Why Latin America and the Caribbean matter more than ever - the next era of connectivity

Transcript

Lori Ranson:Thanks very much to our panel. We have Diodat from Guyana, Marina from Iberia, Garret from Arjet, Brent from Embraer, and Kamal from LATAM. We're here to talk about connectivity. I'd like to open by sharing something that stood out to me at this year's IATA AGM. Which is in 1999, South American airlines transported 68 million passengers, and now that's grown to 440— excuse me, 447 million. But trips per capita are still 0.67 or around that number. So there's room to grow for sure, and there are white spots in the region that are not served. Marina, I'd like to start with you because you have a large presence from Europe to this region. I believe that Iberia's seats grew 8% this summer, if I'm not mistaken. What's the runway for that? How much growth do you see going forward? Can you sustain those numbers or grow even more?

Marina Colunga:Well, that's an excellent question. We have developed a long-term vision and Latinam— long-term vision plan called Plan de Vuelo. I was trying to recreate that name in English, and I don't know how to say it, so it's Plan de Vuelo. Plan de Vuelo 2030. That's a long-term vision in terms of how are we going to continue growing, not only in terms of network and connectivity, but also as a company and how we want to continue growth. Latin America, it's at the core of the Plan de Vuelo strategy. Just to give you a perception, we will be closing this year with almost 5.8 million seats within Europe and Latin America, which is a world record for us.

Garret Malone:Thank you.

Marina Colunga:There's a lot of work being done. The Plan de Vuelo not only includes an horizon of goals, but also a number of— or a financial plan that will imply $6 million in terms of investment. Out of those $6 million— billions, not millions of investment, 70%, it's being dedicated to our long-haul fleet.

Honourable Rodney Indar:Thank you.

Marina Colunga:fleet. The numbers are there. Latin America will continue to be a core strategy. Our hub in Madrid is connecting with 140 destinations, but Latin America has a vast majority on the long haul. We will continue to drive and to focus in the region as part of our substantial long-haul plan.

Lori Ranson:Garret, I'd like to hear from you because you're an up-and-coming airline, a young airline. You operate 2 hubs, which is interesting. As you build your network out, what are the opportunities you see in the region? Where does Arjet feel that it can expand the most and have the most returns?

Garret Malone:Very good question. We started operating in Santo Domingo 4 years ago. Next week. And we started operating in Punta Cana, our second base, be 2 years this December. Both bases have a different passenger profile. Santo Domingo, the capital, is more VFR and business, and then Punta Cana is more kind of leisure. So there's kind of some synergies between both bases because if you've gone on holidays, you don't want to be leaving— in Canaries, we see a similar problem. You don't want to pay a hotel night, leave at 3 o'clock in the morning to get a 6 AM flight. So we see certain routes that we can fly the 6 AM departure from Santo Domingo and then fly the WN swap cruise and go from there. The opportunities we see, endless. As you say, we're 0.6 trips per capita in Latin America. We were definitely focusing there. Our business plan originally was to focus more on North America, a country delayed in getting open skies, a country which, you know, so we had to shift to looking south. Argentina now is one of our more important markets and growing more and more in Latin America, helping to drive that up from 0.6, 0.7, 0.8 with the help of our other airlines here on the, on the board today. So yeah, we see a lot to come. We have aircraft coming and very excited.

Lori Ranson:So it sounds like maybe that delay was actually beneficial in building up your other markets here, right?

Garret Malone:Definitely. Wouldn't have liked it 2 years ago, but given all that's happened since then, we're happy.

Lori Ranson:Brent, from your perspective, from the manufacturer's perspective, and having some big wins here recently, where do you see the opportunity, particularly for the smaller jets?

