Controladora Vuela Compañía de Aviación Q1 2025 Earnings Report

Controladora Vuela Compañía de Aviación EPS Results

• Actual EPS: -$0.44
• Consensus EPS: -$0.54
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: N/A

Controladora Vuela Compañía de Aviación Revenue Results

• Actual Revenue: $678.00 million
• Expected Revenue: $708.83 million
• Beat/Miss: Missed by -$30.83 million
• YoY Revenue Growth: N/A

Controladora Vuela Compañía de Aviación Announcement Details

• Quarter: Q1 2025
• Date: 4/28/2025
• Time: Before Market Opens
• Conference Call Date: Monday, April 28, 2025
• Conference Call Time: 1:00PM ET

Controladora 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.

Controladora Vuela Compañía de Aviación Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good morning, everyone. Thank you for standing by. Welcome to Valaris First Quarter twenty twenty five Financial Results Conference Call. All lines are in listen only mode. Following the company's presentation, we will open the call for your questions and answers.

[Operator]

Please note that we are recording this event. This event is also being broadcast live via webcast and can be accessed through the Valerus website. At this point, I would like to turn the call over to Ricardo Martinez, Investor Relations Director. Please go ahead, Ricardo.

[Ricardo Martínez, Investor Relations Director at Volaris]

Good morning, and thank you for joining the call. With us is our President and CEO, Enrique Beltranena our Airline Executive Vice President, Holger Blankenstein and our Chief Financial Officer, Jaime Post. They will be discussing the company's first quarter twenty twenty five results. Afterwards, we will move on to your questions. Please note that this call is for investors and analysts only.

[Ricardo Martínez, Investor Relations Director at Volaris]

Before we begin, please remember that this call may include forward looking statements within the meaning of applicable securities laws. Forward looking statements are subject to several factors that could cause the company's results to differ materially from expectations, as described in the company's filings with the United States SEC and Mexico's CMBV. These statements speak only as of the date they are made, and Volaris undertakes no obligation to update or modify any forward looking statements. As in our earnings press release, our numbers are in U. S.

[Ricardo Martínez, Investor Relations Director at Volaris]

Dollars compared to the first quarter of twenty twenty four, unless otherwise noted. And with that, I will turn the call over to Henrik. Good morning, everyone,

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

and thank you for joining us. To kick off our call today, I will address the current geopolitical environment affecting the North American airline industry and how Volaris remains well positioned to capitalize on long term sustainable growth in our most valuable markets. This is a result of our team's proven ability to adapt during downtowns and accelerate when opportunities arise. We delivered practically in full on our first quarter twenty twenty five guidance despite highly volatile conditions. Holger and Jaime will speak about the strengths that drive our optimism about the future.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Over the past three months, political and trade dynamics between The United States and key economic partners, particularly Mexico, have seen ongoing volatility. This has created uncertainty across industries and among consumers, prompting a more cautious outlook. As we mentioned on our previous earnings call, travelers are waiting for greater clarity around border policies, tariffs and broader economic conditions before making bookings. In response, Volaris has and will continue to adjust capacity to align with evolving consumer behavior. I want to emphasize that Volaris recognizes the Mexican government's rigorous commitment to swiftly addressing issues in The U.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

S.-Mexico relationship. Managing these matters requires a constructive forward looking and bilateral approach, one we fully endorse and view as a positive step toward regional stability. From my personal perspective, Mexico's cautious, responsible, and proactive response to various US initiatives has enabled it to make significant progress on key issues in the bilateral agenda, positioning both the country and Volaris as an appealing investment opportunity. Even in this environment, we continue to see the resilience of the VFR travelers in the Mexican domestic market, where we drove a load factor of 89%. On the international front, our load factor in The U.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

S. Transborder market came in slightly below last year's result. We grew RPMs in both our domestic and international markets and staying true to our ultra low cost carrier model, we proactively implemented competitive pricing strategies to sustain this high occupancy levels while optimizing TRAS. Our consolidated load factors of 85%, just under last year's result, despite markedly different industry conditions, underscores the effectiveness of our approach to capacity management and fare modulation. We remain firmly anchored in our ultra low cost carrier value proposition, offering attractive fares, operating a reliable schedule, and expanding high value ancillary options that enhance the customer experience.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

On the profitability front, our first quarter EBITDAR margin was within our expectations, reinforcing the strength of our execution and disciplined cost control. Ancillaries continue to be a resilient and strategic contributor, highlighting the relevance to our customers and supporting our diversified revenue model, particularly during periods of base fare pressure. Ancillary revenue once again accounted for over 50% of total quarterly revenue. And this is important as when combined with our low base fares, we're able to remain in a sweet spot where we can support market elasticity while attracting passengers to our value added services. I like to recognize the outstanding coordination across our operations, scheduling and maintenance teams, particularly navigating the industry wide Pratt and Whitney engine challenge over the past eighteen months.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

