Good morning, everyone and welcome to Volaris' Second Quarter 2017 Financial Results Conference Call. All lines are in a listen-only mode. Following the company's prepared remarks, we will open the call for questions and answers. Instructions on how to ask a question will be provided at that time. Please not that this event is being recorded. At this point I would now like to turn the call over to Mr. Andres Pliego, Volaris' Financial Planning & Investor Relations Director. Please go ahead, sir.

Good morning, everyone. And thank you for joining the call. With me today, we have Enrique Beltranena, CEO; Fernando Suarez, CFO; and Holger Blankenstein, CCO. They will be discussing the company's second quarter 2017 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 would constitute forward looking statements within the meaning applicable securities laws. Forward looking statements are subject to several factors that could cause 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 CEO, Enrique Beltranena.

Thank you, Andres. Good morning and thank you all for being with us today. Today I am pleased to report that Volaris is back on track, despite a very challenging market and geopolitical environment at the beginning of the year, the company has managed to navigate through and in the second quarter we posted an operating profit. In terms of adjusted EBITDA margin for the second quarter we met our stated guidance with an adjusted EBITDA margin of 26% despite the challenging marketing conditions resulting in a positive operating income. On the revenue side, we made an important drive towards non-ticket revenue generation, which sequentially improved CASM to Ps. 129 cents with underlined yield recovery and good volume. On the capacity side available seat miles grew 17% year-over-year, but we cautiously managed our capacity. Cautiously managed our capacity by growing only 2% quarter-over-quarter. On the fleet side during the first half of the year we continued operating more ASMs as I just mentioned, but with less aircraft, in line with our cautious capacity management efforts. During the same period we re-delivered three aircraft and did [ph] not receive any aircraft. Regarding volume network load factor return to last year’s second quarter level of 86% despite the softer international traffic and resilient domestic traffic. On the costs side CASM excluding fuel returned Ps. 92 cents which is similar amount to fourth quarter of last year. On the microeconomic side indicator for the Mexican economy remained stable and by the close of the second quarter we had a stronger peso, a recovering consumer confidence, 5% in same-store sales and much more stable fuel prices. Remittances in dollar terms also increased 5% in April and May. Along with this important macro development, there were several other factors that explain our improving proactive performance…

Thank you, Enrique. I'll be reviewing our results for the figures filed with the SEC and BMP this morning. Total operating revenues for the second quarter reached Ps. 6 billion, up 17% compared to the same period last year. During the second quarter, non-ticket revenues reached Ps. 1.7 billion, an increase of 31% year-over-year. U.S. dollar denominated collection was approximately 43%, partially helping to insulate the company from exchange rate pressures. Moving onto costs, CASM was equal to a Ps. 128 cents for the quarter, a 7% year-over-year increase, mainly driven by the economic fuel price increase of 13% and the average exchange rate depreciation of 3%. The FX devaluation continue to impact dollar denominated cost line items such as fuel, aircraft and engine rent expenses and certain traffic and maintenance costs. Note that CASM ex-fuel in U.S. dollar terms continues at $0.05. The average economic fuel cost per gallon for the second quarter was $1.79, which includes the recognition of call option premium of $0.08 per gallon, partially offset by the benefit of some call options that ended settling in the money for the quarter. As Enrique mentioned during the second quarter we did not incorporate any additional aircraft, hence nor did we post any gains on sale and leaseback transactions as oppose to the second quarter of last year. We finished the quarter with a fleet of 66 aircrafts composed of 12 A319s, 44 A320s and 10 A321s with an average age of 4.4 years the youngest fleet among Mexican carriers. At the end of second quarter Volaris' fleet had an average of 180 seats per shelf [ph] in line with our strategy to continue up gauging the fleet and 63% of the seats were Sharklet-equipped, on track to continue improving efficiency and fuel burn in our fleet…

Thank you, Fernando. The second quarter was an inflection point through the U.S. traffic and a highlight of the domestic world. The company I think performed accordingly by maintaining cost control, by managing capacity in a discipline manner, and by stimulating demand and sustain healthy load factors and growing the non-ticket revenues to a record of 29% of the total revenue. I like to conclude by thanking our ambassadors, who helped us establish another record, by making Volaris one of a 15 most punctual airlines in the world according to OIG and also thanks to our loyal customers, who in this difficult times got through this period successful. Thank you very much to everybody for your attention. Operator we are ready to open the call for questions.

[Operator Instructions] Our first question comes from Helane Becker from Cowen & Co.

Thank you, hi, how are you?

I am doing fine, Helane. Thank you very much for participating.

