:So, Matthias, we were talking a bit about changes in demographics in the market, geopolitical challenges. What challenges are you seeing in your marketplace at the moment?

Matthias Wilck:Oh my, where to start? I mean, we all read the news and we've read The headline from AOG that there is a 70% drop in Canada to US travel, like, we don't see this. We rather see a single-digit decrease, which is still a lot, and this requires a reaction from the airline. We reacted very quickly, like, like within a day or two since it started, and we redeployed capacity into the domestic market. The beauty of the ULCC business model is that we can react much more quickly, much quicker, and then in a much more flexible manner than the full-service carriers, the hub carriers. However, obviously, this is simply a simple shift of capacity from, from transborder to domestic. That doesn't solve the issue because everyone is doing the same. So we will be facing significant price competition on the domestic market. right now in summer '25. And the billion-dollar question is whether this is something that will continue for the next 3 or 4 years, or maybe, you know, emotions will cool down and summer '26 will be more or less back to normal. So that's the, that's the key question. I'm curious to hear your thoughts, guys, here in this room. Furthermore, we've heard from, from today in the morning that the consumer confidence is is weakening on both sides of the border. We see that in a little bit softer demand, both in domestic or international travel. This is certainly a challenge, and especially that it's even more visible in Canada, who faces the election just in a couple of weeks. There is a double effect, so to say.

Anita Mosner:So what you're talking about talks about, you know, obviously about the policy changes and the other changes that can actually drive a business and looking at the things that you need to operate successfully and otherwise. Looking at it from a number of different perspectives, I'm going to actually, you know, Abhi and I talked about consumer issues and the expectations in the market. And the fact that you might be more nimble but for a government that is somewhat more feisty or frisky than you would want it to be. Can you talk a little bit about what it's like to operate in the Brazilian market and the challenges that you've seen?

Abhi Shah:Yeah, sure. But before that, let me just talk a little bit about how to navigate this scenario, right? Because I think the more tools you have in your toolbox, the better off you are. Let's say you're facing pricing competition. Let's say you're facing domestic supply. How can you bring in other demand? Maybe you— for Azul, for example, we have a vacations business. That vacations business has opaque pricing. That's a way for us to bring in demand. We have a loyalty program with more than 18 million members. That's a way to bring in demand without just going to the public market and lowering the price. If local demand is not doing well, then maybe you can turn the spigot on for connecting demand, or international, or codeshare partners. So I think the more tools you have, you're not just dependent on either everybody behaving, or you need fares to go up all the time. So I really encourage everyone to think about what are the different things that they have, and keep building on those assets, and keep finding different ways to bring demand into the universe. You can have somebody sign up for a credit card, and the next day they might buy a vacations package. The next day they might go to— Orlando with you. I think those kinds of tools, at least for us, are really, really critical. Brazil is obviously a very— it's an emerging market, but it's a market that thinks that airlines are rich all the time and loves to tax them and place rules on them and things like that. We have 2 major challenges, if you will, locally. One is the price of fuel. Even though Brazil is a gigantic producer of fuel, All of the price, all of the fuel is priced like it's imported, so it ends up being some of the highest fuel prices in the world. The second one is lawsuits against airlines. Brazil has 2% of the world's departures, but has 95% of all lawsuits against airlines. It's something totally crazy.

David Neeleman:Don't start an airline in Brazil.

Abhi Shah:You know, like, if we delay a flight, we cancel a flight, and you had a job interview and you didn't make the job interview, then we get sued for the job that you would have gotten from that job interview, right? And we lose, right? And because you're talking about a local judge in some city or state that thinks, look, here's a little consumer, you're a big airline, surely you can afford it, pay this guy a little bit of money. But you add it up, and in the end, who ends up paying is the consumer.

Anita Mosner:Right.

Abhi Shah:We had service to one state in the northwest of the country where the propensity to sue us was 22 times more likely than São Paulo. 22 times. And so we literally canceled all service to that city. And then we got sued because we canceled service there. That was the crazy part. And they actually wanted us to go there and apologize. For canceling service.

Anita Mosner:The beatings will continue till morale improves, is that it?

Abhi Shah:No, in the end, what happens is the consumer suffers because now that city and that state has no service. It is a very challenging environment. Brazil has 100% foreign ownership, but as David said, there really haven't been any new entrants. In Brazil, fuel prices and lawsuits.