The current impact and our mitigation is consistent with our previous disclosures. Our proactive management of aircraft and engine availability has ensured operational continuity and is reflected in our customer satisfaction metrics, including on time performance of 83.8%, a scheduled completion rate of 99.6% and a Net Promoter Score of 39%, one of the highest quarterly scores in our history. Looking ahead, the flexibility embedded in our operations, cost structure, fleet plan and variable labor agreements position us to adapt quickly and effectively to market shifts. Additionally, with disciplined management of engine removals, maintenance planning, spare engine deployment, and redeliveries all supported by our updated Airbus fleet delivery schedule, we are well equipped to adjust our growth trajectory as needed. Our capacity decisions will remain grounded in two guiding priorities: customer demand and sustained profitability.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Given the evolving dynamics between The U. S. And Mexico, we believe it is both timely and prudent to recalibrate our capacity plan to remain aligned with current demand trends and reaffirm our commitment to discipline and sustainable growth. For full year 2025, we're now targeting ASM growth in the range of 8% to 9%, revised from our original guidance of 13% to 15% growth. This adjustment reflects Volaris' agility and flexible approach to capacity deployment.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

By moderating growth across our network, including a rationalization in The U. S. Transborder market, we expect sequential improvement in TRASM, particularly during the high demand second half of the year supporting margins. We view this capacity moderation as a prudent step to navigate current headwinds while protecting profitability. While there is much uncertainty in the market, we know it will prompt many to look at Mexico with fresh eyes and we see a lot of positives.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Volaris stands out among North American carriers for its resilience. Our ultra low cost model, robust liquidity and healthy balance sheet position us to serve the most resilient customer segment, our VFR base, during economic slowdowns. I am sure you are all asking yourselves what is on my mind as we are navigating recent dislocation and the environment I've mentioned. I want to reinforce a few key points. What it really comes down to is that our traffic is materially VFR traffic.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Families in Mexico and The US that need to travel to see each other. They're not going back to the buses. And after six months or more of being away from their families, we believe they will start traveling more during the summer. The most important thing is that we gain traction on traffic as fear dissipates. And for the VFR traveler, it always does.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

So I'm using the playbook we've developed over twenty years throughout many different crises, focusing on preserving cash while prioritizing investments that will ensure we exit this period continuing to lead. It's easy to forget that Volaris snapped back fastest in our industry after COVID. I want to be positioned the same way now. Our flexibility and agility is how we will continue to deliver for our customers and our shareholders. Holger will tell you more about the trends we are seeing and initiatives we are implementing to ensure passengers continue to choose Volaris.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

With that, I will now turn the call over to Holger.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

Thank you, Enrique. Good morning, everyone. For the quarter, our ASMs increased by 6% versus the first quarter of twenty twenty four. As Enrique mentioned, we flew a reliable schedule during the quarter, a testament to our coordination across operations and commercial teams. Operational performance once again was very solid in the quarter with an on time performance of 83.6% and a scheduled completion rate of 99.6%.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

We also continue to implement multiple initiatives to improve customer service and are seeing results as reflected in our first quarter Net Promoter Score of 39. During the quarter, although TRASM came slightly below guidance, we sustained healthy loads through fare stimulation. This resulted in a 17% decline in quarterly TRASM, which reached $0.78 Our total load factor for the quarter was 85.4%, down 1.6 percentage point compared to the prior year. True to our ULCC business model, we adjusted our base fare by 29% network wide during the quarter to maintain load factors. This reduction was also largely impacted by a 20% depreciation of the Mexican peso against The US Dollar.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

However, ancillaries once again demonstrated low price elasticity and played a key role in supporting overall revenue, underscoring the relevance of our offerings to customers, particularly those flying on longer, higher margin sectors. Average ancillary revenues per passenger reached $53 marking our sixth consecutive quarter above the $50 threshold. While this represents a 7% year over year decline, it still accounted for over 50% of total operating revenues, which is relevant because we are preserving ancillary services as a value added to the customer. To that end, we continue to make progress in evolving our ancillary strategy. During the quarter, the new Volaris app was launched, designed to significantly enhance the passenger experience and ancillary upsell during the day of travel.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

The app streamlines personalized bookings, boarding, access to our affinity programs and self-service options. It also strengthens our direct sales channels, where approximately 85% of our total sales are made, allowing us to avoid dependency on third parties and reduce commission expense. Our core ancillary offerings, Annual Pass, vPass, vClub and our co branded credit card have performed solidly. We expect their momentum to accelerate with the launch of our in house loyalty program later this year. We are designing the program to enable new product offerings, unlock additional revenue streams and reach a more diversified customer base.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

As recently shared, we continue to position Volaris as the preferred airline for value seeking passengers across our core markets, including frequent flyers, corporate passengers, small and medium sized businesses, the leisure travelers alongside our strong BFR customer base. For example, sales from Yavas, our vacation business have increased by over 50% significantly ahead of our expectations, since we revamped the platform to better cater to travelers. In parallel, we've been testing additional southbound leisure routes such as Ontario, California to Los Cabos and Oakland to Los Cabos. Early results are encouraging and we plan to increase frequencies as we refine our distribution strategy. If the demand trends persist longer term, we will continue to favor broadening our footprint with new routes rather than adding depth to existing routes in our capacity planning.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

