Good morning, everyone. Thank you for standing by, and welcome to Volaris Fourth Quarter 2020 Financial Results Conference Call. . At this point, I would now like to turn the call over to Maria Elena Rodriguez, Volaris Corporate Finance and Investor Relations Director. Please go ahead, Mr. 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 Blankenstein; and our Senior Vice President and Chief Financial Officer, Jaime Pous. They will be discussing the company's fourth 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.

Thank you very much, Maria Elena, and thanks for everybody for being here today. Thanks for joining us. Volaris topest priorities during 2020 were cash preservation, capacity management, cost discipline and increasing total revenues per available seat mile. During the fourth quarter, we returned to profitability, demonstrating the potential of our sound ultra-low-cost business model. Within the current competitive landscape, Volaris has been able to take advantage of market opportunities, cementing its leadership in terms of passenger market share amongst the Mexican carriers. During 2020, Volaris transported more than 14.7 million passengers. Despite the progress in the fourth quarter of 2020, some key challenges remain in the current period with COVID-19 case counts increasing in both Mexico and the U.S., something we will comment upon later in the call. While we enjoyed a great result in the fourth quarter, markets are still dealing with COVID-19, and that will result in a challenging demand environment. We'll continue to capitalize on our low cost position. We will continue to look for opportunities to expand our network, and we will continue to focus on cash preservation as our highest priority, as we navigate the rest of the crisis. First of all, I want to express my sincere gratitude to all of Volaris' ambassadors and our Board of Directors for their passion and commitment. Our prayers go out to those impacted by COVID-19, and we thank all frontline workers, including our flight crews for their great efforts. During 2020, Volaris posted one of the fastest recoveries worldwide. As measured by available seat miles, a result of our ultra-low -- strong ultra-low-cost business model, focused on the visiting friends and relatives and leisure segments in Mexico and the U.S. transborder markets. Let me leave for you very important messages -- 6 very important messages that I would like to leave very clear. The first one, fourth quarter profitable results proved the potential of Volaris ultra-low-cost business model despite the current crisis environment. For the fourth quarter, the company posted an operating margin of 12% and an EBITDA margin of 37%, an EBITDA margin of 37%, an excellent result even in normal conditions. These results reflect that Volaris is truly different from any carrier in the continent and should be benchmarked and valued alongside the best ultra-low-cost airlines in the world.

Thank you, Enrique. Like most countries, Mexico's aviation industry has been heavily impacted by the coronavirus pandemic. Our ultra-low-cost model has enabled Volaris to navigate successfully through this unprecedented crisis. During the fourth quarter, we achieved the following top line figures: In the domestic market, load factor was 83.5%, 6 percentage points below 2019 fourth quarter. In the international market, load factor was 71.9%, 11.6 percentage points below 2019 fourth quarter, mainly explained by the natural ramp-up of our new international destinations and capacity we added back into the schedule and started to operate in the fourth quarter.

Thank you, Holger. Now I will continue the 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 fourth quarter were at MXN8 billion, and for the full year were MXN22 billion, representing 83% and 64% of 2019 total revenues reported in each period, respectively. During the fourth quarter, CASM ex fuel decreased by 18% versus the third quarter 2020 level closing at USD 0.0413 achieving pre-pandemic levels. For the full year 2020, U.S. dollar CASM ex fuel closed at USD 0.0478, an increase of 20% versus 2019 as a consequence of the capacity reduction. During the fourth quarter, total U.S. dollar CASM had a decrease of 13% versus the third quarter 2020, closing at USD 0.0584. Despite the pandemic, total U.S. dollar CASM closed at USD 0.066 for the full year 2020, an increase of only 1.9% versus 2019. Volaris is still one of the lowest unit cost operators in the world. This lowest cost structure is the backbone of our sound business model. Our ties to the Indigo group have brought us operational synergies along with a global benchmarking perspective and the purchasing power of a larger group that enhances our negotiating leverage. During 2020, we accomplished joint selection and maintenance contract negotiations for engines, auxiliary power units, avionics and seats for our A320neo family aircraft that were ordered in 2017. The company executed an agreement with Pratt & Whitney for a total of 171 additional GTF engines, along with maintenance service in a long-term viable scheme at competitive economics. These negotiations will improve existing contracts through the life of this aircraft and with an estimated amount in the range of $300 million. This, in addition to the benefits already…

Thank you very much, Jaime. The crisis always delivers both risks and opportunities. Volaris has focused on looking for the opportunities that have been created as a result. We have demonstrated over the last 9 months that we know how to manage a crisis well. The fourth quarter shows the strength of Volaris' business model. Volaris will continue to leverage its ultra-low-cost structure to capitalize on growth opportunities. We see 2021 as a story of two halves, the challenging first half for the year -- of the year in terms of demand and the second half with signs of recovery. Broad vaccine availability and continued vaccination progress should drive returning confidence in travel, specifically in the U.S. and therefore, soften or even eliminate recent travel restrictions. Volaris has successfully navigated these challenges arising from the pandemic effects to the outstanding work of our ambassadors. I'm convinced that their passion will continue to get us through these difficult times. I particularly want to express my sincere gratitude to all of them, to our Board of Directors, to our investors, bankers, lessors, suppliers, but most important, to the great team that has been working and the directors of this company that their tireless efforts and commitment in this challenging 2012. The entire Volaris family makes me look forward positively to 2021. Operator, please open the line for questions.