David Neeleman:I would say one more. I'd add exchange rate to that too, Abhi. When we put the money in, we raised the first $250 million to go into Brazil, it was at 1.6 to 1 exchange rate. It hit 620 to 1 recently. If we— if it was still down at 1.6, we would have 1,000 airplanes flying around in Brazil.

Matthias Wilck:Airlines.

David Neeleman:No doubt about it. And that's— and we collect 95% of our revenue in reais. And we— and 65% of our expenses are in dollars. Maintenance, fuel, airplanes are all in dollars. So that's a huge challenge that we have to navigate as well.

Anita Mosner:Okay. Obviously, you've grown— Azul has grown a lot over the recent years, and you're, as I said, you're at a different trajectory. You know, Breeze at this point is trying to create some new markets, and can you talk a little bit about How that has tied into the demise of the regional carriers and where have you made it work versus others?

David Neeleman:This has become the case even more after COVID than before, but we looked at the US business and said, wow, this is crazy. There are less and less regional airplanes being flown every year. I think it peaked around 2010, almost a million flights, and now they're down to about half a million regional flights. And there's lots of reasons for that, but primarily the pilot salaries doubled. The planes were never really economically efficient in the first place because they were— the size was determined by scope clauses of union contracts. And so, you know, there was this kind of 74-seat Up to 174 seats and getting bigger, and there was this huge area right in the middle that said, "Wow, this screams like a 137-seat airplane with 12 first-class seats." And so, yeah, as airlines force more and more people through hubs, I mean, the statistic that we always quote, which is really incredible: 125 cities in the U.S. over the last 10 years have lost more than 25% of their air service. Basically, it was taking big airplanes, taking them out of those small cities. Huntsville, Alabama. If you want to fly Huntsville to anywhere, if you're not on Breeze, then you have to fly to Atlanta or Dallas or one of the other hubs. But if you fly Breeze and you want to go to Vegas or or to Tampa or to Orlando, then, you know, you fly Breeze. So those, you know, and that's not really something you could put a 240-seat airplane on. Would never work. If I had 240 seats, I wouldn't be flying it either. So, you know, it's, it's just finding those pockets, and it's just so much easier. It's exponentially, as your airplane size gets smaller, provided you have that smaller trip cost, you have exponentially more markets that you And I mean, obviously, there was also a question about the loss of EAS and the loss of connectivity.

Anita Mosner:What sort of reaction are you seeing? I mean, really, this is for all 3 of you, in terms of communities trying to seek service, and, you know, what sort of relationships have you established with communities in terms of telling you to take a flyer on a service and having you then decide to make it? Yeah, I mean, I think that's a really good question. Does anyone want to jump in on that question?

Abhi Shah:In Brazil, we have a very close relationship with— because we're the only airline, as David said, in 100 cities. Many of these cities have never seen air service until Azul shows up. You have one of our airplanes, an ATR, arrive or something, and you have people lined up at the fence. Brazil doesn't have the money to actually pay us for that. We do it because we think it's economically the right thing to do. It brings demand into our network.

David Neeleman:It also lowers fuel taxes.

Abhi Shah:Yes, also as well. We make deals to serve more cities in a state, lower our fuel taxes.

David Neeleman:Every state has their own fuel tax in Brazil.

Abhi Shah:But for us, it's really about bringing new demand into our network at the lowest cost possible.

Anita Mosner:What's been your experience with Canadian communities?

Matthias Wilck:Well, I echo what was just said right now. Canada is less about a long list of unserved city pairs because there are not so many cities themselves in Canada, but it's more about unlocking this restricted demand that, that still is there and has been for, for a very long time. Um, you know, as I said earlier, it's, uh, it's really intriguing that, that Canada, again, this one of the most developed economies in the world, has had this classic textbook duopoly for just decades. Just a couple, a couple of years ago, WestJet and Air Canada together were 78% of the domestic market. Right now there are more like 65%, which is still a very strong duopoly. However, it's, it's slowly diminishing. The real role for Flair and other market challengers play in the Canadian market is to lower the cost base, unlock the, the demand, get the people off their couches and start flying. Because for now, there are millions and millions of people in the country that simply cannot afford air travel. And obviously affordability is a big thing politically and then socially, not only in, um, in Canada but, you know, in most places in the world. So this is, this is the true mission of the low-cost carrier. to drive high utilization, high efficiency, to unlock the lowest and the first possible, also via unbundling, because that's another difference between LCC and full-service carrier, that you pay only for the base fare and then you choose à la carte what you want to pay for. So that's the key difference.

