NYSE:VLRS Controladora Vuela Compañía de Aviación Q3 2023 Earnings Report $4.11 +0.02 (+0.49%) Closing price 05/7/2025 03:59 PM EasternExtended Trading$4.20 +0.09 (+2.17%) As of 04:00 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Controladora Vuela Compañía de Aviación EPS ResultsActual EPS-$0.33Consensus EPS $0.25Beat/MissMissed by -$0.58One Year Ago EPS$0.30Controladora Vuela Compañía de Aviación Revenue ResultsActual Revenue$848.00 millionExpected Revenue$853.42 millionBeat/MissMissed by -$5.42 millionYoY Revenue GrowthN/AControladora Vuela Compañía de Aviación Announcement DetailsQuarterQ3 2023Date10/24/2023TimeAfter Market ClosesConference Call DateWednesday, October 25, 2023Conference Call Time11:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Controladora Vuela Compañía de Aviación Q3 2023 Earnings Call TranscriptProvided by QuartrOctober 25, 2023 ShareLink copied to clipboard.There are 15 speakers on the call. Operator00:00:00Through our loyalty based programs. Our affinity program with OXXO, the largest retailer in Mexico, is still in its early stages, and we envision it evolving into the largest platform in Mexico with Volaris as one of its cornerstones. Looking into the Q4, we see solid bookings across our network as we approach the holiday season, with demand trends largely resembling the ones we saw in the Q3. Regarding our network, Volaris saw 2 critical developments in the 3rd quarter with Mexico's recovery of Category 1 status and Pratt and Whitney's GTF engine inspection announcement. We were pleased to announce the recovery of Category 1 status on September 14, a significant milestone achieved over 2.5 years after the initial downgrade. Operator00:00:55In the past month, we have diligently pursued regulatory authorizations to increase our flight frequencies between Mexico and the U. S. Additionally, our culture partnership with Frontier is set to resume in December. Although the GTF engine preventative accelerated inspections have affected our ability to reallocate aircraft for U. S.-bound routes more than anticipated. Operator00:01:19We are on track to introduce 4 aircraft lines onto Mexico to U. S. Routes by December, representing a 19% increase in capacity compared to last year's levels. Our management team is also working to optimize our network for the parked aircraft expected in 2024 by identifying and reducing capacity along ramp up and underperforming routes. Looking to the next year, we will focus on prioritizing our most profitable routes. Operator00:01:49While doing so, we will maintain a prudent approach to protecting Volaris' long term growth prospects. Our commitment involves preserving our leadership in our domestic core markets, while leveraging the Category 1 upgrade for routes to the U. S. Simultaneously, we plan to scale back certain trunk routes. Specifically, we will be reducing capacity on ramp up routes and at Mexico City International Airport in response to the aircraft movements reduction taking effect on January 8. Operator00:02:21I will now turn the call over to Haile Paus to discuss the financial performance for the quarter. Speaker 100:02:27Thank you, Holger. For the Q3 of 2023, Volaris demonstrated financial performance that somewhat tracked behind our expectations. Total operating revenues came in at $848,000,000 a 10% increase compared to 2022, driven by sound demand across our network and ancillary revenue per passenger, which increased to $49 from $39 the previous year. However, this result was partially restrained by the impact of the preventive accelerated inspections of the GTF engines during September. TRASM was $0.0837 up 2% year over year. Speaker 100:03:13EBITDAR for the quarter totaled $207,000,000 an 18% increase over the prior year's quarter. EBITDA margin was 24.4 percent or an improvement of 1.6 percentage points from the Q3 of last year, favored by lower jet fuel prices and a stronger peso. Volaris posted an EBIT of $39,000,000 up 11% for an EBIT margin of 4.6%, flat versus 2022, our CASM ex fuel was $4.91 an increase of 21%. The primary factor driving this increase was a strong appreciation of the Mexican peso compared to the prior year. As a reminder, a stronger peso has a net positive impact on our operating margins. Speaker 100:04:08Still, it is a headwind for unit cost, given the translation of peso denominated cost into dollars in our consolidated P and L. The appreciation of the peso impacted our unit cost by $0.34 in the quarter. Excluding this effect, our CASM ex fuel only increased 12% versus the Q3 of 2022. We managed costs as effectively as possible to achieve expectation that included cyclical pressure associated with maintenance and redeliveries that we anticipated on our Investor Day last December. Moving to jet fuel, the average economic fuel cost during the quarter was $3.17 per gallon. Speaker 100:04:54While this equates to a 20% decrease year over year, given the lapping of last year's historic surge in fuel prices, jet fuel costs have risen rapidly since the Q2 of this year, up 17% sequentially. Given the recent geopolitical global circumstances, we expect to continue to experience volatility in jet fuel prices. During the quarter, we booked delivery cost accruals of $42,400,000 and no sale and leaseback gains. Total CASM came to $0.0798 for the Q3, a 1.7% increase compared to the Q3 of 2022. For the Q3, the net loss was $39,000,000 the cash flow provided by operating and financing activities in the Q3 was $145,000,000 and $87,000,000 respectively. Speaker 100:05:53Cash outflows used in investing were $138,000,000 CapEx net of pre delivery payments totaled $63,000,000 in the quarter. Our strategy to maintain operational reliability drove investment of $11,000,000 in acquiring Esper Engines. The capitalized major maintenance events expenses were $37,000,000 for the quarter. Year to date, CapEx net to operate delivery payments stands at $186,000,000 For the full year, we continue to expect CapEx of $300,000,000 net of pre delivery payments. Volaris finished the quarter with a liquidity position of $764,000,000 representing 24% of the last 12 months operating revenue. Speaker 100:06:45Given the effect of the expected parked aircraft on our capacity and network, it is particularly important to maintain a healthy cash position. In this sense, we secure financing for Atez Perr engines through finance leases for $109,000,000 Notably, five of these leases are structured under Japanese operating leases with call options or YOLCOs, representing a milestone for Volaris as these marks our first entry into these financial structures. Additionally, in the Q3, Volaris successfully issued Mexican pros adults worth MXN 1,500,000,000 or $86,000,000 This marks our third offering under the program approved by the CNBB and solidifies Volaris as a regular issuer in the Mexican debt capital markets. Overall, our balance sheet remains solid and flexible to comfortable meet our financial commitments for the foreseeable future. At the end of the third quarter, our net debt to EBITDA ratio remained at 3.5 times. Speaker 100:07:55As of September 30, our fleet comprised 125 aircraft, up from 113 aircraft a year ago. Seats per departure were 194 in the Q3 and our fleet had an average age of 5.6 years. We are working diligently on our fleet plan with Airbus and maintaining our annual aircraft delivery plan, which includes 24 aircraft already financed for 2024 2025. Our mitigation plan encompasses adjusting certain operating costs in anticipation of the expected reduction in our fleet. However, we must emphasize that we would be cautious in scaling back our operations. Speaker 100:08:41While we are committed to cost control, we also focus on long term growth and are mindful of the required resources to support that future. Additionally, we aim to retain the flexibility to increase operations after the engine inspections are completed quickly. Although our unit costs will likely experience upward pressure due to capacity reductions, our commitment to maintaining world class cost control remains unwavering. The company's net cost impact for the Q3, which includes rounding compensation is forecasted to remain under control. Consequently, for the entire year, we expect the CASM ex field to stay consistent with our original guidance of around US4.0 dollars CASM both including and excluding fuel expenses will be netted for the compensation we received from Pratt and Whitney. Speaker 100:09:37However, it is important to note that each line in the P and L statement will continue to reflect the actual cost of the entire fleet, including the non productive fleet. We updated our full year 2023 guidance 2 weeks ago to reflect part aircraft cancellations and higher fuel prices. As a reminder, our estimates for the full year are as follows: ASM growth of 10%, total operating revenues of $3,200,000 CASM ex fuel of $4.8 EBITDA margin of 26%, CapEx of $300,000,000 net of finance, 30 repayments, net debt to EBITDA ratio of 3.5 times. This outlook assumes an average for the full year foreign exchange rate of approximately MXN 17.75 per dollar and an average economic fuel price of approximately $2.80 per gallon. Now I will turn the call over to Enrique for closing remarks. Speaker 200:10:43Thank you very