Q3 2020 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call
Good morning, everyone. Thank you for standing by and welcome to <unk> third quarter 2020 financial results Conference call.
Lines are not listen only mode.
During the company's prepared commentary, we will open the call for your questions and answers.
Structures on how to ask a question will be provided at that time.
Please note that this event is being recorded.
At this point I would now like to try to go over too much money on and I've already this flurries corporate finance and Investor Relations Director. Please go.
Please go ahead Mr. Li.
Good morning, everyone and thank you for joining the call [laughter] with US today is our president and CEO, Rick in Atlanta, Our airline executive Vice President corporate banking Stein, our senior Vice President and Chief Financial Officer, Hi met books.
We will be discussing the company's second quarter 2020 Russell.
Afterwards, we will move on to your question.
Please note that this call is for investors and analysts only any questions from the media will be taken and sea Eagle.
Before we begin.
Let me remind everyone that this call may include forward looking statements within the meaning of peoples securities.
Forward looking statements as such are subject to several factors that could cause the companys actual results to differ materially from expectations for reasons described in the Companys filings with the U.S. Securities and Exchange Commission.
Sure not Tonight somebody.
Furthermore, volaris undertakes no obligation to publicly update or revise any forward looking statement.
It's now my pleasure to turn the call over to Alaris, President and CEO Mr. every kind of got it.
Thank you Mary Lynne.
Very much for joining you today.
I want to start attacking or weren't familiar with massive Arsenal board of directors from Costar dish the track record.
Managing the challenges presented by COVID-19.
Given what artist the fastest aromatic recovery in North America.
Let me do you still our key achievements.
First cost are available seat mile excuse me.
By 50% versus previous quarter.
It works I will briefly be levels.
Despite this long in capacity in the second and third one of those 2021 ice goes pretty reasonable seat mile ex fuel.
Greased from U.S. dollar 10 cents to U.S. dollar five cents.
Which is lower than many failures level in a normal [laughter].
Well, there's use among the three lowest unit cost operators worldwide and we are fully committed to continuing to work cost reduction boss we.
With the goal of reducing our costs.
Even further I know were pandemic levels notwithstanding the current environment and that's a result, gaining further competitive advantage.
Secondly, we're not it's not one of the fastest basiji recovery seem to work.
During September capacity was 84% versus the previous year with a book load factor of 74% and for the full worthy of some recovery was 75% of the previous year, which is the highest in the Mexican market.
Well nice [noise], yes.
Gaming capacity much faster than your competitors because over 70% of what ours is point to point network is deployed Columbia far and leisure routes.
We are the fastest recovery segments, you know where mark.
These are not really nice continues to expand its passenger base I guess easy conversion first on Flyers football switching companies.
Certainly well ladies convenience to the strict measures to preserve liquidity.
Closing, the third quarter with $365 million in gosh and cash equivalents.
Third quarter, the Casper was almost 50% lower than expected and that was mainly driven by higher sales.
And then they will see agents within the source of supply.
The company convenience I get is the re negotiating new aircraft deliveries and returns financial requirements, so spread to LIBOR repayments financial credit lines as well as general suppliers on the source terms and conditions fuel suppliers. It said.
These remains a bright youre into four Ross before executing any additional capital raise.
Well I guess, we'll continue to focus on returning to profitability I will restate. This lets see maybe pursue additional financial financing if required.
The fourth thing is what learnings flight crews back to work flying up and I'm really not sure 76 hours per mall.
Just want to remind you that did leave me for my colleagues 90 hours per month.
The company has one of the most efficient than the lofty labor forces seem to work.
Operating with 50 full time equivalent 57 full time equivalents per aircraft, but are they using it viable broker compensation scheme.
These flexibility was the main factor that allow those to avoid further despite no go fundamentally being made by available for the Mexican cars.
Well audience has managed to green bar all crews to operations.
Let me try.
Safety or why didn't you have abrasions are fundamentally people arts.
Velocities was recognized with the safe travels standby the world travel and tourism Counsel us.
That's what I was just there do you think takes us by email security best practices by the government. So you've got that the Mexico seating for its outstanding achievements. During the call. These 19 pandemic deemed they only are they new Mexico that has received such critical needs.
