Good morning, everyone. Thank you for standing by, and welcome to Volaris' Fourth Quarter and Full Year 2016 Financial Results Conference Call. [Operator Instructions] Please note that this event is being recorded. At this point, I would now like to turn the call over to Mr. Andrés Pliego, Volaris' Financial Planning and Investor Relations Director. Please go ahead, sir. Andrés Pliego: Thank you. Good morning, everyone, and thank you for joining the call. With me today, we have Enrique Beltranena, CEO; Fernando Suárez, CFO; and Holger Blankenstein, CCO. They will be discussing the company's fourth quarter and full year 2016 results announced today. Afterwards we will move on to your questions. Please note that this call is for investors and analysts only. Any questions from the media will be taken on an individual basis. Before we begin, please let me remind everyone that some of the statements we will make on this call will constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are subject to a number of factors that could cause the company's actual results to differ materially from expectations for reasons described in the company's filings with the U.S. Securities and Exchange Commission. Furthermore, Volaris undertakes no obligation to publicly update or revise any forward-looking statements. It is now my pleasure to turn the call over to our Chief Executive Officer, Mr. Enrique Beltranena.

Thank you, Andrés. Good morning and welcome to everyone joining us the call today. We posted outstanding profitability in 2016, evidenced by an adjusted EBITDAR and net margin for the year of record 38% and 15%, respectively. Our ultra-low cost carrier business model is well equipped to face challenging times and is very resilient. In that sense, our low unit cost is the best protection for an airline in the midst of an uncertain geopolitical and economic environment. We faced an end of the year with challenging marketing conditions but have come out with strong fundamentals that I will outline next. First, our total unit revenues or TRASM grew 9% year-over-year, thanks to our bundling strategy execution and demand stimulation through low fares. Non-ticket revenues increased 41%, year-over-year. Of this growth, 58% was due to maturity of existing products, 30% was due to dynamic pricing strategy and 12% was due to new products. Non-ticket revenues per passenger for the full year increased 13% year-on-year. Additionally, an effective demand stimulation on bus switching produced record low factor of 86% for the year, 3.5 percentage points better than last year. And at the end of 2016, over 30% of our routes faced no competition from other carriers, where we primarily competed head-to-head with the buses, which now share market fuel price impacts with the recent diesel price liberalization in Mexico. Second, in these times of exchange rate volatility, we have continued to diversify our network internationally, and hence our dollar-denominated revenues. At year-end, Volaris already had 37% of U.S. dollar connection, helping us continue to build our natural hedge from the exchange rate standpoint. The rollout of our Central American strategy, obtaining our Costa Rican operating certificate also plays a role in our network and U.S. dollar revenue diversification efforts, in which…

Thank you very much, Fernando. Once again, thanks to management and our ambassadors for their daily efforts and commitment. The Volaris team has been through many industries' business cycles. And we're certain that together with the guidance of our experienced Board of Directors, we have a resilient business model and a strong financial position to allow us to be up to the challenges of the post-November world. Thank you very much for your attention. And operator, we are ready to open the call for questions.

[Operator Instructions] Our first question comes from Duane Pfennigwerth with Evercore ISI.

Fernando, did you give the aircraft rent in dollars that you expect in the first quarter? Fernando Suárez: Yes, Duane. We expect for the first quarter a total rent expense in the neighborhood of $80 million, which includes contingent rents for redelivery costs.

And do you happen to have that for the year at this point? Fernando Suárez: Not yet, Duane. It depends on the actual delivery schedule and the actual fleet plan that we end up taking in the year. Actually, for first quarter, we're comfortable with $80 million in rent.

Okay. And then just big picture, can you talk about the opportunity that you see in Central America maybe in terms of aircraft or ASMs longer term? What percentage of that is -- does that represent of your 17% growth? And as we think longer term, how do we think about the mix of dollar revenue for Volaris?

Duane, this is Holger, Chief Commercial Officer. Let me tell you a little bit more about our Central American operation. We began our Central American AOCs operations in last December. In the first stage of the AOC, we will be connecting Central American destinations, inter-Central American. And in the second stage, we will be connecting to Mexico and the U.S. At the full potential of that operation, we believe we can place between 18 and 22 designated aircraft for the central American operation. And I would also like to remind everybody that thanks to the fifth and sixth freedom in Central America, we were able to construct a point-to-point network within Central America to Mexico and the U.S. And currently for 2017, the ASMs allocated to Central America will be between 3% and 4%. So it's still a small share of our overall ASMs.