Brent McBratney:First of all, Lori, thank you for having me today. I'm honoured to be here at CAPA, obviously representing over 20,000 Embraer employees around the globe, and have certain members of my team here today also. It's great to be the mouthpiece up here, but I have the brains of the outfit out here. Anyway, regional connectivity is kind of the heart of everything we do at Embraer and have continued to do over the years, if it be the turboprop 30-seat or 50-seat regional jet to the E1s, which has done an excellent job down here in Latin America. If we talk about Azul, if we talk about Aeroméxico, Aerolíneas Argentinas, and formerly at Copa and Avianca. But the E2 is really taking this onto kind of the next level because the economics of the airplane are so good. A big thank you to Kamal and your organization. I tell you what, we at Embraer are so excited to have you on board the program. I was telling Kamal earlier, I was at the final assembly line a couple of weeks ago. There's 6 LATAM airplanes there. The excitement for the organization is palatable, and everybody's just really excited to bring the airplane into entry into service and have a real smooth go of it with these guys. Abra, obviously to us, that's the other big linchpin down here. That really kind of solidifies us as being the next narrow— small narrowbody of choice for the region. So when we talk about Latin America and growth in general, let's take a step back and say, what does Latin America mean? When we look at it globally, from our forecast, Latin America is going to be growing near the top of the world for the next 20 years at about 4.5% traffic growth per year, which is going to translate, as we see deliveries, up to 150 seats.

Garret Malone:Thank you.

Brent McBratney:seats, about 800 airplanes. Now, what's exciting is about 70% of that growth is going to be— 70% of those 800 airplanes is growth. So that is really tapping into secondary markets domestically across the region. That's new international markets, point-to-point markets, filling out frequencies. So everything you can think of on the lower end, our airplane is going to do, and it does exceptionally well. And right now, we'd like to have Significant wins. Right now the A220 is batting zero down in Latin America. There's no A220s in Mexico, Central America, or South America, and we're working hard to keep it that way. But we see a significant amount of growth coming on the small jets all across the region doing what we just said. And obviously Kamal's team has done a super job. We're very excited about all the, the routes that they've announced, and our team keeps looking forward to what's coming next from those guys. Thank you.

Lori Ranson:So you all ordered the E-Jets late last year. Do you think the region has reached a maturity level to deploy some of these jets into experimental markets? I know that they can be used to add frequency as well, but do you feel like there's enough inter-regional demand on those smaller, thinner routes that can support the E2?

Honourable Rodney Indar:I think that's a great question.

Kamal Hadad:Hi, first of all, thank you for the invitation for CAPA. This is one of the greatest, I think, conference in the industry to talk about network planning, everything, so thank you for the invitation again. When we talk about trip per capita, that I don't know if all of— we have talked, but I don't know if all of the audience understand what does it mean. is number of trips per year divided by the population. When you see that number, Latin America is around 0.7 in comparison with Europe, US, 2, 3. So there is a potential at least to double or maybe triple the number of passengers transported. But another number that is fascinating in my opinion That when you look, the number of people in Latin America who actually travel in an airplane is only 20% of the population. So it's all of us traveling 2 or 3 times per year. So it's 80% of the population who has never flown in an aircraft in Latin America. So the potential of stimulation—

Lori Ranson:Thank you.

Kamal Hadad:It's huge. Talking more about the Embraer potential, the regional jets, when you look, Brazil in particular, 30% of the population in Brazil, they don't have a flight 3 or 4 hours away driving. When you think Embraer, the potential that has flying smaller cities like Giparaná, I don't know, maybe the Brazilian knows. I don't know. Before having Embraer, I didn't know Giparaná, to be honest. There is a potential of this kind of cities, the agribusiness, tourism in Brazil that could have huge, huge stimulation.

Lori Ranson:Diodat, you come at it from a different perspective. Can you share with us where you see the most opportunity for Guyana in building out its network capabilities?