. And the first question comes from Duane Pfennigwerth with Evercore.

I wanted to ask you on your thoughts on seasonality going forward, not necessarily in the first quarter, but really post recovery with potentially a lower level of business or corporate travel. How did you think about the seasonality of the network and the seasonality of earnings going forward?

Well, our business model has been very much focused on the VFR and leisure segment, the price-sensitive segment. We do have a small business component, which is the small and medium-sized enterprise. We don't see any material change in the seasonality pattern that we experienced pre pandemic because we are operating mostly in those niches. We might be adding more capacity to some of the more -- the bigger O&Ds in the market. So we might be even able to smooth out some of the seasonality we saw pre pandemic. But it's going to be mostly the same, Duane.

That's helpful. And then just with respect to transborder, can you just remind us how much of that is U.S. point-of-sale or U.S. originating? And have you seen any stabilization in that U.S. originating demand since these policy changes late January?

So regarding point-of-sale, pre pandemic, it was pretty much 50-50 originating in the U.S. and originating in Mexico and Central America. Currently, our U.S. dollar-denominated collections are 44% of total revenues. And we have lately seen some disbalance in the north and southbound legs. We are seeing more demand going northbound and less demand going southbound, which we believe is temporary. And as the vaccination programs roll out in the U.S., that consumer confidence should come back in the second and third quarter, the southbound one.

Makes sense. And maybe just to close there. So this policy went into effect late January. Obviously, initially, it was a shock to the system. You've been able to put some testing in place in airports, et cetera. So have you seen those booking patterns stabilize since late January?

Currently, we are still seeing relatively low booking curves and the shortening of the booking window. So currently, in the short term, we're not seeing any stabilization yet. We are closely observing the Easter high season, which should kick in, in March and the first week of April. And we expect to see some stabilization around that time.

And the next question comes from Helane Becker with Cowen.

So I have just two questions. One is, if you can comment on how spring break bookings are trending, sort of Holy Week? And I'm kind of wondering if you're seeing strong demand there?

Thanks, Helane. Regarding the spring break, as most of our markets in the U.S. are focused on the VFR segment, we usually don't see a spike in the spring break itself. However, there are some domestic routes that could be benefited by this effect, mainly in the beach destinations. More important for Volaris is the impact of the high season around Easter, just after spring break, which is in the first part this year, touching March, I think, the last weekend, which is the March quarter. And most of it -- of that high -- Easter high season is going to be falling into April, the second quarter this year. For Easter, the booking trends are still below the regular patterns due to the current uncertainty and the shortening of the booking window. But there might be some strong flows in booking volume, if consumer confidence returns, as we expect the COVID infections -- we are seeing that COVID detections are dropping in the U.S. and somewhat in Mexico as well. And the vaccination programs are being rolled out. So both factors will contribute to the return of travel demand and consumer confidence. So we're observing that last-minute booking -- that close-in booking very, very carefully. Too early to say yet, but we are pretty -- we're cautiously optimistic for the Easter high season.

Got you. And then for my follow-up question, what drove the year-over-year growth in ancillaries? Like could you point to any specific products or services or pricing changes that you made? I mean I know that once you get people on board, your uptake is pretty high, obviously. But can you -- is there anything that specifically drove that?

Yes. I would say there's three things: Number one, we did tweak the baggage policy, and we're selling a lot more carry-on-bag and check bags, as in ancillary, which was previously bundled into our fare classes. Number two, we have been optimizing pricing. We've implemented a revenue management system that automatically optimizes pricing depending on customer type, time to departure, seasonality and so on. And then thirdly, we've launched some new combos, like insurance combo, flexibility combo and some of that includes -- obviously, in the COVID times, people are more likely to buy an insurance -- health insurance combo and flexibility combo. So that has really helped us on the ancillary side.

And your next question comes from Mike Linenberg with Deutsche Bank.

Enrique, Holger, Jaime, I got to tell you a 37% EBITDA margin, that's pretty awesome. So you guys should be proud as an organization.

Thank you very much.