Since April 2020, the company has started more than four and a half million passenger safely on there always treat bio security Brooks.
We're focusing on ensuring the well being of our staff and passengers or what could be the more infection rates for flight attendants and pilots you feel I went to rebid flight attendants on Fiveg spectrum rates all the board is zero, which confirms more large safety.
Hi, there.
What are the schools are the finest example, following best practice.
Well not to skip supporting National volunteer entities, we continue transporting healthy women and various medical personnel as part of our wherever you want to use a program now.
No let me pass it over to our earlier in executive Vice President Holger Blankenstein <unk> government on revenues and on the commercial strategy go ahead holder. Please thank you Enrique.
During the ramping up process on the third quarter, we achieved the following top line figures traveling.
Try them for the third quarter was 103 financial sense.
The year over year decrease of 32% due.
July and August two months of ramp up and capacity remains stable September, allowing a focus on TRASM.
September TRASM was only minus 7% versus 2019.
Total ancillary revenues per passenger reached a record 614 pesos for the quarter and.
An increase of 14% year over year.
Non ticket revenue now accounts for 45% of total operating revenue.
Driven by the resiliency of air ancillary such as the new combo fares.
The total ancillary revenue line increased 300% versus the second quarter of 2020 and decreased 30% year over year due to the reductions in capacity.
In terms of operational reliability on time performance was 93% for the third quarter.
Well, there's capacity recovery increased throughout the quarter July and August were months off ramp up and capacity remains stable through September.
In the third quarter 2020, the ramp up started in the domestic market followed by the U.S. market shortly thereafter.
In total.
Well always operated 85% of domestic 80 cents versus the same period in 2019.
In the international market well hours operated 54%.
Sam's versus the same period in 2019.
For the fourth quarter, we expect a softer international ramp up you too.
Due to the Central American operations, we start.
And a higher transponder capacity.
The capacity growth had a positive impact on sales and as a result improved marginal contribution.
Cash and EBIT.
Sales continue to show a weekly increase in both base fare and synergies with all ticket revenues now higher than last year.
Cash inflows are now covering the normal outflows associated with operations prior.
Prior to repayment of supply of concessions granted earlier in the year.
The majority of sales are still relatively short shorter term then in 2019.
Compared to our last update.
Booking windows have links and and we have been successful in stimulating advance sales to build load factors.
As of today.
Well ours has more than 300 daily operations in 44, domestic and 20 international airports.
Since the start of the call. The crisis, we have launched four sales six new domestic routes from Mexico City to be I'm also see that the common <unk> equal and compete.
And some conclusion to walk.
Also we launched seven new international routes from Mexico City to phrase no Houston.
Ontario, California, San Jose, California, Sacramento and Dallas.
And some already up to Chicago O'hare.
Last Friday, we announced the relaunch of our Central American operations to be in the 20 Threerd of November.
Our efforts to have the best technologies for sales and customer service and digital channels keep paying off.
We have to number one airline up in Android and iOS in Mexico.
And it was consistently ranks during the last quarter as the number one travel app.
In Android outperforming apps such as over.
And of course, all bus companies.
Additionally.
We recently launched progressive web App.
Which has proven an ideal tool to navigate more quickly and more reliably even on slow networks and older devices.
This has helped us to continue to attract and drive sales in our boss switching segment.
The upgrade to the latest Navitaire reservation platform together with our new well ours Dot com.
Which was developed in an exclusive partnership program with Google.
Has created and better experience for our customers with caustic page load times and having.
And have allowed us to bounce back from low conversion rate during the pandemic to almost a double digit percentage during the last quarter.
We have integrated our checkpoint into walks out maybe.
Messaging app, allowing us to offer customer service on the most important messaging platform in Mexico and Central America.
And then number two messaging platforms in the U.S.
This has resulted in cost reductions for our traditional call center.
Delivering better service for clients.
As an example of this.
When hurricane downtime arrived in tech when three weeks ago, we were able to automate services to these channels offering immediate answers without overloading the cost side.
Well that is focused on returning to profitability in the near term and.
And is executing multiple strategies to deliver this in the fourth quarter, we expect to operate approximately 90% of.
Of capacity as measured in a sense compared to the previous year.
