Q4 2020 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call
[music].
Good morning, everyone and thank you for standing by and welcome to Polaris fourth quarter 'twenty 'twenty financial results Conference call. All lines are in a listen only mode. Following the company's prepared commentary we will open the call for your questions and answers instructions on how to ask a question will be provided at.
At that time. Please note that this event is being recorded.
Point I would now I'd like to turn the call over to MS. Maria Elena Rodriguez Polaris corporate Finance and Investor Relations Director. Please go ahead Mr. Rodriguez.
Good morning, everyone and thank you for joining us.
With us today as a partner.
And you've got a funny.
Uh huh.
Airline executive Vice President spoke a bathroom.
And our senior Vice President and Chief Financial Officer kind a dose.
We will be discussing the company's fourth quarter, a 2021.
Afterwards, we will move answering a.
A question.
That's a cause for it.
Uh huh.
Any questions from a media will be taken on a need to be drilled.
Before we begin.
I remind everyone that this call net.
These forward looking statements for the screening.
A couple of securities.
Forward looking statements are subject to several factors that could cause a company's option vessels.
Interesting.
Okay.
Provision for a fraction of a company's filings.
And Exchange Commission.
Michelle.
Got it.
For the wall.
From their fixed no obligation to publicly update or revise any forward looking statement.
Yes.
Now my pleasure to turn a corner over.
For the President and CEO, Mr. We could have done it.
Thank you very much a muddy and then thanks for everybody for being here today, thanks for joining us.
Well, there's still a priority during 'twenty 'twenty, where cash proceeds from capacity management cost discipline and increase in total revenues.
As for Sigma.
During the fourth quarter, we returned to profitability.
Constraining the potential for where solid internal growth.
Gross business model.
Moving to current a competitive landscape for life has been able to take advantage of a market opportunities cementing its lee.
There's a lot in terms of passenger market share amongst a Mexican projects. During 2020, we're learning as a transported more than 14 7 million passengers.
Despite the similarity in the fourth quarter to.
2020, some key challenges remain in the credit for.
With COVID-19 case counts, increasing in both Mexico and the U S. Some fees, we will comment upon later in the call.
While we enjoyed a great result in the fourth quarter markets are still dealing with COVID-19.
It will result in a challenging.
LNG demand environment will continue to capitalize on our low cost position will continue to look for opportunities to expand our network and we will.
We'll continue to focus on cash preservation is our highest priority ask.
As we navigate the rest of the crisis.
First of all I want to.
For express my sincere gratitude for all of what Argus as ambassadors and our board of directors for the passion and commitment.
Our prayers go out for those impacted by COVID-19, and we think all frontline workers, including a slight gross for the breakthrough.
In 2020.
What are you supposed to one of the fastest recoveries worldwide as measured by available seat miles a result of our ultra low struggled ultra low cost business model focused on the visiting friends and relatives.
In leisure segments in Mexico, and the U S Transborder.
Okay.
Let me leave.
For you a very important message is six very important messages that I would like to be very clear.
The first work for.
Fourth quarter profit doubled results prove the potential of varieties suited a low.
<unk> business model.
And by the current crisis environment.
For the fourth quarter, the company posted an operating margin of 12% and an EBITDA margin of 37% and EBITDA margin of 37% an excellent result, even in normal.
These conditions.
These results reflect a polaris is truly different from a carrier in the continent and should be benchmark and values alongside the best Ultra low cost airlines in the world.
Due to a large is a strong from the mid dose will.
We believe the company is a long term winner.
And a result in metrics show, we have an experienced team cost discipline and a very strong focused on a long term goals.
The fourth quarter at our corner underlying boiler outages ability to de lever profitability confirming.
We leased a leadership among that Mexican carriers in both the domestic and international markets not only from the passenger market share position, but from a profit doubled business standpoint as well.
The second message that I would like to deliver is that for large this cost per available.
<unk> ex fuel by the end of the fourth quarter that closed at for 13 U S. Dollar sets for 13 U S. Dollar sets, which means we are back to Brightcove, a 19 levels the cash levels for the fourth quarter 2020 true power.
And strength of our ultra low cost business model.
Our interest cost structure.
Is it key competitive advantage in the current environment.
For like close to fourth quarter of 2020, with a referred CASM X fuel level mainly explained.
By that point only measures the first one capacity recover.
One variable cost structure, the third one flexible labor contracts and a fourth one capital expenditure DCP.
The third message that I would like to be very clear in December.
<unk> capacity was had a cornered a 2% versus same period of previous year with healthy load factors.
When I spoke to one of the fastest recoveries for worldwide as measured by <unk> during the fourth quarter of 2020 capacity was 90.
Per cent versus 2019.
