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Controladora Vuela Cia De Aviacion (VLRS)

Participants
Maria Elena Rodriguez Corporate Finance and Investor Relations Director
Enrique Beltranena President and Chief Executive Officer
Holger Blankenstein Executive Vice President Airline Commercial and Operations
Jaime Pous Senior Vice President and Chief Financial Officer
Duane Pfennigwerth Evercore ISI
Helane Becker Cowen
Mike Linenberg Deutsche Bank
Call transcript
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Operator

Good morning, everyone. Thank you for standing by, and welcome to Volaris' Third Quarter 2020 Financial Results Conference Call. All lines are in a listen-only mode.

Following the company's prepared commentary, we will open the call for your questions and answers. Instructions on how to ask a question will be provided at that time. event recorded. this that note is being Please At the call I would to turn now like over this point, to Ms. Maria Finance Elena and Investor Relations Corporate Rodriguez, Director. Volaris' Please go ahead, Ms. Rodriguez.

Maria Elena Rodriguez

us for everyone, Pous. Beltranena; Enrique Officer, Vice Executive Blankenstein; the thank President morning, Holger Airline our you President, our Good call. and and our With Jaime and today Vice CEO, and is President Financial joining Senior Chief

that discussing media your questions Afterwards, be will note call we questions. the to individual move on from taken quarter investors results. We for an company's XXXX will Any Please and will this is only. basis. on third analysts be the

Before everyone within that we forward-looking remind applicable statements me the include please begin, this meaning call securities let may of laws.

de that to in actual Comisión the and factors Forward-looking the could filings cause differ Commission or Enrique from described call reasons statements y Volaris' Bancaria Securities results turn are the for Valores. the company's and U.S. the expectations obligation with over undertakes forward-looking no company's my to to now Exchange Mr. CEO, materially subject any Nacional It's and President several revise publicly pleasure Volaris update Beltranena. to Furthermore, to statements.

Enrique Beltranena

the you challenges want presented for Board by COVID-XX our the very airline Elena. us have today. who in joining fastest have Volaris I recovery Directors, of Maria you, of ambassadors Thank record track to managing of Thank thanking by North our start much family and established America. given a and

achievements. me Let detail key our

in levels, further and quarter reduction notwithstanding lowest cost seat of pandemic even US$X.XX three levels. versus worldwide. which decreased quarter available our reducing a mile First, and environment to as continue Volaris towards in cost costs we mile the gaining our XX% committed cost a further second per lower the our seat operators many pre-COVID third year. Volaris is than with And capacity this in advantage. ex-fuel path cost the than are result, Despite players among fully previous unit our XXXX, is available from to normal ex-fuel level current goal by improved US$X.XX, of logged per the competitive

one Secondly, the recoveries world. in the has Volaris capacity of fastest

Mexican XX% factor XX%. with previous capacity And quarter is because is year markets. our in its for full market. versus are network capacity in of much segments faster our of of year, the the and routes, regaining the last VFR ASM of Volaris’ at booked the on Volaris load than which recovering competitors was highest leisure the which a September, During the previous point-to-point is XX% XX% deployed fastest recovery

expand Additionally, reaching aggressively base converting Volaris robust campaigns. continues through first-time to flyers by its passenger

third take the and Thirdly, to Volaris in measures continues strict quarter equivalents. preserve to closing with $XXX cash cash million liquidity,

of at The operating and if profitability that being per in is equivalents allows pursue work, financing we'll back the hours any and than driven XX% additional using has despite by This five, the for us supplies. et quality governmental lines, that are variable staff of XX and remind the as remains one for and avoid the fourth to City the a World limit flexibility – crews world, being only additional and that you per retain all to practices all at ensuring XX to such Since flight flexibility just COVID-XX factor continues aid our The governments under Mexican biosecurity has burn deliveries was main Third in executing managed and the Volaris aircraft that has pandemic, available passengers cetera. strict has to during is was as more efficient furloughs, higher full-time and paid financial best well that with The the us operations no as carried requirements productive of and compensation safe for XX further negotiations was a flying fuel hours labor wellbeing by continue the are passengers. was as lower company Volaris returning We're returns, financial proper on priority X.X almost are company aggressively to suppliers XXXX, This aircraft required. mainly quarter I conditions, capital made Volaris safely the XX recognition. the outstanding want company scheme. forces terms area on cash the full-time recognized the Mexico fundamental to to credit with to crews with and than safety travel million resource Volaris. sales achievements Council, certificates April the by of quarterly repayments, protocol. average most Volaris operations. suppliers, per month. of focusing focus and expected bring resource before general and Number its Tourism raise. back and of of will thing Mexico the received stamped, an well renegotiating our Travel month. Yucatan biosecurity carriers.