I was just closing the gap between our PM today, its EMS, resulting in a positive trend and load factors to the end of the year.
Told her passenger booking curves show further strengthening into the fourth quarter.
All third party forecasting scenarios show a slow global recovery formulation, however, the Mexican domestic market and the U.S., Mexico VSR are recovering much faster than international traffic generally well now.
Well ours expects to recover 2019 passenger levels by the first half of 2021 three years ahead of the expected market recovery for Mexico.
Our forecast is based on full our point to point network.
It offers the connectivity that customers are looking for connecting traffic.
He is even slower to recover as consumers prefer direct flights.
The V.F., our leisure segments were the first to start to recover.
The market for corporate business traffic remains challenging.
The media far customer he's well ours core segment with the highest demand for traveling at low basis, they simply need an expensive ticket to get to their friends and family.
The bus market remains a key driver for growth.
Ill fares into boss segments over six hours are still lower than the boss fares in most cases.
To date.
40% of our total roots are exclusive and only compete against the buses.
As a result of the current pandemic that Mexican ideation industry expects to see a reduction of a 107 aircraft.
For the two main competitors, which represents approximately one third of the narrow body fleet in the market and is equivalent to 86.8 to 20 aircrafts.
Remittances to Mexico I stayed strong during the cold 19 pandemic supporting our BFR traffic consumer dynamics.
During August Twentytwenty remittances rose to a new 12 month record.
These factors have already resulted in a strong domestic market positions Polaris.
Before the pandemic.
Well I was domestic market share it was around 30%.
Whereas in September it had grown to approximately 45%.
Nice international market share was 8% peak.
<unk> pandemic.
Whereas in September it had grown to approximately 19%.
Well well ours does not consider marketshare to be a driver for our business. It is still a validation of the strength of our ultra low cost business model penetration in the middle of the crisis.
Now I would like to turn the call over to our Chief Financial Officer, and the Bose to discuss our financial performance for the quarter.
Thank you at Hollister.
Well continue that discussion of our results in the quarter with a humorous file with the securities and Exchange Commission upcoming so I'm not sure I got it.
Total operating revenues for the third quarter increased 200 around 10% for second quarter 20 plants, reaching 4.7 billion vessels.
Centene not increase.
Our centers 2019 onto called <unk> related capacity production costs.
CASM ex fuel for the third quarter was 5.03 you assess.
All told US pass them was six point 75 cents, an increase of 43% or so the second quarter to 2020, and an increase of 6%.
2019, mainly as a result of reduction in a sense.
During the third quarter of the year the company swing the operating loss with an improvement of 100.
<unk> percentage points versus the second quarter was 20 point, an operating loss of 2.2 million vessels with a negative operating margin of 47%.
The third quarter, even starting April 24 percentage points versus the second quarter was 20 point and they got to be some.
Oh 181 million barrels a margin of minus 4%.
The highlights for the third quarter several improvement on net missiles.
The four percentage points versus the second quarter 2020.
Net loss for the third quarter was 2.2 billion vessels with a net margin of minus 46 four cents.
Third quarter 2020, the company recorded a one time charge of 746 million Bess with.
Without these onetime charge pro forma EBIT margin would have been negative 31% from Hormel EBITDAR margin would have been positive for said I'm pro forma net margin would have been down to 74 cents.
Oh, I thought where net U.S. dollar monetary liabilities and position the exchange rate depreciation on Seattle, the third quarter led a non cash effects net gain of 196 million vessels.
Right like.
During the third quarter, the net cash flow using operating activities was 113 million vessels and net cash flow using financing activities was 1257 medium bus.
We have remained focused on reducing capital expenditures, leading only those projects that are critical to the business or will provide if we find ourselves.
Revpar.
The net cash used in investing activities reached 179 million vessels, we expect our fourth quarter 2020 capital expenditures net fees and reimbursements to be of approximately two calling me I'd say medium vessels, maybe major maintained.
Event related.
Well Larry has its strongest balance sheet profile among the Mexican Congress at the end of the third quarter. The company registered a negative net debt or full points toward the young vessels as food and these liabilities recognize on their data for a 16 of option.
Company does not have any capital that amortization on the June next year.