The fourth a message that I want to leave very clear is that we do have a strong balance sheet and that <unk> closed a fourth quarter with $506 million in cash and cash equivalents.
During the fourth quarter.
Cash flow.
A third of that is expected as a result, a higher sales further payment deferrals, a lower cash collateral agent.
Patient requirement on financing facilities.
Last December.
We strengthened our balance sheet through a successful primary a follow on offering with net proceeds of.
$164 million.
That's a message that I want to leave very clear.
<unk> current a conservative fleet that has flexibility for opportunistic growth as demand recovers.
Well now it's already started taking the opportunities left by the reduction of capacity from.
For hone competitors.
During 2020, we launched five new domestic routes in <unk>.
<unk> international routes increasing sustainability.
Substantially all of our market share in Mexico City here.
But these are non aircraft capacity for 2021 is under evaluating.
Sean depending on the demand outlook.
The <unk> message.
Is how important our labor force is off for ice.
Our Union this year Legitimised ask Byrd Amendment, Mexican labor loss, our bargaining collective agreement.
At the beginning of this year as a conclusion, despite 2020 being a very difficult year, whereas today has one of the most competitive fleet last day.
And entering agreements in the market, we received our concession renewal for a 20 year term.
We executed one of the fastest capacity.
Recoveries in the word we returned to the breakdown damage and ultra low cost per unit levels, we capitalize the company and we've done it labor continues with productive and flexible terms and conditions.
We are prepared to maintain ball ours is the most important.
<unk> narrowed and in Mexico, with a strong fundamentals for the future.
We want to reiterate however, historically, our first quarter is more challenging and in pandemic times, it's even more so.
For the first quarter, the company's experience in demand weakness and compressed booking curves.
For it that's a result of increased COVID-19 claims and the new U S regulations from international travel.
As a result, the company's network plans for the first quarter of 2021 will be more conservative focused on deploying appropriate levels of capacity a line.
I mean, a change in demand environment and on preserving liquidity.
For the first quarter 'twenty 'twenty, one what are you seeing tends to operate approximating 80% of capacity compared to the same period of last year and let me remind you that the first quarter for for lines last year was.
So on track with a normality period.
Even with a challenges we're seeing in the first quarter. This still represents a strong capacity come back from the pandemic versus the global industry, which is currently operating at approximately 55% a capacity compared to the previous a year.
It is also a shortage. It also shows the flexibility of our network as we respond to the changing demand environment.
Revpar in Egypt and for work planning have always been the strength of garages, we came into 2021, well prepared with a strongest balance sheet among Mexican airlines.
Earnings and what we believe is the most successful business model.
I want to highlight though.
Proving a community and flexibility of this company to ramp up in order to take advantage of opportunities that are a percentage.
Let me pass it over two hours a day Vice President executed holds a blank and starting to come.
Momentum revenues and on the commercial strategy placeholder.
Thank you Enrique.
Like most countries Mexico, the aviation industry has been heavily impacted by the coronavirus pandemic.
Our total low cost model has enabled a allow us to navigate successfully through this unprecedented crisis.
During the fourth quarter, we achieved a following top line figures.
In the domestic market load factor was 83, 5% six percentage points below 2019 fourth quarter.
In the international market load factor was 71, 9% 11 six percentage.
It's below 2019 fourth quarter, mainly explained by the natural ramp up of our new international destinations.
And capacity, we added back into the schedule and started to operate in the fourth quarter.
Due to the decrease in no shows and a high seat.
Two points a quarter the total network load factor was 82% for.
For that period.
Domestic ASM for the fourth quarter was 19, 9% of 2019 same period, driven by more capacity in a core markets and the optimization of frequencies and schedules.
International <unk> for the fourth quarter were 86% of 2019 in the same period.
A large operated 84.
A percent of 2019 capacity in October a 98.
In November.
And finally, a 102% of 2000.
19 capacity in December.
Total sales for the fourth quarter were 95% versus the same period of last year, which is the highest in the Mexican market.
<unk> has more than 337 daily operations in 43 domestic and 20.
Five international airports.
The capacity a load factor represents one of the fastest recoveries of amey airline worldwide.
And on top of that we were able to improve <unk> by 34% quarter over quarter for close to a 138 pesos.
For the full year PRASM was a 100.
$23 five pesos.
Only a decrease of 13% versus the full year 2019, despite the pandemic.
Total ancillary revenues per passenger reached a new record.
Hi of almost 800 pesos for the quarter an increase of 43.
Percent year over year.
Non ticket revenue accounted for 48% of total operating revenues driven by a resilient and air and salaries and other initiatives, which I will give more detail on later.
This reflects a allows unique competitive advantage through its virtuous cycle.
Lower base fares stimulate demand.
Generate volume.