This should alleviate pressures on softer markets and enhance the diversification and resilience of our network. We see continued growth opportunities across multiple avenues and geographies, including Mexico domestic, as well as higher margin transborder routes to The US and Central America, giving us ample flexibility to deploy capacity. Additionally, we continue to strengthen our network and expand passenger choice through strategic culture partnerships, building on our productive agreements with Frontier in The US and Iberia in Europe. I am pleased to announce that tomorrow we will be signing a new co chair with Copa Airlines. This collaboration will expand connectivity between Mexico and Latin America through Copa's hub in Panama City, providing South and Central American travelers access to our 44 Mexican destinations, while offering our customers greater access to destinations across Central And South America.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

This agreement reflects our commitment to delivering more travel options while maintaining our low cost DNA. We are excited about the opportunities this partnership with Copa creates for both airlines and most importantly, our shared customers. Current demand trends in the Mexican domestic market reflect a natural short term adjustment in consumer spending, driven in part by broader economic slowdown rather than any shift in long term travel behavior. Volaris continues to retain strong customer loyalty and drive repeat flying on our airline. Notably, we are not seeing any signs of customers returning to bus travel.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

With that, turning now to our outlook. Bookings for the first and second quarter of the year were impacted by the previously mentioned factors. As uncertainty clears, we expect consumers to reassess any postponed travel plans to visit friends and relatives. To address these conditions, we are leveraging our flexibility to allocate capacity and are now targeting ASM growth in the range of 8% to 9% for the full year. We believe that moderating capacity is the rational course of action in the current environment to protect profitability and TRASM.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

In terms of capacity adjustments, we will implement the most significant reductions during the low season periods and the days of week with historically lower demand to optimize network efficiency. That said, we expect traffic to rebound consistent with past periods of demand normalization following similar volatility and as the second half of the year is seasonally stronger due to the summer and holiday travel. However, visibility into the exact timings of this recovery remains limited at this stage. As we've shown time and again, Volaris flexibility will allow it to be the first one to capitalize on a fast recovery. It's important to note that we are maintaining the capabilities to ramp back up quickly should demand conditions improve sooner than expected.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

We continue to actively monitor demand across our network, including for the upcoming summer high season and we will adjust capacity accordingly. Now I will turn the call over to Jaime to cover our first quarter twenty twenty five financial results and guidance.

[Jaime Esteban Pous Fernández, CFO at Volaris]

Thank you, Holger. As the team has discussed, financial results during the first quarter were challenged by geopolitical dynamics. Even so, we stayed focused on what we can control and responded quickly to shifting conditions.

[Jaime Esteban Pous Fernández, CFO at Volaris]

Our first quarter results are aligned with the guidance we provided.

[Jaime Esteban Pous Fernández, CFO at Volaris]

For the quarter, total operating revenues were $678,000,000 a 12% decrease year over year, driven by the depreciation of the Mexican peso against the US dollar and a lower total revenue per tax. On the cost side, CASM was 7.88¢, a three percent decrease year over year, while CASM ex fuel was 5.4¢, up 5% year over year. Average economic fuel costs declined 13% to $2.63 per gallon. In these times of volatility, maintaining one of the lowest unit costs in the industry remains our main competitive advantage. In line with our longest standing focus on cost discipline, we are intensifying company wide cost control efforts and preserving an efficient cost structure with approximately 70% of our costs being viable or semi fixed.

[Jaime Esteban Pous Fernández, CFO at Volaris]

On our P and L, while depreciation and amortization expense was roughly flat sequentially, it rose 49% compared to the first quarter of twenty twenty four, primarily due to an increase in major maintenance events for aircraft and engine would align with our forecast. Additionally, in the other operating income line, we booked sale and leaseback gains of $7,400,000 related to the delivery of three aircraft. This line also includes our airfoil wounding compensation from Pratt and Whitney. First quarter EBIT was a loss of $10,000,000 representing a margin of minus 1.5%. The benefits from increased capacity and lower fuel costs were partially offset by a weaker peso, as well as the aspects of a one time benefit of $41,000,000 recorded in the first quarter of twenty twenty four under aircraft and engine variable lease expenses line.

[Jaime Esteban Pous Fernández, CFO at Volaris]

The benefit reflected the remeasurement of redelivery accruals of some lease extensions. This quarter, we recognized a total of $54,000,000 mostly related to redelivery costs on this line. EBITDA totaled $2.00 $3,000,000 down 14% year over year, with a margin of 29.9%, a 0.7 percentage point decline, in line with the guidance provided for the quarter, despite market volatility during the period. In line with our historical seasonality, we incurred a net loss of $51,000,000 in the quarter, translating into a loss per ADS of $0.45 Turning now to cash flow and balance sheet data. The cash flow provided by operating activities in the first quarter was $157,000,000 The cash outflows used in investing and financing activities were $6,000,000 and $212,000,000 respectively.

[Jaime Esteban Pous Fernández, CFO at Volaris]

Our first quarter CapEx, excluding finance fleet pre delivery payments, totaled $64,000,000 primarily driven by the acquisition of one aircraft and major maintenance events. Volaris ended the quarter with a total liquidity position of $862,000,000 representing 28% of the last twelve months total operating revenues. Our net debt to EBITDA ratio was 2.7 times at the first quarter end compared to 2.6 times at the end of twenty twenty four, but down from 3.1 times a year ago. Our strong balance sheet with no near term debt maturities, excellent liquidity position and discipline in controllable costs give us confidence that Volaris is well positioned to navigate current markets. Now, I would like to provide an update on our engine availability and our fleet plan.

