Good morning everyone, and thank you for standing by. And welcome to Volaris' First Quarter 2020 Financial Results Conference Call. All lines are in a listen-only mode. Following the company's prepared commentary, we will open the call for your questions-and-answers. Instructions on how to ask a question will be provided at that time. 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, ma'am.

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 first quarter 2020 results. 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 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 at this challenging time and thank you for joining us today.Let me begin by sharing my thoughts and best wishes with those whom have been touched by this concerning virus. And by expressing my empathy and close support to our investors, our customers, investors, suppliers and our communities during the current and parallel global environment.We're certain that remaining responsive and united as a society we’ll be better prepared to overcome this human and economic crisis while we will grow stronger together. As a socially responsible corporation, and dry out essential services in the transportation sector, we have been guided by our three pillars since the company was founded, safety being the first and foremost. The safety and health of our ambassadors, our customers is our top priority.Thank God, so far, we can say that we have had some minor of ambassadors that have been infected, and they're all recovering and no casualties to report. During the declared state of emergency, we have been following and implementing protocols and guidelines issued by the International Aviation Transportation Agency and the Health Organizations.We have been working alongside with the Mexican Institute for Health and Social Protection means the Mexican Red Cross, the Private Sector Alliance for Disaster Resilient Societies, ARISE in Mexico, the private domestic committee for humanitarian aid in national emergencies and disasters corona and some other private organizations in order to support virus initiatives and cooperate with the health workers and with others who are in the frontlines of combat facing this virus in Mexico and Central America.We have transported health and medical equipment from Mexico City to more than 15 destinations within the country. Our goal is to keep strengthening this type of alliances with the purpose of delivering some relief to the communities…

Thank you, Enrique.In the first quarter of this year, we achieved the following topline figures. In the domestic market, the load factor was 86.1%. In the international market, the load factor was 81.7%. Domestic ASM growth for the quarter was 7%, while the international ASM growth was 6%.Total ancillary revenue per passenger performed very well, reaching Ps.564 for the quarter, an increase of 9% year-over-year. Total ancillary revenues increased by 16% year-over-year, and now account for 38% of total operating revenues.Capacity allocated to Central America represented 3% of total ASMs. In terms of operational reliability, on time performance was 86.7% for the first quarter, with a schedule completion of 93.1%, which was mainly driven by the cancellations of the last two weeks of March.In the first week of March, we held Volaris' annual anniversary sales promotion, typically the biggest promotion of the year. This year, the promotion surpassed last year's record sales, favoring the company's liquidity position. The big anniversary promotion successfully completed on March 5, and 6 and the 13th. As Enrique mentioned, it was not until the third week of March when we started to see a dramatic drop in passenger traffic, first in the international traffic, followed by domestic.In the last week of March, we closed operations in Central America all together in response to the health emergency and in line with the measures established by the authorities of El Salvador, Guatemala, and Costa Rica. As of today, we have reduced capacity by 80% versus the originally planned schedule for the same time period. The international markets have had the highest reductions. We have cancelled and consolidated flights in a flexible, responsive, and measured way, focusing on flight profitability.During these past weeks, we have been monitoring the dynamics of the markets that we serve through demand forward…