Honourable Rodney Indar:Thank you very much. Thank you very much to these wonderful people That is on this panel and for inviting us to speak a little today. So I'm the Minister of Public Utilities and Aviation for Guyana. A quick 30,000-foot analysis: from 2016 to 2019, the average economic growth of Guyana was around 4%, and then we started producing oil December of 2019. In full year's production in 2020, economic growth moved to 43.5%. Then on the next year, 2021, it went to 20% on that growth. Then in 2022, it went to 62.5% on that growth. Then in 2023, it It was 33%. '24, it was 36%. Last year, it was 19%. There has never been a country in the history of the world since economic data has been captured that has seen the sustained growth as Guyana is experiencing. We have moved from producing from 1 FPSO to 5. And we are producing over 900,000 barrels of oil per day as of this morning using those 5 FPSOs. So we will end up going to about 1.15 or 1,150,000 barrels in another— by the end of the year. And there's a 6th FPSO coming on stream by 2027, which will take us about 1.3 million barrels. We only have around 1 million people in Guyana. Per capita, we are the largest producer of oil on Earth. What that has done for us. In 2020, when we first took government, we had 4 airlines. We had Copa, American, Surinam, and Caribbean Airlines. Today, we have 16. That is a phenomenal growth. Our passengers, in terms of passenger growth, is 400%.

Lori Ranson:Wow.

Honourable Rodney Indar:Using 2020 as a base year. Cargo, every economic indicator is on the upward rise. What does this mean for load factor, for new routes, and so on? If you look at the Western Hemisphere, the figure that you quoted, I'm happy that you delve into it a little more in terms of raising sustainable demand for the traveling public, especially using air.

Lori Ranson:Yes.

Honourable Rodney Indar:Air travel, because it will— shifting of one person choosing one airline as against the other only moves the passenger to a different airline. It doesn't deal with the industry or the sector as a whole. So at lunch, I was explaining to some very special people about getting events, getting economic development Like every country has to have some crafted strategy to boost activity in the country. And once that is boosted, you have incoming traffic, you have outgoing traffic, it carries up the load factor. Bring more people out of their house— houses and on an airplane. That is what needs to be done in the Western Hemisphere. And the Western Hemisphere has so much potential, but we are accustomed to the existing route network of, of the airlines. Most persons go through one single route, through one single hub, and that has been the way since Noah was a boy. It needs to change. The world has changed. Regulations have gone into different parts of the world that causes people to not travel because of transit visa issues and a whole host of things. Those opportunities are there to bring to the Western Hemisphere, bring into the Americas, especially from Africa. You have the Nigerian traffic, you have Côte d'Ivoire, you have all of those. They have to go north, they have to go to Europe and then go to the other destination. They can come to South America and then move to the United States. They can come to South America and go anywhere else. they want to go. Those are the kind of thinking that needs to go into Western Hemisphere to make sure that we increase the route and the load factor.

Lori Ranson:Well, um, that's a good segue to ask you this question because LATAM is adding service to Cape Town and it kind of builds on what you just said. So can you walk us through the decision to, to launch that flight and how it's performing?

Kamal Hadad:Yeah, LATAM Group has 3 different hubs internationally with different roles to connect different traffics. São Paulo-Guarulhos, for the location, works really well to connect Europe, Africa, and Middle East. When you imagine a São Paulo-Cape Town, that is the flight that you are asking, we can connect in Guarulhos 200 million people who live in Brazil, but also Argentina, Uruguay, Paraguay, Chile, and Peru. They have a really good circuit, so a logic path to go to Africa through Guarulhos. That's one thing. And the other important thing, when you look at the demand, 75% of the demand are generated in Latin America and only 25% in Africa. So we think that we have the right to win because we have the frequent flyer program, we have the passengers that are generated in Latin America. That was the, the logic of that flight in particular.

Marina Colunga:Thank you.

Lori Ranson:What's the maturity profile on a flight like that?

Kamal Hadad:Cape Town actually in particular was a really good surprise. Usually there is a ramp-up that can take 6, 12 months, but actually Cape Town is doing really well. Actually, we are increasing frequencies for the winter season for December because Cape Town started in May, June That is low season for Africa, but it's performing well, so we are increasing frequencies. But I will say in general, like Brussels, Amsterdam, of that other destination that we are launching to Europe, it could take 6 to 12 months in general.