is infection for is safety on we attendants best attendants volunteer medical carried User personnel zero, the Aviona crews entities, which flight and on-board Volaris Volaris’ and continue Flight finest health rates it. zero. of example keep the equipment and following pilots of part practice. rates pilots repeat supporting infection to transporting on program. board confirms as are COVID our I Our want board Volaris national aircraft.

ahead it strategy. pass President, Holger Holger, Executive the me to Vice please. Airline Blankenstein our revenues on let Now comment commercial to on over Go and

Holger Blankenstein

Enrique. you, Thank

operating up quarter ramping third capacity to year-over-year August July quarter, TRASM up was focus TRASM. cents minus quarter, Ps.XXX the versus the by of air of the second revenues XX% of combo capacity. fares. resiliency reduction ancillary to revenue September the decrease new increase XX%, XX% of due following accounts an XXX the and X% versus month the XX% year-over-year, in September, revenue, XXXX. Total and year-over-year. remain for was only on of allowing driven now for TRASM ramp revenue of with as process per record MXN through quarter the the ancillaries, top-line line we XXX% decreased passenger achieved reached a total figures. a increased Non-ticket stable a a During such XXXX third ancillary The the and total of for

capacity to recovery operational was In up quarter. the for stable capacity XX% on-time same terms In of months Volaris ramp reliability, the quarter, Volaris September. July ASMs shortly the same up in period of XXXX, throughout performance operated started ASMs market, In international in third of market and a the U.S. the thereafter. and versus XX% the XXXX. through third versus Volaris quarter remain increased total, period ramp XX% in XXXX. market, the the by operated followed In of domestic August the domestic

growth still update, short fourth transporter the expect and capacity capacity. in to a EBIT. The increase marginal American windows higher booking in impact inflows now have restart to and cash quarter, and weekly repayment a show faster with the normal non-ticket to than operations fare are improved on revenues last lengthened prior are relatively but shorter-term outflows the supplier ancillaries earlier Central a sales have compared base stimulating a we with in – contribution, in of operations, sales load year. For international result, continued build sales granted as than of been year. higher Sales concessions advanced we the positive up our ramp due now The last successful had and factors. XXXX, majority and to associated a both covering Cash to

the O'Hare. As and of Volaris of del Friday, launched Cancun and routes from international to XX airports. from Torreón, City start we Tampico the domestic to Ontario, routes of Campeche today, has to Chicago, November. San from have the XX California; our international than Houston; crisis, from Villahermosa, COVID we we seven the Carmen, and Mexico daily XXX Central Mexico and California; Aurelia American to sales, launched to of new for Since Sacramento; Jose, Oaxaca Fresno; announced operations begin operations also new more relaunch Last Dallas, in City six and XX Ciudad domestic

technologies and all in have during in and in number of companies. bus the one channels one as it outperforming and the last number the ranked Our Uber customer apps, such consistently course was sales efforts paying Android, keep for have iOS app travel to the quarter airline Mexico, best Android in and off, we digital service app as

load created us Additionally, segments. the We quickly to platform for bounce more to low during we and times has launched volaris.com, helped progressive recently last new to and continue program more in proven together the bus in us partnership slow upgrade during networks our navigate allowed to which latest with on our app, experience faster have tool customers Navitaire reservation a rate attract page almost developed web sales has devices. switching better drive an back has This to even which and the with older reliably, percentage with double-digit in was an our pandemic and from conversion quarter. to exclusive Google ideal

This to and for Chatbot the us in in We service America messaging most while resulted service delivering reductions have allowing on platform integrated call U.S. cost messaging messaging Central Mexico offer in center, customer WhatsApp our has app, the our clients. into two platform important the and for traditional number better