And ancillary to compensate the lower base fees.
In terms of operational reliability on time performance was 90% for the fourth quarter and.
And scheduled completion was 99, 1% for the fourth quarter.
Of 2020.
Polaris has experienced an accelerated recovery versus worldwide years, aided by our ultra low cost model and completed a retrenchment in Mexico. During the fourth quarter 2020, we saw that after being on a stay at home restrictions for six months people were certainly.
Certainly looking to travel to beach destination and to see friends and family.
<unk> is among the first airlines globally to return to 2019 capacity levels materially faster than its peers.
Given our focus on short haul leisure and VFR travel, which represent 70% of our.
Capacity.
We are not beholden to traditional business and international travel recoveries.
100% of a large capacity falls on the domestic and short haul international point to point, which are the fastest recovering geographies.
No.
Our total king at 2021.
A post holiday Spike in Covid cases in both the U S and Mexico has led to escalating COVID-19 protocols travel restrictions and advising us against travel for example passengers traveling to the U S mass presented a electronic a printed.
A new of a negative COVID-19 test performed no more than three days before the flight.
In response to.
Since January 26th allowances offering anti jam kits at a preferential price for our customers in coordination with the airports from which we operate to the U S.
Approximately 75% of our customers flying to the U S arrive at the airport with their own COVID-19 test results.
The marketing efforts are being focused to create a base load factor emphasizing the ease of travel to the U S and a bias security protocols.
Yes.
On the sales side, we maintained a promotional activities to push advanced sales.
We licensed actively promoted safe flying switch by a security protocol and by going to the market with great promotions and focusing on a bus switching campaign.
We are expanding.
According our passenger base by aggressively converting first time Flyers for a bus switching campaign.
As part of the avenues for growth will ask boss switching marketing campaigns and to leverage our point to point network with focus on VFR and leisure segments, which again are showing one of the factor.
Recoveries.
From a 3 billion bus passengers in the Mexican market about 30% is related to the first luxury and executive classes.
We continue to generate more demand through a bus switching strategies.
Certainly consumer travel confidence has taken a hit.
Fastest this uncertainty a soft in the first quarter demand.
We are planning to implement a more conservative strategy for the first quarter, a 2021, we will be cautious and flexible with capacity deployment.
And we will continuously monitor booking curves with the aim of preserving cash.
Our strategy has shifted to playing offense for license already positioned to take off and to look for long term growth opportunities.
We continue to look for ways to stimulate demand and to grow revenue peers have tried to follow but most of them are shrinking in cash mode.
Struggling with short.
Liquidity needs and looking for ways to keep up with our base.
With their scaling back for Laurence is without question.
The airline which tends to benefit the most.
We will continue monitoring capacity reductions from competitors very closely.
Experimenting.
With new and salaries.
And running targeted promotions to test stimulation potential on selected routes and markets.
Now talking about avenues for growth during.
During the fourth quarter 2020, we started to operate two new routes in the domestic market Mexico city to compare.
And concurrent to whack.
We also started to operate seven new routes in the international market for.
For Mexico City to Dallas Houston.
Now.
Ontario, and California, San Jose, California, and Sacramento.
And Maria to Chicago here.
The ramp up process is going as expected.
A core aspect of further growth for the large as a strategy in terms of ancillary revenues and how we continue to grow that line.
Including the execution, a full dynamic pricing.
Achieving the full potential from personalization the renewing subscription programs.
We also have a co branded credit card with a 282000 members, which gives passengers points that they can redeem on for Laurence flights.
The new drivers in the last months has been.
Combination.
It's like insurance and medical coverage.
Which has been strong in COVID-19 times.
Ancillary revenues represented 48% of total revenues and we already belonged to the champions League in terms of ancillary.
We have a line of sight for the 50.
Nations, Mark, placing us among the top airlines worldwide.
Given the current challenging environment for the first quarter 2021, we.
We will focus on maturing the latest destination added to a point to point network without adding new ones.
A percentage of integrated our chatbot into the Whatsapp messaging app.
Allowing us to offer customer service on the most important messaging platform in Mexico, and Central America, and a number two platform in the U S.
This has resulted in cost reductions in our traditional call center, while delivering better.
Customer service for our customers.
As an example of this when Hurricane Delta arrived income corn last year last October we.
We were able to automate services to these channels offering immediate answers without overloading the constant.
Self check in the fourth quarter.
Cost 2020 was 86% an increase of three percentage points versus the same period last year.
<unk> has an ongoing digital transformation strat.
Strategy looking to improve customer experience.
As Enrique mentioned.
For the first quarter the company.
Quarter plans will be more conservative focused on deploying healthy capacity that aligns with the demand environment, we intend to operate approximately 80% of capacity as measured by <unk> <unk>.