much, Jaime. Volaris has managed numerous challenges and regulatory static in recent years, including slot reductions in Mexico City, International Airport, a major COVID crisis, a downgrade in the category of the Mexican Aviation Authority, soaring fuel costs well above historical levels, shifts in aviation regulations, including discussions on cabotage, the transition to new airports, significant delays from OEMs, the complex implementation of new engine technologies, etcetera. The Volaris team has consistently responded with agility throughout these challenges, adapting the company effectively and achieving considerable success. At certain moments in the aviation industry, absolute clarity is impossible to assess. We firmly believe that the current situation is no exception. Speaker 200:11:36We're again prepared and motivated to manage the airline for a successful 2024. We will focus on managing our fleet to the best of our ability, putting safety first, while focusing on profitability. Our operation may be smaller in the short term, but we've continuing strong demand against reduced capacity in our markets and appropriate support from Pratt and Whitney. The next year has the potential to deliver an improved performance versus 2023. Thank you very much for listening. Speaker 200:12:06Operator, Please open the line for questions. Speaker 300:12:12Thank you. The floor is now open for questions. Questions will be taken in the order they are received. We ask that when you post your question that you pick up your handset to provide optimum sound quality. Those following the presentation via the webcast may post their questions on the platform. Speaker 300:12:40The management team will answer them during this call or the Volaris Investor Relations team will follow-up after the conference call is finished. To send your questions via the webcast platform, click on the Ask a Question button Our first question comes from Duane Pfennigwerth with Evercore ISI. You may proceed. Speaker 400:13:10Hey, good morning. I just wanted to ask you maybe like a RASM Distribution or profitability distribution question. If you were to rank your routes, kind of highest RASM to lowest RASM, How much lower is the bottom 10% to 15%? In other words, you haven't given 24 guidance here, But if you were to cut the bottom 10% to 15% of your capacity into next year, how much could your RASM improve? And Certainly appreciate there are a lot of moving parts here with category 1, etcetera, and maybe some shift to international. Speaker 400:13:49But maybe you could give us a sense for some sensitivity there? Speaker 200:13:57We had a part of those Routes that were not performing yet on a profitable basis, okay? So that 10%, 15% that you have in the lower tail include a good amount of routes that were in development. If you remember, we launched more than 40 routes this year that we're maturing, okay, and they were part of that, okay. So what we're doing is, yes, you're absolutely right on making the question. We are cutting down that capacity. Speaker 200:14:30We're cutting down the non profitable capacity and the less profitable routes. And that accounts that probably improves our TRASM somehow between 5% to 8%. Speaker 300:14:46And Speaker 500:14:48there are a lot of new moving parts. It's also fair to assume that there will be some capacity reductions in the Mexican domestic market since 2 out of the 3 airlines, which account for 70% of the market, are going to be affected by the patent Whitney engine issue. So lots of moving parts in the domestic market, and We have cut one back in the international market. So we will see where things turn out once we have a full plan. Speaker 200:15:18I think it is important to say Duane that our forecast for the year end already includes the downtime of the aircrafts that we have forecasted for this quarter. Speaker 400:15:31Okay. Thanks for those thoughts. And then just on compensation, I assume at a minimum, aircraft ownership and the cost to make these repairs are on the table. But what about other costs, staff costs, presumably you hired to fly this capacity. What other forms of compensation are on the table? Speaker 600:15:57At the moment, we cannot comment on that. It's something that we are under negotiations with Pratt. But Pratt has behaved rational and supportive of the company. But we will share whenever we have the possibility of doing so. Speaker 200:16:14I just want to remind you, Duane, that we do have a flexible label contract Based on a per hour basis. Speaker 400:16:23Okay. Thank you. Speaker 300:16:28Thank you. One moment for questions. Our next question comes from Stephen Trent with Citi. You may proceed. Speaker 700:16:40Good morning, everybody, and thanks for taking my question. I was just Curious, I know with Category 1 restored now, you should have more U. S.-bound flights. Any high level color with respect to what proportion of your capacity is going to be Mexico to U. S. Speaker 700:17:05In 2024 versus what it looked like pre pandemic with the view that maybe you're now still doing more Central America to U. S. Nonstop, for example, just sort of trying to sort out how you're going to be thinking about your northbound capacity? Thank you. Speaker 500:17:26So Stephen, this is Holger. I can give you some color on the Q4. We are planning to increase capacity in the international markets by around 19% for the Q4. And that is driven by some additional U. S.-Mexico capacity. Speaker 500:17:48And Enrique mentioned, we are considering 4 aircraft lines that were previously operated in the domestic market to be shifted into The national market in the Q4. And also to remind you that we added significant capacity to Central America, which includes Central America to the U. S. Flying. And that's up in the high double digits year over year. Speaker 500:18:16So we are focusing on growing our international capacity in the Q4. For 2024, we are still sorting to the available capacity and we'll get back to you with some additional guidance on the split between domestic and international as we move through in Q4. Speaker 700:18:38Appreciate that, Holger. Thank you. And just a very quick follow-up, if I may. I know the Mexican government has, I guess, resuscitated Mexicana. When you look at their flight schedules, To what extent do you guys have modest overlap or maybe no overlap at all? Speaker 700:18:59Just trying to sort that out. Thank you. Speaker 500:19:06So we have reviewed initial press Notes of what their planned capacity is. All of the capacity that this new airline will launch is from the new airport, AIFA, the New Mexico City Airport. And there is about half of the routes are currently overlapping with us from AIFA and half are completely new routes from AIFA. So very limited overlap so far for us with the new airline. Speaker 700:19:42Okay. Thanks again, Holger. I'll leave it there. I appreciate that guys. Speaker 500:19:46It would be in the 1% to 2% ASM overlap right now. Speaker 700:19:57Perfect. That's very helpful. Thanks very much. Speaker 300:20:03Thank you. One moment for questions. Our next question comes from Helane Becker with TD Cowen. You may proceed. Speaker 800:20:12Thanks very much. Hi, everybody, and thank you for the time today. Earlier this week or late last week, it was reported by the 3 publicly traded airports in Mexico that they had reached an agreement on charges with the government and The government put out a note that said airfare should come down 9% to 12% as a result of that agreement on charges. And I'm wondering if that How that will affect you guys if at all? Speaker 200:20:45So Helane, we've been Tracking the process with the airport groups very closely. And all I can say firm today that it's firm today is we received a letter that was sent by GAP to the DGIC or to the authority where they are proposing a reduction of 10% of 2 as effective that same day. Okay. So that may impact the total price Of the tickets to the consumers. Speaker 800:21:21Right. That's what I'm wondering if that will affect you. So then the one word answer is yes, it will. Speaker 200:21:27Yes, it will on a positive basis. Speaker 800:21:31Because Your costs are going down, but won't you have to reduce your ticket prices to the customer? Speaker 200:21:41We're not affected by any of their changes. Our pricing structure is not being affected by any of their changes. Speaker 500:21:49The TUWA charge is a pass through charge that we put into the total ticket price. So the total ticket price for the consumer that they pay on our website is going to be reduced, but not our actual fare or ancillary revenue. Speaker 800:22:06Got it. Okay. Got it. I understand what you're saying now. Thank you. Speaker 800:22:09And then just on V Club members, I heard you say that I think membership doubled, in the past 1 year, which is very impressive. Is there a limit as to how Many members you're willing to accept into the program? Or is it kind of an unlimited number? Speaker 500:22:33No, Helane. We don't have a limit on how many v club members we would like to welcome to our program. Ideally, The more members we have, the more captive audience we have and the more repeat business we have. So we highly welcome this development. Speaker 800:22:52Okay. Thank