Of course. Thank you for the time. Just a couple of questions, so on international I see that you are slowing from that growth, is that just because traffic from the Mexican markets to non-U.S. cities are not keeping pace with the growth is it the Mexicans who are travelling domestically can you just maybe put some more meat on the bones?

Yes, I will ask Holger support you on that.

Hello, Helane. Well the international market as you know we are in a strategy of increasing our share of international revenues. So we did expand capacity quite significantly early in the quarter. And given the geopolitical political situation and the exchange rates, we then trim down growth into international market. So, you see lower growth rates towards the end of the quarter in the international, which helped our load and our yield. And we also saw a shift of travelers from the international markets given the high exchange rates through the domestic leisure destinations. So, I think the combination of those elements explain the lower growth in the U.S.

Okay. And then, can I just follow-up with are you seeing a shift more of a shift in capacity from the U.S. carriers coming into Mexico or is it about - can you talk about that growth rate for them versus your own growth rate maybe?

So we do see increases in capacity from the U.S. players and remember that the U.S. players typically operate through the beach destinations to the leisure destinations where we did see increases, but we did not see any significant increases into our markets, into our more BFR characteristic markets.

Okay, perfect. Thank you very much for the time, Holger.

Thank you.

Thank you very much Helane, for your questions.

Of course.

Thank you. Our next question comes from the Duane Pfennigwerth from Evercore.

Just follow-up on Helane here, with respect to international travel demand since the currency has firmed, what changes have you seen here into July, how long before the firm or currency stretch to positively impact Mexican demand for international travel?

Duane, yes, we do see an improvement on the international loads because the currency obviously is much more in line with last year. So, we do see a recovery of international demand and yield as noted as well in our June traffic release, you saw higher loads than in May and in April and that is a result of a better currency situation. And also a little bit relaxed more relax geopolitical situation between Mexico and the U.S.

Great. And then I wondered if you would expand a little bit on your comment about slot reallocation in Mexico City. How does your position change if that all and how did sort of the competitor changes impact to you? Thanks for taking the questions.

Thank you, Duane, good morning great to hear you. Look, there is hoping of the slots and the slot controls at Mexico City it something which is in progress and it’s changing I would say dynamically. In the beginning of June the Mexico City Airport established a much stronger control on slots and we ended up with a reduction. So, when you look at our slot allocation, the year versus last year when we started negotiating it, it was basically half of last year, okay. So, we were able to negotiate back to a good level and a decent level of slot allocation. And effective June 1st, Volaris was the first company in terminal one to be fully allocated in its need for slots. But I mean what we see Duane is that the slot allocation process is getting more difficult A; and B, and it’s basically getting to its maximum level and I don’t think it’s going to move higher than that. As a result of that, the only think that is coming is a capacity constrain in Mexico City of which Volaris has managed very well because we up couched our aircrafts from A320s to A321s and we are overcoming the situation with higher routes and that's basically what's going on.

Okay, thank you.

Our next question comes from Michael Linenberg from Deutsche Bank.

Hey, everybody. I have a couple here. Enrique, I want to go back to on Mexico City, why under the reallocation, why was you seeing your spot allocation reduced. Were you not operating the slot that you had at the level that you needed in order to keep them, or was it arbitrary that reduction?

So, hi Mike, how are you doing?

Hey, Enrique.

It's part of the process underway they allocating the slots Michael. Last year we were adding operations based on the slots so the airlines were leaving empty. And those empty slots we were basically tackling them on a day-to-day basis. Now this is much more in anticipation to that. And it has to be in a much more orderly fashion. But, I don't want you to take my answer wrong, Michael. We got the right level of slots, we were able to get we needed. And we are operating it with the right capacity in Mexico City. What I'm just trying to say is it is getting much more organized, A; B, it is getting to us I would say higher level. And C, it's something that will be a constraint going forward.

Okay. That makes sense. And then…

Which for Volaris it’s important, I mean it's important to add. I mean remember Volaris only has about 30% something of ASMs there versus our two main competitors which could add more than 80% of their ASMs there. So we're a much more diversified route network airline, which has the ability to allocate capacity in any other city and keep on growing at the rates that we have been growing. And this is not going to be a constraint for us, it's going to be a constraint in the Mexico Airport, which may end up in a price increase.

Okay, that's helpful. And then, secondly, I was curious about how things have maybe - have you noticed anything since the Delta Air Mexico JV was implemented. Maybe the way in which they market or price or schedule. Because I thought it was interesting on the Aeroméxico call that they're actually going to grow at a faster rate than transporter market to the point that they're going to take 4 E190s this year which were not in the original plan. And they pointed to the initial success that they were seeing in some of the markets that they're working with Delta. And so I was curious if that was - if you were seeing sort of the impact of that and if you were, if it was having any sort of negative impact, if you're seeing share shift. I realized it's early, but I thought it was interesting that they have accelerated their capacity growth in France border, which doesn’t seem like you would do that just given kind of the backdrop. Your thoughts on that.

