Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) Q4 2019 Earnings Report, Transcript and Summary

Good morning everyone. Thank you for standing by and welcome to the Volaris Fourth Quarter 2019 Financial Results Conference Call. All lines are in 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 note 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 Ms. Rodriguez.

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 Bankistein; and our Vice President and CFO, Sonia Jerez.We will be discussing the company's fourth quarter and full year 2019 results. Afterwards, we will move on to your questions. Please note that this call 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 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 and thank you for joining us today. During 2019, we hit record total operating revenues include 22 million passengers becoming the largest ultra-low-cost carrier in Latin America. In Mexico, we are now 35% larger in terms of flown passengers and our closest competitor. This growth trajectory over the last 14 years has transformed us into the Mexican flagship carrier and the largest passenger Mexican carrier in the history of the country.As you may know we are a ultra-low-cost carrier that competes with buses even more than we compete with airlines. Volaris serves 187 routes to 65 destinations and 100 additional destinations in culture with frontier earnings. Volaris' market holds promise and room for growth. Volaris today's resilient and well-positioned to address the challenges we face. Our commercial efforts and cost-efficient initiatives helped us to outperform during 2019.Throughout 2019 controversy over the U.S.-Mexico trade agreement, escalation of islands in certain areas, immigration matters, loss a stagnant economy have dominated Mexico related yields. So, in addition to reporting our strong results of the fourth quarter and full year, it is also really important to convey that notwithstanding this recent Mexican economic backdrop, we consolidate our sequential improvement during the year.TRASM increased in the fourth quarter year-over-year 7% and 9% for the full year following a trajectory of sequential quarterly improvement which Holger Blankenstein will describe in detail.Volaris grew ASMs by 17% over the full year. The main source of growth was healthy capacity generated by better utilization of our existing assets which allowed us to grow profitably and much more faster than the market in spite of softening economic environment and in spite of the fact that we already brought five net additional shares.41% of our routes have no airline competition. These routes we only compete against buses. So when we benchmark Volaris' cost structure, we're not comparing ourselves to air carriers that have more than doubled our unit costs, but to bus cost structure. If we can beat the bus industry, we'll most definitely outperform all other airlines price-wise.Let me give you a very big highlight. Today, our TRASM level is lower than the total CASM of most of the publicly-listed airlines in the world. During 2019, the number of passengers we carried grew by 19.5% year-over-year. More impressively, 6% to 8% of our customers still plan to be first time flyers and around 25% of them stated that they first obtain bus quotes before purchasing a Volaris ticket. This means that 14 years after the foundation of Volaris bus companies remain our most significant competitors. And that we can continue growing at a higher pace than them or the economy ratios.In the Mexican market, aircrafts per capita increased from 0.25 in 2007 to 0.36 in 2018 growing the domestic market from 24 million passengers per year in 2007 and to 53 million passengers per year in 2019. The international market doubled in the same period to 48 million passengers.During 2019, 68% of the Mexican market growth is at three digits double to Volaris. This accomplishment was driven by our ultra-low-cost business model and our bus switching campaign. Traffic volume in the domestic market continues to rise in line with an emerging market economy in which the middle class in bus are requires more seats and air travel options, which is typically not the case in the business market. This trend explains part of Volaris's traffic growth were domestic demand for visiting friends and relatives traffic has been growing much faster than the overall economy. Volaris is the ultra-low-cost carrier with an ideal fit for this economy and population.Notably the current size of the bus market in Mexico still indicates tremendous room for sustainable growth for a model like Volaris. Volaris achieved a full year CASM ex fuel of US $3.9 as a result of our constant company-wide cost saving focus. The total U.S. dollar CASM for the year, it is 3% versus full year 2018 fully offsetting the increase of the average economic fuel cost per gallon during the year. We remained a publicly traded early with the lowest cost in the Western Hemisphere something we maintained rigorous cost control.Our cost structure is now so low that fuel now represents around 38% of our total costs. Our new aircraft and engine technology are key to manage fuel costs. Today, NEO represents already 29% of our total fleet and we will continue our fleet transition to the extent that by 2022, 57% of the fleet will comprise is eco-friendly aircraft with engines that burn less fuel and are sharply equipped helping to reduce fuel burn even further.All-in-all when we finished the transition of our fleet will have achieved on average 19% lower fuel consumption, which also helps our local strategy. The combination of both the unit relatively improvement and the cost efficiencies produced a full year EBIT of MXN 4.4 billion or a 12.5% EBIT margin and an EBITDA of MXN 10.7 billion which is an EBITDA margin of 31%.Our fourth quarter results outperformed its third quarter, which typically is better driven by stronger Thanksgiving and Christmas traffic in the VFR markets. This strong fourth quarter and full year results position Volaris as one of the most profitable publicly traded airlines in the country. Volaris finished the full year with positive operating cash flow generation at MXN 9.5 billion for the 12 months.In model, quite delivered this kind of growth certainly offers something different that outperforms despite economic and political uncertainties. As we look to 2020, we remain focused on creating value for our shareholders continue delivering strong operating results we continue growing efficiently and profit plan and generating operating cash flow by adhering to all operational reliability standards.Let me pass it over to our Airline, Vice President, Holger Blankenstein to elaborate further on the revenues. Holger, please.

