Good morning, everyone. Thank you for standing by, and welcome to Volaris' first quarter 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 Ms. Maria Elena Rodriguez, Volaris' Corporate Finance and Investor Relations Director. Please go ahead.

Good morning, everyone, and thank you for joining the call. With us today is our President and CEO, Enrique Beltranena; our Airline Executive Vice President, Holger Blankenstein; and our Vice President and CFO, Sonia Jerez. We will be discussing the Company's first quarter results announced this morning. 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 separately. Before we begin, let me remind everyone 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 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's now my pleasure to turn the call over to Volaris' President and CEO, Mr. Enrique Beltranena.

Thank you, Maria Elena. Good morning, everyone, and thank you for joining us today. Let me begin by giving you some key facts that demonstrate Volaris' strong first quarter 2019 improvement versus the same period last year. ASMs grew by 13%, passenger volume grew by 16%, launched operations in 16 new domestic routes and launch for sale 17 new routes. Total operating revenues increased by 23%. Total ancillary revenues increased by 30.5% TRASM increased by 9% in peso cents. Unit cost ex fuel reduction of 4% in peso cents. EBITDA margin improved 620 basis points, closing at 21%. Operating cash flow generation of MXN 3.7 billion, an improvement on MXN 1.3 billion. Volaris' passenger domestic market share at 32% versus previous year at 29%. On-time performance measured as arrival up to 15 minutes at 86.7%. Our schedule completion was 99.5%. This strong score card shows a healthy improvement versus the same period last year and very important continuing positive momentum quarter-over-quarter to the extent that TRASM increased in the first quarter 2019 was better than the first quarter of 2018 and 2017 as well than the last quarter of 2018, despite being a full low season quarter. Holger Blankenstein and Sonia Jerez will provide more detail on this improvement later on this call. Let me start tackling the first part. Revenue expansion was driven by strong domestic traffic facilitated by healthy ASM growth, driven primarily by higher more efficient utilization of our fleet. We continued to see robust consumer confidence, which strengthens demand for domestic flights in the Volaris-VFR transaction. The market has benefited from a reduction in international capacity from our competitors, especially in the transborder market. During the quarter, Volaris launched a new fare modality, which up sales key ancillaries to our passengers by combining the airfare with…

Thank you, Enrique. In the first quarter, we achieved a passenger volume growth of 16% year-over-year. We improved load factor by 1 percentage point while adding seats for departures. We grew capacity by double digits, the results of a more efficient, healthier utilization, notwithstanding the seasonal adjustment of not having the Easter high seasons during the quarter. In the domestic markets, the load factor was 85.3%, an improvement of 1.1 percentage points. And in the international routes, it was 78.6%, an improvement of 0.7 percentage points with respect to the same period last year. Total ASM growth was 13%, driven both by our new route and our focus on our core markets. Through our healthy capacity growth, we improved capacity production per aircraft per day. Domestic ASM growth in the quarter was 15%. VFR traffic is solid, and the bus market remains our most important customer segment, which helps us diversify our network by focusing on noncompeted routes to help sustain our double-digit growth. Domestic traffic continues growing despite capacity contraction from our high-cost competitors and even the regional carriers. The ultra-low-cost model is displacing the high-cost players in the Mexican market. We expect this trend to continue throughout 2019. In the international market, our ASM growth was only 7.7% due to a more measured growth by our -- and even capacity reductions by some players, we are observing a more sustainable Mexico to U.S. markets. In our segment of the transborder market, VFR passengers show solid demand supported in part by a strong U.S. economy and growth in remittances. In the first quarter, we launched operations in 16 new domestic routes and launched sale in 10 new domestic routes and 7 international routes. These new introductions are consistent with our business model to attract first-time flyers and develop point-to-point…