Sorry indebtedness levels are roughly the same as the previous quarter.
Well, our net debt to EBITDA ratio closed in the third quarter, and 9.3 times, reflecting a healthy and solid balance sheet for the industry has done a lot of these financial debt did you solely to invest in the growth of the business.
During the third quarter of 20 point the company has sustained its exports protecting liquidity and managing costs we can.
We continue improving sales.
And our strong focus on cost reductions on far there's different agreements with our suppliers as of September 30 on restricted cash and cash equivalents were 8.2 million vessels.
Scenting, 35% last amongst the corporation babies and re can mention Isa, 50% improvement versus how where you know the guy that's as far as sort of hovered pressuring bar on diligence.
During the pandemic. The company has issued 2.2 billion pesos in electronic bouncers were flight cancellations from month to September for maintenance September Okay.
Okay, Charlie Ptcs are sent remain back on.
On our transportation revenues for the third quarter calls at 6.5 million vessels, which represents an increase of 13% versus the second quarter of 20 point.
For the fourth quarter.
We expect an average daily cash burn of approximately $1 million.
Note that this estimate can see there's elements of current operations and deferred payments from them for in previous quarters, We will continue with our lead.
He preservation actions.
Seems like always 19 pandemic started the company's main objective has been to preserving liquidity position specifically for the third quarter, our liquidity preservation plan.
At 1.9 billion besting benefits off which are running about 6 million barrels worth cost avoidance.
The company will continue to reduce the cost aiming to reach our CASM ex fuel level similar to 2019 by June 2021.
By the end of September 2022 vessels for rental deferrals have been outstanding of which.
Approximately 80% will be repaid 2021, well ours.
Well, obviously, we'll pursue finally found the agreements we dismantle lessors to extend the 2021 payment behavior to 2022.
On the fuel fraud.
Listen domestic vendor provided Polaris, we projected ones your savings of $13 million.
I want to express my deepest gratitude for lessors or finance years, and all of our suppliers, who have been supporting took them to the company.
During the third quarter of 2020, the company return one Athree 20, C. you aircraft unincorporated three Athree 20, New York aircraft, which fleets.
The company plans to end the current year, we'd 86 aircraft 20 to 21.
87 aircraft are conservative fleet flat with flexibility for opportunistic growth through a straight operating leases and extensions.
Like 2021, approximately 40% of our fleet will be fuel efficient it to 20, New York Times.
In the face of this industry is reduction.
Companies not providing guidance on earnings our focus today is.
Turning to profitability.
Now I will pass it back to a record for closing remarks.
Thank you very much time in Holger you together with also lose has done an amazing work within your teams.
During the last couple of weeks.
I do the visit to some governors in Mexico, as well as to some ministers in Costa Rica to promote our destinations and to generate the alliances with the tourism industry Roe attractive low fares.
Altogether, we aligned our efforts to lead the revamping of the Asian and tourism.
Broadly say that the referred auctions were very well received and we will continue joining airports with our stakeholders.
To continue ramping up the industry and tourism in our regions.
Every single artist presented to the Mexican and Central American authorities and do the breasts recent results in an urban studies regarding potential could be transmission associated with in flight.
Those facts loss experience gains, having no more than four and a half million passengers safely no crew members in fact as a board speak the confidence we can regain from our clients.
Well Larry top priority is to return to earnings per share. We will continue with a thorough cash preservation managing capacity cost per situation in Greece. You don't have revenues Brady is saying as we are really on our profitability runway, we're going to capitalize on our lowest guy.
Position amongst our competitors by exploring opportunities on our strong business model I went.
I went to fund the entire when I use family, our board of directors and bus others specialty or where investors are the suppliers for their tireless efforts and commitment in this challenging environment.
Operator, please open the line for questions.
[noise] if he would like to ask a question. Please press star and one on your Touchtone phone.
I mean, we try your question at any time by pressing the pound key.
Once again to ask a question. Please press Star then one on your Touchtone phone.
And we'll pause a moment to tell all questions to queue.
And we will take our first question from Duane Pfennigwerth with Evercore ISI.
Please go ahead your line is open.
Hi, good morning, Thanks for the time.