Thank you, Enrique. In the fourth quarter we achieved strong volumes. In the domestic market, the load factor was 89.5% in line with last year. In the international market showed solid demand with load factors of 83.5%, 4.1 percentage points higher than the same period in 2018.Total ASMs for the fourth quarter increased 15% year-over-year. Domestic ASM growth for the fourth quarter was 13%, driven by more capacity in our core markets of Guadalajara and Tijuana and an optimization of frequencies and schedules. This enabled us to offer lower fares with customizable travel options to more people and in more places. This is what we call healthy capacity growth, delivered through high daily utilization and improved capacity production per aircraft per day.In the transborder market between the U.S. and Mexico, fourth quarter ASM capacity growth was 19%. We are observing solid traffic demand between the two countries. And passenger traffic continues outpacing both U.S. and Mexico's GDP growth.Most of our large capacity is based in the Northwest area of Mexico. Volaris is the leading airline in the Mexican states with the highest GDP growth. Volaris has built a strong and diverse network with minimal concentration in one specific hub and relatively low overlap with other carriers. Our diversified network allows us to work around the infrastructure gaps, such as those in the metropolitan area and take advantage of untapped opportunities for example in the bus market throughout the Americas.During 2019 again, we achieved capacity growth through improving asset utilization and the airline is now operating at around 850,000 ASMs per aircraft per day, which is the most productive utilization of comparable airlines in the world. During the fourth quarter of 2019, Volaris began operations in four new domestic routes and one new international routes. Additionally, Volaris launched sale five new international routes.Turning to fares and yields. The total fare environment has also improved. We were able to stimulate demand and ancillary revenue which resulted in a positive overall effect on RPMs with a 17% improvement for the quarter and 18% for the full year and also increased travel. This represented the fifth consecutive quarter-over-quarter improvement in travel.Volaris bus switching has been the cornerstone of our growth strategy as Enrique already elaborated. And the bus industry in Mexico and Central America provides almost 3 billion trips per year, we decided to dive deeper into market research. Our commercial areas now have a very solid understanding of the market segment and social and cultural backgrounds of the bus passengers.The market research also indicates that to date, a steady 6% of our monthly new customers say that they are the first – are first time flyers in their lives on Volaris. And these passengers claim that they will travel by air again on future trips.In 2019, it is important to mention that we increased passenger volume by 19.5% and a third of that growth came from first-time flyers, whom we were able to switch from buses. This is our key target group as well as the visiting friends and relatives traffic prevalent in the emerging markets in which we operate.On the ground kept an – middle, low-income segment is expected to grow, Volaris launch initiatives for this specific target market in alliance with two key partners Google and Facebook. Together, we created data-driven campaigns and relevant content in total platforms, which successfully impacted these switchable customer groups during their bus journey showing Volaris as the inexpensive and safe option to travel.During the fourth quarter total ancillary revenue per passenger performed well as well, reaching MXN 557, an increase of 8.8% year-over-year. For 2019 total ancillary revenues increased 33% year-over-year and now accounts for 34% of total operating revenue. Three reasons explain this increase in ancillary revenues: healthy purchases from international customers, maturing of products that we launched in 2017 and 2018, and fine-tuning of pricing and more targeted digital distribution.The co-branded credit card now has 282,000 enrolled members. The Vclub has almost 1 million memberships and our subscription product Vpass has 26,000 members. More members than ever are interacting with Volaris digital experiences through these programs and we continue delivering more customer benefits by expanding better dynamic pricing techniques.Central America operations are maturing. During the fourth quarter capacity allocated to Central America represented 3% of our total ASM driven mostly by new flights from Central America to the U.S.. Total unit revenue trends in the region are strong as the ultra-low-cost model becomes more and more accepted by passengers. In 2020 we plan to moderate -- we plan a moderate increase in Central American capacity.Our culture with Frontier is operating in 22 connecting airports and over 166 new connecting round-trip routes. This represents 67 new U.S. destinations for Volaris taking the total to 89. For the quarter codeshare passengers accounted for 3.4 percentage points of load factor on Mexico U.S. routes. We have been growing in terms of capacity without sacrificing operational integrity. On-time performance was 80% for the full year with a scheduled completion of 98% and an improved customer service Net Promoter Score.The guidance for ASM growth for 2020 continues to be 10% plus or minus 2 percentage points depending on market conditions. We reaffirm our concerns on both Airbuses capacity to deliver aircraft on-time and Pratt & Whitney engine availability. We currently plan a fleet net growth of only five additional aircraft for the year and we will monitor market conditions closely for potential adjustments, consistent with our healthy capacity growth strategy. Capacity in terms of ASMs for the first quarter of 2020 is currently planned at 11% coming from a relatively low base in 2019 and this growth will be evenly split between the U.S. and Mexico.Now I'd like to turn the call over to our Vice President and CFO, Sonia Jerez to discuss our financial performance for the quarter.