[Jaime Esteban Pous Fernández, CFO at Volaris]

As of March 31, our fleet consisted of 145 aircraft with an average age of six point four years, with 60% of the fleet being fuel efficient NEO models. We incorporated two A320 NEO and one A321neo aircraft during the quarter and retired one A319. We had an average of 36 aircraft on ground during the quarter due to engines. As previously mentioned, we adjusted our contractual delivery schedule with Airbus, evenly distributed through 02/1931. Those changes have already been incorporated into our current full year capacity expectations.

[Jaime Esteban Pous Fernández, CFO at Volaris]

Just a reminder, our approach to management the productive fleet allows us to flex capacity up or down in line with demand trends. Turning to guidance. Due to ongoing economic geopolitical uncertainty, we are currently unable to reaffirm our full year EBITDA guidance until we have greater clarity. That said, we remain focused on the areas within our control. This includes moderating capacity growth with the reduction concentrated during low season periods and lower demand days of the week, actively managing costs and staying ready to respond quickly as demand recovers.

[Jaime Esteban Pous Fernández, CFO at Volaris]

Therefore, for full year 2025, our latest guidance is as follows: ASM growth of 8% to 9% year over year, down from our annual expectation of 30% to 50% and CapEx net of finance fleet per delivery payment to be approximately €250,000,000 For the second quarter of twenty twenty five, we expect an ASM increase of approximately 9% to 10%. We also expect TRASM between zero seven four dollars and $0.75 Finally, we expect CASM ex fuel to hold in the range of $0.05 7 to 5.8¢ and EBITDAR margin of 24% to 25%. This quarterly outlook assumes an average foreign exchange rate of MXN20.20 to MXN20.40 per US dollar and an average economic yield price of approximately $2 to $2.1 per gallon during the quarter. Now, I will turn the call back over

[Jaime Esteban Pous Fernández, CFO at Volaris]

to Enrique for closing remarks.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Thank you, Jaime. Before we finish, I want to call your attention on the following five points. Number one, we can operate and execute changes in our network with flexibility, agility and resilience. Taking advantage of around 70% of our variable and semi fixed cost structure.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

This capability is tremendously valuable in moments when we need to tactically and quickly adjust capacity up or down to meet market demand. The second one, as VFR traffic oriented airline, Volaris is uniquely positioned to capitalize on the growing need for families to reunite. We strongly believe we are experiencing a delay in travel rather than a shift in long term travel behavior. With transport travelers in full compliance with cross border regulations and our customer satisfaction is high, we will continue to win in those markets. Third, we will keep delivering on our value proposition, offering loafers, maintaining an attractive and reliable schedule and providing relevant ancillary options that enhance the travel experience.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Fourth, the Mexican government's strong commitment to swiftly addressing issues in The U. S. Mexico relationship positions both the country and Volaris as attractive investment opportunities. And five, Volaris was the best performing public airline in its recovery after the pandemic. We invested our human and technical resources during the crisis to prepare for a fast restart once uncertainty is.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

We are preparing once more for a strong comeback. Thank you very much for listening. Operator, please open the line for questions.

[Operator]

Thank you. The floor is now open for questions. If you have a question, please dial 11 on your phone at this time or any time. If at any point your question is answered, you may remove yourself from the queue by pressing 11 again. Questions will be taken in the order they are received.

[Operator]

We ask that when you post your question, you pick up your handset to provide optimum sound quality. Those following the presentation via the webcast may post their questions on the platform. The management team will answer them during this call or the Valaris 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 and type your inquiry. Please hold while we poll for questions.

[Operator]

Our first question is from the line of Michael Linenberg with Deutsche Bank. Your line is now open.

[Michael Linenberg, Analyst at Deutsche Bank]

Hey, good afternoon team. I guess two questions here. One, when I look at your TRASM performance down 17% to $0.07 $76 and then I look at kind of the guidance, it looks like sequentially your June may even be worse. And on an absolute basis, those are the type of numbers that we saw back in 2022 when Omicron and COVID were hitting the industry. So my question to you is, obviously you're driving loads with lower yields here, but the fact is, you not seeing the level of stimulation that you would normally see in traditional discounting and therefore you're being forced to just take fares down to dramatically low levels here just to fill the airplanes up.

[Michael Linenberg, Analyst at Deutsche Bank]

What's the response to the consumer? And then what gives you any sort of confidence that the consumer will bounce back in the second half of twenty twenty five? Thanks.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

Hello, Michael, this is Holger. So, this quarter, in the second quarter, we experienced a benefit from the shift of Easter to April. But I would say that the shift was not the typical Easter shift and the regular seasonality pattern that we observed in previous years. External forces affecting demand in the international market and also the domestic market, it's quite difficult to quantify exactly the individual factors and isolate the impacts of the forces that are currently impacting the demand environment.

[Michael Linenberg, Analyst at Deutsche Bank]

Okay.

[Michael Linenberg, Analyst at Deutsche Bank]

So,

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

second quarter, yes, it has the Easter benefit, but we are seeing a relatively low fares also impacted by the lower exchange rate.