<unk> the same period of last year.
This still represents a strong capacity.
Typically come back from the pandemic relative to the industry.
Now I would like to turn over the call to our Chief Financial Officer High net Boes to discuss our financial performance for the quarter.
Thank you for longer now.
<unk> will continue to discussion of our results in a core loans was a fierce file.
With a securities and exchange Commission and concerns from a lot of and carried a loss.
Total operating revenues for the fourth quarter, we're at 8 billion peso for the full year were 22 million pets.
Representing 83% a 64% of 2019 total revenues.
Reported in each period, respectively.
During the fourth quarter CASM ex fuel decreased by 18% versus a third quarter 2020 level closing that for 13 U S dollar cents, achieving pre pandemic levels for.
For the full year 2020 U S dollar.
CASM ex fuel closed at $4 $78, an increase of 20% versus 2019 as a consequence of the capacity reduction.
During the fourth quarter for all U S. Dollar CASM had a decrease of 13% versus a third quarter 2020 closing a.
$5 80 for U S dollar cent. Despite the pandemic total U S dollar CASM growth a six six U S dollar a SaaS for the full year 2020.
An increase of 41, 9% versus 2019.
<unk> is has been one of the lowest unit cost.
For operators in the world.
This low low.
For lowest cost structure is the backbone of our sound business model.
Our ties to the Indigo group have brought us operational synergies along with a global benchmarking perspective, and the purchasing power of a larger group than in cases, where negotiate.
Total.
In 2020, we accomplished John selection and maintain a contract negotiations for engines auxiliary power units, a bionics and seat for our <unk> hundred 20 Neo family aircraft that were ordered in 2017 the company executed an agreement.
From a labor problem with me for a total of 171 additional GTS engine along with a maintained on service in a long term viable in a scheme at competitive economics.
These negotiations will improve existing contracts for the life of these aircraft and with an estimated amount in the range of 300.
Even with volumes.
This in addition to the benefits already applying to our current fleet as part of the negotiations with those suppliers.
By the end of 2020 on a full year basis, we were able to obtain for 2 billion vessels in total benefits as a result of our cost contingency plan.
993 million vessels, where cost savings 586 million vessels, where adjustment and diamond Malian maintain on services and a 4 billion peso where payment deferrals by the end of 2020, we have already repaid $1 4 billion vessels such deferrals.
Moving.
Of which a profitability numbers EBITDA in the fourth quarter was 2 billion vessels, giving an EBITA margin of 37 per cent and that work day.
EBITDA for the full year was $4 5 billion peso, leading to an EBITDA margin of 25% notwithstanding the pandemic EBIT in the fourth quarter.
Moving on was $960 million vessels, representing 12% EBIT margin EBIT.
EBIT for the provision.
It was negative $3 2 billion pesos, representing a negative 15% EBIT margin.
Net income for the fourth quarter was 897 million vessels with a net.
Quarter 11 per cent for the full year 2020, Polaris posted a net loss of $4 3 million vessels and a negative net margin of 19%.
Total a net U S dollar monetary liability position the exchange rate appreciation at the end of a fourth quarter lead to a non cash effects net.
A 1 billion vessels below the operating day.
During the fourth quarter, a 2020, the net cash flow generated by operating activities was $1 6 million vessels net cash flow generated by investing activities was $77 million vessels, the net cash flow generated.
Net financing activities was 893 million vessels, mainly comprising $3 3 billion vessels, a proceeds from the issuance of shares and $2 2 million vessels of aircraft rental payments more low.
<unk> got the strongest balance sheet profile among Mexican carriers.
The end of the fourth quarter.
Rated a by the company registered a negative net debt of $4 7 billion vessels, excluding lease liabilities recognized under the idea for <unk> 16 adoption and total equity of two <unk> billion.
Billion best.
<unk> net debt EBITDA ratio closed a fourth quarter at eight.
Tenant types, we selected a healthy balance sheet relative to the industry standard in the credit environment for.
For licensed financial debt issue solely to invest in the growth business.
Yes.
As of December 31, 2020, cash and cash equivalents were 10 billion vessels two wheeler vessels.
Eight points of growth.
2019 closer for the year.
Representing 46% over the last 12 months operating revenues.
As previously mentioned, we closed a year $506 million in cash and cash equivalents, mainly denominated in U S dollar currency average.
Vessels daily cash burn for the fourth quarter was better than expected only a third of the estimated a month driven by higher than expected total sales farther payment deferral negotiations a lower cash collateralization requirements on financing facility.
As we look into a year ahead from.
Average traditional standpoint, the first quarter of the year is historically, the most challenging in terms of profitability.
We are currently available shaping for additional extended payment periods and discussed with most of our suppliers for the first quarter 2021, we expect an average daily cash burn.