you. Thank you very much. Speaker 300:22:57Thank you. One moment for questions. Our next question comes from Michael Linenberg with Deutsche Bank. You may proceed. Speaker 900:23:07Yes. Hey, good morning, everyone. I guess out of your fleet of 125 airplanes, how many airbuses are now grounded? And as you think out over the next 12 months or so, do you have sort of a rough sense of how many airplanes will be on the ground at any point in time? Speaker 200:23:28Yes. As I said, Michael, we have 52 new engined aircrafts, So which is kind of half of the fleet, okay. And given that this is now a revision every Certain number of cycles, 2,800 cycles for the A321s and 3,800 cycles for the A320s. Most of those aircrafts will go through the revision through the preventive revision. Speaker 900:24:02Okay. And how many are on the ground? Do you Or maybe not grounded, maybe Speaker 200:24:10Today, we have 16 aircraft grounded. Speaker 900:24:13Okay. And does that number, Enrique, as we move to the next 12 months or so, does that number get better or is that kind of a rough Speaker 200:24:25It depends on every week, okay? That's why it's so important. I mean, I think, Michael, what we're trying to do It's we're thinking on our customers and we have to publish an itinerary and a schedule, which is solid and it's Reliable and it's not changing for the customers. That's why on the other side, I mean, for us, it's really important to speak in terms of ASMs because we'll have Aircrafts going in, aircrafts going out, engines going up, engines going out. And it's going to be really variable. Speaker 200:24:57So I don't think it's really It's important to speak about aircrafts or engines for you guys who make your prognosis based on ASMs and for the customers who need a a reliable schedule. So I think the most important way of managing this is managing through a prognosis based on ASMs. Speaker 900:25:23Okay. Okay. I agree. I just I'm trying to get the sense on knowing that we cover the lessors. I'm trying to get a sense of how many airplanes You may have to extend the leases on and that's actually my second question, which is in your conversations with the lessors, What sort of response are you getting on the cost of the new lease? Speaker 900:25:45Because what we're hearing is that with narrow bodies scarce And everybody asking for extensions at the same time and interest costs very high that In some cases, the response they're getting from the lessors is a much higher monthly rental price under the extension Then what they were currently benefiting from despite the fact that the airplane is a lot older, right? It should be a lower lease rate, not a higher lease rate. So That would be my second question is just on your early conversations with the lessors. Is it Does it appear that these new extensions would be a bit more expensive than what you currently have? Thanks for taking my question. Speaker 600:26:30You're welcome, Michael. This is Jaime. Hi Jaime. Let's in terms of numbers, we will be extending 18 aircrafts that we're supposed to be with delivery in 2024 2025. The new rent environment has changed due to the situation. Speaker 600:26:51Still rents will be lower than the NIO fleet that we have. Extensions will range between 24 months to 48 months. Normally, lessors preferred that the airline that is already operating the plane extends the plane rather to give it to someone new, because they don't need to accrue any expenses in seating the airplane for the other airline. But you are right, the pricing environment has increased if you compare it from early this year on to today. Speaker 900:27:29Great. That's super helpful. Thanks. Thanks everyone. Speaker 300:27:34Thank you. One moment for questions. Our next question comes from Rogerio Araujo with Bank of America. You may proceed. Speaker 1000:27:47Hey gentlemen, thanks for the opportunity. I have a couple here. The first one on the new margin guidance provided, It seems that it implies a very strong EBITDA margin for 4th Q despite the higher oil price around 33%, 34%, is that correct? And what is driving that? I can do the other following that answer. Speaker 1000:28:13Thank you. Speaker 500:28:14[SPEAKER SEBASTIEN Speaker 100:28:14DE MONTESSUS:] Speaker 500:28:15So I'll take the first part of that question. Thank you. This is Olga. So in the Q4, We are expecting a high single digit year on year growth in total revenue per available seat mile. And we believe that those improvements will mostly come through better ancillary revenues following the same trend of improvements that we have served year to date. Speaker 500:28:43And remind everyone that we are entering the one of the best quarters of the year with the high season of December November in there. We're also leveraging the return of CAT 1 in December. And we will grow in the U. S.-Mexico market as we already explained. And remind everybody that the guidance that we've given already includes the affected aircraft through the Pratt and Whitney engine situation. Speaker 500:29:17So that capacity guidance we talked about already includes that number. Speaker 1000:29:25Okay. That's very clear. My second question is regarding the financial compensation. So you guys mentioned $6,000,000,000 to $7,000,000,000 in financial compensation, Estimated 80% coming to compensate the airlines and 3,000 engines. So can we do like a if you do an average compensation by engine, do we reach something that is close to our best guess? Speaker 1000:30:00And is it going to be a similar compensation for each engine of all is 3,000 or it's going to be very different across airlines? Speaker 200:30:15I think that's a question you need to do to RTX. I cannot answer for RTX and How they negotiate their compensation packages. I can tell you what we're trying to negotiate and how we are trying to negotiate it. And it's the problem I have is I have a limitation from the contractual perspective to mention the number. But What we are planning to do and I think this is really important is effective before the end of this quarter, we will release A forecast both of ASMs that will be flying in the following quarter and second an amount, a total amount that will be accounted as part of the quarter compensation. Speaker 1000:31:05Okay. Very clear. Thank you very much. Have a great one. Speaker 300:31:12Thank you. One moment for questions. Our next question comes from Guillermo Mendez with JPMorgan. You may proceed. Speaker 1100:31:22Hello, everybody, and thanks for taking my question. I have two follow ups actually. The first one is on international capacity. So following CAT 1 and removing and have you been facing some kind of competition from U. S. Speaker 1100:31:36Carriers by adding more capacity to the U. S. Because we understand that over the CAT II situation, most of the most profitable routes were compensated by U. S. Carriers? Speaker 1100:31:48And the second one also related to capacity, if that by removing the capacity from Mexico City City airport, if you are adding some additional flights from IFA or you're just removing your overall exposure to Mexico City? Thank you. Speaker 500:32:04So in terms of U. S. Capacity, I can tell you that our airline focuses on a different market segment than many of the U. S. Carriers. Speaker 500:32:12We are focused On our VFR core markets, flying from the center of Mexico to some of the Mexican heritage population markets in the U. S. That have no direct service, while many of the U. S. Carriers focus on leisure destinations in Mexico. Speaker 500:32:28And I would also like to remind everyone that we are seeing an Increasing CASM gap between us here in Mexico and our U. S. Peers. So we believe we are well positioned to take advantage of additional demand in the U. S.-Mexico transporter market. Speaker 500:32:46Regarding the capacity in the Mexico City metro area, We are currently operating in 3 airports. We are reducing capacity in Mexico City International Airport. And as Enrique mentioned, we're using that capacity to fortify our U. S.