Thank you Holger, and hello everyone.Now, I will continue with discussion of our results in accordance with the figures filed with the Securities and Exchange Commission, and Comisión Nacional Bancaria y de Valores.Total operating revenues for the first quarter reached Ps.7.8 billion, representing an increase of 8.8% versus 2019. During the first quarter, CASM ex-fuel levels remained at US$4.13 cents, total U.S. and U.S. dollar CASM was $6.24 cents, a decrease of 4.5% versus 2019.Moving on to profitability, EBITDA in the first quarter was Ps.2.1 billion and EBITDA margin of 27.2%, which is 5.7 points higher than the first quarter of 2019. We reported a net income for the first quarter of negative Ps.1.5 billion, with a negative net margin of 19%. It is worth noting that a significant contributor to this net loss is the asset depreciation at the end of the first quarter that leads to a non-cash effects net loss of Ps.1.8 billion below the operating line due to our net U.S. dollar monetary liability position.During the first quarter, the net cash flow generated by operating activities was Ps.2.8 billion. The net cash flow used in investment activities, which are negative Ps.37 million, and the net cash flow used in financing activities was negative Ps.1.9 billion.As of March 31, 2020, cash and cash equivalents were Ps.10.7 billion, Ps.2.7 billion pesos above December 2019 and representing 30% of last 12 months of operating revenues. Volaris registered a negative net debt of Ps.4.8 billion, excluding lease liabilities recognized under the IFRS adoption.Volaris net debt-to-EBITDA ratio closed the quarter at four times, reflecting a healthy and solid balance sheet. It is important to note that company's long-term debt does not bear any principal amortization for the year.For the first quarter of 2020, U.S. dollar denominated collection represented 43% of total…

Thank you, Sonia.Before I do my closing remarks, I want to inform you that the shareholders of the company on the general shareholders meeting held on April 22, 2020 appointed Brian H. Franke as the new Chairman of the Board of Directors. Mr. Franke has extensive experience in the airline industry. Alfonso González Migoya, our former Chairman will remain serving as an independent member of the Board and the company is very thankful for his leadership during the past six years.The shareholders also appointed two new very experienced board members, Monica Aspe Bernal Interim CEO of AT&T Mexico and Guadalupe Philips margin, CEO of ICA. With these changes, our Board of Directors has become stronger and Volaris management is looking forward to continue working very, very tied with them. But our business the airline industry have begun to experience significant adverse impacts due to the COVID.We cannot yet quantify the impact on us. And we cannot offer any assurance that this impact will not intensify to the extent that the outbreak persists and spreads out to Mexico. It is not as yet possible to determine the extent to which this pandemic will further decrease demand for aircraft. Our top priority is the safety and health of our ambassadors and our customers as I mentioned at the beginning of the meeting.We are taking rapid and appropriate actions on the administrative, operational and financial fronts. As Mexico's largest domestic partner it is our responsibility to remain united. Among data we’re focused our strength and to deliver the best version of ourselves in order to overcome this situation. We’ll remain guided by our pillars, values and our mission. And hopefully God will help us and support us through this mission.Thank you for listening, operator we're ready to open the call for questions.

[Operator Instructions] We'll take our first question from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Just with respect to the first quarter your revenue held up a lot better than what we've seen so far in the U.S. Do you think this is just a timing issue that you've seen the COVID impacts a little bit later. And then into the second quarter appreciate the commentary about, the level of capacity reduction 80%, 90%. Do you think revenue declines would be similar to those capacity cuts or is revenue - is the trajectory of revenue different than these capacity cuts that you're outlining?

Thanks Duane, I'll take that question. So on the first quarter, there's two effects. Number one, Mexico is about five to six weeks behind the U.S. and Europe in the pandemic. And number two, the domestic markets in Mexico has held up better than the international market and we have a lower share of international flights than some of our Mexican peers and U.S. carriers as well.And then the third point is that our customer segment, the visiting friends and relatives are holding up better than the leisure and business customer segments. So we are strong in the VFR and we've held up a little bit better in the first quarter.And for the second quarter as you point out, we have announced an 80% reduction for April. We are going to cut the schedule 90% for May. And then probably around 50% for June, as we see ramp up in the market, in the domestic markets in particular. And the revenue cuts that you can see, you can probably observe are going to be in that line as well in accordance with the capacity cuts.

Okay, great. And then just for my follow-up, given all the aggressive steps that you've taken to respond to this. Would you be able to speak to kind of a monthly cash OpEx rate at this point like what are your monthly cash operating expense levels after all of these initiatives take hold? And thanks for taking the questions.