Of approximately one $2 million, mainly driven by software sales payment related to the previous quarter higher seasonal expenses and repayments from 2020, including $70 million related to fuel expense, a $19 million related to work from rental deferrals.
The.
<unk> expects to be cash flow breakeven or even positive in the fourth quarter of 2021, if everything remains cost.
The company will continue to reduce cost aiming to achieve a CASM ex fuel levels similar to 219.
19 by the second half of 2021.
However, given the expected reduction in capacity and aircraft utilization, which will be in addition to typical seasonality.
Our first quarter CASM level is expected to be higher than the fourth quarter level.
Moving onto fleet during the fourth quarter of 2020 the company returned.
One a 2019 aircrafts and incorporated three new a 320 neo aircraft ending the year with 86 net aircraft with an average age a five three years.
For the first quarter 2021, we expect to receive one <unk> hundred 20, Neo aircraft and Redeliver one percentage.
<unk> hundred 19 closing the quarter with a percentage of newer fleet a 36%.
Considering that the fuel expense line represents approximately 38% of total expenses were a new aircraft transition plan.
We'll keep driving fuel efficiency towards a lower CASM and.
Support our <unk> initiative commitment.
In November 2020, we're largest was selected as a component of the Dow Jones sustainability Mila Pacific Alliance Index, we remain committed to our ESG initiatives.
In December 2020, Polaris, concluding an upsized.
I have a follow on non could be all for me in which the company offered.
One a $54 1 million of it's solving a real participation certificate in the form of a D. S's at a price to a public of 11 $25 for a day.
In the U S and other countries outside.
As a practical pursuant to a company's shelf registration statements filed with the SEC. The offering was four four times silver subscriber base offering.
We think these new ways of investors for having confidence in our business. The company currently intends to use a net proceeds of approximately.
Net of $164 $4 million to continue playing an offensive strategies.
In the face of this industry disruption the company is not providing guidance on earnings we will note that the recent decline in demand will result in a difficult revenue environment for the next few.
Our focus today continues to be cash preservation.
In return for profitability.
They mentioned equity issuance has provided a solid balance sheet and will enable for low risk to emerge a stronger and the other side of the pandemic and I'll pass it over to Enrique for closing remarks.
Months.
Thank you very much timing.
The crisis always delivers both risks and opportunities.
<unk> is focused on looking for the opportunities that have been created as a result.
We have demonstrated over the last nine months, but we know how to manage price as well.
Remarks, a fourth quarter shows the strength of a alliance's business model.
Loans will continue to leverage its ultra low cost structure to capitalize on growth opportunities.
We see 2021 is a story of two has the challenging first half for the year of the year in terms of demand in the second half with signs.
Corporate.
Broad vaccine available lithium and continued vaccination programs should drive returning comprehensive travel specifically the U S and therefore a soft.
Or even eliminate recent travel restrictions.
Lotteries has successfully navigated these challenges arising.
So from the pandemic, thanks to the outstanding worker for where ambassadors Im convinced with a passion will continue to get us through.
These difficult times.
I, particularly want to express my sincere gratitude.
All of them.
Our board of directors, where we a investors.
Bankers net source suppliers, but most important to the great team that has been working.
The directors for this company.
Is that their tireless efforts and commitment in these challenging 2020.
Entire bilateral funding it makes me look forward.
Forward positively from <unk>.
'twenty one.
Operator, please open the line for questions.
Thank you and at this time, if you would like to ask a question. Please press star one on your Touchtone phone you may have been moving yourself from the queue at any time by putting the power and the first question comes from Duane.
Helane anyway with Evercore. Your line is now open.
Hey, Thank you a.
Good morning.
I wanted to ask you on on your thoughts on on seasonality.
Going forward not necessarily in the first quarter book, but really post recovery.
With potentially a lower level.
A lot of a business or corporate travel how do you think about the seasonality of the network and the seasonality of earnings going forward.
On a range.
Well or a.
Business model has been very much focused on the VFR and leisure segment, a price sensitive segment, we do have a small business component, which is the small and medium sized enterprise.
We don't see any material change in the seasonality patterns that from that.
We.
<unk> for pre pandemic.
Because we are operating mostly in those niches.
We might be adding more capacity to some of the more.
The bigger <unk> in the market.
We might be even able to smooth out some of the.
Seasonality, we saw a pre pandemic.
But it's going to be mostly the same duane.
That's helpful.
And then.
Just with respect to trans border can you just remind us how much of that is is a U S point of sale or a U S originating.
And have you seen any stabilization in that a U S originating demand since since these policy change.
As a late January.
So.
Regarding point of sale pre pandemic it was a pretty much 50 50.