[Michael Linenberg, Analyst at Deutsche Bank]

Go

[Michael Linenberg, Analyst at Deutsche Bank]

ahead.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

Go ahead, please, Michael.

[Michael Linenberg, Analyst at Deutsche Bank]

Oh, I was going to say, but is it accurate that the year over year unit revenue decline will be larger in the June than what we saw in the March? Is that accurate?

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

Similar.

[Michael Linenberg, Analyst at Deutsche Bank]

Okay. Okay. And then just by second half, the back half, I know you talked about the bounce back seen in the past. Are you hearing that from your customers as well? I mean, again, what gives you that confidence?

[Michael Linenberg, Analyst at Deutsche Bank]

Maybe there's other channel checks or survey information where you think people will it will bounce back in the second half of twenty twenty five? Maybe that's an unfair question. Whatever you can provide any color. Thanks.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

So, we are confident that the second half of the year is going to be better. We've seen in the past that VFR traffic bounces back quite significantly, especially in the summer season And in the second half of the year, typically visiting friends and relatives want to see their families and do travel, in the high seasons. And remember that the second half of the year is seasonality, adjusted better than the first half of the year.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

We are

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

monitoring bookings very carefully for any signs of improvement. And we believe that the second half of the year and July and August are going to be much more stable than the first half of the year.

[Michael Linenberg, Analyst at Deutsche Bank]

Okay. Okay. Thanks, everyone.

[Operator]

Thank you. Our next question comes from the line of Steven Trent with Citi. Your line is now open.

[Stephen Trent, Analyst at Citigroup]

Good afternoon, and thanks very much for taking my question. The first one is sort of a little bit of a follow-up on Mike's question to a degree. You know, when you look at I mean, certainly, there's been a lot of geopolitical craziness. Everybody everybody sees that. But when you, you know, look at price action with, you know, your shares back to COVID lows, operations certainly not back at COVID lows or free cash flow.

[Stephen Trent, Analyst at Citigroup]

You know, any sort of high level thoughts about share repurchases at these levels or it's not really something in the cards?

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Steve, how are you? I think our priority this year is cash preservation, and we're going to be focusing in that, Steve, to maintaining a strong balance sheet, lowering the debt and preserving cash, not action on buybacks in our mind.

[Stephen Trent, Analyst at Citigroup]

Great. I appreciate that, Enrique. And just one really quick follow-up. When we look at your guys' fuel prices, jet fuel kerosene prices, are there any particular airports, you know, where the pricing or the regional crack spreads are are very high, for example, versus other airports you service?

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Yes, Steve. Normally, Tijuana, Guadalajara is more expensive than doing fueling in Mexico City or Monterrey. And basically the network, that's why the total economic fuel cost is higher than other competitors.

[Stephen Trent, Analyst at Citigroup]

Okay. Very helpful. Thanks, Enrique.

[Operator]

Thank you. Our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Your line is now open.

[Duane Pfennigwerth, Analyst at Evercore]

Hey,

[Duane Pfennigwerth, Analyst at Evercore]

thanks. I wonder if you could just walk us through monthly trends, trying to better understand the trajectory into 2Q here. What was the RASM decline in March? How is that playing out in April? And are you seeing any signs of stabilization in domestic yet?

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

Duane, this is Holger. Good morning. So this March, we did not have the effect of Easter and the spring break. So we had a versus last year, we had a relatively weak March. However, this shifted into April and we're seeing better results for April in terms of travel.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

And as I mentioned earlier, we are closely monitoring a range of indicators to assess demand trends going into May and June, while we are also focusing on what we can control, which is capacity. And that's why we've pulled back capacity for the second quarter. It's very important to note that we have a lot of flexibility in adjusting capacity. And that enables us to respond very quickly if there's clear signs of demand recovery as we go into the third quarter and the summer season. We are engaging, we are observing very closely the different distribution channels and tracking microeconomic and macroeconomic factors to identify early signs of demand improvement.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

And the booking curves for July and August make us cautiously optimistic that there will be a recovery of the VFR traffic. We believe that VFR traffic has to travel in the high seasons to visit friends and family, both in The US and Mexico.

[Duane Pfennigwerth, Analyst at Evercore]

Just to maybe put a finer point on that, are there any differences at this point in point of sale Mexico demand versus point of sale U. S. For your transborder?

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

No, there's no difference in the point of sale, Duane.

[Duane Pfennigwerth, Analyst at Evercore]

Okay. And then maybe just lastly on the Copa relationship, how do you see that relationship playing out in Central America versus the Panama originating to Mexico, which you highlighted? Maybe to ask it a different way, how would you see your Central American operation changing, if at all, as a result of this partnership?

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

We don't foresee a change in the Central American operation. Our Central American operation is focused very much on VFR traffic between Central America and The US, which we would continue to service directly. And the corporate relationship is built as a bilateral code share, especially between South America, Central America, and Mexico.

[Duane Pfennigwerth, Analyst at Evercore]

Okay, thank you.

[Operator]

Thank you. Our next question comes from the line of Tom Fitzgerald with TD Cowen. Your line is now open.