Thank you, Holger. I'll be reviewing our results in accordance with the figures filed with the Securities and Exchange Commission and Bolsa Mexicana de Valores. The Company adopted IFRS 16 as of January 1, 2019, using the full retrospective method. The cumulative effect of adopting IFRS 16 has been recognized as an adjustment to the opening balance as of January 1, 2017, as an increase in assets and liabilities as an adjustment in the retained earnings. The full disclosure of this initial adoption is included in the Company's 2018 annual report. As of March 2019, the IFRS 16 main effects are as follows: on our balance sheet, MXN 32.3 billion are accounted as right of use assets; and MXN 39.4 billion are accounted as lease liabilities. The effect on our income statement is an EBIT margin improvement of approximately 6 percentage points. On the income statement, we introduced the use of assets and liabilities that are denominated in U.S. dollars as a natural hedge to offset the potential volatility from the lease liabilities as per hedging accounting standards, with no EBIT impact during the first quarter of this year. Moving to our financial results for the first quarter. Total operating revenues were MXN 7.2 billion, an increase of 23% year-over-year. Total ancillary revenues were MXN 2.6 billion for the first quarter. They now represent 36% of total operating revenues, increasing 31% year-over-year. This increase was primarily driven by the successful introduction of the third fare modality as explained by Holger. Now onto cost control discipline. During the first quarter, unit cost in U.S. dollar ex fuel reduced by 9% year-over-year to $0.041. This reflect the unit cost reduction initiatives for the last year as well as the initiatives mentioned -- implemented during the first quarter, which Enrique already mentioned. Total…

Thank you, Sonia. Great job. Thank you to our ambassadors and our Board of Directors who remain committed to finding ways to increase efficiency and drive productivity. Thank you to you, our investors, for believing in our commitment through the continued development of our successful business plan. Today, I want to make a special mention through the big platform of our accounting and legal teams for their efforts on all the documentation that they filed today. Let me close by reinforcing some points raised earlier. Volaris unit cost reduction has become the most important competitive advantage of our company. Our objective is to continue growing Volaris' top line business aggressively with healthy capacity enabled by the unit cost advantage that we have mentioned, while we continue to generate operating cash flow. This formula is resilient and difficult for our competitors to match. It has positioned Volaris as an attractive high-growth investment opportunity in an emerging market with an underdeveloped air travel population. Thank you very much to all of you for listening. And now operator, please let's open the lines for questions.

[Operator Instructions] We will take a question from Helane Becker.

So thanks very much for the time and for the great explanations. Just a couple of questions. The foreign exchange gain, I guess, is related to the accounting change?

Well, it's in part related with the accounting change, but also the most important point was the appreciation of the peso-dollar exchange that -- because we have a net liability position that give us this improvement in the net exchange rate.

Okay. And then the other question is, given -- two other questions, actually. One is, you're going from the first quarter, which was probably a, I don't know, tougher comp because of Easter and Holy Week into second quarter which you have a combination of Holy Week and then you have the start of the peak. So I guess, I'm kind of surprised there isn't a bigger sequential quarter increase. Is there something in the competitive situation that's holding it -- the airline back?

Not really, Helane. Thank you very much for your questions. In reality, I think we've seen the top line evolving very well, and it's behaving in general well. But we do have this new way of calculating the transfer cost on the fuel in the lower part of the cost, which is something specific for Mexico, which is making our fuel cost equation by far much more expensive. And that's why we cannot reflect a higher job in our forecast for EBITDA.

Got you. And then just my last question is just in terms the competitive situation. I think, you mentioned that there's been a decline in some of the international markets. But is there like geographically anything you're noticing with respect to say, Mexico, U.S., transborder still driven more by people flying south than by VFR? Or is it still VFR okay?

Well, Helane. Totally right. I mean, we're seeing some more rational capacity allocations in the international, especially the transborder market between the U.S. and Mexico. We've seen U.S. competitors pulling back out of -- capacity out of Mexico City and beach destinations and also some capacity rationalization in Guadalajara. However, in the VFR segment of the market that we operate in mostly, we've seen solid demand, and we've seen much healthier U.S.-Mexico market than last year.

We'll move next to Michael Linenberg of Deutsche Bank.

I guess, 2 questions here. Holger, you've now -- you've given us a higher capacity growth rate in the June quarter. I think, you said mid high -- you said high teens. How should we think about your capacity growth rate for all of 2019? And if you could provide the split between domestic versus international, those 2 growth rates, that would be great.

