Good morning, everyone. Thank you for standing by. Welcome to Volaris' First Quarter 2023 Financial Results Conference Call. All lines are in listen-only mode. Following the company's presentation, we will open the call for your questions-and-answers. Please note that we are recording this event. This event is also being broadcast live via a webcast and may be accessed through the Volaris website. Those following the presentation via the webcast may post your questions on the platform. The management team will answer them during this call or the Volaris Investor Relations team will answer them after the conference call is finished. To send your questions via the webcast platform, click on the question mark below the video area and type your inquiry in the upper left corner. At this point I would like to turn the call over to Ricardo Martinez, Investor Relations Director. Please go ahead, Ricardo.

Good morning 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 Chief Financial Officer, Jaime Pous. They will be discussing the company's first quarter 2023 results. Afterward, we will move on to your questions. Please note that this call is for investors and analysts only. Before we begin, please remember 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 results to differ materially from expectations. As described in the company's filings with the United States SEC, and Mexico's CNBV. These statements speak only as of the date they are made and Volaris undertakes no obligation to update or modify any forward-looking statements. As in our earnings press release, our numbers are in U.S. dollars compared to the first quarter of 2022, unless otherwise noted. And with that, I will turn the call over to Enrique.

Thank you, Ricardo and everyone, for joining us today. During the first quarter of 2023, we diligently delivered results in line with our full year guidance for capacity, load factors, fare levels and ancillaries. Equally important, we experience sustained demand across our systems. Our guidance for the year is still valid and maintained. We expect market demand to accommodate well within our full year capacity guidance of around 10% ASM growth. We'll continue to focus on delivery in EBITDAR margin expansion this year in a 29% to 31% range, an increase of 9 to 11 percentage points versus 2022. I want to start by highlighting the results from the quarter. Total ASM increased 18% year-on-year, including a growth of 15% in domestic and 24% in international markets, highlighted by greater than 100% expansion in Central and South America. Higher ASM growth was also driven by better utilization of our A321 fleet with revenue passenger miles per departure increasing by 20%. It is essential to note that versus the first quarter of 2019, our ASM grew around 66%, a testament to how Volaris took advantage of a once in a lifetime opportunity to grow during the pandemic. The Mexican airline industry has undergone landmark consolidation in the last three years, much like the U.S. industry did in the previous decade. With a recent disappearance of Aeromar, our domestic market now has three leading carriers that offer competitive cost service and handle around 99% of the passengers in the domestic market. This landscape sets the stage for a future where we expect increasing profitability for the Mexican market. As expected, our capacity grew faster in the first quarter than our 10% on our guidance as our deliveries for the year are frontloaded into the first half. In the second half, we expect…

Thank you, Enrique. And good morning. The first quarter of 2023 was another strong quarter operationally enabled, by the flexibility in our network as we saw some continued differentiation in demand in our geographic markets. Starting with capacity, as Enrique mentioned, ASMs increased by 18% year-on-year for the entire network, including growth of 15% in domestic and 24% in international markets, highlighted by a greater than a 100% expansion in central and South America. That said, our fleet and network plans are flexible if market demand persists or Category 1 is restored before expected. As we also staked out in our last quarter's call, given some softness and close in volumes domestically, we have been moderating base fares in the Mexican market, while capitalizing on robust demand in our international segments where we have been raising our base fares. The combination of these approaches generated a solid 85% load factor for the quarter, up 1.5 percentage point from a healthy 83.5% result in the first quarter of 2022. Underscoring this result is that more significant expansion and high affairs in our international market haven't been dilutive. TRASM grew year-over-year to a record of $7.07, up 9.5% on a 20% increase in RPM. We also remain nimble with our network. We have not only optimized the productivity of our fleet, but we are also reducing growth rates in the second half of 2023 like we are seeing from our domestic competitors. For the same reason, we expect to accelerate our plan to redeploy aircraft to Central America to fly to the U.S. For the U.S.-Mexican transborder market we will reassign at least four airplanes to U.S. bound routes once Category 1 is reinstated, reopening our pathways to the U.S. while taking pressure off the domestic Mexican market. These routes will take…