Lori Ranson:It's interesting to me that demand on some of these long-haul flights remains pretty strong just given the whole fuel situation. What do you think is driving that as well? Do you think passengers are just saying, well, Fares might go up even further, so just book it now.

Kamal Hadad:That could be something for us, maybe something dedicated to study the society after the pandemic. I don't know, because it looks like that the people before the pandemic— I've been doing network planning and everything for several years, and in all other crises, we have like a ranking of priorities. Housing, education for the kids, I don't know. And then was travel here, a small crisis and just stopped traveling. That was before the pandemic. But looks like that now, that's my theory, maybe it's more expensive to get a house, I don't know. But it looks like that, and you want more experience because maybe another pandemic can— we can have. So maybe you want to have more experience, so travel is here. Looks like, hopefully for many years, that the demand, actually across all the regions, remains strong.

Lori Ranson:We touched on the E2s. There are some other aircraft that we should probably talk about when we're talking about connectivity and aircraft economics and what routes make sense and how routes mature. Marina, Iberia currently has one of the longest XLR routes in the world. I believe it's Madrid-Santo Domingo. That's one of the longest, right?

Marina Colunga:You got me on that. We have the LXR with Fortaleza and Recife and Santo Domingo, which I'm assuming is probably similar.

Lori Ranson:Yeah. How is the aircraft performing on those routes, and what's the potential to grow XLR operations, particularly over here, Just given the amount of growth and investment that you're planning in this region.

Marina Colunga:Well, let me start saying that the LXR addition to our fleet has been transforming the long-haul strategy for us, basically because it has made viable some destinations that would probably not be profitable with operating in some other airplane. We are currently across Latin America operating Santo Domingo, Puerto Rico, Recife, and Fortaleza, and we have had incredible good results. For any of you who haven't gone through a narrowbody such as the LXR, I can tell you that we are not reducing the customer service or the flight experience. It's an excellent product and—

Honourable Rodney Indar:Thank you.

Marina Colunga:has opened the possibility to these not major cities, but secondary destinations across Latin America to be added to the network, and from there to continue feeding the hub in Madrid, which is our core value proposition for Latin America. Bottom line, those are performing fantastically well. We start the north of Brazil with 3 flights a week. We are growing now. We have between Recife and Fortaleza, we had 6. Now we're going 9 direct flights from the north of Brazil. It's fair to say that Santo Domingo and Puerto Rico, we are operating with the LXR and with the A330s. But also it's fair to say that, as I mentioned before, our plan de vuelo plan has also included some of the investment on the retrofit of the 330s and the 320s. It's a perfect combination, having additional options, increasing our connectivity, not only from Latin America to Europe, but also to Europe from Latin America, and has been working incredibly well.

Lori Ranson:Garret, Arjet flies the 737 MAX. 737-8 on some pretty long routes into Argentina. You mentioned serving Argentina. What do you see as the potential for expanding that operation, like pushing the envelope on that aircraft? I also should ask, now that the -7 is certified, is that something you all would be interested in because more range?

Garret Malone:Oh boy.

Brent McBratney:Well, good luck with that one on the 787, that's kind of a clunker.

