Hi. Welcome to Volaris’s First Quarter 2022 Financial Results Conference Call. All lines are in a listen-only mode. Following the company’s presentation, we will open the call for your question and answers. Please note, that we are recording this event. This event is also being broadcast live via webcast and may be accessed through the Volaris website. Those following the presentation via the webcast, may post your questions on the platform and they will be either answered by management during this call or by Volaris Investor Relations team after the conference is finished. To send your questions via the webcast platform, you need to click on the question mark just below the video area in the upper left corner and type your inquiry. At this point, I would like to turn the call over to Renato Salomone, Volaris Senior Corporate Finance and Investor Relations Director. Please go ahead, Renato.

Good morning, everyone and thank you for joining the call. With us is our President and CEO, Enrique Beltranena; our Airline Executive Vice President, Holger Blankenstein; and our Chief Financial Officer, Jaime Pous. They will be discussing the company’s first quarter 2022 results. Afterward, we’ll move on to your questions. Please note, that this call is for investors and analysts-only. 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 as described in the company’s filings with the United States’ SEC and Mexico CNBV. These statements speak only as of the date of – that they are made, and Volaris undertakes no obligation to update or revise any forward-looking statement. As in our earnings press release, all our numbers are in US dollars and compared to the first quarter of 2021, unless otherwise noted. It is now my pleasure to turn the call over to Volaris’s President and CEO, Enrique Beltranena.

Thank you very much, Renato and thank you, everyone for joining us today. We’re happy to report continued strong traffic and revenue results in the first quarter. In Mexico’s domestic market, we continue to see a strong recovery of demand that started a year ago. In other markets such as the domestic US, carriers have recently began to experience a similar recovery. On Slide 3 highlights that the key reasons behind our strong performance and success haven’t changed. First, Volaris has demonstrated an ability to adapt to change in demand quickly, and has also been able to gradually pass through the impact of the recent rising fuel prices. Second, Volaris has plenty of market opportunities, both at home and abroad. Volaris’s strength in the fair environment continues with our VFR customers who value our schedule reliability and our leisure customers attracted to our many point-to-point leisure destinations. Third, our growth plans remain flexible. And current demand strengths confirms that we can fill in the mid-20s ASM growth guidance for the year without sacrificing profitability. Fourth, our ultra-low cost and strong balance sheet allow us to absorb volatility better than our competitors and position Volaris well for the future. Regarding our first quarter performance, we generated total revenue of $567 million in the period, an increase of 80% versus 2021 and 53% versus 2019. We generated the positive cash flow from operating activities of $196 million. Our EBITDAR increased by 52% to $97 million. Today, I would like to focus on two main topics. Our ability to pass through the increasing fuel costs and the rationale behind Volaris’s growth strategy. Let me start with a pass through of the fuel cost. Volaris’s ability to pass through incremental fuel costs begins with the fact that we continue to have the lowest unit…

Thank you, Enrique. Moving on to the next slide, I would like to provide some more color on our quarterly financial results. On the revenue side, we entered the quarter at a higher fare level, having increased fares gradually since December in response to rising fuel prices. Demand remained strong throughout the quarter, despite Omicron’s effect in late January and February. The strength in demand enabled us to push through careful fare increases during the quarter. This was the reason behind our strong TRASM performance which beat expectations. As far as monthly demand trends throughout the quarter, we reported a healthy January traffic performance, with a slight dip in forward bookings offset by healthy demand in closing bookings. In February, we observed a consistent decline in COVID cases, with a corresponding rise in bookings. We can conclude that Omicron had a three-week impact on sales with a minor effect on the quarter, especially since this is a seasonally low time of travel for us. Every new wave of COVID had less and less impact on our revenues. Our average fare for the quarter was $46 versus $37 a year ago, still low in absolute terms. Our fare increases were implemented selectively and in small amounts, ranging from $1 to $3 per passenger. We are also benefiting from the growth in our international markets, which are also driving up overall fare levels. On the capacity side, ASMs for the March quarter increased 1% from the December 2021 quarter or 50% versus the first quarter of 2021. Our load factor of 83.5% remained at healthy levels, increasing 5.4 percentage points year-over-year. Our first quarter domestic network, representing 70% of our ASMs grew by 41% year-over-year. Like last quarter, most of this growth was out of Mexico City on existing routes, with both…