Thanks, Holger. Our first quarter financial results aligned with our expectation and full year guidance underscoring the stability of our financial performance over time. Total operating revenues for the first quarter came in at $731 million, at 29% increase compared to 2022 driven by solid international demand and ancillary revenue per passenger increasing from $35 to $42, which resulted in a 9.5% higher unit revenue. We remain focused on improving our financial performance and managing costs. The training CASM ex-fuel alliance where we discussed last December at our Investor Day. We anticipate that cyclical maintenance events will continue to increase for the remainder of 2023 and 2024 before gradually returning to 2019 levels. This increase is attributable to our ongoing transition to newer aircraft and maintenance cycle due to our current limitation. Our CASM ex-fuel accounted for $4.65, an increase of 5.7%. This increase was mainly due to the appreciation of the Mexican peso affecting the translation into U.S. dollars of peso denominated cost items such as labor and G&A. [Ph] During the quarter, we will deliver cost accruals of $35 million. On a unitary basis, this represented $0.37. Our adjusted CASM ex-fuel, which excludes fuel where delivers our sale and leaseback gains totaled $4.28 compared to $4.03 in the first quarter of 2022 and increase of 6%. Total CASM was $8.03 for the first quarter and 8% increase compared to the first quarter of 2022. Reflecting the seasonality in our markets, our EBIT margin of minus 4% was consistent with our historical results. EBITDAR for the quarter total $123 million at 27% increase for an EBITDAR margin of 16.8% in line with the same period of 2022 despite higher field costs. For the first quarter, the net loss was $71 million equivalent to a loss per ADS of $0.62.…

Thank you very much, Jaime. Before we move on to Q&A, I want to cover ESG advancements that we have recently made. A task force on climate related financial disclosure report discloses information on the process followed to identify and manage climate related risks and opportunities and on climate related targets and metrics. Volaris have a thorough process was the first Latin American airline to publish this report. We now have a more precise way to help us mitigate climate related risks. Meanwhile, during the annual shareholder meeting in the first quarter, a split of our Board Audit and Corporate Practices Committee was approved into separate committees and installed independent directors to lead them. We believe this reinforces our commitment to robust governance. Finally, our annual integrated report will be published in June, highlighting the synergies between our financial and ESG strategies. As of March 31, we are 67% on the way to doubling revenue against 2019, and we expect to make important progress against our free cash flow and EBITDAR goals by the end of the year in track with our triple goal presented investors meeting. As always, we remain disciplined on costs, prudent with capital deployment and focused on rewarding our customers and investors. Thank you very much for listening. Operator, please open the line for questions.

Thank you. The floor is now open for questions. [Operator Instructions] And today’s first question comes from Stephen Trent with Citi. Please go ahead.

Good morning, gentlemen, and thanks very much for taking my questions. I just have one or two few for now. First, I was wondering if you could refresh my memory when you look at the domestic market, what sort of route overlap do you have with Viva Airbus and Aeromexico.

Hello, Stephen. This is Holger. So in domestic market, we overlap with Viva on most of the trunk routes. And then overall, we do have a lot of niche markets where we don’t compete with Viva. So overall on an ASM basis, our overlap would be in the domestic market only about 60% to 70%.

Okay. That’s very helpful, Holger. I appreciate that. And also when we’re looking at the recent move you guys have made to Felipe Angeles Airport. Is there anything that you’ve learned about the operation from that airport in terms of its runways or passenger access or what have you that you think you can put the work to maybe guide you in optimizing Felipe Angeles operations over the next year or two? Thank you.

So Steve, we have seeing – let me split this in two parts, okay. From the operational perspective, the airport is operating perfectly both runways approaching terminals, the TSA certifies the airport valve for international operations. And so in general, that’s going well. Our load factors are in good levels and we are working in raising yields in these routes for closing monitoring performance of the routes itself. They’re still in ramp up. That’s the way we see it, but they are very, very well in track versus the original entities. So that’s our advantage. From the airport operation itself and the access and everything else, the government inaugurated in the first quarter, another access, which was really important. And so today we have the three frontal routes that where needed to arrive to the airport inaugurated, and the government is working on 27 more accesses, from those 27, almost 50% have been finished. That’s on one side. Increase on public transportation has happened. Okay? Both buses and taxis and still not there yet. I mean for example, Uber and that kind of stuff the three taxis are still not operating in full potential. And then finally the train and the line of the train, which has been worked and the government, again, has offered to be finished by the end of September of this year.

Okay. And Enrique and Holger, a very helpful, I will leave it at that for now. Thank you.

And our next question today comes from Helane Becker with TD Cowen. Please go ahead.

Thanks very much, operator. Hi everybody, and thanks for the time this morning. Just a question, Holger, do you know how many of your current passengers also subscribe to your V.Pass program?

Yeah, so there’s a before and after. So before we did the change in our product types, we had about high single digits of sales coming through the V.Club in terms of fairs sold on our website. And now post the change we are now offering a completely unbundled zero fair, which includes the V.Club membership. So, if you want to access our lowest fares, you have to have a V.Club membership, and that’s clearly led to more V.Club membership sold and the driving ancillary revenues as well.

Okay, that’s very helpful, thank you. And then my follow up question is – late, sorry is related to how you’re thinking about the guidance for the full year, given kind of the deficit for the first quarter? Can you maybe walk us through the cadence for the second quarter and then maybe into the third?