-Mexico capacity in the short term. Away from Mexico City and in other markets, Mexico City from Mexico to the U. Speaker 500:33:15S. Maybe I can just add that. Speaker 1100:33:19Okay. Super clear. Thank you. Speaker 300:33:22Thank you. One moment for questions. Our next question comes from Bruno Ameren with Goldman Sachs. You may proceed. Speaker 1200:33:33Thank you. So I have Two questions. First one, it's a follow-up on the guidance for margin. As previously discussed, The guidance implies on a significant improvement in the Q4. Is this guidance including any Potential benefit from compensations to be received from RTX or is it net of those effects? Speaker 1200:33:58I'm just trying to understand Try to extend the margin delivered in Q4 could be a good proxy for the future. And the second question is a clarification On the engines that have already been grounded, what type of feedback are you receiving from RTX in terms of the duration of this process, how many days will they need to go through the whole inspection process? Thank you. Speaker 600:34:29Hi, this is Jaime. I will answer the first question. Yes, it has the benefit of the compensation of Pat and Whitney, The guidance for the 4Q, you will see in two lines as mentioned in the call on the other operating income line I mean, on their maintenance expenses line. Speaker 200:34:48I think on the second part of your question, this is Enrique Beltranena. RDX stated yesterday in their call that they are still thinking about 250 to 300 days of duration for the total turnaround times for the engines. Speaker 100:35:10Okay. Thank you. Speaker 1200:35:15I'm sorry. Speaker 300:35:19Thank you. One moment for our next question. Our next question comes from Pablo Monteves with Barclays. You may proceed. Speaker 1000:35:32Hi. Guys, thanks for taking my questions. I have a quick one on the on basically, I would Speaker 1300:35:39like to have more color on your ability to source new aircrafts in the first half of next year. How do you think that is happening and the likelihood Speaker 1400:35:52of you having some extra aircraft in Speaker 1300:35:57the list market? Thank you. Speaker 600:36:00Thank you, Pablo. First, we have our own purchase order with Airbus. We will be receiving 11 aircrafts in 2024 and 13 aircrafts in 2025. So we already have that contractual expectation to receive those aircrafts. In addition, we already secured extensions for the 2024 Previously, aircraft to be redelivered, and we are looking at other aircraft. Speaker 600:36:30What we want to do, Pablo, we don't want to fix a short term problem and create a long term problem. So we are really doing analysis Aircraft by aircraft on a P and L basis before we decide to bring a few aircraft to try to mitigate the DPS impact. But we have been really thinking about long term success and short term profitability. Speaker 1400:36:59Perfect. Thank you. Speaker 300:37:02Thank you. One moment for questions. Our next question comes from Alberto Valerio with UBS. You may proceed. Speaker 1400:37:12Hi, thanks for taking my questions. So Speaker 900:37:17I would like Speaker 1400:37:17to follow-up on the Mexican and the Adiacion. We see tickets fair very low at this moment, some relative 50 I know that for a while the overlap is small. They start to receive very few aircraft at this moment. But do you see any potential liability on privilege for the airline And then you can call a legal dispute or do you think that they'll be restricted to that 10 aircraft that They have initial plans for the fleet and keep that at a small portion of the market. Thank you. Speaker 200:38:01I mean, again, we need to say that Volaris has advocated for fair competition with equal conditions for all market participants. We have demanded equal treatment from the authorities and are closely monitoring the implementation process for any new entrants. The good news is this last week, the FAA authority or the aviation authority had made it really clear that they were not going to allow the new airline to have better benefits. And that's the way they have stated it. It is important also to say that They started selling, but then they interrupted and their tickets are now failed until they I then remind you guys, I mean, with equal with fair competition, Volaris has always been A very good carrier competing with any other competitor since we were founded. Speaker 1400:39:12No doubt. Very clear. Just one more question on my side. About Tulum airport is any news on the Tulum, they Already started selling tickets on that airport. We won't validate any deal with this airport? Speaker 1400:39:26Thank you. Speaker 200:39:29I stated it in the last time, the last call, we are absolutely interested in Tulum and we may fly from Tulum. It's in its final phase of being constructed and finished. And once we have clarity on safety And the way we can fly there, then we will start acting our structure and announcing capacity. But I think for us, it's really important to have absolute clarity on how we fly and how we approach, how we take off and the way we operate since safety is always the first thing for us. Speaker 1400:40:12Okay. Thank you very much everyone. Speaker 200:40:17I think it is important for you guys also to understand, We are now the only public company in this country, okay, the only airline public company. As a result of that, we cannot Published capacity that it is not approved by the authority or that it is not legally with authority to reply the routes. Speaker 300:40:42Thank you. One moment for our next question. Our next question comes from Neil Glynn with Air Control Tower. You may proceed. Speaker 1200:40:53Good morning, everybody. If I could ask Two questions. The first one is following up on some of the U. S. Commentary. Speaker 1200:41:00I'm conscious there's a lot of capacity from each of the 3 Mexican airlines Hitting the market over the next few months. And I'm interested in your take as to the ability of that capacity to hit the ground running, so to speak, Or how do you think about the lag to maturity of some of those routes? Then the second question, you've mentioned your first foray into the JOLCO market. Your sister company Wizz Air in Europe has been using that market for quite some time. So I'm interested in terms of why now for that for the Jallco market? Speaker 1200:41:35And should Jallco play a bigger role for you in the future? Thank you. Speaker 500:41:42I will start first with Speaker 600:41:43the second question. Neil, this is Jaime. Basically, in the past, we hadn't explored the Yolko Japanese market. We did our first trip during the month of May and visit the banks and some of the players. And this is the first approach we are dealing with engines, which is a smaller risk for an exposure for the LATAM area. Speaker 600:42:07Some of the Japanese investors were concerned about the Latin market, in particular due to Chapter 11 and breaches under the prior contracts from some Latin American Airlines. So I think it's good news that we were able in sort of short term after the visit to be enabled to execute a transaction on engines. We already have the sale and leaseback for most of the plays of 2024 2025. We do have some shares at the end of 2025 that it will be interesting if we can accommodate a Jocco transaction. It is probably the cheapest money due to the tax benefit the Japanese would they have accelerated depreciation. Speaker 600:42:51So it's good. It was helpful for us that they knew with some of the banks and investors. But we are really optimistic on the view that the Japanese inverter had on the story of Volaris and where we are heading. On the first question, Neil, the line was cut it, so we're going to hear it. If you can repeat it, please. Speaker 1200:43:14Sure. It was really a question about how long it takes Some of this new capacity into the U. S. To perform as your existing U. S. Speaker 1200:43:22Network, given Clearly, there's disparate routes being introduced, but there are 3 Mexican airlines introducing a lot of new capacity at around the same time. Speaker 500:43:35So regarding the U. S. Capacity, I can tell you that international new routes typically have a longer ramp up time than domestic routes. However, we are not introducing any new routes. We are adding capacity 2 existing markets that we already operate and that require more capacity because we are seeing extremely high loads in those markets. Speaker 500:43:59So the ramp up time of those increased frequencies is significantly lower. And we are going to be focusing on our Mexican heritage core market, which is very different to the U. S. Carriers, as I already mentioned. Speaker 200:44:17Many thanks. Speaker 300:44:21Thank you. Excuse me. This concludes today's question and answer session. I would like to invite Mr. Beltraneno to proceed with his closing remarks. Speaker 300:44:30Please go ahead, sir. Speaker 200:44:32Thank you very much. So before I end the call, I want to especially thank our ambassadors who have been working hard again to optimize our in light of these engine inspections and changing schedules and changing reservations and accommodating to the new environment. As always, I want to thank our Board of Directors, investors, bankers, lessors and suppliers for their unwavering commitment and support. But let me tell you something, I remain really positive of the way we can manage the situation And I look forward to addressing you all again in the next future. Thank you very much. Speaker 200:45:12Thank you, operator. Thank you, everybody. Speaker 300:45:17Thank you. This concludes the Valeris conference call for today. Thank you very much.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallControladora Vuela Compañía de Aviación Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckReport Controladora Vuela Compañía de Aviación Earnings HeadlinesControladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:VLRS) Receives $9.27 Average PT from BrokeragesMay 8 at 2:25 AM | americanbankingnews.comVolaris reports April 2025 load factor of 82%May 7 at 5:23 PM | msn.com270x more lucrative than NVIDIA???270x more lucrative than NVIDIA??? If you've missed out on NVIDIA's recent 1,600% run... Don't worry. Because there's one AI stock that could be a lot more lucrative. It's currently trading for only $20.May 8, 2025 | Behind the Markets (Ad)Volaris Reports April 2025 Traffic Results: Load Factor of 82%May 7 at 5:00 PM | globenewswire.com4VLRS : 4 Analysts Assess Controladora Vuela: What You Need To KnowMay 6 at 9:19 PM | benzinga.comControladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) Q1 2025 Earnings Call TranscriptMay 1, 2025 | seekingalpha.comSee More Controladora Vuela Compañía de Aviación Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Controladora Vuela Compañía de Aviación? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Controladora Vuela Compañía de Aviación and other key companies, straight to your email. Email Address About Controladora Vuela Compañía de AviaciónControladora Vuela Compañía de Aviación (NYSE:VLRS), through its subsidiary, Concesionaria Vuela Compañía de Aviación, S.A.P.I. de C.V., provides air transportation services for passengers, cargo, and mail in Mexico and internationally. The company operates approximately 590 daily flights on routes connecting 43 cities in Mexico, 22 cities in the United States, 4 cities in Central America, and 2 cities in South America. As of December 31, 2022, it leased 116 aircrafts and 23 spare engines. The company also offers merchandising, travel agency, and loyalty program, as well as specialized and aeronautical technical services. Controladora Vuela Compañía de Aviación, S.A.B. de C.V. was incorporated in 2005 and is headquartered in Mexico City, Mexico.View Controladora Vuela Compañía de Aviación ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Disney Stock Jumps on Earnings—Is the Magic Sustainable?Archer Stock Eyes Q1 Earnings After UAE UpdatesFord Motor Stock Rises After Earnings, But Momentum May Not Last Broadcom Stock Gets a Lift on Hyperscaler Earnings & CapEx BoostPalantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release? 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There are 15 speakers on the call. Operator00:00:00Through our loyalty based programs. Our affinity program with OXXO, the largest retailer in Mexico, is still in its early stages, and we envision it evolving into the largest platform in Mexico with Volaris as one of its cornerstones. Looking into the Q4, we see solid bookings across our network as we approach the holiday season, with demand trends largely resembling the ones we saw in the Q3. Regarding our network, Volaris saw 2 critical developments in the 3rd quarter with Mexico's recovery of Category 1 status and Pratt and Whitney's GTF engine inspection announcement. We were pleased to announce the recovery of Category 1 status on September 14, a significant milestone achieved over 2.5 years after the initial downgrade. Operator00:00:55In the past month, we have diligently pursued regulatory authorizations to increase our flight frequencies between Mexico and the U. S. Additionally, our culture partnership with Frontier is set to resume in December. Although the GTF engine preventative accelerated inspections have affected our ability to reallocate aircraft for U. S.-bound routes more than anticipated. Operator00:01:19We are on track to introduce 4 aircraft lines onto Mexico to U. S. Routes by December, representing a 19% increase in capacity compared to last year's levels. Our management team is also working to optimize our network for the parked aircraft expected in 2024 by identifying and reducing capacity along ramp up and underperforming routes. Looking to the next year, we will focus on prioritizing our most profitable routes. Operator00:01:49While doing so, we will maintain a prudent approach to protecting Volaris' long term growth prospects. Our commitment involves preserving our leadership in our domestic core markets, while leveraging the Category 1 upgrade for routes to the U. S. Simultaneously, we plan to scale back certain trunk routes. Specifically, we will be reducing capacity on ramp up routes and at Mexico City International Airport in response to the aircraft movements reduction taking effect on January 8. Operator00:02:21I will now turn the call over to Haile Paus to discuss the financial performance for the quarter. Speaker 100:02:27Thank you, Holger. For the Q3 of 2023, Volaris demonstrated financial performance that somewhat tracked behind our expectations. Total operating revenues came in at $848,000,000 a 10% increase compared to 2022, driven by sound demand across our network and ancillary revenue per passenger, which increased to $49 from $39 the previous year. However, this result was partially restrained by the impact of the preventive accelerated inspections of the GTF engines during September. TRASM was $0.0837 up 2% year over year. Speaker 100:03:13EBITDAR for the quarter totaled $207,000,000 an 18% increase over the prior year's quarter. EBITDA margin was 24.4 percent or an improvement of 1.6 percentage points from the Q3 of last year, favored by lower jet fuel prices and a stronger peso. Volaris posted an EBIT of $39,000,000 up 11% for an EBIT margin of 4.6%, flat versus 2022, our CASM ex fuel was $4.91 an increase of 21%. The primary factor driving this increase was a strong appreciation of the Mexican peso compared to the prior year. As a reminder, a stronger peso has a net positive impact on our operating margins. Speaker 100:04:08Still, it is a headwind for unit cost, given the translation of peso denominated cost into dollars in our consolidated P and L. The appreciation of the peso impacted our unit cost by $0.34 in the quarter. Excluding this effect, our CASM ex fuel only increased 12% versus the Q3 of 2022. We managed costs as effectively as possible to achieve expectation that included cyclical pressure associated with maintenance and redeliveries that we anticipated on our Investor Day last December. Moving to jet fuel, the average economic fuel cost during the quarter was $3.17 per gallon. Speaker 100:04:54While this equates to a 20% decrease year over year, given the lapping of last year's historic surge in fuel prices, jet fuel costs have risen rapidly since the Q2 of this year, up 17% sequentially. Given the recent geopolitical global circumstances, we expect to continue to experience volatility in jet fuel prices. During the quarter, we booked delivery cost accruals of $42,400,000 and no sale and leaseback gains. Total CASM came to $0.0798 for the Q3, a 1.7% increase compared to the Q3 of 2022. For the Q3, the net loss was $39,000,000 the cash flow provided by operating and financing activities in the Q3 was $145,000,000 and $87,000,000 respectively. Speaker 100:05:53Cash outflows used in investing were $138,000,000 CapEx net of pre delivery payments totaled $63,000,000 in the quarter. Our strategy to maintain operational reliability drove investment of $11,000,000 in acquiring Esper Engines. The capitalized major maintenance events expenses were $37,000,000 for the quarter. Year to date, CapEx net to operate delivery payments stands at $186,000,000 For the full year, we continue to expect CapEx of $300,000,000 net of pre delivery payments. Volaris finished the quarter with a liquidity position of $764,000,000 representing 24% of the last 12 months operating revenue. Speaker 100:06:45Given the effect of the expected parked aircraft on our capacity and network, it is particularly important to maintain a healthy cash position. In this sense, we secure financing for Atez Perr engines through finance leases for $109,000,000 Notably, five of these leases are structured under Japanese operating leases with call options or YOLCOs, representing a milestone for Volaris as these marks our first entry into these financial structures. Additionally, in the Q3, Volaris successfully issued Mexican pros adults worth MXN 1,500,000,000 or $86,000,000 This marks our third offering under the program approved by the CNBB and solidifies Volaris as a regular issuer in the Mexican debt capital markets. Overall, our balance sheet remains solid and flexible to comfortable meet our financial commitments for the foreseeable future. At the end of the third quarter, our net debt to EBITDA ratio remained at 3.5 times. Speaker 100:07:55As of September 30, our fleet comprised 125 aircraft, up from 113 aircraft a year ago. Seats per departure were 194 in the Q3 and our fleet had an average age of 5.6 years. We are working diligently on our fleet plan with Airbus and maintaining our annual aircraft delivery plan, which includes 24 aircraft already financed for 2024 2025. Our mitigation plan encompasses adjusting certain operating costs in anticipation of the expected reduction in our fleet. However, we must emphasize that we would be cautious in scaling back our operations. Speaker 100:08:41While we are committed to cost control, we also focus on long term growth and are mindful of the required resources to support that future. Additionally, we aim to retain the flexibility to increase operations after the engine inspections are completed quickly. Although our unit costs will likely experience upward pressure due to capacity reductions, our commitment to maintaining world class cost control remains unwavering. The company's net cost impact for the Q3, which includes rounding compensation is forecasted to remain under control. Consequently, for the entire year, we expect the CASM ex field to stay consistent with our original guidance of around US4.0 dollars CASM both including and excluding fuel expenses will be netted for the compensation we received from Pratt and Whitney. Speaker 