Thank you Holger and hello everyone. Now I will continue talking about our results in accordance with the figures filed with the U.S. Securities and Exchange Commission and the Bolsa Mexicana de Valores. Total operating revenues for the fourth quarter were as a new record of MXN 9.7 billion and for the full year were MXN 34.8 billion representing increases of 23% and 27% respectively versus 2018.Moving to cost, our most important strategy to maintain CASM level is to manage healthy capacity growth. And in order to achieve these, we continue to develop and monitor hundreds of cost reduction initiatives throughout the year. These initiatives are the backbone of our cost management culture which Enrique mentioned earlier on this call.During the fourth quarter CASM ex-fuel levels remain at $0.039. The same number as in the fourth quarter of 2018. U.S. dollar CASM ex-fuel for the full year decreased by 3.4% and the total U.S. dollar CASM for the year decreased by 2.6% versus 2018.Additionally our ties to the Indigo Group has brought us operational synergies along with the global benchmarking perspective and the purchasing power of a larger group that benefits our negotiating leverage.During 2019, the company finishes doing negotiations with the Indigo Group airlines for a cost component, which represents significant savings related to the aircraft to be delivered until 2026, assuring our continuous focus on cost as our primary profitability driver.Now on fleet, Volaris has two new aircraft deliveries during the fourth quarter of 2019 ending the year with 82 aircraft. 77 of our aircraft are sharklet-equipped, contributing to improved fuel work in our field. Neo's now represent 28% of our fleet. On top of the lower fuel burn of the Neo's our recent Neo's deliveries have the advantage of very competitive lease rate, which further support our ultra-low-cost strategy.Regarding profitability numbers, EBITDA in the fourth quarter was MXN3.5 billion reaching an EBITDA margin of 36.5% in the quarter. EBIT was MXN2 billion for the quarter, representing a 20% EBIT margin. Net income for the quarter was MXN1.3 billion with a net margin of 17.2%. The earnings per share for the full year were MXN2.61 per share and US$1.38 per ADS.During the fourth quarter net cash flow generated by operating activities was MXN2.2 billion. The net cash flow used in investing activities reached MXN823 million and the net cash flow used in financing activities was MXN960 million.As of December 31, 2019 cash and cash equivalents were MXN3.9 billion, MXN2.1 billion above last year and representing 23% of the last 12 months of operating revenues. Volaris registered a negative net debt of MXN3 billion excluding lease liability recognized under IFRS 16 adoption and a total equity of MXN5.4 billion by the end of 2019.Volaris net debt-to-EBITDA ratio closed at 3.5 times for the year, reflecting a healthy and solid balance sheet and an improvement level to the enhancement of EBITDA. In relation with the exchange rates and fuel position, for the fourth quarter 2019 U.S. dollar-denominated collection represented 45% of total revenues, helping to insulate approximately two-thirds of the company's total cost from U.S. dollar peso exposure and representing the company's effort to have a natural hedge through a diversified network.Looking to 2020, our jet fuel hedging on a full year basis is approximately 45% of the expected jet fuel consumption through Asian coast at an average price of US$1.78 per gallon and through zero cost callers in a range of US$1.65 to US$1.80 per gallon. We have also started to hedge our projected fuel consumption through 2021 vehicle options.Now, I'll pass it back to Enrique for closing remarks.