Yes, for sure Duane. I'm going to explain what is our cash burn in terms of fixed costs because on the variable side it's going to be dependent on the revenues and capacity. So our current cash burn monthly is about $35 million to $40 million per month.

Our next question is from Helane Becker with Cowen. Please go ahead. Your line is open.

Just two questions, so as we think about the model and the load factors right now, you said they were down I think over 10 or 15 percentage points below where they are normally. If the load factors can't return to normal, whatever that is, say 85%, 80%. How should we think about your model in that environment?

Well, Helane, we did - we were seeing a slight reduction in loads to 10% to 15% as we mentioned. We do have quite a lot of no shows as well, which have been around 25% to 30%. So the onboard load is actually much lower than the book loads. And we've been able to consolidate flights and increase the book load factor on many of our flights and we're managing the profitability on a flight by flight level looking at book loads.In the medium term, it's really very early to tell how things are going to evolve. We expect a return of some demand in June and into the summer season. But it's really difficult to make a prediction right now, because the booking curves are not in line with the historical booking curves. What we can say, however, is that we have the lowest cost position of any competitor in the market. And in the long-term, we have the superior business model in the market. So we should be able to return to historical load factors eventually, that's our expectations.

Let me add to what Holger is saying Helane. I think one of the beauties of Volaris is we don't have restrictions on cruise, and we can schedule in a very flexible way. Where we're managing things is we have to cover costs when we operate any route. So Holger and the commercial teams are managing the schedule and managing the availability of flights based on where we can make money, okay, or where we can at least come out very even. So I think you will be seeing loads improving while the markets recuperates but for one thing, I can assure is, whatever will be operating is going to be at least breaking.

Okay. That's really helpful. Thank you. And then my other question is, can you say that what the take rates are on vouchers versus cash refunds? Like how many people were taking the voucher plus the incentive versus just asking for the third option, the refund?

So I think Helane, the good news is that many customers are taking the voucher option and with a 25% additional electronic credit. During the first 20 days of the implementation of this service, many more customers have selected the voucher option and have emitted the vouchers in a self-service way without human interaction from our call center, which helps us on the call center cost as well.They actually choose what is suited to their needs. So I think that's really good for our cash situation as well.

Yes. And I just need one thing clarified. Did you - I don't know if it was Sonia or Enrique. Did you say that CapEx has been cut to zero? What did you say about CapEx?

It is not zero Helane because, for example, Holger had said that he is developing this whole thing at Navitaire and that kind of stuff up. And those things are fundamental for the company. So you basically kind of cut CapEx to zero, I mean, it's not essential CapEx totaling expenses, that kind of stuff that we have cut down to zero.

Okay. Sorry about that. And then what about aircraft deferrals? Did you - what did you say about that?

So everything is still a piece of work in work process related, but I mean, we have - like 18 aircraft arriving in the next 18 months, and we so far we have optionalities to reduce them in seven to nine aircrafts, okay?

Okay,

What we have already on the table, we say, aircraft deliveries that we don’t delay. We will keep on working on it, okay?

Great. Yes, of course. All right. Well, thanks for the help team. Good luck.

Thanks for you for being with us during this difficult times. Go ahead, operator, please.

So we'll go next to Mike Linenberg with Deutsche Bank. Please go ahead.

Just to follow up though on CapEx, since it sounds like it's not zero. So, if we think about non-aircraft CapEx, what is the budget for 2020? And then sort of to add to that, what are the number of airplanes that are coming not over the next 18 months, but what is currently coming over the next say between now and year-end 2020, how many airplanes do you have delivering?

Hello, Michael, how are you?

Fine Sonia.

Yes. So far, we have, as Enrique mentioned, we have got all non-share projects and we're just doing the ones in relation mainly with sales. Depends on the recovery situation, we will do more or less in terms of other non-essential topics, but so far, these as a minimum.