100:09:37However, it is important to note that each line in the P and L statement will continue to reflect the actual cost of the entire fleet, including the non productive fleet. We updated our full year 2023 guidance 2 weeks ago to reflect part aircraft cancellations and higher fuel prices. As a reminder, our estimates for the full year are as follows: ASM growth of 10%, total operating revenues of $3,200,000 CASM ex fuel of $4.8 EBITDA margin of 26%, CapEx of $300,000,000 net of finance, 30 repayments, net debt to EBITDA ratio of 3.5 times. This outlook assumes an average for the full year foreign exchange rate of approximately MXN 17.75 per dollar and an average economic fuel price of approximately $2.80 per gallon. Now I will turn the call over to Enrique for closing remarks. Speaker 200:10:43Thank you very much, Jaime. Volaris has managed numerous challenges and regulatory static in recent years, including slot reductions in Mexico City, International Airport, a major COVID crisis, a downgrade in the category of the Mexican Aviation Authority, soaring fuel costs well above historical levels, shifts in aviation regulations, including discussions on cabotage, the transition to new airports, significant delays from OEMs, the complex implementation of new engine technologies, etcetera. The Volaris team has consistently responded with agility throughout these challenges, adapting the company effectively and achieving considerable success. At certain moments in the aviation industry, absolute clarity is impossible to assess. We firmly believe that the current situation is no exception. Speaker 200:11:36We're again prepared and motivated to manage the airline for a successful 2024. We will focus on managing our fleet to the best of our ability, putting safety first, while focusing on profitability. Our operation may be smaller in the short term, but we've continuing strong demand against reduced capacity in our markets and appropriate support from Pratt and Whitney. The next year has the potential to deliver an improved performance versus 2023. Thank you very much for listening. Speaker 200:12:06Operator, Please open the line for questions. Speaker 300:12:12Thank you. The floor is now open for questions. Questions will be taken in the order they are received. We ask that when you post your question that you pick up your handset to provide optimum sound quality. Those following the presentation via the webcast may post their questions on the platform. Speaker 300:12:40The management team will answer them during this call or the Volaris Investor Relations team will follow-up after the conference call is finished. To send your questions via the webcast platform, click on the Ask a Question button Our first question comes from Duane Pfennigwerth with Evercore ISI. You may proceed. Speaker 400:13:10Hey, good morning. I just wanted to ask you maybe like a RASM Distribution or profitability distribution question. If you were to rank your routes, kind of highest RASM to lowest RASM, How much lower is the bottom 10% to 15%? In other words, you haven't given 24 guidance here, But if you were to cut the bottom 10% to 15% of your capacity into next year, how much could your RASM improve? And Certainly appreciate there are a lot of moving parts here with category 1, etcetera, and maybe some shift to international. Speaker 400:13:49But maybe you could give us a sense for some sensitivity there? Speaker 200:13:57We had a part of those Routes that were not performing yet on a profitable basis, okay? So that 10%, 15% that you have in the lower tail include a good amount of routes that were in development. If you remember, we launched more than 40 routes this year that we're maturing, okay, and they were part of that, okay. So what we're doing is, yes, you're absolutely right on making the question. We are cutting down that capacity. Speaker 200:14:30We're cutting down the non profitable capacity and the less profitable routes. And that accounts that probably improves our TRASM somehow between 5% to 8%. Speaker 300:14:46And Speaker 500:14:48there are a lot of new moving parts. It's also fair to assume that there will be some capacity reductions in the Mexican domestic market since 2 out of the 3 airlines, which account for 70% of the market, are going to be affected by the patent Whitney engine issue. So lots of moving parts in the domestic market, and We have cut one back in the international market. So we will see where things turn out once we have a full plan. Speaker 200:15:18I think it is important to say Duane that our forecast for the year end already includes the downtime of the aircrafts that we have forecasted for this quarter. Speaker 400:15:31Okay. Thanks for those thoughts. And then just on compensation, I assume at a minimum, aircraft ownership and the cost to make these repairs are on the table. But what about other costs, staff costs, presumably you hired to fly this capacity. What other forms of compensation are on the table? Speaker 600:15:57At the moment, we cannot comment on that. It's something that we are under negotiations with Pratt. But Pratt has behaved rational and supportive of the company. But we will share whenever we have the possibility of doing so. Speaker 200:16:14I just want to remind you, Duane, that we do have a flexible label contract Based on a per hour basis. Speaker 400:16:23Okay. Thank you. Speaker 300:16:28Thank you. One moment for questions. Our next question comes from Stephen Trent with Citi. You may proceed. Speaker 700:16:40Good morning, everybody, and thanks for taking my question. I was just Curious, I know with Category 1 restored now, you should have more U. S.-bound flights. Any high level color with respect to what proportion of your capacity is going to be Mexico to U. S. Speaker 700:17:05In 2024 versus what it looked like pre pandemic with the view that maybe you're now still doing more Central America to U. S. Nonstop, for example, just sort of trying to sort out how you're going to be thinking about your northbound capacity? Thank you. Speaker 500:17:26So Stephen, this is Holger. I can give you some color on the Q4. We are planning to increase capacity in the international markets by around 19% for the Q4. And that is driven by some additional U. S.-Mexico capacity. Speaker 500:17:48And Enrique mentioned, we are considering 4 aircraft lines that were previously operated in the domestic market to be shifted into The national market in the Q4. And also to remind you that we added significant capacity to Central America, which includes Central America to the U. S. Flying. And that's up in the high double digits year over year. Speaker 500:18:16So we are focusing on growing our international capacity in the Q4. For 2024, we are still sorting to the available capacity and we'll get back to you with some additional guidance on the split between domestic and international as we move through in Q4. Speaker 700:18:38Appreciate that, Holger. Thank you. And just a very quick follow-up, if I may. I know the Mexican government has, I guess, resuscitated Mexicana. When you look at their flight schedules, To what extent do you guys have modest overlap or maybe no overlap at all? Speaker 700:18:59Just trying to sort that out. Thank you. Speaker 500:19:06So we have reviewed initial press Notes of what their planned capacity is. All of the capacity that this new airline will launch is from the new airport, AIFA, the New Mexico City Airport. And there is about half of the routes are currently overlapping with us from AIFA and half are completely new routes from AIFA. So very limited overlap so far for us with the new airline. Speaker 700:19:42Okay. Thanks again, Holger. I'll leave it there. I appreciate that guys. Speaker 500:19:46It would be in the 1% to 2% ASM overlap right now. Speaker 700:19:57Perfect. That's very helpful. Thanks very much. Speaker 300:20:03Thank you. One moment for questions. Our next question comes from Helane Becker with TD Cowen. You may proceed. Speaker 800:20:12Thanks very much. Hi, everybody, and thank you for the time today. Earlier this week or late last week, it was reported by the 3 publicly traded airports in Mexico that they had reached an agreement on charges with the government and The government put out a note that said airfare should come down 9% to 12% as a result of that agreement on charges. And I'm wondering if that How that will affect you guys if at all? Speaker 200:20:45So Helane, we've been Tracking the process with the airport groups very closely. And all I can say firm today that it's firm today is we received a letter that was sent by GAP to the DGIC or to the authority where they are proposing a reduction of 10% of 2 as effective that same day. Okay. So that may impact the total price Of the tickets to the consumers. Speaker 800:21:21Right. That's what I'm wondering if that will affect you. So then the one word answer is yes, it will. Speaker 200:21:27Yes, it will on a positive basis. Speaker 800:21:31Because Your costs are going down, but won't you have to reduce your ticket prices to the customer? Speaker 200:21:41We're not affected by any of their changes. Our pricing structure is not being affected by any of their changes. Speaker 500:21:49The TUWA charge is a pass through charge