Couple of questions here. Enrique or Holger, I think you may have mentioned that, I think, 75% of your customers show up at the airport for transborder flights with already having proof of the negative COVID tests. Presumably, the remaining 25% are you offering a program where they can get tested? Do they have to get it at the airport? Or is there some portion of people who show up who unfortunately get turned away and don't take the flight because they can't get it fast enough or they're not willing to pay at the airport? I'm just -- I'm curious, the dynamic around that.

Yes. So what we're offering at the airport is an antigen test, which is totally viable for flying into the U.S. and we're offering that in cooperation with a Mexican lab at preferential rates. It's very simple. If you don't have your test, you go in there. I think it costs $20 or $25, and you have your results in 15 minutes. And it's validated by the lab that are operating in all airports -- all the airports that we use to fly to the U.S. So it's a very simple procedure. It's very fast, and we've seen a good uptake of that service.

Okay. No, that's great. And Holger. Just one other -- you mentioned earlier about during the pandemic as you were expanding or growing and looking at market opportunities, you were focusing on some of the larger O&Ds maybe to sort of balance out your network. And when I think about larger O&Ds, I look at markets like Mexico City to Dallas, Mexico City to Houston. Those weren't the type of markets that Volaris would have initiated 3 or 4 years ago. I'm curious how the rollout of those markets is working for you versus like a Chicago-Morelia or Chicago-Leon, which are sort of -- I sort of think of traditional Volaris markets? I mean, because these are big markets, and there's a sizable amount of business traffic, there's SMEs. There's also good VFR and there's -- even there's some leisure. How -- what's the competitive response is really what I'm getting to? Because those are highly contested markets.

Right, Michael. So what we look at is where there was capacity gaps left behind by some of the struggling competitors. And we found that mostly in the large market, there would be an opportunity. The good thing about the large market is that it has a combination precisely, as you mentioned, of our traditional VFR, the price-sensitive leisure, but probably also a little bit more of a business component. So we've not only added larger destinations in the U.S. like Dallas and Houston, which has been ramping up nicely. But also with increased frequencies to Mexico-Cancun, Mexico-Monterrey, Mexico-Guadalajara as some examples. So yes, as we become the largest player in Mexico and we are growing in Mexico City, naturally, we will also add some of the larger O&Ds from Mexico cities.

Okay. Very good. And just one last quick one for Jaime. What is the -- in your operating expenses, what is that contra expense that operating income that runs through the income statement? Can you just remind us what that is again?

That's the incorporation of the Q3 A320neos, the sale and leaseback transaction from those three aircraft.

That's the sale-leaseback. That's the gain. Okay. That makes sense, which is around MXN160 million.

That's correct.

That's correct.

Okay. And that will continue because it's amortized over the life of the lease, right? So we'll continue to see something in that?

That's correct.

And your next question comes from Pablo Monsivais with Barclays.

I have two quick ones. The first one is regarding your outlook for the first quarter of this year. You mentioned that international demand could remain weak for the first quarter. But can you please shed some light on the domestic side? Should we expect it to be at pre-COVID levels, if not slightly higher? And my second question would be on the international demand. Is the weakness that we're seeing for the first quarter only attributed to the COVID test restrictions from the U.S.? Or are you seeing some demand being weak in some routes? Can you please shed more light there as well?

So let me talk about the international market first. So clearly, with the spike in COVID cases in our large destinations in the U.S., the Bay Area, Los Angeles, Chicago, and even Texas, we've seen a natural decline in travel demand in the first quarter. It basically started in the last week of December going into January in the first quarter. And that was compounded with the new travel free COVID -- sorry, the COVID test requirements that came into effect late January. So I think it's a combination of both things that have dampened travel demand for the first quarter. As I said before, we are cautiously optimistic with the vaccination efforts that are going on in the U.S. and the percentage of population that has been vaccined in the U.S. that confidence -- consumer confidence and travel demand will return shorter rather than later. And that's why we're observing very closely the Easter bookings. So that's for the international side. For the domestic side, demand has been stronger than in the international market, even going into the first quarter, but has been also affected by a spike in COVID cases in Mexico and by stay-at-home orders and the red traffic light that has been put in place by local governments and states in Mexico for example, in Guadalajara, Jalisco and in Mexico City, but also in Quintana Roo, Cancun, for example. So overall, domestic demand is a little bit stronger, but has also been affected.

And the next question comes from Rogério Araújo with UBS. Rogério Araújo: Congratulations on these great results. Just a confirmation before I make my questions. So you said about the sale-leaseback transactions, the gain was MXN760 million, is that correct?

No, that's with respect to the full year, in which we have certain sale-leasebacks. The number as by Michael works only with respect to the fourth quarter, which corresponds to three aircraft. Rogério Araújo: Okay. And how much was that in terms of Mexican pesos?