Thank you, Sonia. So recently Volaris was run through the renewal of its concession for a 20-year term. We want to express our appreciation and gratitude to the authorities and entire Volaris team involved in achieving this important objective. This long-term plan represents significant investments in aircraft and network expansions to low fares targeting our visiting friends and relatives and middle class income passengers.Now let me switch gears and talk a little bit about something else. Volaris is a purpose-driven organization with a strategy aimed not only at improving the performance of the business, but also supporting and protecting the environment. Volaris monitors fuel burn very closely not only because of the economic impact, but also because of our commitment to sustainability.In 2018, we have saved 32.5 million gallons of jet fuel versus the industry average fuel burn per RPM. Moreover in 2019, we saved another 15.8 million gallons of jet fuel versus our fuel burn in 2018. We achieved this not only by having more efficient Neo aircraft, but also by increasing awareness amongst our bio and ground crews reducing the use of APUs optimizing flight trajectories and in general burning less fuel amongst other initiatives. This is the equivalent to saving more than 314 kilotons of CO2 or the equivalent of the emissions of more than 60,000 passenger vehicles driven in a year. The savings can also be translated in almost 2,000 acres in reserved land.2019 was a year of continued focus on holding the line and further reducing costs. We are committed to find ways to increase efficiency and drive productivity. We have highly engaged point-to-point service, a strong cohesive management team with a winning culture all of whom will certainly drive this company forward and continue generating an improved ROIC for our investors with actions in line with our sustainability program.Today, we would like to add a final statement for how sorry we feel about the impact of coronavirus in populations and in the industry in Europe and Asia. Even though we are not aware of any case in Mexico, we are preparing ourselves with protocols, sticking to the guidance of our health organization in IATA and preparing ourselves in capacity management if needed. As of today, we have not seen any impact of this health crisis on sales nor on load factors.Thank you very much to everybody for listening me. And now operator, we're ready to open the call for questions. Go ahead please.

Certainly. [Operator Instructions] And we will take our first question from Duane Pfennigwerth with Evercore. Your line is open.

Good morning. This is actually Raymond on for Duane. Had there been any changes in the competitive landscape or signs of distress from weaker players? And are you seeing any delivery delays from Airbus?

Nothing reality. They continue operating and adding capacity sometimes failing to fly it. But that's in a nutshell what we were seeing, but nothing major distress in terms of interruptions.

So regarding the Airbus delivery delays, we have confirmed the delivery schedule for 2020. As we mentioned, we are planning to add five new net aircraft to the fleet. And we have been informed by Airbus about some potential delays, which are already baked into our capacity guidance that we gave you. In 2021, we might see additional delivery delays between four and nine months. That's what we're currently seeing, but we are in close contact with Airbus to mitigate the situation.

All right. Great. Thanks. And if I could squeeze one more in. Could you update us on the progress of Central America to U.S. markets?

Yes, absolutely. So we launched Central America to the U.S. last year, it's been in ramp-up and is now performing extremely well. We've seen unit revenue trends being very solid, volume being quite solid as well. And we're obviously limited by certain restrictions of Costa Rica as a country of the DTAC in Costa Rica, which is currently in category two between -- for flights between the U.S. and Central America, but we plan to grow capacity modestly once we come out of that category situation.