[Thomas Fitzgerald, Analyst at TD Cowen]

Hi, everyone. Thanks so much for the time. I wonder if could just help us think about the range of outcomes here. And I appreciate it's incredibly fluid, but in the event demand does recover as well as you think it will, how should we think about capacity growth in 2026? Is low double digit reasonable?

[Thomas Fitzgerald, Analyst at TD Cowen]

And then in the event it's a more sustained downturn or the border just remains muddled, but it's depressing VFR traffic, in the more risk off scenario, how are you thinking about capacity growth in the next year?

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Hi, Tom. I think it is important that we maintain ourselves focused on what we're doing right now and how to manage the situation right now. Having said that, we remain very, very concentrated in managing this capacity down. So, so far, we are thinking about the low single digit growth in the next year.

[Thomas Fitzgerald, Analyst at TD Cowen]

Okay. That's incredibly helpful. Thank you so much, Enrique. And then just as a follow-up, how would you characterize the competitive capacity environment in the domestic market? Do you view your peers as deploying capacity rationally as well?

[Thomas Fitzgerald, Analyst at TD Cowen]

Or is anybody cheating at all? Thanks very much again for the

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

Yeah, so, Tom, we do expect or we do seek capacity moderation as well from our domestic peers and also international peers. As we go through the second quarter, in the short term, we do expect our peers to also cut capacity supporting a recovery of TRASM. That's what we are currently observing. So capacity moderation in the market as a whole.

[Operator]

Thank you. Our next question comes from the line of Rogerio Onujo with Bank of America. Your line is now open.

[Rogerio Araujo, Director at Bank of America]

Yes. Hi, gentlemen. Thanks for the opportunity. So I have one here. When we are looking at previous years where Volaris delivered EBITDAR margins close to the mid-30s, which was the previous guidance, we look at the second Q margins on those years, which was 2015, '20 '20 '1, and 2024.

[Rogerio Araujo, Director at Bank of America]

And second Q margins were somewhere between 3141%. And now, with the guidance at 24%, twenty five %, it seems that it's significantly below than what the usual seasonality would indicate for the previous guidance to be reached. So, my question is what if uncertainties remain for longer? What kind of margins could we see for the year if the six to 16 percentage points difference on the second Q versus other years, if that is any kind of proxy or not, what you can share with us on that scenario. Also, we saw 20% higher passengers in Mexico versus pre COVID levels or even more than that, despite the ongoing threat and weakening engine recall.

[Rogerio Araujo, Director at Bank of America]

Do you see some kind of overcapacity in Mexico? And if that uncertainty remains for longer, would you see competitors and even Volaris postponing some aircraft deliveries or even retiring current leases? And lastly, what about when all the grounded capacity returns to the market? Does this worry the company somehow? That's it.

[Rogerio Araujo, Director at Bank of America]

Thank you very much.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Let me try to wrap up a little bit on what you're asking, okay? The first thing is we due to this ongoing economic and geopolitical uncertainty, we are currently unable to reaffirm our full year EBITDAR guidance or guidance through the rest of the year other than the quarter, okay? The second thing is really important is, and I think we are showing it in a very important way, a cut down from 13% to 15% of ASM growth down to 8% to nine percent tells you how concerned we are to produce a better TRASM. And we are confident that these actions will lead to a sequential TRASM improvement starting in the summer positioning us for recovery in the second half of the year. Finally, I think it is important to say that we remain concerned about the ASM growth going forward, and we are managing that again, as I already told.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Having said this, it's really important to maintain in the back of your minds, the capacity of the company to adapt capacity up or down, okay? And we think that if we get the traction that we need, we might be changing that in a much better performance for the end of the year, okay? But I think it's really important that you guys don't make yourselves a premise that assumes that the TRASM is going to be similar to the last two quarters, because we strongly think that we can get a better TRASM and an improvement through the end of the year.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Just adding up on the fleet size. What we planned when we started with the engine troubles was to reduce capacity in 2024, planning in the long future, so whenever all of the engines are going to be flying again. So we already rescheduled our fleet plan with Airbus. In addition, we have 40% of the fleet is going to be leaving within the same period of time. So we can manage capacity up and down with the deliveries that we are going to be experiencing within the next five years so that our capacity match the demand of the market.

[Rogerio Araujo, Director at Bank of America]

If speak

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

about Pratt, okay, I think it is well understood and very well managed by our team. We do have a multi year compensation agreement we have in place. And although I cannot provide further details due to confidentiality, we continue to work with Pratt and Whitney to improve the throughput. Having said that, we're expecting our down level of fleet to be similar to the last two quarters throughout the rest of the year. I think the strong coordination across our operations and scheduling and maintenance team has maintained operational continuity.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Our scheduled completion ratio is more than 98.5%, and we are confident in our ability to execute as this situation evolves.

[Rogerio Araujo, Director at Bank of America]

Okay. That was very clear. Thanks, gentlemen. If I can ask only one last point here on redelivery costs, it was $54,000,000 this quarter, 8% of revenue. Can you remind us when this is going to normalize and by how much?

[Rogerio Araujo, Director at Bank of America]

Thank you.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

This year 2025 and start to go lower on 2026 and getting back to normality in 2027. It's a mix of the redelivery expenses plus the AOGs of the aircraft on ground due to the engines, and that's why it's the highest at the moment. And it should normalize them back to 2023 levels until 2028.