Let me give you some thoughts there I will let Holger to complement my - but we're seeing, yes, we're seeing a changes in much more Atlanta routes, more Atlanta capacity. And the second thing, as you mentioned is the additionally E190s and then the narrow bodies moves. And that's basically in general what we see but let me pass it to Holger to tell you based on route-by-route.

Okay, thank you.

Michael, one of the biggest changes we've seeing obviously is that we got several slot players from the Delta, Aeroméxico slot divestiture which we are putting into service. So we bought three slot payers Mexico-JFK, Mexico-San Antonio and Mexico-Los Angeles. And that's what we're going to start operating. We have one slot pending for this year and then next year we are in the process of getting more slots there from that divestiture, which we are also going to put into international markets obviously. So that’s something that we’ll accelerate. And also for Volaris our international growth, remember that we are continuing to grow faster in the international markets to build our U.S. dollar revenues. And the Delta, Aeroméxico slot divestiture will help us in that process. In terms of pricing and in terms of yields we have not seen any changes so far. We do continue to see relatively aggressive pricing, both in the international and the domestic market from all competitors right now.

Okay, great and then if I can just squeeze in one last one, I was going to ask you where you were with respect to your application to fly non-stop from Costa Rica to the U.S., and then sort of second part of that, the fact that you now fly from San Jose into Mexico as well as from Guatemala into Mexico, I'm curious about how much traffic you may actually be connecting over either Mexico City or Guadalajara into the United States. It would seem like that you could actually have a decent amount of connection traffic in the event that you don’t get the non-stop rights, just thoughts on that.

Yes, look Volaris Costa Rica, as we have mentioned has submitted its foreign air carrier license application to the DOT. We’re still depending from the DOT resolution and we expect that another will be issued during the coming months. In going back to the traffic numbers yes, our Guadalajara, especially our Guadalajara operations are managing both from Costa Rica and from Guatemala, sometimes up to 78% of our traffic through Guadalajara to the US cities and connecting those passengers. So it has become a very important operation from that perspective.

That said, you said upwards of like 70% to 80% is connecting from Central America into the United States, upwards of that, did I hear that right?

It depends on the dates. I mean, for example for Manna Sante, it was 78% and then on the regular basis it goes down to 65%, 68%.

That’s upside, that's still very high. So that’s a nice compliment. And you’ve obviously built a pretty strong hub there. Well thanks Enrique and thanks Holger.

Thank you very much. Great to hear you Michael.

Our next question comes from Ricardo Alvez with Morgan Stanley.

Hi everyone. Good morning. Thanks for taking the questions. Just two quick questions, one on the leasing side. We actually expected a slightly higher number for leasing expenses for the rentals. So maybe just a quick color on what is really driving this line on a per aircraft in U.S. dollar terms obviously. Not sure it may be related to a better re-deliver cost with a little bit better than what we expected maybe. And then also what’s going to drive this quarter-over-quarter increase in the third quarter, if I heard you correctly I think you were talking about $80 million for the third quarter. So just a little bit of color on the rental side. And then just on the capacity I mean with the new guidance I believe before you guys were talking about a number that was closer to 15% and not this 13% to 14% we might be talking about low double-digit growth for the second half. So just maybe a little bit of your thoughts on this big deceleration of growth on the first half to the second half, if this is maybe the new rule for the market overall? Maybe if you can talk a little bit about how you think about capacity growth in 2018 from your side, but also looking at the Mexico domestic market overall, that’ll be helpful, so looking a little bit longer term.

[Technical Difficulty] for the quarter and they were primarily driven by [indiscernible] expenses and then…

Sorry Fernando. I think you’re cutting off. I'm not sure if this is for the whole audience, but I can’t hear you. If you can repeat that please? You’re just cutting off.

You yourself have a lot of noise there in the back. Okay maybe you can put your phone on mute so you can hear better. Operator, let us know if you can hear us fine.

Yes.

Ricardo. You were asking about lower rental expenses, they are primarily related to lower redelivery expenses that we had in the quarter. And in terms of the third quarter rental expense guidance we are expecting an order of magnitude in around $80 million. Part of that also has to do with the fact that we had some delays in the fleet. So we have a little bit less of available aircraft embedded in that number as well. Now to your second question on second half growth, Holger will elaborate.