Anita Mosner:Okay, that's actually, you know, a fairly interesting point, which is— I'm sorry, David, you wanted to Jump in.

David Neeleman:Yeah, you know, it's— we have a lot of cities that want us to fly, and they show up and they say, we're great, we can fly here and fly there. And then some of them, we just say, all right, put your money where your mouth is. We need X number of dollars per hour. We'll sell it, we'll promote it, and if we come in below that, you just pay us the difference. And it's amazing how many cities will say yeah. And it— what's even more amazing is how many cities never have to pay anything. It just works. That's kind of a joint partnership model that we have with a lot of cities that we can share the risk a little bit, and that allows us— we have a whole team of people that work— not a whole team, one or two people actually that work on that, and it brings in a lot of revenue for us.

Matthias Wilck:Quite often the discussion ends the minute you mention that there should be some money flowing into airlines' direction.

David Neeleman:It's okay. There's plenty of other cities waiting in line behind them.

Matthias Wilck:Yeah, but also we need to be realistic. For example, I talked to the mayor of one of the cities in Western Canada, and when I asked him, where can I provide some air service, he said, New Delhi. So obviously, I can't really help you here.

Anita Mosner:Yeah, no, if you need a little bit of refueling. So there are a couple of other topics we need to talk about. I know one of the things we talked about obliquely is government policy either incentivizing or disincentivizing new air service. And we talked about Europe, in fact, you know, trying to actually eliminate certain types of short-haul flying and others. What are your, each of you, your biggest policy problems, pain point, and how would you fix it?

Abhi Shah:I mean, for us, sure, it's fuel and lawsuits. Lawsuits, for example, You know, it feels a little bit more difficult, but lawsuits, what we're trying to do is we're trying to take 3 or 4 sample cases that are really emblematic, take them to the Supreme Court in Brazil, and we're trying to get a favorable decision at the Supreme Court level, which then will have the precedence for all the other cases. That's our strategy right now. In Brazil, you also have literally, you know, you come out of baggage claim and there'll be a lawyer waiting for you and saying, here, I'll pay you upfront. Let me sue the airline.

David Neeleman:For the claim.

Abhi Shah:For the claim. So we're trying to manage that as well. But for us, our lawsuit is big, and we're trying to go to the Supreme Court, try to get a favorable decision that then flows down.

Matthias Wilck:All right.

Anita Mosner:David, you.

David Neeleman:You know, I think the process of getting certified, I think the FAA, given that They were all allowed to go home, and many of them moved away from the state. You know, you're in the New York— you're running the New York FISDO and you live in Portland, Oregon, for example. And trying to work with all that was a huge challenge for us. Also, introducing a new aircraft type where there weren't any FAA examiners to do the checkrides was a challenge and cost us a lot of money. But Right now, we've got a great relationship with the FAA. We're working closely together. Certainly, air traffic control is a big issue. I think I mentioned earlier that I had a chance to meet with Secretary Duffy with another group of CEOs. He's really committed. I love the fact the guy walks in and he's like 2 months on the job. He said, why can't we get more throughput? Well, the trainees are there so long they can't afford to live. Okay, raise their pay. Raise their pay. You know, we spent billions on ridiculous, unnecessary stuff that doesn't help anybody, and we— and it'd just take a few millions to pay these trainees more so we can get more throughput. Just identifying those pain points and dealing with them as you're saving money on the other areas is just critically important.

Anita Mosner:All right, Masać.

Matthias Wilck:Well, where to start? Clearly, one of the reasons Canadian aviation market is sort of underdeveloped is the regulation, and I see quite a few bits and pieces of regulation that needs to be changed for this market to really flourish, or flourish for that matter. Well, where to start? Like, imagine a market where Slots in the key Tier 1 airports are not controlled by the third party, like, like in Europe, for example. Imagine the market where airport tariffs or navigation charges are not being overseen and approved by the civil aviation authority, as it is the case in Europe. Imagine the market where flying domestic costs you more on the navigation charges than flying just over it on your way to the US. US or to Europe. So there is a lot of things that should be changed in Canada that can, that can actually unlock lower prices. This so-called land use fees for, for the airports, it is quite unique to Canada that the airports, instead of just owing the, the land that they're on, they're actually leasing it for a fee from the government. which obviously boosts the cost of operating the airport significantly, and this is then translated into one of the highest airport fees in the world. Lots and lots of things to improve, but hopefully we will be more vocal about it in the coming years, and eventually we'll see some change.