that we put into the total ticket price. So the total ticket price for the consumer that they pay on our website is going to be reduced, but not our actual fare or ancillary revenue. Speaker 800:22:06Got it. Okay. Got it. I understand what you're saying now. Thank you. Speaker 800:22:09And then just on V Club members, I heard you say that I think membership doubled, in the past 1 year, which is very impressive. Is there a limit as to how Many members you're willing to accept into the program? Or is it kind of an unlimited number? Speaker 500:22:33No, Helane. We don't have a limit on how many v club members we would like to welcome to our program. Ideally, The more members we have, the more captive audience we have and the more repeat business we have. So we highly welcome this development. Speaker 800:22:52Okay. Thank you. Thank you very much. Speaker 300:22:57Thank you. One moment for questions. Our next question comes from Michael Linenberg with Deutsche Bank. You may proceed. Speaker 900:23:07Yes. Hey, good morning, everyone. I guess out of your fleet of 125 airplanes, how many airbuses are now grounded? And as you think out over the next 12 months or so, do you have sort of a rough sense of how many airplanes will be on the ground at any point in time? Speaker 200:23:28Yes. As I said, Michael, we have 52 new engined aircrafts, So which is kind of half of the fleet, okay. And given that this is now a revision every Certain number of cycles, 2,800 cycles for the A321s and 3,800 cycles for the A320s. Most of those aircrafts will go through the revision through the preventive revision. Speaker 900:24:02Okay. And how many are on the ground? Do you Or maybe not grounded, maybe Speaker 200:24:10Today, we have 16 aircraft grounded. Speaker 900:24:13Okay. And does that number, Enrique, as we move to the next 12 months or so, does that number get better or is that kind of a rough Speaker 200:24:25It depends on every week, okay? That's why it's so important. I mean, I think, Michael, what we're trying to do It's we're thinking on our customers and we have to publish an itinerary and a schedule, which is solid and it's Reliable and it's not changing for the customers. That's why on the other side, I mean, for us, it's really important to speak in terms of ASMs because we'll have Aircrafts going in, aircrafts going out, engines going up, engines going out. And it's going to be really variable. Speaker 200:24:57So I don't think it's really It's important to speak about aircrafts or engines for you guys who make your prognosis based on ASMs and for the customers who need a a reliable schedule. So I think the most important way of managing this is managing through a prognosis based on ASMs. Speaker 900:25:23Okay. Okay. I agree. I just I'm trying to get the sense on knowing that we cover the lessors. I'm trying to get a sense of how many airplanes You may have to extend the leases on and that's actually my second question, which is in your conversations with the lessors, What sort of response are you getting on the cost of the new lease? Speaker 900:25:45Because what we're hearing is that with narrow bodies scarce And everybody asking for extensions at the same time and interest costs very high that In some cases, the response they're getting from the lessors is a much higher monthly rental price under the extension Then what they were currently benefiting from despite the fact that the airplane is a lot older, right? It should be a lower lease rate, not a higher lease rate. So That would be my second question is just on your early conversations with the lessors. Is it Does it appear that these new extensions would be a bit more expensive than what you currently have? Thanks for taking my question. Speaker 600:26:30You're welcome, Michael. This is Jaime. Hi Jaime. Let's in terms of numbers, we will be extending 18 aircrafts that we're supposed to be with delivery in 2024 2025. The new rent environment has changed due to the situation. Speaker 600:26:51Still rents will be lower than the NIO fleet that we have. Extensions will range between 24 months to 48 months. Normally, lessors preferred that the airline that is already operating the plane extends the plane rather to give it to someone new, because they don't need to accrue any expenses in seating the airplane for the other airline. But you are right, the pricing environment has increased if you compare it from early this year on to today. Speaker 900:27:29Great. That's super helpful. Thanks. Thanks everyone. Speaker 300:27:34Thank you. One moment for questions. Our next question comes from Rogerio Araujo with Bank of America. You may proceed. Speaker 1000:27:47Hey gentlemen, thanks for the opportunity. I have a couple here. The first one on the new margin guidance provided, It seems that it implies a very strong EBITDA margin for 4th Q despite the higher oil price around 33%, 34%, is that correct? And what is driving that? I can do the other following that answer. Speaker 1000:28:13Thank you. Speaker 500:28:14[SPEAKER SEBASTIEN Speaker 100:28:14DE MONTESSUS:] Speaker 500:28:15So I'll take the first part of that question. Thank you. This is Olga. So in the Q4, We are expecting a high single digit year on year growth in total revenue per available seat mile. And we believe that those improvements will mostly come through better ancillary revenues following the same trend of improvements that we have served year to date. Speaker 500:28:43And remind everyone that we are entering the one of the best quarters of the year with the high season of December November in there. We're also leveraging the return of CAT 1 in December. And we will grow in the U. S.-Mexico market as we already explained. And remind everybody that the guidance that we've given already includes the affected aircraft through the Pratt and Whitney engine situation. Speaker 500:29:17So that capacity guidance we talked about already includes that number. Speaker 1000:29:25Okay. That's very clear. My second question is regarding the financial compensation. So you guys mentioned $6,000,000,000 to $7,000,000,000 in financial compensation, Estimated 80% coming to compensate the airlines and 3,000 engines. So can we do like a if you do an average compensation by engine, do we reach something that is close to our best guess? Speaker 1000:30:00And is it going to be a similar compensation for each engine of all is 3,000 or it's going to be very different across airlines? Speaker 200:30:15I think that's a question you need to do to RTX. I cannot answer for RTX and How they negotiate their compensation packages. I can tell you what we're trying to negotiate and how we are trying to negotiate it. And it's the problem I have is I have a limitation from the contractual perspective to mention the number. But What we are planning to do and I think this is really important is effective before the end of this quarter, we will release A forecast both of ASMs that will be flying in the following quarter and second an amount, a total amount that will be accounted as part of the quarter compensation. Speaker 1000:31:05Okay. Very clear. Thank you very much. Have a great one. Speaker 300:31:12Thank you. One moment for questions. Our next question comes from Guillermo Mendez with JPMorgan. You may proceed. Speaker 1100:31:22Hello, everybody, and thanks for taking my question. I have two follow ups actually. The first one is on international capacity. So following CAT 1 and removing and have you been facing some kind of competition from U. S. Speaker 1100:31:36Carriers by adding more capacity to the U. S. Because we understand that over the CAT II situation, most of the most profitable routes were compensated by U. S. Carriers? Speaker 1100:31:48And the second one also related to capacity, if that by removing the capacity from Mexico City City airport, if you are adding some additional flights from IFA or you're just removing your overall exposure to Mexico City? Thank you. Speaker 500:32:04So in terms of U. S. Capacity, I can tell you that our airline focuses on a different market segment than many of the U. S. Carriers. Speaker 500:32:12We are focused On our VFR core markets, flying from the center of Mexico to some of the Mexican heritage population markets in the U. S. That have no direct service, while many of the U. S. Carriers focus on leisure destinations in Mexico. Speaker 500:32:28And I would also like to remind everyone that we are seeing an Increasing CASM gap between us here in Mexico and our U. S. Peers. So we believe we are well positioned to take advantage of additional demand in the U. S.-Mexico transporter market. Speaker 500:32:46Regarding the capacity in the Mexico City metro area, We are currently operating in 3 airports. We are reducing capacity in Mexico City International Airport. And as Enrique mentioned, we're using that capacity to fortify our U. S.