Garret Malone:So the Santo Domingo and Punta Cana to Buenos Aires is just over 8 hours. It's the second longest flight on the Dash 8, and you talk about pushing the envelope, we're going to start flying to Uruguay in March, which is another half hour more. It is very interesting to spend 8, 9 hours on a narrowbody flying south. Obviously we tailored it overnight so that kind of people can get some rest on board, and again it is payload restricted, which meant that we're When we set up the airline initially, we were looking toward the low-cost model, but because we can only put 170 to 160 passengers on it, we have a kind of a semi-premium product, like in years gone by with the middle seat blocked. So that's working very well for us. Argentina now, about 30% of our, our Argentine passengers, both destination Punta Cana and connections. On the fleet size, I know someone has got some very interesting opinions about other fleets. So we're always definitely looking what's out there, what opportunities. And we saw the slide that started this morning that deliveries in Latin America just plummet from 2022 onwards and like nothing from 2024. Pedro from Copa was saying it's 6 to 8 years to get an aircraft. So even if we want to look at the -7, you're talking 2034, 2036, and you're probably paying prices close to the -8. The -8 is a very flexible aircraft. It's a little more volatile for any route profiles from the -320 or other aircraft out there. So we did have a visit sometime earlier this year by a gentleman not too far away who told us— I'm not reading that one. Who told us the reason that Boeing looked at taking over the EU program was because it kind of fits together. So we're definitely looking at everything. We haven't looked that closely yet at the -7, it has been certified, but we weren't really sure when and then when deliveries would start. But for us, we kind of based on a value proposition. For myself, of course, I would prefer to stay on the 737 just from operational complexity, the crews and maintenance. However, we're not willing to pay for that. We wouldn't pay a premium again for the passenger on the 3x3 versus the 2x2 that I get on the Embraer.

Lori Ranson:Yeah, it's interesting that you're not kind Completely shutting a different aircraft type out is what you're saying?

Garret Malone:Correct. And again, the benefit of having 2 bases, you could have an Embraer in one base and the 737 at the others. And again, as you hit certain scale, when you're at 15 aircraft, it makes no sense to bring in different aircraft. But we've been thinking in 2032, we're now at a fleet of 40, and to bring in an extra 10 aircraft as a subfleet would be feasible and not overly expensive.

Lori Ranson:Diodat, what do you think about all these aircraft models? in the market and how can they help boost air connectivity to your country?

Honourable Rodney Indar:I'm happy to hear this team talking about having aircraft. Certain parts of the world, they have a long backlog. You guys know that. It's difficult to engage an airline and someone say, well, I have spare airplanes to run another route. It's not something that you get every day. Everybody, the aircraft that they have is designated and it's running a particular route. So for route expansion to happen or network expansion to happen and to grow your top side, which is a revenue base for, for any business, any airline business, they must have additional carrying capacity. Um, I want to go back to what, what is going on with our country in Guyana, and I invite Arjet and LATAM and Azul. I I've spoken to Angus from Gull earlier. What is happening there is— we don't call it growth, we call it an economic explosion, because it's what you're seeing. And because of the traffic in and traffic out, the market can absorb more carriers for different routes. Your planes that you have, regardless of what make, what size, carrying capacity, that, you know, would optimize your, your business and your profitability. I think that there are markets that executives from airlines, their analysts that are employed, don't look at too much. Somebody asked that question earlier here on this very platform. Where are the new spots for new business? And Guyana is one of them. We And then, as you know, the Trump administration is now— Venezuela has now opened up. There's a huge amount of, you know, traffic in that corridor there. But where we are located is on the Atlantic shore, and across the Atlantic into Africa is 5 hours. Where you have to go up to north, then go over to Europe, then come down to Africa take you 2 days of travel. You can now go within 5, 6 hours. So there's a reorganization of what needs to happen to grow the industry in this side of the world. One of the other things too that I don't want to— I have to say this because I'm here— is the cost. There are times when we have economic activity in Guyana and passengers from Canada or the US can't get a flight. And if they do get it, sometimes an economy ticket costs them $2,200 US. It's difficult because it's seasonal, and then you have only so much planes flying particular destination. And because of that, you have spike in prices, and it hurts the population. So the whole topic, the theme of this panel here is about expense, Expansion of route into Latin America and North America and Deep South. I think that executives should look at reorganizing how— I think the bravery of LATAM is to be commended for that route that you are doing, but there are others that we can bring. And once the volume goes into the hubs, and it will increase the load factor for every single airline operating through that hub because everybody will go different directions. So I'm just, you know, glad that at least Embraer is here and they are producing and they are supplying a certain amount of planes, but not every airplane producer is putting out planes as Embraer is because there are others that can't fulfill orders. So they do have shortage of that in different different parts of the world, but I think on the Western Hemisphere side, I think that we can tap into those opportunities. We can make sure that the tourism association of the various countries, of the various blocs, do things in those specific countries to bring up economic activity to encourage travel in and out. And once you have an accumulation of that, the aggregate demand will go up, and you have it on a cycle basis, it will carry-through season year by year. I think that would be able to sustain the industry in this entire part of the world.

