Good morning, everyone. Thank you for standing by. Welcome to Volaris Third Quarter 2024 Financial Results Conference Call. All lines are in a listen-only mode. Following the company's presentation, we will open the call for your questions. Please note that we are recording this event. This event is also being broadcast live via webcast and can be accessed through Volaris website. At this point, I would like to turn the call over to [Rodrigo Martinez] (ph), Investor Relations Director. Please go ahead, Ricardo.

Good morning, 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 third quarter 2024 results. Afterwards, 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 day 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 US dollars compared to the third quarter of 2023, unless otherwise noted. And with that, I will turn the call over to Enrique.

Good morning, and thank you for joining us. Volaris third quarter results demonstrate our business model's resilience and commitment to execution. I'm proud to report that Volaris has delivered strong operational and financial results again, marking this our fourth consecutive quarter of net income, while providing great ultra-low-cost carrier service value to our customers. We have strategically streamlined the company during this period, effectively reducing operations by about a quarter of our fleet during our busiest summer season due to the Pratt & Whitney engine inspections. Our team also effectively mitigated external disruptions like weather-related events without a material impact. Despite these challenges, we managed to contain our reduction in ASMs to only 11% during the last 12 months compared to the 2023 levels. Also, we achieved total operating revenue of $3.2 billion in this period, matching the full year operating revenue of 2023, an impressive accomplishment. We're moving forward to the other side of this engine inspections period, paving the way for sustained shareholder value creation, our most important long-term objective. As part of these processes, we are emerging as the preferred airline in our core markets. We often offers, fly attractive schedules promptly and reliably and provide relevant ancillaries that add value to our customers. We also deliver on day of departures itineraries and provide digital solutions to our customers and with a proven safety and security record. As the engine inspections began 12 months ago, I am today pleased to highlight key achievements from these last 12 months. First, reductions in RPMs were consistently lower than those in ASMs, indicating a well-calibrated approach to capacity management. This allowed us to sustain similar load factor levels and protect the demand elasticity of our bus switching passengers, ultimately improving our TRASM. Second, we further unbundled our fares, keeping base…

Thank you, Enrique, and good morning, everyone. Demand remained strong across our markets during the high season in the summer, underscored by a 90% domestic load factor, up 1.7 percentage points and an 83.4% international load factor, up 1 percentage point year-over-year and 5 percentage points sequentially, as our Mexico US additional capacity matured. Our total load factor was a strong 87.4%, a 1 percentage point increase. These load factors supported our record third quarter TRASM of $0.0938, a 12% increase. Our average load factor of $53, up 9%, and ancillaries per pax at $54, up 10%, remained robust and consistent with the healthy demand we have observed during the year. ASMs contracted 14%, in line with our guidance, and we had a remarkable on-time performance within 15 minutes of 84.3%, with on-time departures rising almost 7 percentage points over our performance in the third quarter of last year. Even with the scheduled impacts of Pratt & Whitney engines, we have diligently managed accommodations, leading to a much lower volume of customer complaints. This is highlighted by an increased Net Promoter Score currently at 37%. During the quarter, we continued to capitalize on strong market trends in the domestic and transborder segments. In our domestic market, we continue to see growing demand from first-time and repeat flyers, driving consistent strength in loads, fares and ancillary revenues. Turning to our international markets, approximately 40% of our total ASMs are currently in this market. Our plan is to shift more capacity to the US-Mexico transborder market, taking full advantage of Mexico's return to CAT 1 status. We have announced new routes and inaugurated several, including Guadalajara to Tulum, Guadalajara to San Jose, Costa Rica, Miami to El Salvador, Tijuana to Las Vegas. In line with our mid-term growth strategy, we have launched…