Anita Mosner:Thank you for that. One of the things that we talked about and I heard others talk about is consumer complaints, and we haven't really talked about distribution and its impact on airlines and also consumer satisfaction. And, you know, putting on my airline lawyer hat, I find that— and also even as a consumer, a lot of times I want to deal directly with the airline, build my own itinerary, and if something goes wrong, I know where to go to get my problems addressed. Now, David, you said at one point about how you like to communicate directly with your customer. What does that mean? Do you have a relationship with OTAs? If so, how so? What level of penetration do they have into your business?

David Neeleman:So we started with just Google Flights. That was it. And we took a hard line and said no. And then finally, you know, Priceline comes along and said, okay, if you can come in here, we'll give you a you know, let you, let you have all the contact information from, from your guests. I said, okay. And so we, we struck a deal with them. And then Expedia came along and said, hey, you know, I see you're doing Priceline, can we do the same? And so we negotiated that. So we were able to keep the integrity of our business of being able to kind of communicate directly with our guests, particularly during irregular operations. And still have the benefit of having that distribution. So that's worked well for us.

Anita Mosner:Anyone else who want to comment on that?

Abhi Shah:Yeah, in Brazil, distribution is completely different, right? So Brazil historically has been a very corporate market, still is. So travel agencies are very dominant. In fact, we're still very surprised 16 years later how relevant travel agencies are, mom-and-pop travel agencies as well as corporate travel agencies.

David Neeleman:Consolidators too, right?

Abhi Shah:Consolidators, yeah. For us, only about 35%, 40% of our bookings are direct. Everything else comes through travel agencies. OTAs, on the other hand, haven't really increased their penetration. They've increased in absolutes, but not really as a percentage. So, you know, the most common birthdate of anybody flying Azul is January 1st, 1900, right? That's because the travel agency does not send us the information. It's 1/1/00, right? And so we're constantly having to fight this battle with travel agents. On one hand, they sell a lot. They don't want us to access their customer directly, but it generates huge challenges for IROPS, communications.

Anita Mosner:Yeah.

Abhi Shah:Customer recovery, all those kinds of things. So a little bit of progress has been made, but not really, not enough. So we're trying to— it's this dance between keeping the revenue going, having a partner that sells a lot, but also being able to access the customer when needed. So it's a challenge in Brazil. Obviously, we prefer to sell direct.

Matthias Wilck:You know, I think we have all the tools and technology to do that, but just a lot of cultural habits that just Yeah, I can only add that a direct relationship with the customer is always the best, and it allows you to, to like manage this relationship in a proper manner. And should something go bad, then, then it's the easiest way to, to communicate and to solve problems. When I came to Canada and to help develop the low-cost carrier, I was like, go all direct, chop off all the Expedias and Pricelines of the world, and just go direct.

David Neeleman:Yeah, I think that's a good point.

Matthias Wilck:Go all direct, but I quickly realized that if we'd done that, we would lose like 35% of the total sales because of the cultural habits and, and the way people are used to deal with airlines. So again, I come back to my previous point that every market has its specificity, and then we need to find the right business model for the market. In our case, that's 65%, 70% maybe of direct sales. I would love it to be more, but Guys like Expedia are extremely strong in the US and Canada, and we cannot simply ignore them.

Anita Mosner:Okay. We've had, I think, a really interesting conversation just about how, in fact, the model doesn't necessarily all apply. But obviously we have an audience here that's extremely, extremely engaged and extremely knowledgeable. Do we have questions from our audience in our remaining minutes? Okay, I see a hand back there. It looks— please identify yourself, although I think I know who you are.

David Neeleman:Hey, it's Joe Lederer again. You got me at 95% of the world's lawsuits are in Brazil, so I have to ask this question. So what is the outcome that's occurring in Brazil? Normally when we see that happen in different geographies, there are legislative changes that, that way our consumers are not taxed. Is that happening in the rogue state which has the 22 times the number of normal lawsuits? What steps are you taking to protect the airline?