So what's the strange fact, Michael, that we are focusing ourselves on preserving cash, okay. The company will preserve cash as much as we can, obviously, and then something that generates revenues is something that we cannot stop, so that's what we were doing. And I don't think we are there with something, which is not finished. It's very clear the CapEx is cut, unless it's very necessary, okay, or generative revenue, and I want to be absolutely clear about that.The second thing is deliveries, we will take whatever the deliveries we have to take, legally, okay, but the company is doing whatever it takes to delay everything. And I want to leave that also very clear. So it's not that it's not finished. It's that we do have contractual things that we need to deal with. We are dealing with contractor terms.

Okay. And then just maybe to Holger, if we had to split to do a composition of what percentage of your traffic do you believe is VFR maybe what percentage is leisure? And presumably maybe 5% or 10% of your traffic maybe more actually, since you have such a good service pattern is business or you know, what I would refer to as price sensitive business. Do you have sort of rough numbers on how those three buckets split out?

Yes, it very much depends on the route obviously, but what we can say is about 50% of our customers are VFR customers, that's about 30% to 40% would be leisure.

Okay.

Small and medium sized enterprises [$0.05] to travel. So we don’t have corporate and government traffic.

Yes. No, it's actually - you really don't have much government traffic?

Yes.

Okay. And then just my last question, and this is to the team, you know, maybe more direct at Enrique, anything carrying out of the government, I think get Aeromexico. You know, they mentioned that maybe they were going to get some relief with respect to air traffic control, navigation charges, maybe they would get some sort of benefit through being able to not necessarily be compelled to use the government provider of fuel services. I mean, they were very small things, but anything that you're hearing or seeing or maybe you could add to that any sort of government assistance? Thank you.

So Volaris is expecting from the government support on extending credit terms of public services, any possible and we've been talking to Banco Mex, to a potential credit line, mainly to support the employment continuity, but I want to make it very clear that I'm not expecting the state to rescue this company. I think it's going to be a minimal support that it's going to be much more through credit and credit terms.

We'll go next to Matthew Wisniewski with Barclays. Please go ahead.

Just wanted to kind of circle back on couple of other questions that were answered. It sounds like a lot of passengers are taking the voucher. But I was wondering if you could say whether you're still receiving positive bookings and so are bookings exceeding what [indiscernible] passengers potentially?

Well giving a reduction of 80% and 90% in April and May respectively clearly, for those months we don't see net positive bookings. We'll see more changes in cancellations then new bookings. For future months, we do still see positive net booking especially for the fourth quarter and late third quarter.

Okay, great. And then, just on the assumptions right now for the return of capacity I think it's 50% in June. What are the assumptions on kind of circling back on what Matt, Mike was asking about this passenger segments. What's the assumption on leisure returning VFR and then maybe potentially business. How is the team thinking about returning demand in that respect?

So we're expecting a certain ramp up for the month of June. And then obviously the high season in Mexico is July and August, where we also estimate some return of traffic. And therefore, in June typically what we see in our traffic patterns is a surge of the VFR market. And that's what we would expect this year as well.Obviously at a much lower scale than in previous years, and then July and August, we estimate some return of the leisure passengers the price sensitive leisure passengers.

Speakers, it appears we have no further questions. I'll return the floor to you for any closing remarks.

Thank you very much. I want to finish by thanking our Board of Directors for their exceptional support in these times. Obviously, our ambassadors as I said, I mean I would say that broadly in my entire life, I had never, thanks God, get the opportunity to look at what we have done and I think they have responded with their full commitment. And I'm very thankful to the way they're reacting to the crisis.I want also to say thank you to our business partners for the responsiveness and our investors for the understanding in this unprecedented global human and unimaginable economic scenario. Thank you all for reinforcing our values together. We'll lead our company to become stronger. And I wish you good health to you, your loved ones, and again, thank you very much for being here despite the conditions that we are in.Thank you very much, ladies and gentlemen. This conference is now concluded.

And this does conclude today's program. Thanks for your participation. You may now disconnect. Have a great weekend.