Thanks, Holger. Now, I would like to discuss our first quarter 2022 financial results, highlighting our strong financial performance. Total operating revenues for the first quarter were $567 million, an 80% increase compared to 2021 as detailed by Holger. CASM ex-fuel for the first quarter decreased 8% compared to the same period of 2021, closing at . The company maintain its disciplined neutral low-cost structure, despite the inflationary pressures in Mexico, the US and Central America and a higher redelivery accruals associated with the renewal of our fleet. We have mitigated these pressures by focusing on controllable cost and higher aircraft utilization. Total CASM closed at $0.74 for the first quarter, a 13% increase compared to the first quarter of 2021, driven by higher fuel costs. The average economic fuel costs increased 64% to $3.15 per gallon in the first quarter. Confirming the financial benefit of the renewal of our fleet, Volaris’s fuel efficiency measure in ASMs per gallon improved by 6.1% from the first quarter of 2019 to the first quarter of 2022, resulting in fuel savings of 4.7 million gallons or $14.7 million. We believe this is an effective hedge against rising fuel prices, and means, that Volaris’s fares need to move up less than our competitors in this environment. Equally important, increasing fuel efficiency to the renewal of our fleet and the high density seating in our aircraft are critical elements of our 2030 goal of reducing CO2 emissions per RPK by 35%, compared with 2015. For the rest of 2022, the company expects to continue seeing volatility in fuel prices and additional inflationary pressures. Volaris’s management, we globally follow macroeconomic trends to react swiftly and we will continue to pursue further cost efficiencies to maintain a healthy cost structure. As discussed in our last conference call,…

Thank you very much, Jaime. Finally, we have a resilient and effective ultra-low cost business model, a strong balance sheet, a healthy leverage, a solid recovery with ample opportunities to increase our presence in our markets, and most importantly, the commitment of an experienced management team to help navigate our airline towards maintaining consistent and sequential levels of profitability. In a volatile market, distinguishing between is crucial. Over the past six quarter, Volaris had a cumulative EBITDAR margin of 33%. And we believe we can deliver a similar cumulative EBITDAR margin in the next six quarters. This statement shows the confidence we have in Volaris business model and in our ability to remain one of the most profitable airlines in the world. Thank you very much for listening. Operator, please open the line for questions.

Thank you. The floor is now open for questions. Participants can also send questions via the webcast platform, you need to click on the question mark just below the video area in the upper left corner and type your question. Our first question comes from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Hi, thank you. Good morning. First just maybe an easy one. I noticed you put fuel price now in your monthly traffic which I think might be helpful for some. You know we hear from investors just a little bit of frustration that some of the analysts on the Street are not sort of timely updating things based on where fuel prices are, which of course, you know we can see every day. But now you put it in your traffic as well. So I wonder if you would just comment on where you think fuel prices will settle out here in 2Q or if you have sort of a spot fuel price just to help you know everybody that’s on the line here?

Pardon the interruption. It appears we have lost connection to our main speaker location. Please stand by while we reconnect. Pardon me, ladies and gentlemen, we have reconnected our speaker line, Duane Pfennigwerth with Evercore ISI. Please resume your question.

Sure. Will try again. Hi, and good morning. I just wanted to ask you if you had a good estimate for 2Q fuel or a spot fuel number that you’re realizing today and I wanted to commend you for putting fuel in the monthly traffic.

Thank you, Duane. Basically the guidance that we provided in the economy fuel price between $3.7 to $3.8, but we use with the spot WTI of the forward crude that was like $108.28. The crack that was at $34.75 and yet at $3.41. Is – the curve is what we use and nothing complicated and we will continue to publish together with a traffic report as we did in March, the average economic fuel price that we had during the month.

Okay. You feel – I know you put that in there for the year but you feel like that’s the right number for 2Q like what would your spot fuel price be right now?

The spot price right now is – do you have a number that are relatable? We have it yet about 4.09. But that – what the numbers that I provided to you, Duane are the numbers for the Q for the complete Second Q.

Okay, okay, perfect. And then just a broader question for my follow-up, maybe for Enrique is, we just step back and think about how the world has changed in the last few years you know supply chain disruptions sourcing from Asia, a global energy supply disruptions. It just feels like there are a lot of ingredients for a closer relationship between the United States and Mexico there is clearly potential. Of course this potential can be delayed with political cycles in the US and in Mexico. But how do you think about this potential for a closer relationship? And what should US investors be watching for what signs should be – we be looking for that this relation – relationship is improving or maybe getting more distant?

Well, Duane some – some days I think things are going really well. Some days I think that things are not going in the right direction. I think, in general, during the last month, the relationships have been really tense, because of the energy reform, which is already solved, I would say as part of the link of the issue of the possibility of changing the constitutional decree in relation with the energy reform and the voting that happened two weeks ago at Congress and Senate. So, I would say that, yes, on one side because of the new world order, we need better relationships and improved relationships more and more, but it’s up and down every day.

Appreciate that perspective.

Our next question comes –

Having said that exports and the whole economical trade between the two countries is moving ahead really well. Go ahead, the next question, please.

Thank you. Our next question comes from Helane Becker with Cowen. Please go ahead.