Abhi Shah:Absolutely. So first of all is network, right? So in that particular state, we just had to cut capacity completely. We are trying at the Congress level, we're trying at the judiciary level, but a lot of this is also kind of everyone's involved a little bit in a sense. So you have lawyers involved, you have judges involved, so that makes it a little bit more entrenched. Which makes it a little bit more difficult to kind of break apart. For example, trying to access the— so 90% of the time, the customer doesn't even reach out to us. They'll directly go to the lawyer, or the lawyer will go to them. So trying to find ways to actively reach out to the customer. And one thing that's really important, I guarantee you, if you look at March Cirium data, most on-time airlines in the world Top 10, 3 of them will be in Brazil. Azul, Gol Latam. The operations in Brazil are amazing. And we still have— so it's not even about that. It's really about a culture that became entrenched that is very hard. So it's Congress, it's judiciary, it's Supreme Court. Also, how do you treat a lawsuit, right? So you fight in the court, you fight, fight, fight as long as you possibly can. to try to delay the cash flow of these lawyers. Sometimes you settle in vouchers, not cash, less impact to revenue. Vouchers have different rules. So a whole host of different strategies, but I cannot claim that we've conquered it. We have another hand up front.

David Neeleman:The trial lawyers in the United States have a lot of power. The lawyers in Brazil, same thing, no different.

Anita Mosner:We have a hand up front.

David Neeleman:Orlando.

Matthias Wilck:For Azul, you signed a non-binding MOU with the ABRA Group in January.

Anita Mosner:Is there any update on that?

Abhi Shah:I didn't think that question was going to come.

David Neeleman:Sorry.

Abhi Shah:Look, we—

Anita Mosner:No, well, for backup, you have to explain what the group is and—

David Neeleman:yeah.

Anita Mosner:Well, ABRA is the group that's part of GOL and Nona Bianca and also looking at UAMO.

Abhi Shah:Yeah, look, we believe that the Brazilian market should be a lot bigger. If you look at the per capita penetration of air travel, 100 million passengers, 220 million population, 0.45. If you compare that to Mexico, to Chile, to Colombia, that should be 3, 4, 5, 6 times bigger. But it's hard to grow in Brazil. Cost of capital, extremely high compared to other parts of the world. Access—

Matthias Wilck:Fuel.

Abhi Shah:Fuel is a great one. We serve 150 cities, as David said, but it should be 200. How can we do that? By connecting 2 networks feeding each other. We believe that there's a strong case to be made for growth. Orlando, Azul is probably the 2nd largest international carrier to Orlando, maybe after Virgin. Definitely the largest from South America by far, but many more cities can have nonstop service to Orlando, to Fort Lauderdale. We're sure about that, but you need to connect networks to be able to do that. Engines, you know, engines. How do we get attention from GE, Pratt Rolls-Royce, you know, being sort of a small airline in Brazil? You need to have scale, deliveries, all those kinds of things. So we really think that there is a lot of power in this case to grow the market, to add more cities, have service that's never been had before. So that's our case in a nutshell. But a long way to go still.

Anita Mosner:All right. Other questions from the audience? I don't see any. Oh, there is. Sorry about that. If we can get a mic or—

David Neeleman:You can talk loud. There is one element for me when I come from Europe that really struck me. I'm very critical for the LCC success in the Americas, or at least in the US market, which is the power of the loyalty programs and how the credit card schemes that power that, which is something that we don't really have in Europe. And I'm curious that that hasn't been mentioned on this beginning of the session. But do you believe that you are, let's say, in a less competitive position because you don't create the stickiness or maybe the captiveness of your customers through that? Well, you know, we have an advantage because when you fly between routes, when our— we have our own credit card and the uptake's about 50% more than what we thought it would be. So we're, you know, we're starting to get millions a month in that, not billions like Delta. So I think we have an advantage because when they first said let's launch credit card, I'm like, I got 10 credit cards in my wallet. I don't want another credit card. And they said, no, it really matters if you're the only one in a market. I know from Azul's perspective, it's, I think, half of 1% of all the GDP in Brazil is charged on the Azul credit card. Huge. So it's a huge benefit for us.

Abhi Shah:Yeah, no, for us, it's absolutely— like I said, the more tools you have, the more ways to bring customers in and keep them loyal is better for us. We have the largest co-branded credit card in Brazil for an airline. It's about 0.5% of Brazil's GDP is spent on it, and it's more than 50% of it is Infinity and Platinum. It allows us not only to bring demand, but bring a premium level of demand, which is very powerful.

Anita Mosner:All right. This has been a really interesting session. I think that there are probably about 5 other topics we could have covered. Consolidation, certainly alliances and growth and connectivity and lack thereof, but we're going to have to leave it And then let these conversations continue over drinks. So when we close, I want to say thank you very much to all of our panelists and for the time they spent preparing and for sharing this with you. And thank you to the audience for some very, very good questions.

David Neeleman:This is the last you'll hear from me, so.

Abhi Shah:All right.

Anita Mosner:Thank you.

Matthias Wilck:Thank you.

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