That's great. And then any sense for how this might contribute to your dollar revenue over the next, call it, 2 to 3 years?

Duane, as I said, during the conference, we are targeting to raise to the high 30s as much as we can for the year.

And the Central American operation is completely priced in U.S. dollars. So all the fares are U.S. dollar-denominated.

Our next question comes from Helane Becker with Cowen and Company.

Just a couple of questions here on points of clarification. Did you say or can you say what the fee will be for checking a first checked bag and what the expected uptake rate will be?

I'll ask Holger to answer you, please.

Helane, thank you. So we will be pricing the first bag to travel to the U.S. and Puerto Rico only. And the fee will depend on the moment of when you purchase. So during the booking process, it's going to be cheaper than after the booking. And at the airport, it's going to be a little bit more expensive than during the booking process.

So it starts with a fee of $15?

Exactly. And then $18 during the -- after the booking process and $20 at the airport.

Okay, that's perfect. And if we assumed like the uptake would be something on the order of 50%, would that work? I mean, are you -- if you have the Volaris credit card, will you get a free bag? Is it going to work like the U.S. guys do it?

Yes, it will be very similar to that. Our index card holders will have an advantage on the first bag. And we believe the uptake rate for international travel is going to be a little bit north of 50%.

Okay, perfect. Then is...

What's really important, Helane, is that you guys consider that we are not considering this a net effect increasing the revenues. We're considering a reduction on fares as it's planned together with the launching of the campaign.

Well, that's kind of a bummer. I was kind of hoping you do get that -- get to that high 30% margin a lot quicker, but that's okay. How much of your 2017 growth is in Costa Rica? I mean, it's got to be a small number ? Or is it a large number on a small base?

Yes, Helane. Overall ASMs for 2017 in Central America is going to be between 3% and 4%.

Okay. And then when you talk about international versus domestic, do you put Costa Rica in that category? Or is it -- is that different because it's a -- are you going to report the numbers differently in that market because it's a different...

Helane, for the time being, we're going to include it in international. When it becomes material, we might break down Central America. But currently, it will be within the international breakdown.

Okay. So what's the percent of international versus domestic then for 2017? Do you have that? Fernando Suárez: Yes, hold on. Out of the 15% to 17% full year ASM growth, Holger just mentioned that about 3% to 4% will be earmarked for Central America. And then the rest will be skewed towards international versus domestic of the remaining ASM growth.

Okay. And then my last question is with respect to -- what I'm hearing from the Miami Airport people and the Los Angeles Convention Center is that they were seeing a decline in northbound travel from Mexico to the U.S. because of some geopolitical issues maybe in this country. Are you seeing that as well? Or is that part of why you're shifting point -- trying to shift point of sale to the U.S. southbound? Fernando Suárez: Yes, Helane. So let me elaborate a little bit on the bookings that we're seeing. So as you mentioned, we are seeing some softness on northbound leisure markets. And that's mostly driven by pressures on FX. It's just more expensive to go to the U.S. for Mexican travelers and uncertainty on the political side. That is partially offset by vacation into the domestic market. So we are seeing quite a lot of load factor increases in domestic leisure destinations.

Our next question comes from Mike Linenberg with Deutsche Bank.

Holger, or actually, Fernando, I want to go back to some of the comments that you said. I mean, I know you talked about taking capacity down and you sort of pointed to delays with the A320 Neo. You also mentioned market conditions. Holger just talked about some softness. You indicated that you felt the short-term decrease in booking. So let's say a few weeks back when that executive order was signed and there was probably a bit to bookings, have they recovered back to the levels that we were seeing prior to that? Or are they still maybe running down, and hence you're -- like you said, you're taking a conservative outlook on the March quarter?

Michael, hello, this is Holger again. We are very conscious about the importance of capacity management. In the first quarter, in the March quarter, we are decreasing our growth expectations. I can tell you that in the first quarter, we have reduced capacity versus our original plan by approximately 5%. Having said that, we continue to diversify our network and we now already have 163 routes in operation. But you are right, we are seeing some softness in bookings. And that is -- if we look at our analytics and analyze all the travel websites in Mexico, we are seeing similar decline across the board in Mexican-related travel.