Let me start something which is really important, Helane, and I think that this is great to mention it. It’s – you cannot meet the strong fundamentals from the first quarter. Okay? The first quarter has 90,000 grids, and Chileans [ph] went up from 44% to 47% as a percentage of total revenues. We operated with higher, low factors and there’s an improving fuel environment and CASM is in line with our investors meeting guidelines. And then also on the revenue side, the strong peso helps, and it helps twice. I mean, it – we have a better revenue when the strong peso is here and it – the benefit of the revenue line is twice the size of the cost, which is a downside. Okay. Having said that, okay, I think it’s very important to say we are entering into the best quarters of the year. I mean, remember the first quarter for us, it’s always a loss. And the reason it’s because it is our lowest – quarter. Okay? The second thing, and now we are entering into the best quarters of the year. Assuming we – you need to assume that we have a return of that one by the fourth quarter, which will allow us to grow in markets in which we have an increasing CASM doc versus our U.S. peers, which allows us to compete much better there. Then we had to deliver of demand in all of our markets with legal impact and economic slowdown so far, we continue driving CASM off. Okay. And I just want to infer to that. I mean, it was not only a nice CASM grid, it was a record CASM Okay. And I think that’s very important Helane, and I think that will continue to help in the next few quarters. We continue boosting from lower debt and favor of FX. And I think something, which is really important is Central America in general is performing pretty well.

Thank you very much. That’s very helpful.

Thank you. And our next question today comes from Duane Pfennigwerth with Evercore ISI Please go ahead.

Hey, thanks for the questions, and I don’t know if it’s just my line, but it’s a little bit hard to hear Enrique, I just wanted to share that with you. First question with regard to CAT1, the CAT1 upgrade potential, I don’t want to read too far into it, but it seems like the language in your slide deck is a little bit more pointed and a little bit more confident on the timing. Can you just talk a little bit inside baseball on the process, what are you seeing that increases your confidence with respect to CAT1?

So Duane, I will try to respond whatever I said to Helane before, since you've been here well. And then I will answer the CAT1. I said the fundamentals as for the first quarter were really important and – were really good. We had a nice as far as increase, we consider is high low factor, the fuel environment is improving going forward. The CASM is in line with our investors meeting guidelines, and we have a very strong peso [ph] which is benefiting especially the revenue line. And then I said that we are entering the best quarters of the year, and assuming that the return of CAT1 by the end of the first quarter, right by the beginning of the fourth quarter, which will allow us to grow in markets which we have, where we have an increasing CASM cap [ph] versus our U.S. peers. And then we continue seeing robust demand and we are driving a better CASM ancillaries. So that's basically what I answered. I hope now you hear me better.

I heard it more clearly. Thank you.

Speaking about category one, so last week, the law was approved. And let me explain you why it is so important. I think when you have an IASA audit in my experience is there are two or three things that are fundamental for an IASA audit. And the first one is that you need to be in line with regulations and worldwide inter-regulations. I mean, you need to be processing the ICAO regulations on a regular basis. You need to be updated in your aviation law in every terms. And the aviation law has to facilitate whatever is needed in order to accomplish the CAT1, okay? So that's why this is so important. From the 39 points that were raised by the FAA, there are five points that are related to the law, okay? So today despite the government claims that they have basically overcome 35 or 34 of the points that the FAA raised, these five points are fundamental for going forward. The second thing, which is very important, is about having the right budget to process and sustain the category and execute their plan of surveillance. And that's also – that's something that has been approved. And the third thing is to achieve compliance on everything else, which is basically a questionnaire, which is about a 100,000 items that are included there. Going out from that, so the government has now finished the 34 topics, and we are missing the five. Once we accomplish the five, the government is allowed to request the audit and the full IASA audit, which I'm expecting probably to be ready by no later than end of May, beginning of June, okay. The law was approved in the Lower House last week, and this week it is expected to be approved in the…

Okay. I'll keep it at one given the extensive answer, so thank you.

Thank you. And our next question comes from Mike Linenberg with Deutsche Bank. Please go ahead.

Yes. Hey good morning everyone. Holger, I want to go back to your characterization of bookings. You indicated that they were solid, and I think you specifically called out international, you mentioned U.S. transporter in Central America. How about domestic? And what I'm getting to is in your March release, you did talk about close in demand in Mexico, maybe coming in below expectations. I'm not sure if those – that was the exact words that were used in the release. What happened in March, and are you seeing a continuation of that close in demand weakness in April, May, if you could just elaborate? Thank you.

Yes. So Michael exactly right, the international market to be healthy. We've been able to raise the yield despite a 24% growth in ASMs in those markets. And that's true for Central America and the U.S. markets that we operate, and South America as well. In the domestic market we've seen quite healthy booking curves in terms of volume. The volume is coming through, but at the extent of some lower last minute yield in our trunk market, so in the market – the 10 largest markets where they have more competition in the market. And we've been able to offset the lower base fares in the last minute bookings through higher ancillaries and that has kind of compensated for – that, and you've seen that the trust increase in the first quarter given that that activity push. So the challenge we are seeing right now is in the yields on the last minute booking. But we are still seeing strong domestic volumes in the market as a whole. And we've seen that in our traffic release as well in the first quarter.