Thanks very much, operator. Hi, everybody and thank you for the time this morning. So I just have two questions. The first question is on your – just a point of clarification, second half capacity growth up in the mid-teens? Is that system right that’s all the operating divisions, El Salvador, Costa Rica, just everything, not just Mexico.

Yeah, correct, Helane.

Okay, thank you. And then my other question is with respect to bus shifting. As you get further and further into you know for people knowing Volaris, is there ever been a time where somebody has said, they’ve taken the plane and then they’ve said, no, we’re just never going to do that again?

Well, Helane, our data shows that once we have people switched from buses to air transportation, on the longer routes, bus trips beyond six hours, people are very reluctant to go back to the buses, more than 90% of our customers remain loyal customers to us. And we build our network around that market, to remind everybody, we have 46% of our routes that only compete against the buses. So we continue to believe that there is a potential to switch more people from the buses to air transportation in the next years.

Great, that’s very helpful. And then the only other thing I have is, any word on when CAT 1 will be restored?

Yeah, Helane. What we saw that Mexico had a new always two, three weeks ago, the 20 points which in reality have 97 different topics organized on their reservations were basically closed, and the FAA is sending a new how the team during the second week of May do a full assessment again, we’ll see depending on the results Mexico will request to - the return of CAT 1. And that process after that done it can take from two to three months, we hope Mexico will return to CAT 1 by let’s say the end of the year – by the end of the year.

That’s great. Thank you very much.

Thanks, Helane.

Our next question comes from Mike Linenberg with Deutsche Bank. Please go ahead.

Hey, good morning, everyone. Hey, Holger, back to kind of the long-term plans for your Central American operation you talked about you know over time 20 airplanes five years out. Does that include any service that you would be flying to South America or is that a separate segment?

Michael, we see medium-term potential of 20 aircraft as you rightly say, and that is for our El Salvadorian operating certificate and the Costa Rican operating certificate flying to the west Mexico, intra Central America and South America. So it includes the whole thing.

Okay. Okay. And so, I guess as I think about South America, it looks like it’s going to be both your Central American certificates as well as your Mexican certificates. So it’s sort of a combination of both. That’s probably the right way to go –

You’re right.

Okay.

That’s right, Michael.

Okay. And then just with respect to you know corporate travel and you know maybe even price sensitive business or you know even more granularly you know small, medium enterprises, you know, Holger you came out and just said, look, you know, we don’t – we carry very little business traffic and I know you’ve always carried some, but I keep looking at that market share chart and you’re up to you know you’re north of 40%. You know you’re sizable in the marketplace, and there are lot of city pairs that you serve that nobody else serves. And I don’t see corporate people taking the bus. Isn’t there a real opportunity here for – Volaris to snag just a bigger share of corporate even if it’s the most price-sensitive corporate? I’m very curious on kind of your long-term plans on that, because it seems like it’s a real profitable opportunity. And maybe you’re just not going after?

Yes, absolutely. I think as the largest player in Mexico, we have to look at all market segments. We have recently fortified our trunk routes out of Mexico City to Monterrey and Guadalajara. And as you rightly point out, we are getting some of the price-sensitive business customers, especially in the small and medium-sized enterprise segments. We have also introduced some features of ancillary bundles that are geared towards more the corporate customer, more of the business customer, we have a new bundle called v.business that gives the business customers some more optionalities in exchange for an additional fee. So we are actively looking at that segment. And as we grow in the domestic market, but also to the largest destinations in the US, we are bound to make inroads into that segment. Having said that, we do recognize that business traffic is still below pre-pandemic levels, and that the VFR and leisure segments are much more resilient in the recovery.

Okay. Can you just remind me like pre-pandemic was price-sensitive business or SMEs? What was that about, 10% of your – you know of your sort of passenger, if you look across your passenger segments or revenue was at 10%, maybe it was less than 10%?

Yeah. It was about 20% of our traffic, pre-pandemic, mostly domestic, where VFR was about 50% and leisure was about 25% to 30%. So, that was pre-pandemic. And we’re seeing slightly higher VFR and leisure participation right now, because precisely the business traffic is still behind pre-pandemic levels.

Okay. Okay, that’s helpful. Okay, great. Thanks. Thanks, everyone.

Thank you, Michael.

Our next question comes from Stephen Trent with Citi. Please go ahead.

Good morning, everyone and thanks very much for taking my question. Kind of a quick follow-up on what Helane was asking about the bus, if I may. You know when I think about the – you know the potential for enhanced offer going from bus to plane you know are you aware of any of these interstate bus operators that you know even have any sort of loyalty program or something that remotely looks like a loyalty program? And you know and I would guess that you know they probably don’t have stuff like Ya Vas or co-branded cards, just sort of wanted to get a little bit of a high level color on the potential difference in that offer? Thank you.