Great. Appreciate the helpful responses, Enrique.

Thank you.

And we can take our next question from Helane Becker with Cowen. Your line is open.

Thanks, operator. Hi, everybody. And thank you very much for the time. So just to clarify you have revised your NEO delivery schedule. Is that correct?

It is correct. Although, as we said, basically we don't have much moves in terms of delivery positions in 2020. We still have an aircraft that may arrive in May that could shift into June, but that's it. Okay?

Okay.

As Holger mentioned, the issue that we are seeing is much more into 2021, where we are seeing four to nine months delays, depending on the type of aircraft.

Okay.

And 2020 guidance that we gave you on capacity, Helane, already takes into account any delivery delays for 2020.

Okay. That's all helpful. Thanks for clarifying that for me. And my other question. So, I know -- thank you, Enrique, for your thoughts on this COVID virus and I'm glad it hasn't shown up in Mexico yet. And hopefully, it won't. But are you concerned at all about Aeromexico moving capacity into the domestic market -- into the Mexican domestic market from the international market, if traffic on the Atlantic starts to affect demand? I think, I said that wrong, but this demand starts to be affected by the virus on the Atlantic and they move capacity back into domestic Mexico. Are you worried at all about that?

Well, so Aeromexico operates the long-haul routes with the 787, which is not an aircraft that is that is suitable for the domestic market in an efficient fashion. So we don't see that happening immediately.

Okay. And then, I just want to question -- one more question. OMA have reported earnings yesterday -- or I think ASUR, actually ASR reported earnings earlier this week and the stock was among those that got crushed. And I know you said there you're not seeing any impact on travel. So I'm assuming that, you're not seeing declines in demand through your airports and so on. I know you don't really overlap with them too much, but your -- I just want to, I guess, make sure that you're not seeing that weakness?

Well, Helane, I mean, I think, we over elaborated the fact that our traffic is kind of different. That the way we operate is different and we're in the states that we are -- do not overlap with that.

That’s great. Thank you.

I think it's important to say though, Helane, that we do not consider ourselves free of this coronavirus thing. Okay? And I want to insist that we need to prepare ourselves, in that we need to be ready for whatever can happen and we're working on that. We are almost permanently working on trying to set up the actions that we need to put up and manage minute by minute if a crisis like that happens.

Thank you. Thanks for all that help. I really appreciate it.

And we will go next to Michael Linenberg with Deutsche Bank. Your line is open.

Yes. Hey, good morning, everyone. I have just a couple here. I want to make sure that I heard this right, Holger, on the capacity. I know you gave the March number 11%, you said it was basically similar, domestic, international. Did you give a full year 2020 capacity number?

Yes. Yes we did. We are currently planning capacity growth of 10% plus/minus 2 percentage points depending on market conditions. So I might be 2 percentage points.

Okay. That's helpful. And then, well, you also -- you mentioned you talked about the performance in 2019? And I believe you mentioned an 80% on-time performance. And then I believe -- I thought I heard you say it, did you say a 98% completion factor?

That's right.

Okay. Then – well, 98% I mean it's high right? But in airline world that's actually somewhat low. I mean a lot of carriers seem to be running north of 99%. Was there anything in 2019 that would have impacted you or maybe you just reported, maybe you reported differently it's a different standard than what I'm used to saying?

I think we're probably missing some decimals there, one. And the second thing is, it is very much related with the weather issues that we do have in the country. I mean, when we have problems for example in Tijuana Tijuana closes for 10 days, okay? And that makes us cancel much more actively operations and what typically an international carriers.I would say that's probably our most important affection in terms of schedule delivery. And it is mainly driven by the weather conditions in that area. And we don't have an airport, which has a cat two that cat three system because of where the airport displays is still almost impossible to solve it.

Okay. That makes sense, presumably I bet your numbers are probably not that far off from the local competition everybody is kind of dealing maybe with the same issues. And so maybe that's maybe within that context I would appreciate.

We do have a much stronger presence in Tijuana though, okay.