Lori Ranson:I want to touch on premium and the comment that you made, Marina, about the product on the XLR mirroring the widebodies, and LATAM is doing something similar. I said this morning that premium seats are growing rapidly in Latin America, as are premium revenues. How do you see that continuing? Do you see it continuing at the pace, current pace that it is now? Garret, you mentioned that you have a product as well, a premium product that fits your brand. Let's start with you, Marina, because how far can you take premium? Is there a ceiling in terms of premium offerings?

Marina Colunga:I'm going to try to be short, but definitely there's room to continue growing in premium. After the pandemic, we saw an increase, interesting, not only on the reason why, if it's business or leisure, but how a customer wants to travel. There's an appetite for premium travel. As such, we've been working very diligent on elevate our Iberia experience, not only on our fleet, but also in the customer journey. We just opened this past Monday, second or third business lounge in Barajas in Madrid to our most loyal customers that speaks to the most elevated travel experience. We have elevated the onboard experience with new menus. We are working on the execution and installation of the Starlink. This morning, Pedro was mentioning as well in our fleet, we do have some planes across the fleet that are serving the service of the connectivity. Definitely, there's room for premium. Latin American customers are willing to pay if they receive the value. And we are focusing on elevating our strategy, our customer experience, in order to be very seamless and to be perceived as the most valuable proposition in spite of the rate, but the actual value of the experience. And we are doing extremely good. I mean, it's a long-haul flight, and America Latina has a very strong wealth in terms of the 21 airports that we are operating, but we definitely continue to see interest in the premium economy, has been significantly contributed to this mix, and we are seeing that continue to come in the next future.

Lori Ranson:Even on the E2s, LATAM is going to have its own premium economy section. Do you think if you ordered the aircraft 5 years ago, you would have that walled-off section, or is that something that factored into planning the last couple of years?

Kamal Hadad:I will say that, as we were discussing before, that after pandemic, looks like that travel is in the priority of the people. Also, I will say premiumization also is a trend. that we are seeing after the pandemic in all the numbers that we are seeing. Actually, in 2020, we have to decide the retrofit of our 787-8, and we decide to reduce to only 26 economy. Looking now, it's the worst decision that we have taken in several years, but it's done. I will say also, The demand is there, but also it's clear that all the airlines is having the right product for the people. Maybe in the past we didn't have it. So in the case of LATAM, in one aircraft we have— in a narrowbody, for example, we have economy with low pitch, economy with more pitch that we call LATAM Plus. We have the premium comfort who has the seat block. We have the premium comfort also for the long-haul and the premium business. So in one aircraft, you could have 5 different alternatives. So I would say segmentation here is a key factor for if you want to stimulate the people, the 80% of the Latin American people who hasn't flown yet. Maybe you need more cheaper prices in—

Lori Ranson:With economy.

Kamal Hadad:In economy, but you have other people with more availability to pay. So it's to have the right product for the right people, I would say.

Lori Ranson:And Garret, I mean, this is a pretty easy fix for you all to block the middle seat. How is that product performing? Is that on all aircraft? I don't think it—

Garret Malone:The first 5 aircraft we got were whitetails, ex-Russia, with business seats up front, big seats, and then all the others are standard 189 on the The 737. And what we've seen for ourselves here is if you're traveling by yourself, you're willing to pay for a business product. If you're traveling with the family and the children and a small dog, then you're more likely to go for the premium economy. Our focus and our passenger profile is more so on the leisure side. So whereas Iberia and LATAM would have everything from business travelers right the way through to the low-cost and the basic at the back of the cabin. So Our focus has been on kind of improving that premium product, kind of the premium economy, block the middle seats. We have it on all flights, different versions, and now we're moving also more dynamic as we go into different seasons where we can have maybe 2 rows blocked to Miami today and 6 rows blocked to Miami tomorrow depending on how the passengers are changing their profile. And I've heard a lot today about artificial intelligence. Again, keying that in has given us a lot easier ways to key into our very simple P&L. on dynamic pricing and dynamic model changes.