It was for the fourth quarter, MXN162 million and for the full year, MXN730 million. Rogério Araújo: Okay. Perfect. And so my questions are, first one regarding the international flights. I think U.S. have announced a 7-day quarantine, but they haven't implemented. Do you have any news if this will be implemented at some point? And if so, how this could impact international operations further? That's my first one.

So currently, the only requirement to travel by air to the U.S. is a COVID test. And that can be a PCR test or an antigen test, which is relatively quickly done. That's it. Rogério Araújo: Okay. And so quarantine is out of the table at this moment? Or they are still figuring out a way of implementing that? Do you know? I know it's -- of course, not up to you, but you may be more aware of...

You need to follow the state and local on the regulations on quarantine of the destinations. And we normally provide information at our web depending on the flight that you are taking, and it changes from route to route. Rogério Araújo: Okay. So your expectation is that this will not be broadly implemented. Is that correct?

Correct. We believe it won't be implemented, especially after the article that you can read today in Wall Street Journal, which shows that 73% of the cases have dropped. Rogério Araújo: Okay. And my other question is very two quick ones. One is on the fuel efficiency, there has been a great improvement. Is this related to the fleet engaging to and the neo deliveries or something else? And also, if you could give us more color on the hedge losses in fourth Q, if it's noncash? And what is it exactly?

Okay. On the fuel efficiency, a lot of it comes from the reduction in capacity, most of it. And obviously, we incorporated 7 new A320neo family that has 18% lower consumption, which helps also the fuel line, no? And with respect with the hedging, the cash impact for the quarter was almost 0, no?

. The next question comes from Josh Milberg with Morgan Stanley.

I had a first question on your growth plans, and if you could just talk about how you see the future opportunity breaking down from a geographic standpoint, potentially between Mexico City domestic, other domestic and Mexico-U.S. cross-border and maybe looking a little bit longer term? And then specifically on Mexico City, given that you mentioned this continued focus on VFR, I'm guessing not, but with your move -- your growth in Mexico City, I should say, I wanted to know if you're doing any product adjustments to potentially attract business-oriented or higher-income customers that might have otherwise gravitated to Aeromexico and Interjet in the past.

Thank you, Josh. So we've publicly stated that we are looking at opportunities in the domestic market, mostly in Mexico City because that's where the biggest capacity gap is to pre-COVID levels. If you look at where Interjet and Aeromexico operated, so we are taking advantage of that opportunity. We are also continuing with our point-to-point network expansion in secondary cities in Mexico to our main beach destinations here in Mexico with more frequencies and new routes. And then selective U.S. expansion into the VFR niches and some of the larger urban areas. We've, for example, launched Dallas and Houston for Mexico City in the fourth quarter. On top of that, we are excited to say that Costa Rica has come back to Category 1, as a country, has been upgraded by the FAA to Category 1, which allows us to retake our growth trajectory in Central America. And that's another avenue of growth that we are pursuing in 2021.

In terms of the mode, we are absolutely no thinking about making any change driven by the disappearance of both Interjet or the rebalancing of capacity of Aeromexico. We think that our strategy and our cost is so important, and we think that it has been so successful that we have really no meaningful reasons to think about doing things the way they were doing it.

Okay. That's great color, Enrique and Holger. Maybe just one more on my side. I know you guys aren't giving much guidance at this stage and that the situation is also pretty fluid. But I was just hoping you could give a little bit of an indication on how your unit revenue performance is trending thus far in the first quarter. And also, to what extent these restrictions on cross-border have meant, needing to give some added incentives, some added pricing concessions to customers on those routes?

Yes, Josh, look, I think Holger has been absolutely clear about the reduction of traffic. And as a result of that, I mean, we had to reduce prices, again. And our TRASM is going to be affected in the first quarter. And obviously, that means that the company profitability will be impacted in the first quarter. But it is important also to say that on the other side, the lower base fares, as you see in the last quarter, are being kind of compensated by the ancillary revenues, who have been performing tremendously well. I mean what we're seeing is, yes, we needed a reduction in fares in order to incentivate the traffic, and we had to do it again during the first quarter, but the ancillary revenues are sustaining themselves at a very good level.

And there are no further questions at this time.

So thank you very much to everybody. Thank you very much for being here. Again, tremendous work from our directors' team, and in general, the Volaris team. I congratulate them again and I thank them for all the efforts that they've been doing. Working out from home, working out from different places in a very, very difficult environment shows only the resiliency of the team, and I really appreciate everything you have done. Thanks to everybody hearing this presentation this morning. And we wish you that we stay healthy, and we can keep on performing the way we have been in the last quarter.

Thank you very much.

Thank you. And this concludes today's call. Thank you for your participation. You may now disconnect.