Originating in the U S and originating in Mexico and Central America.
Currently our U S dollar denominated.
Collections, a 44% of total revenues.
And.
We have lately seen some dis balance in the north and southbound next we are seeing more demand going northbound.
And that less demand going southbound, which we believe is that a temporary.
And as the vaccination programs rollout in the U S.
That's a consumer confidence should come back.
In the second and third quarter. This housebound one.
Okay.
Makes sense and maybe just a two to.
To close their so this policy went into effect late January obviously initially.
It was a shock to the system.
<unk> been able to put some some testing in place in airports et cetera. So have you seen those booking patterns.
Stabilized since since late January and thanks, Thanks for taking the questions.
Currently we are still seeing relatively low booking curves and.
It was just shortening of the booking window.
So currently in the short term, we're not seeing any stabilization yet.
We are a closely observing the Easter high season, which should.
Kicking in in March and the first week of April and we expect to see some stabilization around.
At that time.
Thank you.
Okay.
And the next question comes from Helane Becker with Cowen. Your line is now open.
Yeah.
Yeah.
Thanks, very much operator, so I have just two questions one is.
If you can comment on how spring break bookings are trending a sort of Holy week.
And I'm kind of wondering if youre seeing you know strong demand there.
Okay.
Yeah.
Thanks Helane.
Regarding the.
Spring break.
As most of our markets.
In the U S. A focused on the VFR segment, we usually don't see a spike in the spring break itself. However, there are some domestic routes that could be.
Despite this effect mainly in the beach destinations.
More important for <unk>.
Ours is the impact of the high season around Easter just after spring break.
Good.
From the first part of this year touching March I think the last weekend, which is the March quarter and most of it of that high Easter high season is going to be falling into April the second the second quarter of this year.
For.
Stuart the booking trends are still below the regular patterns due to the current uncertainty.
And a shortening of the booking window.
But there might be some strong close in booking volume if consumer confidence returns it.
We expect the Covid infections.
We are seeing that Covid detections are dropping in the U S and somewhat in Mexico, as well and the vaccination programs are being rolled out so both factors will contribute.
Two the return of travel demand and consumer confidence low.
We are observing that last minute bookings.
That close in booking very very carefully.
Okay. Thank for tour Tuesday, yet, but we're we're pretty we're cautiously optimistic for the Easter a hiseq.
Gotcha and then for my follow up question, what drove the year over a year.
<unk> growth in ancillary is like could you point to any specific products or services or pricing changes that you made I mean, I know that you know once you get people on board.
Your uptake as a pretty high obviously, but can you is there anything that specifically true.
So there's a there's three things number one we did a tweak the baggage policy and a where we're selling a lot more carryon bag and checked bags.
As an ancillary a which was previously a bundled into a a fare classes.
Number two.
We.
Yeah, we'll be optimizing pricing, we've implemented a a revenue management system that automatically optimizes pricing, depending on customer type a.
Time to departure seasonality.
And so on.
And then thirdly.
We've launched some new Campbell's like a.
Insurance Campbell.
A flexibility Campbell.
And.
Some of that includes a obviously in the Covid times people are more.
A likely to buy an insurance health insurance Campbell.
And flexibility combo. So that has really helped us a on the ancillary side.
Great. Thank you very much.
And your next question comes from Mike Lindenberg with Deutsche Bank. Your line is now open.
A good morning, Enrique Hoeger Jaime.
To tell you a 37 per cent EBITDAR margin. That's M. It's a pretty awesome. So you guys should be proud as an organization.
Thank you very much.
Oh, you're welcome a couple of questions here, Enrique or a hold or I think you may have mentioned that I think 75% of your customers show up at the airport for transport or flights with you know already having you know proof of the negative.
Covid tests, presumably the remaining 25 per cent are you offering a program where they can get tested do they have to get it at the airport or is there some portion of people who show up who unfortunately get turned away and don't take the flight because they can't get it fast enough or they're not willing to pay at the airport I'm just I'm curious the dynamic around.
That yeah, so a more for offering at the airports is a is an antigen test, which is a totally viable for flying and into the U S. A.
And we're offering that a incorporation with a Mexican lap a F.
Preferential rates, it's a very simple if you don't have your desk you go in there.
I think a cost $20 a $25 and you have your results in 15 minutes.
And it's validated by the lab net operating in our airports.
All the airports that we used to fly to the U S. So it's a very simple procedure.
It's a.
It's very fast and we've.
We've seen a good uptake of that service.
Okay now that's great and then hold or a just one other you mentioned earlier about you know during the pandemic you know as you were expanding or growing.
And then looking at market opportunities you were focusing on some of the larger O N DS maybe to sort of balance out.
Your network.