Thank you, Holger. Our third quarter results reflect the strong demand complemented by strict cost control and more favorable jet fuel prices. This discipline resulted in our fourth consecutive quarter of expanding margins and positive bottom line, despite the challenges faced during the year. Compared to the same period last year, our third quarter 2024 results were as follows: Total operating revenues were $813 million, just a 4% decrease despite a 14% reduction in capacity. Our net results were also affected by the 11% depreciation of the Mexican peso against the U.S. dollar. While this trend benefits our unit cost, it is a headwind to our unit revenue, negatively impacting our margins. Given that approximately 60% of our operating expenses are denominated in U.S. dollars, we have targeted 50% of our collections to be in dollars to mitigate our exposure to this dynamic. Additionally, around 90% of our cash balance is held in U.S. dollars. Back to the P&L. The total CASM decreased 1% to $0.0792. Our average economic fuel cost decreased by 17% to $2.64 per gallon, while CASM ex-fuel came in at $0.0539, better than guidance for a 10% increase despite a strong headwind from the reduction in ASMs. This underscores our focus on cost control and give us a competitive advantage in the industry. We reinforce this advantage by implementing aggressive cost management, avoiding expensive wet leases and maintaining an efficient cost structure, with approximately 70% of our costs being variable and semi-fixed. In fact, compared to our United States peers, we anticipate that our cost gap will continue to widen over time in the cross-border market. Our financial differentiation is clear and growing. Despite the AOGs and related cost complexities that began last September, we have maintained one of the lowest unit costs in the world.…

Thank you, Jaime. Before we begin Q&A, I want to call attention to Volaris' integrated annual report for 2023, which we recently published on our investor website. Last year, we navigated numerous headwinds, including the government-mandated slot reductions at Mexico City International Airport, the prolonged category second downgrade and the onset of the GTF engine inspection. We financially overcame these challenges and maintained our commitments to our ambassadors, passengers, communities, investors and the environment, meeting the best corporate governance practices. While I will not discuss our corporate sustainability strategy in depth on this call, I would like to note that multiple stakeholders have recognized our platform on sustainable practices in business and aviation and how this effort has uniquely created value. I invite you to review our integrated annual report to learn more about Volaris' initiatives for corporate development, climate protection and long-term sustainability. Thank you very much for listening. Operator, please open the line for questions.

Certainly. [Operator Instructions] Our first question comes from the line of Duane Pfennigwerth from Evercore ISI. Your question, please.

Hi, thank you. Good morning. Can you help us think about the shape of capacity into the first quarter and the first half of 2025? You've given us a preliminary view on the year, but I wonder if you could speak to how you expect maybe to start the year from a growth perspective in the first quarter.

Thanks for your question. So, we are finalizing our operating plan, but we're looking at growth in the mid-teens for the first half of 2025, approximately. And that's still a little bit under discussion depending on the situation at Pratt & Whitney and Airbus.

Okay. So, that would be a reasonable assumption for the first quarter?

Yeah, that would be a reasonable assumption.

Okay. And then with respect to the new administration, I know it's only been a few weeks here, but any early view on how the relationship may be changing? Any new policies you care to highlight?

Duane, this is Enrique Beltranena. To be honest with you, we have recently met the new authorities, and we expect, to a certain extent, some continuity on the aviation policies as the same party is basically heading the government. We have established a close communication and interactions with the new authorities. And we have conveyed the need to continue promoting the healthy development of the sector. We have secured the level-playing field among all industry participants. We have strengthened and modernized regulators. We think we can facilitate access to competitive inputs. And finally, consolidate the Mexico City metropolitan airport system, among other priorities. Those are the topics that we have on our agenda with the conversations that we have with the recent government, and this is what we expect.

Okay. I know it's early, so appreciate the thoughts. Thank you.

Thank you. And our next question comes from the line of Mendes from JPMorgan. Your question, please.

Hey, good morning, guys, and thanks for taking my question. Can you help us think about the recent FX depreciation in Mexico, the ability that the company might have to pass it through into fares? And Enrique, one follow-up on your comments about the new administration. You mentioned about the Mexico City hub. Any views if the slots restrictions could change anytime soon? Thank you.

Hello, Guilherme, this is Jaime. I will answer first the question on FX, and then I pass it over to Enrique for the political questions. On FX, Guilherme, as you noticed, as we increase the network to the US in the cross market, we are now at 41% collections in US dollars. Our goal is to increase that to 50%. And in addition, we invest 90% of our cash balance in US dollars. We have a natural hedge based on the company since our cost expense is 60%. So, we are basically naturally hedging the FX impact on our business. I pass it over to Enrique.