Sure. I'll start with the late -- last part of your question. The split between the U.S. and Mexico is going to be relatively similar. High teens for both the U.S. market and the Mexican domestic market. And then for the full year, we previously guided to 9% to 12% ASM growth, and that's going to be slightly higher, driven mostly by some additional capacities that we're able to put into the market for the April and the June quarter in total. So -- mid-high teens would be the guidance that we're giving out now.

I see, so instead of 9% to 12%, may be it's like 13% to 15% or something. That sounds kind of like what you're leaning towards.

Probably more towards 15%.

Okay, for full year, okay. Okay, that's helpful. And then second question. You talked a little bit about good performance between the U.S. and Central America, and I think the plan is to add more service from Central America to Mexico in the coming quarters. I'm curious about the size of that operation today and where we end up by year-end just because one of your competitors in that market has recently pulled out a lot of capacity. I mean, a lot of markets have been pulled, probably half a dozen or more from Central America to the U.S. And I realize, I think you're in the process of setting up a Guatemalan subsidiary as well. So can you just -- I mean, I realized it's a small part of the business, but it does look like there's an opportunity as they say, you like to strike when the iron is hot. And it does seem like that with the carrier vacating or backing away from that market, it may create some opportunities for you that may be you weren't planning for 3 months ago. If you can just address that, that would be great, and thank you for answering my questions.

Yes, so Michael, the Central American operation is now 3.6% of total ASM. We are seeing some opportunities to add capacity into that market. We are setting up an AOC -- an additional AOC, not in Guatemala, but in El Salvador, and we're progressing well with that process. We don't have a certain date on completion yet for that El Salvador AOC because it requires governmental approval. However, we are planning to add capacity to Central America throughout 2019. We currently operate that market with 3 A319s, and we see opportunity to add maybe 1 or 2 aircraft throughout 2019.

[Operator Instructions] We'll move next to Ruben López of Santander. Ruben López: Congratulations on the results. One of my question was already answered, but the other one is related to new routes you opened in the quarter. Can you give us your initial thoughts on how they are performing versus your initial expectations? I know, it's still early, but any color can -- that you can share with us, it's great?

So when we started operating 16 new routes in the first quarter, all of them were domestic routes. Some from Mexican city, but most of them from our core markets that are the bus switching markets where there was previously no air service and most of them are performing as we expected or even better than expected.

We'll take our next question from Lucas Laghi of Citibank.

Just a question from our side. We are hearing some competitors complaining about high landing fees. What are your thoughts on this? And do you see any straightforward decline in net landing fees with Mexican airports? That's it from our side.

Thank you, Lucas. Look, Volaris has taken a very, very strong stand against more increases from airport groups in Mexico City -- in Mexico, in general. We had a very important dispute with the Guadalajara airport, which was fixed at the end of it. And as a result of that, we're seeing a much more rational behavior from the airport routes.

[Operator Instructions] We'll move next to Bruno Amorim of Goldman Sachs.

My first question is related to the operation Central America. Just wanted to better understand if the idea is to connect Central America with the U.S. through Mexico? Or if the idea is to do more direct flights from and to Central America? And also the second question on the competitive environment. It's a follow-up question. We saw Aeroméxico and VivaAerobús decelerating the pace of growth versus prior quarters. Are you seeing less competitions on route? Are they occurring or at least not growing in your specific routes? And if so have you already seen that reflected in prices? Or could we see all else equal better prices going forward is seasonally adjusted?

So regarding your question on Central America, we launched direct flights from Central America to the U.S. last year into the key VFR markets where we have a large share of Central Americans living in the U.S., for example, Los Angeles. Our idea is to use our expertise in the VFR segment that we have developed over the last decade in Mexico and extend that through Central America. So we plan to add capacity directly connecting the U.S. Central America, number one. We also intend to use the network you have in Mexico to allow the Central American customers more options to fly to U.S. connecting to Mexico. So the answer is, we're going to do both, connecting and direct flights. That's question number one. Regarding the capacity allocations and what we see in the Mexico markets, we have seen the high-cost competitors be very more rational regarding capacity growth in Mexico. We're seeing relatively low growth from the high-cost competitors. And as Enrique mentioned, both high-cost competitors their total CASM in some cases is now double of Volaris' cost per available seat mark. So yes, we're seeing some capacity rational in domestic markets and the focus on both high-cost competitors in the international market.