Okay. Yeah, that's a good point. You're the largest player there. And then just one last one on the moderate growth anticipated for the Central American operation in 2020. I don't know if it was Enrique or Holger who just mentioned that Costa Rica right now is Cat II and once that improves, you'll add more capacity. And so I wasn't sure if you're waiting for that rating change, which as everyone on this call knows sometimes that can take more than a year when you're dealing with the U.S. FAA, sometimes it can be many years that come country is stuck in Category II? Or were you referring to maybe another AOC, because I know you have been working on setting or establishing another airline operator certificate, I don't know if it was -- I think it was El Salvador or another country, would that be up and running and it would include capacity growth on that. And so I know it's kind of a multipronged question, but it addresses the same thing. If you could elaborate on those?

Let me cut the cake in several pieces, okay. The first one is Costa Rica, okay? So Costa Rica restriction imposed by the U.S. We have to Costa Rican authority and that affects our operation because we do operate in Central America within registered aircraft, okay. So it basically increases the capacity.On Friday last week, the process of the assessments with FAA basically finished and Costa Rica's authority requested officially a new assessment for the country, which may -- in the next couple of months and if it ever goes right, we may be released or the DGIC may be released by the end of the spring or something like that.

Okay.

Yes, we keep on working in Central America. Both countries; Guatemala and El Salvador, El Salvador is progressing fairly well, which is well to be absolutely sure that El Salvador will not fall down into the same problem the Costa Rica felt. Yeah, we had announced in October, which didn't go very well. And our position is we rather than launching another certificate of corporation before we are absolutely sure that the country is performing in the right way for like our standards, we rather wait for the qualification.

Okay. I just -- I bring it up Enrique because as we watch the changes to routes in the area, we see competitors pulling down service say from Guatemala to New York and Miami and San Pedro, Sula to the U.S. and it's opening up markets and it would seem that if we didn't have the Cat II on the Costa Rican operation, you could probably do -- you could move more quickly into some markets that are opening up in our view. So I mean you -- maybe you agree, maybe you disagree, but it's just kind of an observation from what we're seeing.

No, I absolutely agree with you. I think also that what we are doing within Central America without the restrictions of the U.S. market is going really well. Our share and penetration of the ultra-low-cost carrier throughout Central America has been tremendously successful.With markets like for example, Costa Rica to Guadalajara, which has doubled in the last 24 months, okay? So yes, we are to a certain extent limited to the U.S. but then on the other side we've been able to keep on playing within Central America. And hopefully we'll be solving this. You're absolutely right. It is a restriction to keep on growing. But I think, as I always say, the low-cost always wins. And to do it we'll keep on hitting the market.

Good luck and thanks. Thanks for taking the questions.

Thanks, Michael.

And we will take our next question from Stephen Trent with Citi. Your line is open.

Hello. Good morning, everybody and thanks for taking my questions. Two for me just very quickly. You mentioned you had seen much stronger demand and U.S.-Mexico flying and just out of curiosity to what degree that's coming from you guys starting to lap some easier comps? Or are there specific factors that have really started to boost that segment?

So Stephen, we operate in the VFR segment between the U.S. and Mexico. We have a lot of niche markets to cater to the Mexican heritage population in the U.S. and we've seen quite a robust market in that segment. In comparison to the leisure southbound market from the U.S. to the Mexican Beach destinations, we are seeing strength in our market segment.We track two statistics very closely, which is exports from Mexico to the U.S., which are actually at historical highs or close to historical highs and remittances from the Mexican heritage population in the U.S. to their friends and families in Mexico. And those remittances are also close to historical highs. And those two indicators are good predictors of the international traffic in our market segment. So we've seen pretty healthy growth and robustness in bookings as well in that sense.

Okay, great stuff. I appreciate that Holger. The second question just kind of pertains to your cash position and cash generation and your cash generation has been so robust. I think one – do you see any kind of short-term scenario or perhaps you would maintain a minimum cash level short-term, as let's say a life jacket against coronavirus? And two, longer term, what are your thoughts about cash dividends down the road?