This is Enrique Beltranena. Speaking about the reactions of the new government in terms of the metropolitan airports, what we saw yesterday in a meeting that we had with this Under Secretary of Transportation is that the general in charge of the agency regulation said that there are a lot of pressures in terms of changing the slots and the number of slots in Mexico City and that they don't think it's going to happen. And the second thing that he stated is that they expect to continue doing what they have done during the last six years in terms of number of slots and the way they are managing the system, except for the discussion of the new regulation that has been discussed and proposed that it's probably going to be approved in the following month or a-month-and-a-half.

Okay. Very clear. Thank you.

Thank you. And our next question comes from the line of Stephen Trent from Citi. Your question, please.

Good morning, gentlemen, and thanks very much for taking my question. Sort of a follow-up first off. Jaime, I think you said 50% of collections and 90% of cash balances are in US dollars. As we think about what those numbers might look like long term, do you think they stay around that level or maybe they possibly tilt further towards the dollar?

Hello, Steve. Today, we are at 41% collection in US dollars. We aim to increase that to 50% next year based on the network that we are planning to grow into the international markets. And we keep to maintain the way we invest the money, always above 90% in US dollars.

Perfect. I hadn't heard you correctly. Appreciate the clarification. And just a quick follow-up question. I definitely appreciate half of the routes you serve are bus routes. Do you think with the cross-border growth, some of the future growth could come from international bus routes in places that you serve, like McAllen, for example?

Stephen, this is Holger. We currently already operate many routes that are niche routes that operate into the US. Think about Guadalajara-Reno, for example, which is a route that is a VFR niche route that passengers typically used the bus previously and now fly with us. And we continue to see opportunities in our VFR core in the US as we move along. We have started two routes in the southbound leisure segments where American tourists go to the Mexican beach destinations. And that is a major opportunity going forward as we grow the company.

Great. Thanks very much.

Thank you. And our next question comes from the line of Thomas Fitzgerald from TD Cowen. Your question, please.

Thanks very much. Can you help us think about the other operating income line in 2025? Do you think that will be lower than it is in '24?

Hi. This is Jaime, Thomas. It will be a little lower because we expect this year, as you know, we are around 34 aircrafts average during the full year down to the engine inspections. That number should go down to 30, 31. So that line, we will have a similar percentage down trade next year.

Okay. Thanks. That's really helpful. And then, would you mind just giving some color on how bookings and fares are looking for early 2025 in some of the US and the Mexico routes that you've been discussing? Thanks again for the time.

So, this is Holger. We're looking at pretty solid bookings into the fourth quarter as we approach the high season in November and December. Typically, we see a strong performance in the cross-border market, in our VFR core markets. So, we see a healthy fare environment and healthy demand environment in those markets. And we believe that this trend is going to continue into the first quarter of 2025. The additional capacity that we added into the transborder market earlier in the year is maturing well. We saw good results in the summer season, and that capacity is coming to full maturity in the fourth quarter 2024.

Thank you. Our next question comes from the line Rogerio Araujo from Bank of America. Your question, please.

Hi, guys. Thanks for the opportunity, and congratulations on the results. I have a couple here. The first one is, what were the main surprises to Volaris as the company has guided a margin last quarter, but delivered higher margin than previously thought? Do you judge those items as sustainable going forward? This is the first one. And the second, if you could give us an update, if there was any change in terms of timing expectations for Pratt & Whitney engine recalls? Anything you could share here would be useful. Thank you very much.

Hi. This is Jaime. On your first answer, I think the surprises were the fuel price and better TRASM than we budgeted. And can you repeat the second question, please?

Sure. No worries. Yeah, thank you very much. And do you see any changes on Pratt & Whitney engine recall expected timing? If all the information you provided last quarter, if all those remain, or if there was any change on how you're seeing the timing for the engine recalls?

Rogerio, this is Enrique Beltranena. We have seen good progress and the overall wing-to-wing time, including inductions and turnaround at the shops has been a significant reduction, I would say, from 350 days previously now to closer than to 300 days. Currently, we have, I would say, a strong pipeline with multiple engines undergoing various stages of maintenance. Several more set to enter the process before yearend also. And all these inductions are confirmed with materials and spare parts ready for repairs. As a result, the outlook for engine redeliveries over the next six months is looking very solid and reliable and very, very comparable with what capacity we'll be stating for the first semester of next year once we finish our operating plan and our budget process towards 2025.