Can you just sort of you said a lot of good things. There can you just review how many aircraft have left on the Mexico market since the start of the pandemic and I guess I assume that's primarily a domestic number or would you consider it a mix of domestic and international.
So Duane good morning for the Mexican competitors.
Mostly the two Mexican competitors that outbreak, mostly from Mexico City International Airport.
We expect that 107 narrow body aircraft are going to leave.
The market by December 2020, those are already publicly announced.
And that represents 86, Airbus Athree 20, Volaris equivalent aircraft and.
And about a third of the total narrow body fleet in the country.
Thanks, and then with rich.
With respect to airport opportunities you've talked a little bit.
You know the last couple of quarters about you know expansion opportunities in Mexico City.
Any update there since since last quarter.
So Duane as we announced up in the call. We have operated we have started operations are in five new domestic markets from Mexico City, and we are also adding capacity in the U.S. market from Mexico City.
With also some new routes to California to Texas.
They are starting this week and next week.
Paul that's great yeah, Okay, Yeah, and if I could sneak one last one and you mentioned kind of the restart of Central America can you just.
Talk a little bit about you know what geography is what countries are reopening and when that's occurring and thanks for taking the questions.
Yes, when we will start operations on the 20 Threerd of November and we will follow a same similar ramp up strategy as we did in Mexico.
And once we achieve profitability, we will start analyzing progressive growth. The plan is to restart operations in.
Similar routes as we had before the pandemic so very much focused on in for Ken Ken.
Cam to Mexico and come to the U.S. with the four destinations we have anyway.
And eventually then we wouldn't have.
Aggressive growth.
As once we achieve profit.
Yes.
Thank you very much.
We will take our next question from Helane Becker with Cowen. Please go ahead.
And thank you very much operator, hi, everybody and thank you very much for the time. This morning. So I just have one or two questions. The first question.
Is and their new international routes Holger, you mentioned, Dallas in Fresno, and kind of exciting cities [laughter] like that.
I have two questions about that one is how long will you stay in the market like how long do you give the new routes a chance to mature and be accretive to earnings or or cover costs or however, you measure it and the second are those routes that are have strong populations.
You know on either side, so that the visiting friends and relatives market.
Make sense for you to fly there and then I think you have a codeshare still with frontier or are they big in those cities and does it make sense from that perspective. So one question with the recent question.
[laughter] right Helane, So let me tell you about our new destinations in the U.S. all of them have a very similar characteristic that have been successful from Guadalajara.
In the BFR segment.
And now that we have the opportunity to add capacity for Mexico City we.
We will take.
Take advantage of the large BFR traffic as well.
Remember Mexico City is the largest Mexican.
Market.
Just Mexican city.
And what typically with we try to get to marginal contribution as quickly as possible on your roots that happens typically in the first six months of operations.
And then to full profitability in international markets are typically we look for ramp up between 12 to 18 months.
Okay. That's great and then I just had one other question Jaime I thought you said.
Something that I know [laughter] externally embarrassingly enough.
You said you took a charge in the quarter and I didn't catch what that was for.
That's great.
Yes, it was.
It's a one time charge of 746 vessels it.
It's related to an adjustment on the northern border and value added tax rate that was applied to the Mexican carriers and their multi network casings. We are the clear leader in the quite enough.
In was a significant.
Okay that explains that that's all very helpful. Thank you very much everybody thought about.
Thank you Helen.
Well move next to Mike Linenberg with Deutsche Bank. Please go ahead.
Hey, good morning, everybody I'm, just a couple here I mean I want to go back to the cash burn for the fourth quarter I just want to make sure I heard you right you did say I think a million.
Dollars per day, but then you qualified that I wasn't sure if that included.
You know, whether it was predelivery deposits or other financial items. If you could clarify that and then just on an apples to apples basis, how does that compare to the earn the daily burn rate in the September quarter.
Gauges sure.
Sure basically I tell you mentioned the cash burn cost because we are going to pay for these.
<unk> for the fair also the second and third quarter remember that 20% of the referrals with respect to the lease agreements are going to be paid in the fourth quarter.
So that's why the customer needs tire at <unk> in the fourth part doing the third one operating what wise it we're going to be positive.