[Operator Instructions] We'll move next to Josh Milberg of Morgan Stanley.

My first one is a follow-up on the U.S.-Mexico transborder market. I think that in the prior quarter, you guys had highlighted some weakness there, especially on routes to major cities. And you mentioned today that you've been getting some help from competitor capacity cuts. But I was just hoping you could give a little more perspective on what you're seeing there? One of the Mexican airports we follow has been highlighting pretty substantial traffic -- pretty substantial pressure on traffic flows from the U.S.

Yes, Josh. As we mentioned in previous calls, there was capacity glut after the liberalization of the bilateral between the U.S. and Mexico, especially in the Mexico City airport and some of the beach destinations. We have -- we are now observing more capacity rationality by many of the U.S. carriers into those markets, and we're also seeing some capacity reductions in the Guadalajara market to the U.S. And that's clearly a positive sign for the market as a whole and for Volaris in specific.

So Holger, you think that, that situation of a glut is now pretty much completely behind us?

I think we are in the process of adjustments. I think, we're not there fully yet, but we're moving clearly in the right direction.

Okay, that's great. And I think my second question is for you as well, and it's just if you could update us on your thinking on the possibility of shifting to a strategy of owning aircraft in the wake of IFRS 16 and maybe just how you see the pros and cons of that potential shift?

Josh, this is Enrique Beltranena. As we mentioned, we just launched a tender to propose leases on 22 aircraft for the Company. The same lease rate factors that we're seeing -- I'm sorry, the lease rate factors that we're seeing in that process are so good that we cannot make by our own the purchasing of aircraft, the following trading tour.

We'll take our next question from Duane Pfennigwerth of Evercore ISI.

Can you hear me okay?

Yes, we can hear you, Duane. Thank you very much for being here.

Perfect. Thanks for taking the questions. So wanted to just follow up to one of Helane's questions, just to check my understanding here. So under the old accounting, you were in a USD net asset position, and so you had these FX gains when the peso the lease in on depreciated. Under the new accounting, they've brought the leases on balance sheet, and so you are in a USD net liability position, and you will trigger gains when the peso appreciates. Is that correct?

Is that correct? Completely correct.

Great, thank you. In terms of the 9% RASM growth -- the strong RASM growth that you posted here in the March quarter. I wonder if you could segment that at all domestic versus international? Were they similar, was it all domestic? How you saw that parse between the 2 segments?

Duane, actually, it was very much across the board, both in the U.S. and Mexican domestic market. So very similar TRASM growth in all markets.

Thanks. And then Holger, maybe to say with you, what ancillary initiatives are not sort of hitting full stride in the rate that you posted here in March. So what do you expect to continue to contribute incrementally versus both the level that you posted here in March?

Clearly, on the ancillary side, we're going to see the run rate effect of some of the ancillaries we launched in the first quarter and last year, which is the first bag, the third fare modality that we launched in the first quarter and some of the commission-based revenues from yavas.com. We're going to see the run rate effect of that in the subsequent quarters. We're also planning on being even more aggressive on the dynamic pricings on some of the ancillary revenues and -- ancillary product, that should be a positive effect in the following quarters as well.

And I'd be happy to resume the call back over to our hosts.

So thank you very much to everybody for being here. I would like to you guys to remember 3 very important facts. 9% TRASM increase, 5.8% reduction on unit cost excluding fuel and cash flow generation were the 3 very successful measures that we presented today. Thank you very much for being here. Have a great day, and thanks for the support to Volaris shares.

This does conclude Volaris' first quarter financial results conference call. You may now disconnect your lines, and everyone, have a great day.