Yeah, absolutely, Stephen, you’re right, we have enhanced our product offering to attract customers with service elements and products that are not available on the buses, precisely the package holiday options and our v.club, which gives the most price-sensitive customers some additional discounts. And also I’d like to point out that the buses are relatively unsophisticated prices in terms of revenue management, which gives us an advantage in yielding and generating more revenues per passenger.

Okay. Super, Holger, thank you. And just one really quick follow-up just any high level thoughts about you know how the ops are going so far in St. Lucia and you know kind of customer reaction and et cetera.

Those are in the level of 78% in the three routes that we have. We are observing the market to develop, we’re observing the route, the ground routes to improve. And we’re watching the entire operations very carefully. And that’s the update that we have. We did launch a requirement to the IFR to start flying from St. Lucia to LAX at the end of the year. And that’s where we, we strongly think that that reinforces the VFR traffic of the region around the airport.

Okay, very helpful. Thanks very much for that, Enrique.

Our next question comes from Pablo Monsivais with Barclays. Please go ahead.

Hi, everybody, thanks for taking my question. I just have a follow-up to Holger’s comment on the pent-up demand. The demand recovery has been impressive. So I am so curious to learn this idea that there’s still pent-up demand driven because of COVID. I thought that leisure was already back to pre-pandemic levels, perhaps VFR as well. But if you can provide a little bit more color on that, if there’s a low-hanging fruit still that you’re planning to improve over the next few quarters? Thank you.

Yeah, Pablo. Let me give you some color on how we’re seeing things right now in terms of sales and forward bookings. So, you might remember that during the Omicron episode, midway through the quarter, we did see a reduction in sales, three-week episodes, where we did have a small impact for the quarter. This was obviously a seasonally low time of travel for us anyway. And then, we had a very successful anniversary promotion which is mid-March. And we saw that demand and pricing strength continues, especially for forward bookings into the second quarter and even into the second half of the year. And that strength of the bookings has really continued into April. We continue to be excited about the summer. And I think that really points towards that pent-up demand that you’re mentioning, the resiliency of the consumer, especially in our segments, the leisure, the VFR segments. And they’ve been proven very strong and we’re seeing that strength continue carrying us forward. So, we continue to be quite constructive about the top line going into the second quarter.

Perfect, very clear. Thank you very much.

Our next question comes from Alejandro Zamacona with Credit Suisse. Please go ahead.

Thank you. Hi, Enrique, Holger, Jaime and thank you for the call. Just a quick question on your thoughts on how the Mexican market has been accepting the price increases in the base fares consider – considering that future increases may come amid the higher oil prices and the higher inflation environment. So, any color on that might be very useful. Thank you.

So let me tell you that as we mentioned during the call in the first quarter, we demonstrated that we were able to offset 95% of the fuel price and volume increases and we sustained healthy load factors and traveling level. So the customer really did accept our price increases. Now, oil price increases obviously affect the entire transportation and tourism industry and given our cost structure and network and market position, we believe that we are extremely well positioned to pass on some of the effects of rising fuel prices to our customers even in the future. Nevertheless, we do need to emphasize that as an ultra-low cost carrier, our prime focus will always be the focus on volume first. And if you look at our fuel efficient fleet of A320neos, our fair price increases, need to increase proportionately less than our competitors’ fares. And then if you look at the market as a whole, we have observed in the domestic market, a lot more rationality in terms of pricing in the post-COVID era, from all the remaining competitors. So, we continue to be positive about being able to partially offset fuel price increases into higher travel.

Okay, Holger, thank you. And then my second question, if I may. Do you have any of the potential overturning of mass mandate in Mexico similar to what happened where we saw in US? And eventually, we do believe that the restriction lift could improve demand or it can even hurt customers’ confidence to travel safe?

So look there’s two answers for this. The first one is what’s going on in the domestic Mexican markets where Mexican flights we continue to have a compulsory mask usage policy, because that’s what the authorities’ requirement. And the second one is, what we’re doing in the north bound and international flights, where we moved from a compulsory usage to a strong recommendation of using the mask.

Okay. But do you believe we have any update on the potential level during – of the mask mandate in Mexico?

Not yet. No indication so far by the health authorities.

Okay, thank you.

This concludes –

Okay, thank you –

Today’s question-and-answer –

Thank you very much to everybody. And I want to apologize because of the system short – that we have. I want to express my sincere gratitude to our family of ambassadors, the Board of Directors, investors, our bankers, lessors and the suppliers for the commitment and support that has driven Volaris to this exciting position with such an opportunity. Thank you very much to everybody and it was great to hear you and participate in this call.

This concludes the Volaris conference call for today. Thank you very much for your participation and have a nice day.