Volaris has immediate curves end gap trend strengthening multiple slow fourth automate between of factors All expect in measured forecasts to arrived answers three able channels, booking third-party and overloading executing Volaris is weeks operate ASMs load these as In the the ago, scenarios show As October call a quarter, strategies capacity we this. year. show of a of in deliver compared to global for XX% services the returning and aviation. center. in we to previous Delta the approximately RPMs further Cancún in profitability recovery has to closing focused passenger when and into the year. and ASMs to the quarter. positive on to an fourth example Hurricane resulting offering were the without this, to near-term the

However, recover for than the XXXX of passenger Mexico. IATA levels three generally. Mexican ahead domestic U.S.-Mexico of the the market to traffic are expects VFR market much faster half years XXXX, recovering Volaris first recovery expected by international and

customer to first the friends to highest an They for VFR need forecast direct The to leisure that point corporate network, based flights. traffic which bus challenging. their The a inexpensive connectivity prefer the market customers The base on consumers key low business VFR slower demand remains And Connecting for. is remains offers point for even segment get recover. ticket at Our as our were recover the Volaris family. for growth. is to core driver traveling start and is traffic to segments simply looking Volaris fares. are with to market

and only bus hours the six still Year-to-date, routes than Our lower cases. against over total are exclusive buses. compete segments XX% most bus fares our in in the the are of fares

As a the is of our fleet the pandemic strong to result XXX in competitors, main of approximately the market narrow-body see and which aircraft. the stayed during traffic the two supporting equivalent expects aviation reduction Mexican to industry COVID for pandemic Remittances Mexico have a one-third consumer of current AXXX XX VFR Volaris aircraft XX to represents dynamics. the

remittances new record. strong factors XXXX, already months a August XX for domestic a market in These rose During resulted position to have Volaris.

model was pre-pandemic, September, domestic approximately to share be Why business not whereas penetration the XX%, Before for share approximately grown of is low X% the market in validation it was business? XX%. to to had the market it of the our September, Volaris middle ultra market our driver Volaris had share XX%. grown of It in does in consider pandemic, international whereas strength around a cost still Volaris crisis. a

like discuss Pous quarter. to financial Officer, our Now, Financial performance our the turn the Chief to over would to I Jaime call for

Jaime Pous

Holger. you, Thank

of reductions. the quarter versus Comision XXX% decrease CASM operating X% XXXX in Securities MXN versus will the versus continue the results a second XXXX, I third Commission of of result for second ASMs. our Nacional XX% related accordance figures in Bancaria due de with Exchange XXXX versus revenues Valores. quarter reaching representing quarter of an Now and X.X filed billion, y discussion was and decrease the was a with may U.S. COVID to quarter reduction as XX% and a Total increased Total XXXX, ex fuel third capacity CASM of increase the US$X.XXXX US$X.XXXX. for the

margin of XX saw percentage versus the of improvement XXXX, the In the quarter was the the points EBIT one-time of MXN margin EBITDA a XXX net The XXXX, margin MXN third margin the billion forma XX%. net second charge loss of would on would million XX%, MXN the quarter In percentage the Without company MXN loss third of negative swing we pro negative and X.X been exchange monetary U.S. to have million. been forma of XXXX, with the rate charge, below led of XXXX, XX%. have with dollar of XXX quarter results minus a point a X.X versus recorded positive third this the been the quarter pro one-time FX would operating XX% EBITDA improved position, the the have our million of of billion XXX points quarter a operating margin and of forma quarter of pro net MXN line. the margin minus non-cash with net XX%. XXX third a depreciation end negative quarter, of the improvement highlights operating second EBITDA quarter Due liability third of loss company year, net gain at XX During negative quarter, versus for percentage and an X%. second the operating for third of net

net third activities flow the MXN million. MXN The activities X,XXX net operating During financing cash flow using XXX was using the million. quarter, was cash