Lori Ranson:Wow, yeah, that's very interesting. You know, a lot of low-cost carriers in the US are moving to full first class. Is that something that you all would think about, or does the company need to mature? Does the passenger profile need to change for you all to think about that?

Garret Malone:It's something we are always definitely looking at because you— we see in Europe, for example, Ryanair is the best low-cost model. It works perfectly in Europe. It doesn't translate to this part of the world, partly because you don't have secondary airports and your flight times are much longer. In Europe, your average flight time is probably 1 to 2 hours. Here, ours are 3.5, and that ranges from a small island hop of 40 minutes to like the 9-hour flight. You look at the North American carriers, they've gone from look at the Alaskan product, which is a nice business class, a great premium, an economy, and then a very basic at the back, that kind of seems to be a standard now in North America. We haven't took that decision yet. We're definitely looking at what they're doing, but even to take that decision, you're talking 2 years to get seats. So—

Lori Ranson:Seats are, seats are tough right now in terms of a supplier standpoint. I'm sure all of you all could— I saw your sister airline in Wellington have their MAXs delayed Brent, in your conversations with customers and potential customers, possibly, is it a non-starter to say we want it configured with, you know, some premium seating if we order this?

Brent McBratney:Well, it's interesting today on the E2. Well, we've got a very premium product anyway. It's an 18.5-inch seat, so it's significantly wider than 7/32. A777 or an A320 today. We do have in the US, we have a 2+1 on the business class seat, so we can offer that also. So, and we're tinkering around with different configurations and seats to see how we can improve that because the premiumization has really kind of taken over. And a lot of the carriers that we talk to are like, what else can you do with the cabin? So we're all— all options are on the table right now to explore how we can improve that product. altogether. And as LATAM would testify, it does move quickly. And I think our people are trying to catch up a little bit on what this looks like long-term for us. But it's, it's very interesting space to watch on how the airlines have been evolving too in the low-cost carrier sector as well.

Lori Ranson:So maybe just touching on the supplier issue for just a moment, as you think about these concepts or, or developing these concepts, and yet Getting the seats is very tough right now, like, and we talk about the lag time on aircraft and aircraft ordering. I mean, how much does that affect your ability to be creative, to listen to what the customer wants and try and deliver what the customer wants?

Brent McBratney:Yeah, it's a super large constraint for us on what the seat manufacturers can do and how quickly.

Lori Ranson:We've got 2 on the airplane now, we've got a 3rd potentially, so we're looking to expand those options, but it does take years I mean, I think it's very interesting, and you can probably speak to this too, Kamal, in terms of product development and how you weigh that with the reality of when you can introduce the product. It's sort of what Pedro said this morning about the risk-reward, right?

Kamal Hadad:In our case, the— all the seats issue hasn't been, I will say, a problem too much. We are having problems with the deliveries, with the engines. In the case of Embraer, what we are working with the Embraer team, actually, from the decision until the entry into service is going to be 1 year. The product will be with the premium economy that we have in the narrowbody with a curtain, and that includes engineering and everything, and we couldn't do it in a year. In the term, I will say seats and everything is not an issue in our case, much more related to fleet and engines.

Lori Ranson:Diodat, if you had a wish list for routes or airlines you could attract, what would that be?