And when I think about larger O N D. As you know I look at markets like Mexico City to Dallas, Mexico City to Houston, you know those weren't the type of markets that you know Valero would have initiated three or four years ago. I'm curious you know how the rollout of those markets is.
Is working for you versus you know like a Chicago Morelli L. A Chicago, Leon which are sort of I sort of think a traditional valero markets. Because these are big markets and there's a sizable amount of business traffic, there's smes and there's also a good VFR and there's you know even theres some leisure.
How you know what's the competitive response.
What I'm getting to because those are highly contested markets.
Right Michael So what we looked at is where there was a capacity gaps left behind by some of the struggling competitors and we found out mostly in the large market that would be an opportunity. The good thing about the large market that it has a combination.
It's really precisely as you mentioned all of our traditional VFR the price sensitive leisure, but probably also a a little bit more of a business component. So we've not only added a larger a destinations in the U S like Dallas, and Houston, which has been ramping up nicely, but also increased frequencies to Mexico, Cancun, Mexico a mantra.
Nation for a while the hottest some examples.
So yes.
As we become a.
The largest player in Mexico, and we are growing in Mexico City net Chile, we will also add some of the larger Ond's from Mexico City.
Okay very good and just one last quick one for for a Jaime.
What is the in your operating expenses what is that Contra expense that operating income that runs through the income statement can you just remind us what that is again.
Oh, that's a incorporation of the two three a tree.
What else the sale and leaseback transaction for a block two aircraft for Mike.
So that's a sale leaseback, that's a gain okay that makes it that's correct.
That's correct.
And I know a around $160 million vessels.
Okay and that will continue because it's amortized over the life of a lease rate. So we'll continue to see something that's correct.
Perfect Alright best for them.
Thanks, everyone.
Yeah.
And your next question comes from a couple of months if I spent Barclays. Your line is now open.
Hi, Yes. Good morning, guys. Thanks for taking my questions I have two quick ones.
The first one is regarding your outlook for.
For this year, you mentioned that international demand.
For the first quarter, but can you. Please shed some light on the domestic side.
Should we expect it to be a pre COVID-19 levels, if not a slightly higher.
And my second question would be on the international demand is a.
Weakness.
That we're seeing for the first quarter.
Only attribute it to the Covid test restrictions from the U S or are you seeing some day.
Demand being weak in some roads can you please shed more light there as well thank you.
So let me talk about the international market.
First so clearly with a spike in Covid cases in our large destinations in the U S. The Bay area, Los Angeles, Chicago, and even picks us we've seen a natural decline in travel.
Demand in the first quarter. It basically started in the last week of December.
Going into January in the first quarter.
And that was compounded with a new travel.
Pre COVID-19.
Sorry, the Covid test requirements that came into effect late January so I think it's a combination of both things that have dampened travel.
Demand.
For the first quarter.
As I said before.
We are cautiously optimistic with the vaccination efforts that are going on in the U S.
And the percentage of population that has been a vaccine in the U S. That's a confidence consumer confidence and travel demand.
We'll return.
A shorter rather than later and that's why we are observing very closely these two bookings so that's for the international side.
For the domestic side demand has been stronger than in the international markets, even going into the first quarter.
But has been also ask.
<unk> by a spike in Covid cases in Mexico, and by stay at home orders and a red traffic light.
That has been put in place by local governments and states in Mexico.
For example, in Guadalajara hardly school and in Mexico City.
But also in katana ROE kind a corn for example.
So overall domestic demand is a little bit stronger but has also been affected.
Okay.
Perfect. Thank you very much.
Okay.
And the next question comes from about hitting a alcohol with UBS your line.
Okay.
Yes.
Hi, gentlemen, thanks for the opportunity congratulations on these great results just a confirmation before I make my question. So you said about this there is a back transactions big gain was six 760 million Mexican business is that correct.
Net though.
Oh, that's a that's with respect to a full year in which we have seven channel leasebacks.
There's normally ask Mike Michael one Tony with respect to the fourth quarter, which corresponds to three aircrafts.
Okay, and how much was that in terms of.
Our off.
A Mexican business.
It was a for the fourth quarter, a hungry on 62 million for the full year 700 I'm sorry.
Okay perfect. Thank you. So my question the first one regarding the international for.
Flights I think U S have a mouse it.
A seven day carbon team, but they have been implemented that day.
We have any news if these will be implemented at some point and if so how this could impact your national operations further.
That's my first one thank you.
So currently the only requirement to travel by.
To the U S is a COVID-19 test and that can be a PCR test or an antigen test which is relatively quickly done that's it.
Okay. So quarantine is out a phone.
Out of the table at this moment or.
They.
We are still.
Figuring out a way of implementing bad but do you know I know, it's a fourth of course not up to you but you.