[Rogerio Araujo, Director at Bank of America]

Thanks so much.

[Operator]

Thank you. Our next question comes from the line of Jens Spies with Morgan Stanley. Your line is now open.

[Jens Spiess, Analyst at Morgan Stanley]

Yes. Hello, thank you for taking my question. Just regarding the lower capacity guide, just to be very clear, the reduction versus your previous guide is mainly driven by more redeliveries, right? So how many aircraft do you expect to redeliver this year? And how much do you expect in terms of redelivery expenses for the full year 2025?

[Jens Spiess, Analyst at Morgan Stanley]

If you could please elaborate. Thank you.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Hi, how are you? We're going to

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

be redelivering five aircrafts this year. Other plans that we have, we are still managing redeliveries of 2026, which why we have 2024. And we need to decide where we're going to keep and what we're going to extend to optimize the cost side. But if you look this year compared to last year, you should have an impact of an additional $90 plus million in the redelivery line just associated with the redeliveries of this year and 2026.

[Jens Spiess, Analyst at Morgan Stanley]

Okay, perfect. And I mean, considering that you and your main competitor are both reacting by reducing like schedule capacity, should we not expect higher yields or load factors down the road? I mean, in other words, how conservative is your 2Q TRASM guide? And really, how much should could we expect that to increase in the second half of the year? And just one follow-up.

[Jens Spiess, Analyst at Morgan Stanley]

Also, if the MXN stays closer to the current spot, how would that impact your 2Q EBITDAR margin guidance? Thank you.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Jens, precisely that's the reason we're reducing capacity. We are confident that the capacity reduction will lead to a sequential traveling improvement starting in the summer, and positioning us very well for a recovery for the second half of the year, which is seasonality adjusted always stronger. But with these additional capacity actions, we believe that we are in a good starting position to improving yields and TRASM.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

And the 2Q guidance is what we are seeing today. And it assumes an FX between MXN 20.2 to MXN 20.4 and a fuel around MXN 2,000,000,000 to MXN 2.1. So you already have the macros there. The visibility that we have now to the second Q is the guidance that we are providing.

[Jens Spiess, Analyst at Morgan Stanley]

Yes. But I mean, the FX is already quite stronger, right? So that I mean, assuming it stays at the current level,

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

it will be upside that we provided the assumption.

[Jens Spiess, Analyst at Morgan Stanley]

Correct. Okay. All right. Perfect. Thank you.

[Jens Spiess, Analyst at Morgan Stanley]

Appreciate it.

[Operator]

Thank you. Our next question comes from the line of Guilherme Mendez with JPMorgan. Your line is open.

[Guilherme Mendes, Executive Director - Equity Research at JP Morgan]

Hey, and hey, Kehoe, thanks for taking my question. I have two quick follow ups. The first one is on demand breakdown. You speak about the how VFR demand has been performing, but in terms of leisure demand, how has it been performing? And the second point is on the first quarter yield performance.

[Guilherme Mendes, Executive Director - Equity Research at JP Morgan]

If you could break down the different effects impacting negatively in terms of geopolitical effects, how would it be? Thank you.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

Okay. So let me take the first part of the question, this is Holger. In terms of the traffic customer segment groups most affected, clearly the VFR is currently the most affected. We're seeing relatively strong leisure demand, which is also, you can see it in our traffic report, domestic load factor continues to be quite strong. That is also driven by domestic leisure travel to the beaches here in Mexico.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

And as we mentioned in the prepared remarks, we opened two routes that are southbound leisure from The US to Mexico. And we're also seeing relatively stable and strong demand in that niche segment of ours, southbound leisure. So the VFR is clearly the most affected right now. To reiterate what we already said, in the first quarter, TRASM clearly was impacted by various factors, which includes a 20% depreciation of the peso. And if you take away that peso, these depreciation in constant currencies, TRASM would have only declined by approximately 7%, which is a testament to the strength of the domestic market, the relative strength of the domestic market and the leisure business.

[Guilherme Mendes, Executive Director - Equity Research at JP Morgan]

Very clear. Thank you, Holger.

[Operator]

Thank you. Our next question comes from the line of Pablo Mansidis with Barclays. Your line is now open.

[Pablo Monsivais, Equity Research Analyst at Barclays]

Hi. Thanks for taking my questions. My question, a bit of a follow-up from previous questions. You have mentioned repeatedly this call that you are that you can adapt to a new environment in terms of demand. But can you please provide an example of, I don't know, a period of time when demand for VFR was down and you were able to put more seats in the leisure market or in the business market and how that play out for us to try to extrapolate that experience in the past to what might happen here?

[Pablo Monsivais, Equity Research Analyst at Barclays]

That's my first question. And my second question is about cash flows. If you provide a little bit more detail on your CapEx, you I think that you have $250,000,000 of CapEx this year and put a little bit more color on the items there and also on their working capital needs? Thank you.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

I think we have several examples of what has happened. I mean, I remember it very well through the crisis of H1N1 in 02/2009, where we had a recovery and the recovery was fascinating the way the VFR traffic recovers and the speed it recovers. The second one, I would say it's the pandemic and I want to remind you that Volaris was the fastest recovery airline after the pandemic, and it's exactly because of that, because the VFR traffic recovers very, very rapidly. Okay? And then third example is the first period of Trump.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Okay? And we leave something similar in the first period of Trump, probably it's much more accentuated right now. But by then, we had a fast recovery from the VFR traffic in in a very effective way. So I think we have several examples throughout the twenty years of the company that shows that the traffic recovers much more faster in that segment. Okay?