Okay. Okay. That's helpful. And then just on the legislation that's before the Senate as it relates to what needs to be approved to kind of move Cat 1 along [ph]. That legislation I believe also allows, I guess for government ownership of airlines as well as government ownership of airports. And I'm just – I'm curious, I mean, I'm not even sure how much you can even say on this Enrique, but vertically integrated competitors can be powerful, and in this case, this is one that's supported by the government. Is this a real risk? I mean, should we be concerned? That's kind of what we hear from investors, and so again I'm not sure what you can even say on it since the legislation is pending. But it does seem like it gives the government a powerful say an influence over the industry from a competitive perspective.

So, Mike, look I think, right now it's the total speculation. I mean, the law is still not approved. I mean, it might be approved in a couple of days, but I mean, we don't know if the government is going to create an airline, which kind of an airline is it? I mean, is it going to be a low cost? Is it going to be a wide-body aircraft? Is it going to operate where? I mean, there's basically no information.

Okay.

So, and we have heard from Airbus and from Boeing that they were requested aircraft and they didn't know what they wanted. That's in a nutshell, but we know to today. So other than that it's speculating, and I would not like to speculate anything. But having said that, Michael, I mean, I just want to remind you, I mean, Volaris is one of the lowest cost operators in the world and one of the most effective operators in the world. And we have always been open to competition as long as there are equal competitive competitions offered to all market participants. And one of the things that was included in the law is that they – they have to be ruled and managed in the same way the concessions are, are being managed except for one thing, which is we do have an end of our concessions, they don't have an end on what they are doing. So that's pretty much what I know. What I can answer right now.

Enrique, if you just let me add, I mean, I would just make the point, not just you but if I include you, Viva and Aeromexico, it would seem like it would be very difficult for a government to use the people's money to make any money. In fact it would seem like it would be a very high probability that it would be a loss making proposition because you’re up against some of the three, strongest competitors in the Americas. So anyway, that’s just my thoughts on it.

But I would probably agree with you. And then this is a market, which is very well served and very well with very good airlines, but I mean, that’s their idea and I don’t want to speculate on that and I don’t think anyone should speculate until we really know what is going on. And colonize [ph], I mean, launching another is not something that happens from today to tomorrow. So, I think we need to focus on our numbers for the rest of the year, and I just want to reassure that we are confirming our forecasts and we continue being solid in what we proposed for the year, and I think that’s where the market should be my focusing right now.

Fair enough. Thanks. Thanks for your answer, Enrique and Holger.

Thank you. And our next question today comes from Rogerio Araujo with Bank of America. Please go ahead.

Hi gentleman. Thanks for the opportunity. I have a couple here. The first one on the guidance, first thing how was the 1Q 2023, EBITDAR margin versus company’s expectation, when Volaris released the guidance in February, and also it seems that U.S. go for jet fuel is below the implied range, Mexican peso as well. So does the company expected to pass through these lower cost to consumers or margins could surprise on the upside? That’s the first one. The second, just a confirmation the cabotage was removed from the view that was approved in the lower house is, is that correct? That’s it. Thank you.

Hi, Rogerio. I’m sorry. You want to answer the first?

Yes, I answer to first. I think the numbers of the 1Q, Rogerio are quite online, what we budgeted and last year and low so prices, a little help from the FX only on the TRASM and the effect on the CASM, but quite aligned what we forecasted and budgeted for the year. And jet fuel prices are a little higher than we expected for the quarter and compared to the 1Q of 2022, but the numbers are aligned with budget.

I think from the fuel perspective Rogerio, you need to consider that we are leading kind of exactly different years than what we had a year before. Last year we had a February, March with kind of normal level of fuel levels and then March racing and going forward, the question was a raise of fuel. The difference this year is we have high January and February numbers and March low number, which is far lower, and then the forecast for the rest of the year remains lower. I think that’s important to consider. The second thing which is important is peer value was a record leveled in the first quarter, and I think that’s something you really need to consider. Then cabotage was taken out of the, of the law. So cabotage remains only for local operators.

Fair enough, very clear. Thank you. Thank you very much.

Thank you. And ladies and gentlemen, this concludes today’s question-and-answer session. I would like to invite Mr. Beltranena to proceed with his closing remarks. Please go ahead, sir.

No, I just want to thank you very much everybody for releasing and I want to thank you our family of ambassadors, the board of directors, investors, the bankers and the source and suppliers for the commitment and support during another strong quarter. I look forward to addressing you all again for the next one. And thank you very much. And operator, please open the line for questions.

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