You may be more aware of us.
You don't need to for all this data.
Regulations from current in non domestic nations.
And I wouldn't normally provide.
Air formation on day, one web depending on the slides that you aren't taking any changes from raw from Roth.
Okay.
Okay. So.
Your expectation is that this will not be broadly implemented is that correct.
Correct.
Okay.
Providing you implement a especially after the article that you can read today in the Wall Street Journal, which shows that 73% of a cases kind of a product.
Okay.
Mhm, Okay. Thank you and my other question is is a very two quick ones. One is a on the fuel efficiency.
It's been a great improvement.
These related to the fleet up gauging to two and then new deliveries or something else and also for food.
Give us more color on the hedge losses in fourth Q, if it's if it's non cash.
What is what is it exactly thank you.
Okay.
On the fuel efficiency a lot of income from the reduction in capacity most a week.
And obviously, we incorporated a seven new a 320 Neil as a.
Family.
That has a 18% lower consumption, which kept social.
That feels a lot not and.
With respect to the with a hedging.
The cash impact for the quarter a wash.
The almost a.
Zero.
A lot.
Okay, great. Thanks, so much and congratulations again.
Thank you.
And as a reminder, at a time line to ask a question. The next question comes from cash milk back with Morgan Stanley. Your line is now a thing.
Everyone. Thank you for the call.
I had a first question on your growth plans and if you could just.
Talk about how you see a future opportunity breaking down from a geographic standpoint, potentially between Mexico City, a domestic other domestic and Mexico U S Cross border and maybe looking a little bit.
Longer term and that and then specifically on Mexico City a.
Given that you mentioned as a continued focus on on VFR I'm guessing not but what's your bull.
Your growth in Mexico City, I should say a I wanted to know if you're doing any product adjustments to potentially a trap.
It's oriented or a higher income customers that might have otherwise gravitated to aeromexico interjecting a past.
Thank you Jos for them. So we've publicly stated that a we are looking at opportunities in the domestic market a mostly in Mexico city, because that's where.
The biggest capacity GAAP is to pre COVID-19 levels if.
If you look at where integrated aeromexico operated.
We are taking advantage of that opportunity.
We are also continuing with our point to point network expansion.
A secondary cities in Mexico.
True to our main beach destinations here in Mexico with more frequencies a new routes.
And then selective a U S expansion into the VFR niches and some of the larger urban areas with a.
For example zone status in Houston for Mexico City in the fourth quarter.
On top of that.
We are excited to say that Costa Rica has come back to category one.
As a country has been upgraded by the S. A a category one which allows us to really take a growth trajectory in Central America and that's another avenue of growth that we pursue.
We in 2021.
Okay.
In terms of the move we are absolutely no thinking about making any change driven by.
The disappearance of interject or a.
For rebalancing of capacity for it in Mexico, we think that there.
T G. I know a cost is so important and we've seen that this has been social cesspool that.
We have really no.
Meaningful reasons and think about doing things the way they were doing.
Okay.
Okay. That's great color on route to a colder, but maybe just one more on my side I know you guys aren't giving you know much much guidance at this stage and that's a situation I was also a pretty fluid, but I was just hoping you could get to a a little bit a an indication on how your unit.
Revenue performance was trimmed and thus far in the first quarter end.
And also you know to what extent. These these restrictions on cross border have mad men needing to give some some average.
In centers, it's a matter pricing concessions to two customers on those routes.
Thank you.
Sure.
Look I think.
Hoser has been absolutely clear about.
The reduction of profit and as a result of that I mean, we had to reduce prices again, an hour day rise from is going to be affected in the first quarter and obviously that means that.
The company profitability will be impacted in the first.
First quarter.
But.
It is important also to say that.
On the other side.
The lower base fares as you'll see in the last quarter are being kind of a.
Compensated by the CLEC revenues, who have been performing.
Immediately well I mean, what we're seeing is yes, we'd need that a reduction in ferrous in order to a 70 basis traffic and we'd have to do with a gaming during the first quarter, but but the ancillary revenues are sustaining themselves at a very good level.
Okay, that's great.
Thank you have a good day.
Thank you Josh.
And there are no further questions at this time.
So thank you very much to everybody. Thank you very much for being here again, they're mentos.
Work from our director scheme in general.
The Polaris team I congratulate them for a gain and I think for them for all the airports that they've been doing working out from palm working out from from from different places in a very very difficult environment shows only the resiliency of the team and I really appreciate everything you have done thanks to.
So everybody hearing this from this presentation.
Morning, and.
You did.
<unk>.
Stay healthy and that we can keep on a.
So for me.
The way, we had been significant last quarter.
Thank you very much.
Thank you and this concludes today's call. Thank you for your participation you may now disconnect.
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