So if I may, I just want to repeat the cash and cash equivalent number which is MXN 7.9 billion from which MXN 2.1 billion – it's above last year, representing 23%. So you are absolutely right, Stephen that our cash has been growing in an important way.Nevertheless, you need to understand that we still have 102 aircraft to come. And we are starting ourselves to prepare ourselves towards the payment of the PDPs of the new order, which may that are arriving in 2022. So we're almost 24 months ahead and we start paying the PDPs now and which doesn't mean that it will debilitate the cash flow. We think we can sustain this kind of level of cash flow but we need to prepare ourselves for that. We're not thinking about anything related to dividends.

Okay. Very clear and very helpful. So thanks, Enrique. Let me leave it there.

Thank you, Stephen.

And we will take our next question from Pablo Monsivais with Barclays. Your line is open.

Hi, Enrique and Team. Thanks for taking my questions. I have two on my side. And I'm sorry, if I missed this, but I would like to have more color on the unit cost ex fuel in dollars for 2020? Is there any room for improvement here? I guess we're already in a very efficient level. But how are we going to see this level going forward? And my second question would be on ancillary revenue side. Holger already mentioned the drivers for this quarter. But I would like to have a view or -- for 2020?

Hi, Pablo. So this is Sonia. So regarding our CASM ex-fuel for the 2020, so we think that we are able to sustain the current levels and we are working on this. We still have a lot of initiatives this year to be implemented.

On the operational side, I would say probably the reductions in terms of fuel burn that you will see, it's mainly due to a better mix of fleet. I mean all the aircraft that arrived last year the five aircraft that arrived last year will have a full impact in our fuel burn this year because we're adding kind of in the second half another five aircraft today. So yes, you should be seeing from the operational performance a little bit of improvement in terms of fuel burn on a per gallon basis.

So can I follow-up on the initiatives. Do you have any number or any -- for a bit more detail which initiatives should we see this year?

Yes. Well the first one is, we need to continue doing the APU initiative probably. The APU initiative produced as last year more than $9.8 million and we kind of implemented it in a ramp-up which basically started from May on. I think that initiative still has some $2 million, $3 million of improvement going forward.The second thing is RPM routes. We continue working with DGAC especially in Mexico because in the U.S. we are basically with 95% of RPM routes already. In Mexico we are kind of -- I mean at half of our way. I mean, we should keep on improving in the implementation of RPM routes. And that's a major strategy.And finally, I mean the Mexican government has been working on a big, big project under which we are improving the approximation and departure path for the metropolitan area in a combination of strategies that have been developed both by Aeroport Paris and Jet Blue.The implementation of a lot of those measures are being tested in simulators from Volaris and we are working together with CNR to implement those strategies. And the faster we go on that the better we will be especially because it's going to be continuous events and approximations now through more than 8 point into the metropolitan area which facilitates a lot. RPM routes in Central America are also being implemented in Costa Rica.

Then regarding your question on ancillary revenues maybe I'll quickly comment on that. We’ve been very active on developing our ancillary revenues as you saw in the results. We focused on the top generators. We've implemented a whole host of new ideas which are coming to their run rate in this year and in the next.And what's coming for 2020 where we just made a big change in our baggage policy especially on the onboard carry on baggage which we basically unbundled our lowest fare completely and we now require anybody that purchases the lowest fare -- the preferential fare to purchase carry on and we're going to enforce that at the airport. So that should help the baggage revenues.As I mentioned earlier, we are executing full dynamic pricing on many of our ancillary products which you'll see the run rate effect this year and next. And we're working a lot on personalization offering the right products to the right customer segment at the right moment in their purchase -- in their journey -- in the travel journey with us.And then finally we are also renewing our subscription programs making them more diverse giving the customers more options for subscription products which should also drive ancillary revenues in the future. As we have mentioned earlier, we are targeting a higher percentage of non-ticket revenue as a percentage of total operating revenue for 2020, but we do see room for growth.

Thank you. This does conclude the question-and-answer session. For closing remarks I'd like to turn the program back over to CEO, Enrique Beltranena. Please go ahead.

So I really wanted to finish by thanking our ambassadors for their ongoing dedication and commitment to keep us at the forefront of the Mexican aviation. Next month we will celebrate our 40th anniversary and I could not be prouder of the Volaris family the valor and achievements during this year. So congratulations to the Volaris family during this month. Thank you very much to everybody and I really appreciate your participation this morning.

Thank you for your participation. This does conclude today's program. You may disconnect at any time.