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Something which is really important also to mention is that we're preparing ourselves for that fast recovery, okay? And the things that we're doing, like preparing the people, preparing the lines of maintenance, preparing our IT structure, preparing our systems, everything is aligned towards that. So we can have a very fast first position in the table, we can depart in a very, very fast way.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

In terms of CapEx, most of the CapEx, we provide a full year guidance of $250,000,000 excluding PDPs, Pablo, are related with major maintenance events and engines and aircrafts. The other is minimal, related just to IT infrastructures and things that we are working on it.

[Pablo Monsivais, Equity Research Analyst at Barclays]

Perfect. And on the working capital needs?

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

This year, we don't plan to do any debt. We're focusing on preserving the cash. However, we have the availability to do it in the case we need to do it. But right now, we're just focused on preserving cash, and we are not budgeting for any additional working capital.

[Pablo Monsivais, Equity Research Analyst at Barclays]

Perfect. Thank you very much.

[Operator]

Thank you. Our last question comes from the line of Roberto Valerio with UBS. Your line is now open.

[Alberto Valerio, Executive Director at UBS Group]

Thank you. Hi, gentlemen. Thanks for the opportunity. A quick question on my side. We have some revisions on the airports, the MDPs.

[Alberto Valerio, Executive Director at UBS Group]

We had the three years ago. Last year, have GAP. Wondering on this environment of declining yields, how is the negotiation with the efforts? I know you have a hub in Guadalajara, but you also utilize Assure. In this year, you have OMA as well.

[Alberto Valerio, Executive Director at UBS Group]

So just to have an idea if you have some flexibility on this negotiation or if this is more regulatory and independent of the demand that will be the readjustment? Thank you.

[Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris]

So regarding the tourist situation, we've been quite vocal with the government and the airport groups that any increase that exceeds inflation is disproportionate. And we believe that fees and charges should be aligned and consistent with the type of travel segments that presents in Mexico and the customer's ability to pay. So we stand for reasonable and fair levels of those fees. And we believe that is important that these fees are inconsistent with the goal of democratizing aviation and enabling more passengers to fly. We've been quite vocal on that topic.

[Alberto Valerio, Executive Director at UBS Group]

Perfect. Very clear. And if I may, just one more about the Mexico City Airport, the increase on slots. How is the ongoing discussions with governments? Will it be possible to increase the slots back to what it was back in 2019?

[Alberto Valerio, Executive Director at UBS Group]

Or you think that the restrictions on these slots close to 43, 40 four slots per day would remain?

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

So this is Enrique again. Me be honest with you. I think there's a lot of talk around Mexico City Airport, but there's nothing concrete and nothing has been issued, as a change. So so far, we continue operating in the same path, expecting a much better, allocation of slots. Having said that, Volaris has improved dramatically its slot situation since 2019 until today.

[Alberto Valerio, Executive Director at UBS Group]

Thank you very much, gentlemen.

[Operator]

Excuse me. This concludes today's question and answer session. I would like to invite Mr. Beltranina to proceed with his closing remarks. Please go ahead, sir.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Very proud of our company's resilience and of what the Volaris team has achieved. I have a positive sentiment on the future, but I want to say that through every cycle, we have been proactive in doing all the things we should be doing to serve our customers, solidify our best in class cost position, preserve our financial strength and maintain top ranking operational efficiency, safety and customer satisfaction standards. By staying true to our long term vision, creating sustainable shareholder value while leading in our core markets, Volaris is well positioned for continued success even amid a dynamic environment. As always, we are grateful to our family of ambassadors, to our Board of Directors, to you, our investors, bankers, lessors, and suppliers for their support. I look forward to speaking to you all on the next call.

[Enrique Javier Beltranena Mejicano, President & CEO at Volaris]

Thank you very much.

[Duane Pfennigwerth, Analyst at Evercore]

Thanks for your This

[Operator]

concludes the Valaris conference call for today. Thank you very much for your participation. Have a nice day.

Participants

Analysts

• Ricardo Martínez, Investor Relations Director at Volaris
• Enrique Javier Beltranena Mejicano, President & CEO at Volaris
• Holger Blankenstein, Executive Vice President of Airline Commercial & Operations at Volaris
• Jaime Esteban Pous Fernández, CFO at Volaris
• Michael Linenberg, Analyst at Deutsche Bank
• Stephen Trent, Analyst at Citigroup
• Duane Pfennigwerth, Analyst at Evercore
• Thomas Fitzgerald, Analyst at TD Cowen
• Rogerio Araujo, Director at Bank of America
• Jens Spiess, Analyst at Morgan Stanley
• Guilherme Mendes, Executive Director - Equity Research at JP Morgan
• Pablo Monsivais, Equity Research Analyst at Barclays
• Alberto Valerio, Executive Director at UBS Group