Then Fernando, I just -- I'm on the road, so I don't have -- I know you -- we calculate EBITDAR margins a little bit differently than I think you. And I know you said that you were guiding to high teens for the March quarter. What -- based on how you calculated, what was that EBITDAR margin in March of 2016? My sense of it is that margin's down a bit. But what was the number last year? Do you have that? Fernando Suárez: Yes. Yes, Mike, we do. Last year, it was 42% EBITDAR. But bear in mind that there's a seasonality effect that we had. Holy Week and Easter Week, affect primarily in the first quarter last year as well as different exchange rate and fuel prices, which are substantially up year-on-year, 40% fuel-wise and FX-wise a substantial depreciation there as well.

Okay. Okay, good. That's Very helpful. And just lastly on the question on bag fees. So instituting that first baggage fee for U.S. and I think you said U.S. and Puerto Rico only. So for your flights to Costa Rica or Guatemala, do you have a bag fee? Or you don't have a bag fee? Fernando Suárez: So for everything that is Central American travel with our AOC in Central America, we already institutionalized the first bag starting December 1. So yes, we are charging a bag fee in Central America.

Okay. And then just domestically, though, you're still subject -- what is it, the 25-kilogram rule, where you can't charge. But then we have that same issue with Brazil for a long time and they have finally -- they are evolving and now they're following what some of the other countries are doing with domestic. Is there any chance that we see changes to the Mexican regulations? I mean, is there a push there maybe from you and others that say, "Hey look, this is how the rest of the world is doing it." And by the way, like to Enrique's point, we'll charge for bags but we're going to lower base fares. And so at the end of the day, it's all about stimulating travel, which is pro economic growth, right? Does that resonate with politicians yet or regulators or no?

I just recorded your speech, and I'm taking it to the Secretary of Transportation. That's exactly what we think it needs to happen, but we don't see it happening this year.

Our next question will come from Renato Salomone with Itaú BBA.

In the quarter, we -- when we look at aircraft utilization, the drop that we saw to 12.6 block hours was stronger than we're expecting. And I assume that with the adjustment in the first quarter, it will remain below average. I know there's some seasonality, the pressures in the fourth quarter. But how should we think of aircraft utilization throughout the year?

The aircraft utilization throughout the year should be somewhere around 12.6 hours, okay? Clearly, there's a seasonality effect which we manage. And in the first quarter, it's going to be 12.1.

Perfect. And also if I may have a follow-up, on the working capital, was there anything unusual that the pressure of working capital in the fourth quarter? Fernando Suárez: No, Renato. The only thing in terms of certain investments the company make is we, in the fourth quarter, purchased our first 2 spare engines instead of leasing them. So you will see that being in the cash flow later that we added those 2 assets. We decided to buy those 2 spare engines instead of leasing them. Other than that, nothing out of the ordinary than our traditional working capital cycle.

Our next question comes from Josh Milberg with Morgan Stanley.

My first question just relates to the issue of cross-border booking softness that you touched on. I just wanted to clarify if that's almost all northbound weakness and whether there's any pressure coming from Mexican citizens who reside in the U.S. just holding off from traveling to Mexico to visit their friends and family. Really, I want to know is that -- oh, sorry.

Yes, most of the softness we're currently seeing is on the leisure side -- on the northbound leisure side so travelers going on vacations in the U.S. And that is mostly effect of the FX pressures just making it more expensive to travel to the U.S. On the VFR side and on the southbound leisure side, we are not seeing any significant reductions in bookings.

How much does the southbound VFR market represent as a percentage of your total cross-border traffic roughly? Is that something you disclose?

No. Fernando Suárez: No, we don't.

Okay, fair enough. And my second question, just wanted to actually confirm that the MXN 127 million of other operating income in the fourth quarter that, that in fact correspond to sale leaseback gains? And then if you could also just update us on the number of aircraft you expect to receive this year after your own order book? Obviously, what happens there has a meaningful -- a potential to have a meaningful impact on your profitability? Fernando Suárez: Yes, Josh, the other income that you see in the P&L, that -- it relates to 2 primary things, one is gain on sale leasebacks, that's correct. And the other thing is we have an exchange rate effect there from predelivery payments at the moment of the delivery. So it's those 2 components in that line item. Regarding the fleet, we are scheduled for this year to have 9 gross deliveries of new aircraft. But we will experience 3 aircraft returns or redeliveries. So it's a net addition of 6 aircraft. And that's what's embedded in the 15% to 17% ASM growth that we expect for the year.

And of those 9, how many are off your own order book? Fernando Suárez: Just 2. 7 are operating leases -- straight operating leases from the source books.

Well, thank you very much to everybody. Okay. I thank everybody for your participation. And we are looking forward to keep on commenting during the quarter the results and the progress that we're doing. Thank you very much and have a great day.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.