Perfect. Thanks very much.

Thank you. And our next question comes from the line of Jens Spiess from Morgan Stanley. Your question, please.

Yes, thank you. So, I have a question on the profitability of international -- your international routes versus domestic. If I understand it correctly, as capacity returns, you will be prioritizing international routes. And assuming the peso stays around the current level, like on average, how is the profitability of those international routes versus domestic currently? And also, could you please clarify, I didn't get the hedging, for how long have you hedged 30% off your fuel needs? Thank you.

So, on the route profitability, domestic versus international, we typically don't break that down, but we can tell you that growth is going to be rather balanced next year between domestic and international.

All right.

This is Jaime. On the hedge questions, what we hedge is what's 30% of the consumptions of the months of November, December of this year and January of next year with Asian calls with a strike price of $2.25.

Okay, perfect. So basically, the next three months, and -- okay, perfect. At the same price, right $2.25?

Correct.

If I may, this is Enrique Beltranena, again. I acknowledge very well your concern about deploying capacity in the future and combining capacity returning from Pratt & Whitney and additional capacity for Airbus new deliveries, but I want to reiterate that we will make decisions based on profitability, not market share, and we will remain prudent and rational as we reintroduce the capacity to the market.

Perfect. Very clear. And if I may, just one follow-up. You mentioned that you expect to continue with the mix of international versus domestic as you redeploy capacity, but then how will you raise your revenue mix from 41% to 50%? That's what I'm struggling to square.

So, it's going to be due to a maturing of the routes that we added to the -- this year, the capacity that we added this year to the US market, to the transborder market, and additional frequencies and routes and destinations that we're going to open next year into the US. Also, one important point to mention is that the ancillaries on the international markets are typically somewhat higher than domestic, and that also drives an improved TRASM performance.

Okay. Perfect. Thank you.

Thank you. And our next question comes from the line of Michael Linenberg from Deutsche Bank. Your question, please.

Hey. Question to Jaime. I know you answered the question for 2025 as it relates to the other operating line. Fourth quarter, should we assume roughly 34 airplanes on the ground?

Yeah. I think for the fourth quarter, it's better than the third. We expect to have around 32 aircrafts average, on the ground. As you know, Michael, that line is basically flat compensation. Year-to-date, we have only booked sale and leaseback gains for $18 million.

Okay. And then sort of related to that, I know last year, a lot of times, the fourth quarter is usually a time when we see airlines decide to extend leases. And so, in some cases, we do get a credit in the redelivery line. I know we had that last year in the fourth quarter. Is there going to be something impacting the fourth quarter this year with respect to the redelivery line? Could that actually be a credit rather -- or a reversal, I guess, is maybe the way I'm saying it?

No, Michael. We did all of the extensions of 2025 in the fourth quarter of last year and the first Q of this year. So, when you compare '23 to '24, you're going to see that notice. So, the variable lease on engine line will be on the historical level without any one-off.

Okay. Great. And then just one quick last one. Just to Holger, on some of these new markets where you're targeting leisure customers, and yet when I look at the cities, there still may actually be surprisingly a VFR component there. Is it possible that some of these new southbound markets, the split rather than being 100% leisure, could it be something more like 85-15? Your thoughts on that? Thank you.

Michael, absolutely. Obviously, we're going to target markets where we already have a presence, and there is going to be a mix of customer profiles. Absolutely.

Very good. Thank you.

Excuse me, this concludes today's question-and-answer session. I would now like to invite Mr. Beltranena to proceed with his closing remarks. Please go ahead, sir.

Thank you very much, operator, and thank you very much to everyone listening in this call. As always, I want to thank you to our family of ambassadors, obviously, to our Board of Directors, and you the investors, bankers, lessors and suppliers for your commitment and support. I really look forward to addressing you all again for our full year earnings in a short period. Thank you very much, and I wish you a Merry, Merry Christmas.

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