Okay, that's actually very helpful, which kind of.
Kind of gets me to my next question, which you know your topline was down 50%. This past quarter. You know your capacity I guess in the month of September you know was 84% of last year this quarter, you're going to be 90%. Your top line is probably not going to be down as much or we had we must be pretty.
Close to I know that you know Enrique in Holger and Jaime you've talked about you know the next step is to get to profitability, but I almost want to you know.
Take it back a step and you know more about you know at what point do you get to breakeven from a cash flow perspective. It does feel like that you may be able to do that this quarter or arm or maybe not because you are making up these deferral payments with respect to the less source. You know is it is it conceivable that we get there.
Or maybe by the month of December or is breakeven cash flow I'm more likely probability in the March quarter of 2021, just anything that you cannot provide me that you know sort of gets me to add you know that sort of gets us to that are you know that that objective.
Yes, we are not going to get there in this quarter Michael.
In addition to the for US, we're going to need to collateralize and some letters of credits with cash okay.
No. So the heaviest part to live events are going to hit the first half of the next year. So depending on how we are able to boost farther away affect us and as I mentioned that before and from the personal poured from 2021 to 22, we may get a cash breakeven.
Okay. That's actually that's very helpful. And then just my last question on Michael Michael May I, just add to that that cash inflows are now.
Our now covering the normal outflows associated with operations prior to repayments of supplier concessions granted earlier in the year.
And as we increase our capacity into the fourth quarter.
And we are we are observing steady increases in sales.
As a matter of fact in some days and a week sales are already higher than the same date in 2019.
So just to keep that in mind that so it's a it's all about the repayments.
Of concessions, we received earlier in the year, Yeah, I know that sounds that's actually very helpful. And then just the last one and maybe Holger you can answer this on it.
He is pretty you know they say never let a crisis go to waste and you know you're obviously taking advantage of the fact that Mexico City has has now become open I mean, we're just watching the amount of service I I guess you'd want mentioned, though what 11, new city pairs, but those slots you know how does.
It play out.
Now if we go out a year or two are those slots. It once you start the service will you be able to hold on to them is there the possibility down the road that say you know.
You know a scenario one scenario, maybe it's a remote not a likely scenario, but that somebody steps up and infuse is a lot of capital into interjet and they come back and they demand the use of their slots how do how does that slot situation play out.
Michael as you know, there's a grin waiver on the use it or lose it laws and and yet our world.
And yet our worldwide, including Mexico that was by Uh Huh.
By that there is not a waiver if you don't pay the euro lose them. So as long as the airline so money to the Mexico City Airport, they are not going to be able to hold those laws.
And the reduction in capacity is so big because of the heavy.
Well set of operations at both Interjet. Another Mexican Congress have there I think there's going to be for certain room to growth and to maintain the new operations are we are putting into Mexico city.
It just want to squeeze in one last one on Mexico City holder. If you look at your end. Thanks for that how many if you. If you look at your schedule in the December quarter out of Mexico City, what just based on capacity what what is your share now maybe versus what it was a year ago. It does seem like it's moved up pretty meaningfully.
So so in terms of the domestic Mexico city share yeah.
We have a 33% share so we're clearly number one in Mexico city as well.
And in terms of total if you add the international as well or am share would be 26%, which also positions us as a market leader in Mexico City. If you look at all the operations from it.
Well, that's that's pretty impressive for an airport that was always hear fourth or fifth sorry, Let me. Let me correct. My statement Aeromexico continues to be bigger in Mexico City. So we're number two player in the domestic and in total okay. Okay. That's cities in Mexico City nationwide. We are clearly number one yeah, no that's right okay.
Well great. Thanks, Thanks for the in South.
Once again, if you would like to ask a question. Please press star and one touchdowns.
Yes.
We have no further questions at this time I would now.
I'd like to try to bring them back to our presenters for any closing remarks.
So thank you very much to everybody.
This morning, I really appreciated the support that we had during the war on the conversation with our investors and everything that we have done. Thank you very much again for the sport and the actions that we're taking.
And we hope to complete.
We hope to continue conversation with you within the quarter. Thank you very much and have a greedy.
This concludes today's program. Thank you for your participation you may disconnect at any time.
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