Honourable Rodney Indar:Well, we have a special case in Guyana. Right now, we are expanding our major airport. By building a second terminal. It's about 160,000 square foot. But we're also building 2 new airports, one similar to the one that we have at Cheddi Jagan in the south of the country and another one in the east of the country. So we will be looking for, obviously, airlines to come and run those areas because they have some volume. We'll have to work out the numbers, but generally we want— we would like to see more More lifts. I welcome Arjet and LATAM. You guys can come and see. Don't be too late because for us, some of us, advantages is at this time. If you wait a little later, you know, it will have an impact on you. But I just wanted to talk a little on the conversation about, you know, premium and all of these revenue optimization, you know, plans that airlines would have.

Lori Ranson:Yeah.

Honourable Rodney Indar:But it's also— profit is also a function of cost. And if you're spending 96 cents on a dollar, your retained earnings is only 4 cents on a dollar. That is not enough to recapitalize, and you end up in trouble as a business. So cost is a very important aspect, and a major element of cost is fuel. There's no secret. And where the fuel comes from. Where is it stored? How is it transported from the place of storage to the place of dispensation? That line or that tentacle of costs has to be examined, especially for Western Hemisphere, from top to bottom. So there is need to address that problem on a macro level where governments have to be involved with the private sector, with the airlines, with the industry leaders. to find ways in which that problem can be— the cost can be reduced by having strategic storage across the entire Americas so that the distance from the storage to the country where you're operating is shorter. And once that is shorter, the cost will become lower. So you have a problem with that right now because most of the The oil that you need, it comes from a different part of the world and it travels distance to get to the Americas. And then it goes to storage and it goes to another cycle of transportation to get it to the various countries. And ships are used, so it carries up costs. And that is what you're bearing all the time. That's the elephant in the room when it comes to costs on airline operations. So So that needs to be looked at at a very strategic level, and I think that the airline industry needs to advocate for those kind of things. But I think that once you have the— I call it the coalition of the willing— once you have willing people who are brave enough to speak about this problem and raise the problem with their government leaders, you will find that it's not isolated. It won't be isolated to Panama or to— to Brazil or to— everybody has this problem right now. You have countries in this part of the world that have the reserves, they have the crude, they just need the refineries and make sure that the storage facilities are built out strategically across so that fuel gets to the users at a cheaper price.

Lori Ranson:I have one question for you, Kamal. Congratulations on the new Cusco-São Paulo flight. Shall we expect more international connectivity from medium airports in Peru in order to bypass Lima?

Kamal Hadad:Thank you, Pedro, for the question. I will separate the question in 2. São Paulo-Cusco, the logic behind that there is a lot of Brazilians Who wants to go to Peru, they usually go to Cusco, then go to Lima, and then come back to Brazil. Having the São Paulo-Cusco direct flight is easy to build the tourism packages because you don't have to pass through Lima twice. That's the logic of that flight in particular. Another issue that is related in the question, I don't know if all the audience know, But Peru, Lima, has a brand new airport, really good. We have been waiting for that airport for many, many years. But at the same time that the new terminal started operation, there is a fee called for the connections in Peru in particular, that in our opinion is crazy because you want to develop the traffic, you want to connect.

Honourable Rodney Indar:Thank you.

Kamal Hadad:And you have a fee for the connections. It's like, I don't know, I cannot imagine Pedro or Robert talking this morning that Panama has 70% of connection and you have a fee for the connection. You want to develop the connection. So that's an issue that we are working in Lima that could be related with the route, but the route has, I will say, another logic. We need to solve the issue of the—

Garret Malone:Yes.

Kamal Hadad:of the TUA, that is called the fee, anyway in Lima. Otherwise, all the growth— we have A321XLR also coming to LATAM next year, and we have several routes that we would like to launch from Lima: San Francisco, Chicago, a lot of new routes. But all the routes has connections, so if one— if you want to charge fees for the connection, doesn't make any sense to deploy the aircraft in Lima.

Lori Ranson:Well, we are out of time. I don't— do we have any audience questions? I don't see any, so we're a little over time. Thank you so much to everyone on the panel. We really appreciate it. And now please go enjoy your coffee break.

Honourable Rodney Indar:Thank you.

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