-Mexico capacity in the short term. Away from Mexico City and in other markets, Mexico City from Mexico to the U. Speaker 500:33:15S. Maybe I can just add that. Speaker 1100:33:19Okay. Super clear. Thank you. Speaker 300:33:22Thank you. One moment for questions. Our next question comes from Bruno Ameren with Goldman Sachs. You may proceed. Speaker 1200:33:33Thank you. So I have Two questions. First one, it's a follow-up on the guidance for margin. As previously discussed, The guidance implies on a significant improvement in the Q4. Is this guidance including any Potential benefit from compensations to be received from RTX or is it net of those effects? Speaker 1200:33:58I'm just trying to understand Try to extend the margin delivered in Q4 could be a good proxy for the future. And the second question is a clarification On the engines that have already been grounded, what type of feedback are you receiving from RTX in terms of the duration of this process, how many days will they need to go through the whole inspection process? Thank you. Speaker 600:34:29Hi, this is Jaime. I will answer the first question. Yes, it has the benefit of the compensation of Pat and Whitney, The guidance for the 4Q, you will see in two lines as mentioned in the call on the other operating income line I mean, on their maintenance expenses line. Speaker 200:34:48I think on the second part of your question, this is Enrique Beltranena. RDX stated yesterday in their call that they are still thinking about 250 to 300 days of duration for the total turnaround times for the engines. Speaker 100:35:10Okay. Thank you. Speaker 1200:35:15I'm sorry. Speaker 300:35:19Thank you. One moment for our next question. Our next question comes from Pablo Monteves with Barclays. You may proceed. Speaker 1000:35:32Hi. Guys, thanks for taking my questions. I have a quick one on the on basically, I would Speaker 1300:35:39like to have more color on your ability to source new aircrafts in the first half of next year. How do you think that is happening and the likelihood Speaker 1400:35:52of you having some extra aircraft in Speaker 1300:35:57the list market? Thank you. Speaker 600:36:00Thank you, Pablo. First, we have our own purchase order with Airbus. We will be receiving 11 aircrafts in 2024 and 13 aircrafts in 2025. So we already have that contractual expectation to receive those aircrafts. In addition, we already secured extensions for the 2024 Previously, aircraft to be redelivered, and we are looking at other aircraft. Speaker 600:36:30What we want to do, Pablo, we don't want to fix a short term problem and create a long term problem. So we are really doing analysis Aircraft by aircraft on a P and L basis before we decide to bring a few aircraft to try to mitigate the DPS impact. But we have been really thinking about long term success and short term profitability. Speaker 1400:36:59Perfect. Thank you. Speaker 300:37:02Thank you. One moment for questions. Our next question comes from Alberto Valerio with UBS. You may proceed. Speaker 1400:37:12Hi, thanks for taking my questions. So Speaker 900:37:17I would like Speaker 1400:37:17to follow-up on the Mexican and the Adiacion. We see tickets fair very low at this moment, some relative 50 I know that for a while the overlap is small. They start to receive very few aircraft at this moment. But do you see any potential liability on privilege for the airline And then you can call a legal dispute or do you think that they'll be restricted to that 10 aircraft that They have initial plans for the fleet and keep that at a small portion of the market. Thank you. Speaker 200:38:01I mean, again, we need to say that Volaris has advocated for fair competition with equal conditions for all market participants. We have demanded equal treatment from the authorities and are closely monitoring the implementation process for any new entrants. The good news is this last week, the FAA authority or the aviation authority had made it really clear that they were not going to allow the new airline to have better benefits. And that's the way they have stated it. It is important also to say that They started selling, but then they interrupted and their tickets are now failed until they I then remind you guys, I mean, with equal with fair competition, Volaris has always been A very good carrier competing with any other competitor since we were founded. Speaker 1400:39:12No doubt. Very clear. Just one more question on my side. About Tulum airport is any news on the Tulum, they Already started selling tickets on that airport. We won't validate any deal with this airport? Speaker 1400:39:26Thank you. Speaker 200:39:29I stated it in the last time, the last call, we are absolutely interested in Tulum and we may fly from Tulum. It's in its final phase of being constructed and finished. And once we have clarity on safety And the way we can fly there, then we will start acting our structure and announcing capacity. But I think for us, it's really important to have absolute clarity on how we fly and how we approach, how we take off and the way we operate since safety is always the first thing for us. Speaker 1400:40:12Okay. Thank you very much everyone. Speaker 200:40:17I think it is important for you guys also to understand, We are now the only public company in this country, okay, the only airline public company. As a result of that, we cannot Published capacity that it is not approved by the authority or that it is not legally with authority to reply the routes. Speaker 300:40:42Thank you. One moment for our next question. Our next question comes from Neil Glynn with Air Control Tower. You may proceed. Speaker 1200:40:53Good morning, everybody. If I could ask Two questions. The first one is following up on some of the U. S. Commentary. Speaker 1200:41:00I'm conscious there's a lot of capacity from each of the 3 Mexican airlines Hitting the market over the next few months. And I'm interested in your take as to the ability of that capacity to hit the ground running, so to speak, Or how do you think about the lag to maturity of some of those routes? Then the second question, you've mentioned your first foray into the JOLCO market. Your sister company Wizz Air in Europe has been using that market for quite some time. So I'm interested in terms of why now for that for the Jallco market? Speaker 1200:41:35And should Jallco play a bigger role for you in the future? Thank you. Speaker 500:41:42I will start first with Speaker 600:41:43the second question. Neil, this is Jaime. Basically, in the past, we hadn't explored the Yolko Japanese market. We did our first trip during the month of May and visit the banks and some of the players. And this is the first approach we are dealing with engines, which is a smaller risk for an exposure for the LATAM area. Speaker 600:42:07Some of the Japanese investors were concerned about the Latin market, in particular due to Chapter 11 and breaches under the prior contracts from some Latin American Airlines. So I think it's good news that we were able in sort of short term after the visit to be enabled to execute a transaction on engines. We already have the sale and leaseback for most of the plays of 2024 2025. We do have some shares at the end of 2025 that it will be interesting if we can accommodate a Jocco transaction. It is probably the cheapest money due to the tax benefit the Japanese would they have accelerated depreciation. Speaker 600:42:51So it's good. It was helpful for us that they knew with some of the banks and investors. But we are really optimistic on the view that the Japanese inverter had on the story of Volaris and where we are heading. On the first question, Neil, the line was cut it, so we're going to hear it. If you can repeat it, please. Speaker 1200:43:14Sure. It was really a question about how long it takes Some of this new capacity into the U. S. To perform as your existing U. S. Speaker 1200:43:22Network, given Clearly, there's disparate routes being introduced, but there are 3 Mexican airlines introducing a lot of new capacity at around the same time. Speaker 500:43:35So regarding the U. S. Capacity, I can tell you that international new routes typically have a longer ramp up time than domestic routes. However, we are not introducing any new routes. We are adding capacity 2 existing markets that we already operate and that require more capacity because we are seeing extremely high loads in those markets. Speaker 500:43:59So the ramp up time of those increased frequencies is significantly lower. And we are going to be focusing on our Mexican heritage core market, which is very different to the U. S. Carriers, as I already mentioned. Speaker 200:44:17Many thanks. Speaker 300:44:21Thank you. Excuse me. This concludes today's question and answer session. I would like to invite Mr. Beltraneno to proceed with his closing remarks. Speaker 300:44:30Please go ahead, sir. Speaker 200:44:32Thank you very much. So before I end the call, I want to especially thank our ambassadors who have been working hard again to optimize our in light of these engine inspections and changing schedules and changing reservations and accommodating to the new environment. As always, I want to thank our Board of Directors, investors, bankers, lessors and suppliers for their unwavering commitment and support. But let me tell you something, I remain really positive of the way we can manage the situation And I look forward to addressing you all again in the next future. Thank you very much. Speaker 200:45:12Thank you, operator. Thank you, everybody. Speaker 300:45:17Thank you. This concludes the Valeris conference call for today. Thank you very much.Read morePowered by