debt return. PDP fourth of strongest the registered has among XX any net of debt have billion, net is XXXX as MXN are the Mexican focus roughly XXX reimbursements maintenance million, major The net We the at business. the in activities only a will negative sheet risk quarter, previous quick the Volaris does business debt-to-EBITDA be balance remained expect quarter. times, third the reducing quarter used excluding levels healthy our or lease not critical in MXN of balance reflecting year. cash in and At financial The the indebtedness end the provide industry profile capital the have to invest June the million, amortization or carriers. third company financial used IFRS liability Volaris we are expenditures solely flow recognized projects solid the X.X capital standard. per net of to is on ratio mainly sheet approximately adoption. same debt under related. company reached to that a investing leading events of MXN X.X Volaris those close the capital XXX as quarter the Volaris on next not expenditures to growth

strong and suppliers. quarter of with protecting company on focus We’ve third deferral sustain cost the has agreements on the its During XXXX, continued costs. and sustained reductions liquidity managing first improving further sales, our our

were XX unrestricted months XX, September of As equivalents revenues. billion, operating X.X representing cash last XX% and of of cash MXN

Enrique our it guidance As is our a versus room mentioned, XX% original world treasury improvement as a of delegates. result

has XXXX. XX% electronic closed revenue from an issued September, of During at second from – to April pesos, quarter company pandemic, for XX% which cancellations billion the remained in Unearned the $X.X only represents for billion flight third quarter increase September vouchers of transportation balance. versus which to the the of $X.X pesos March

payments approximately of and $X the deferred from For the considers fourth operations cash average estimate note that this quarter, payments burn we of quarters. daily million. current expect an please previous

$X of to field XXXX recent tender $XX rental CEO with XXXX, three XX% and extend to NEO fuel level billion and returned the with aircrafts savings our Volaris approximately have during XXXX. gratitude the on financiers of the its projected third good repaid AXXX Volaris continue to front, provided from main reach been conservative with main efficient obtained, preservation be preservation liquidity my suppliers, billion all By guidance of deferrals brought the express specifically aircraft of company supported I not to been cost end which actions. fleet. And on and to have avoidance. fleet industry each who domestic its of company agreements aircrafts liquidity in will AXXX through approximately pesos which quarter, quarter its XX% deferral for XXXX company of has incorporated deepest our one-year operating to XXXX, XXXX. aiming providing with current were XX pesos a straight our this third XX liquidity payment million. $XXX opportunistic started, XXXX. cost objective will earnings. the extensions. be COVID-XX been with face of The pandemic pesos XXXX, the the June company. AXXX for want pursue end our families. since one The XXXX NEO plan preserve aircrafts, the reduce to plans the and our the will company’s will period cash benefits, in By fuel September flexibility to by In to the lessors to to to the disruption, $X.X continue the our our farther position. lessors, leases company We with year similar fleet growth of of plan is will

is to today profitability. focus return Our

Now, it I’ll remarks. pass to closing for Enrique back

Enrique Beltranena

and Thank you Jaime Holger. very much,

amazing with have José teams. You within together done your work Luis an

our altogether, I with the we from share. clients. million return and joining more safely, will per did earnings aviation Like some a were no During our continue studies we with the last I’m and facts probably aligned couple and with tourism industry industry of can and confidence, the as ramping low as our to members in and to up authorities the the regarding results to of the to that Volaris COVID to leave the to associated regions. speak referred the infected tourist and to half alliances potential is Volaris’ pull four the airports in recent well American our than saying board, press, promote stakeholders having the governors weeks, airport in very and and Those flight. destinations, in regain have central generate Costa efforts Airports gained to transmission well Mexican experience of Rica presented attractive crew out throughout to the the flown continue received our revamping we ministers tourism. a actions the passengers some to visit fares. the top-priority Mexico, on

We will per managing capacity, preservation, preservation continue thorough a total and revenues ASM. with cash cost increasing

and our for lowest position investors our for our pass entire environment. this challenging suppliers to profitability on of we’re are directors amongst exploring operator, the efforts we board especially family, tireless and to want our going cash line As business the thank open competitors please I runaway, already their upon Volaris sellers, capitalize and on model. commitment in strong the questions. our our by opportunities

Operator

take with Evercore from [Operator go Please Instructions] And ISI. question Duane first Pfennigwerth will our we ahead.

open. Your line is

Duane Pfennigwerth

Hi, said or Can and you left just good morning. – a of would domestic mix the that’s just good it And consider Thanks for start time. domestic things assume here review; you the how the number since Mexico you lot a many aircrafts can pandemic? of of the a market international. you review primarily I have