So as we said in the Enrique’s prepared remarks, we expect full year growth now to be in the range between 13% and 14% year-over-year. And specifically in the third quarter ASM growth of 9% to 11%, and with a skew towards international growth. So international growth would be between 13% and 15%. Of the second half of the year, we do see a reduced ASM growth and that is mainly due to the year-on-year comparisons. Remember that last year in the second half we did post quite significant growth both in the international and domestic markets. And if you look at year-on-year comparison, the second half this year will be slightly lower in terms of growth than the first half.

All right, thank you so much.

Our next question comes from Pedro Balcao with Santander

Yes, good morning. Thank you for the opportunity. In June you reached a very healthy load factor, almost 90%, but yields are still going down, at least, well, at least year-on-year. You want to increase load even more or going forward can we expect stable loads and maybe some improvement in yield? That would be the first question. Thank you.

That’s probably the best question in the phone call. Thank you very much, Pedro. I will have Holger answer it.

So the way we manage loads in a ultra-low cost carrier is that we try to be around 90% in high season by maximizing load and yields, and in the low season we target typically in the low 80s to mid-80s with lower yields. That’s our, I would say policy in terms of ultra-low cost carrier philosophy. So you can expect relatively high loads in July and August.

Thank you. The second one if I may. Why do you think we have this situation in Mexico City, when it's actually a saturated airport, apparently with not enough capacity for everybody actually?

I think Pedro, that's part of the dynamics of the market that we are seeing. Okay, we are trying to maintain and control in a very, very careful our capacity, so we can be at the right levels of offer and I think that’s probably much more a question you should post to the rest of the players, because Volaris is being very organized in its capacity management.

I see. Thank you, thank you very much.

Thank you. Our next question comes from Rogerio Araujo with UBS.

Hi, good morning. Thanks for the opportunity. I have couple of questions here. Sorry to insisting this question but a follow-up on Mexican City. I just want to understand, in your view how bad is the situation for the consolidated market as a whole. If this can be comparable with what happened in 2011 and 2012, or this is a better situation than what happened back there. And I didn’t hear an EBITDA guidance for third quarter like you gave in the past couple of quarters. I am not sure if I didn’t hear that properly, or if you didn’t give that. And if you didn’t is it possible to give some range possible for the third quarter, so you can have the better ideas as well on how bad these price pressures in Mexico City will be, this is the first question. Thank you very much.

Well, let me answer you in part and then I’ll have Fernando complement me on this. So the first part is, the pressure is staying. I mean you need to understand that this is a conclave that's earning quite an amount of ASMs, which are located in Mexico City, A. B, there are players there in Mexico City that have more than 80% of their ASM. So when you add those two players together we have more than 80% of the ASMs. This is an impact to more than 60% of the market, okay. And when you impact a market with more than 60% with the price pressure like this, yes, it's impact to the rest of the market. Nevertheless it is important to say that Volaris versus the issue in 2012 and 2013 - in 2013 and 2014, is by far much more prepared now than we were by that time with - because we've have a much more spread out network and a diversified network, which defends us, A; and B we do not have more than 30% something ASMs in Mexico City okay. So I would tell you from all the players we're probably the less affected, but still affected by the strategy that they're applying in the pricing and provisions in Mexico City, even during the high season. So it's important to understand that this price competition there is in reality affecting the market. And it is a challenge for the going forward numbers. Now let me pass the rest of the question for Fernando.

Regarding guidance, for adjusted EBITDA for the third quarter we are stating low to mid-30%. Hopefully that clarifies.

Yes, this is very clear. Thank you. And just a second question if I may. On the land and takeoff and navigation expenses, if you look at the averages fees per departure, we saw a 30ish% expansion year-over-year. So I just want - and then we saw this pressure in the last quarter as well. So I wanted to understand on the reasons for this increase and if this is going to remain going forward or not. Thank you.

Of course. What explains the drive in the landing and navigation expense increase is primarily related to more international traffic. As you saw in the quarter, we have 36% ASM growth year-on-year in the second quarter. So that primarily explains that as you know, operating to US airports is substantially more expensive than your average Mexican airport. And in addition to that we also had some FX pressure in the quarter. So that what's driving the increase year-over-year.

Okay, thank you very. That's very clear. Thanks.

Thank you. At this time, we have no further questions. I would now like to turn the conference back to Enrique for closing remarks.

Well thank you all once again for being with us today and for your interest in Volaris. Thank you very much again to the family of Volaris for their efforts. We wish you a great rest of the summer and we look forward to seeing you on September 13 for our Investor Day at the New York Stock Exchange. If you want to participate please reach out to Andres Pliego for more details. And have a great day. Thank you very much.

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