Enrique Beltranena

International Duane, announced. mostly, that the Volaris XX about good that for the operate narrow we represents Airport, morning. And total Airbus that market the XXXX. in aircrafts are publicly Mexican those a of equivalent Mexican two from are expect and third mostly city going to leave competitors the December AXXX XXX Mexico body the aircrafts already competitors, body country. by fleet narrow

Duane Pfennigwerth

update quarter? in with you’ve talked opportunities, airport last And of respect expansion about Any since there opportunities bit couple little the Thanks. Mexico last quarters to city. then a

Enrique Beltranena

Yes. also They we’re for this adding we in operated Mexico They California operations announced the don’t in Mexico city week. Duane, next and to have U.S. to new So we new capacity some roads in market domestic – starting markets week call, also and five we already the as and sell. City are with Texas. have started for

Duane Pfennigwerth

bit taking what reopening kind occurring you if one the central a and one great. about questions? what and geographies, you can restart and America, are I for talk just countries that’s thanks last That’s the could when of And little sneak mentioned of

Enrique Beltranena

routes a The in is similar on achieve follow Yes. progressive Duane, to of we operations pandemic. before plan start once analyzing growth. operations we in restart as did the will November start profitability, same similar up And will – XXrd ramp the we and as we’ll we had we strategy Mexico.

in to we the the to So, CAM once profitability. as achieve the destinations and will And on have U.S. very then, much four Mexico focused growth eventually we CAM progressive with we U.S. intra-CAM, – have

Duane Pfennigwerth

Thank you very much.

Operator

And please from Helane we next with Cowen. ahead. will go take Becker question our

Helane Becker

for everybody you much, Hi, this Thank and you operator. very very time thank morning. the much

have just one or questions. So, I two

and international The first question Holger; new routes, that. exciting you Dallas of cities kind is on the Fresno, like mentioned and

on One questions those or mature the earnings long have that in So, two you be fly they populations you costs you still and so either second big for So, are is I will strong questions. about to I to think long there. it? routes side, have makes or accretive market with the cities? sense with And perspective? do how a And make route friends frontier. the measure new to coach – you one stay like does then you however that from those market that visiting it sense question give chance And Are cover that. in how are a relatives have and here re-sub

Enrique Beltranena

Right, Helane.

me let U.S. the destinations about in our you tell new So,

for market a have is try happens we in ramp markets; between the in advantage routes quickly as of first the possible been operations Mexican typically a that largest Mexico – them we get well. of six Guadalajara Mexican the that Mexico to as capacity And have All then months. city successful up now to have the – what full contribution segment. VFR typically, Remember, XX city. to opportunity months And we VFR on largest we from traffic XX to the and city, months add to characteristic. from as take large look in of marginal typically international will similar They new very profitability

Helane Becker

said you the missed; embarrassingly and thought that catch had charge? And Okay. you took for Jaime, didn’t was a enough, actually, in other I that then quarter you said I charge I question. thought the just That’s what great. something one-time I one I

Jaime Pous

was adjustment one-time are carriers our since on in the was the to a Tijuana, It clear the we and it was million tax the applied rate right. Mexican amount that related leader northern-border case added That’s of in an to charge significant. $XXX It’s value pesos.

Helane Becker

Okay. That all explains much, that. you everybody. very helpful. That’s Thank very

Jaime Pous

welcome. You’re

Enrique Beltranena

Thank you, Helane.

Operator

And please with ahead. Linenberg Mike with go next we move will Deutsche Bank.

Mike Linenberg

good morning, everybody. Hey,

Jaime, here. back day, sure wasn’t right, just I that. couple I then the quarter. but qualified fourth to pre-delivery to sure I if I it other think cash did want burn want deposits per say, that to the a $X heard you Just for you or financial items. go I million whether was included, make you

So, to September did if you then basis, could the an compare daily and that on that just – clarify the burn apples-to-apples how the burn rate quarter? in

Jaime Pous

Basically, because the third mentioned, be the are the XX% Sure. going I remember paying as fourth stay lease the quarter. deferrals to burn the to with and agreements respect to we the paying are going cash cost, for second of deferrals of quarter. that

that’s the fourth the wise, third why cash going than is to quarter be operating in positive. the burn higher one; we’re So,

Mike Linenberg

month it capacity, Okay. down kind this or more to likely to of I from as to feel conceivable perspective? at talked get probability break gets back Holger that in take may September to XXXX? like there about quarter, close at XX%, this was you to does that very gets cash line guess me what get your Jaime, must top flow a which do was know do next year, down That’s deferral last is you Are the but the quarter to maybe are get It that want next and this of me step to that respect of of that maybe cash – we to and lessor. almost by – provide to not probably gets we a even going step Enrique that the actually flow and sort the about the you're much. that XX% be line of sort because making to be I us I December, we your helpful, or in Just me quarter you've profitability, is pretty is to month be to XX% to a your up quarter be question, it March not, you top breakeven, past Is anything more able of these of my point which payments can objective. with you going

Enrique Beltranena

going referrals, cash. to not some quarter, our addition of are there the the the going first need of year. are to of this going And next hit We to heaviest collateralize we also the half Michael, to to letters credits referrals in in are get part with

depending away on as how cash break push XXXX able get are diverse So a mentioned to we farther before may to from we I XXXX, from even.

Mike Linenberg

And – That's very then Okay. actually just on… last my question that's helpful.

Jaime Pous

than matter observing days and in quarter, increases a in fourth already may operations to in fact, the that outflows granted into normal covering end same days as the I sales, steady as higher add we supplier year. we now cash XXXX. inflows of increase are the of are Michael, just the some in with the prior week And in associated capacity repayments concessions earlier our are sales

so to we all mind, keep in contestants in about just So received the it's early that repayments the of year.

Mike Linenberg

can into just the a start just once has you back maybe I go city one to is good actually the a play the interject use last play year and a lot scenario, hold say, those taking that the Mexico and that And them? capital That's there it's service, watching mean, new road obviously remote a not go Is how we you helpful. city able you will say, let now and crisis very you're situation mentioned the fact of two, advantage but how somebody a open. or does as – they slots, but pretty, I answer slot likely How then the become of amount Yes. you this. to out, be those and those Holger, do of if out one guess that or onto a that slots, service, possibility scenario, down are of It they pairs, waste to scenario – the slots. they out? steps XX infuses never if we're up does it demand maybe come what and

Holger Blankenstein

Michael, as current you you in waiver, waiver lose the it despite you worldwide it it, don't use is Mexico that was if is or rules pay pushed or there lose included by know, a not – a don't that on there them.

centers So airline Mexican hold And not city operations able as monitor because long going the heavy loss. as reduction to as the of be big in interject there. the those that another to they're airport, Mexico both capacity or is the have counters so will of

the to city. to I for room maintain new going think that putting is certain growth Mexico and to there to be operations we're

Mike Linenberg

one one squeeze on thanks want at your last that. in if Mexico you city Just look to and for – Holger,

Mexico at you of If Maybe what moved what schedule it your up the what meaningfully. December seem your – look year share is It capacity, it's now? on does pretty just based ago? city, a was quarter in like out versus

Holger Blankenstein

share. terms in XX% share, domestic city of So we Mexico the have

So one we're And city, city clearly at total, us add in in look would be international leader as from share the also all terms you ASM number which if as in Mexico the Mexico you Mexico of well. operations if our well, market as XX%, city, positions

Mike Linenberg

fifth… for impressive always that your That's an was airport pretty four or

Holger Blankenstein

in statement let city. Mexico be me And continues my bigger of correct to Aeromexico Sorry.

total. we're the So in two domestic in number player and

Mike Linenberg

city… That Okay.

Holger Blankenstein

one. In number Mexico clearly city are nationwide, we

Mike Linenberg

right. That’s Yes.

Okay, for the info. well great. Thanks

Operator

questions at remarks. to [Operator our it appears to no for have back that turn further time. I would like And program Instructions] closing we presenters any the now this

Enrique Beltranena

that and within appreciated support you thank taking. day. great this done, much we have you very Thank to And had and very our for all have we the a to much I with participate hope with actions that everything continue you report morning. again, that conversating we the that quarter. investors and much Thank during to this the the we're you the conversation very everybody quarter, really

Operator

Thank And participation. this for you program. today's conclude does your

time. at any disconnect may You