Q4 2021 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call
[music].
Good morning, everyone. Thank you for standing by welcome to Polaris is fourth quarter and full year 2021 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 and answers. Please.
Note that we are recording this event.
This event is also being broadcast live via webcast and may be accessed through the Polaris website.
Those following the presentation via the webcast may pose their questions on the platform and they will be either answered by the management during this call or by the Polaris Investor Relations team. After the conference is finished.
To send your questions via the webcast platform you need to click on the question Mark just below the video area in the upper left corner and typing in your inquiry.
At this point I would like to turn the call over to Renato Salamone versus senior corporate Finance and Investor Relations Director. Please go ahead Renato.
[music] good morning, everyone and thank you for joining the call with US today is our president and CEO and they will come into our airline executive Vice President Holger, <unk>, and our Chief Financial Officer.
Discussing the company's fourth quarter and full year 2021.
<unk>.
Afterward, we'll move.
To answer your questions.
Please note that this call is for investors.
Before we begin let me remind everyone that this falling to everyone for joining us today.
This past year was marked by significant challenges constantly changing demand in the fourth quarter was no different.
I could not be prouder of the performance of our company and I would like to thank Boulardii system boss of doors for the airports, which has been essential in helping us achieve one of the highest margins in the global airline industry.
Looking back to the start of the year. This achievement was not as he says it appears we started the year with enormous challenges and lackluster demand.
Our response with an initial fleet blend of zero growth as we waited for the year to unfold.
Once it became upper end that demand growth was accelerating.
We swiftly people did.
We ended the year with 101 aircraft in net increase of 15 shelves. Consequently, we accelerated a new conversion, which continues to help our fuel efficiency and cost side.
Not only did we backfill capacity roadster competitors abandoned, but we added the personnel needed to operate our growing area.
Our growth in 2020 one.
Solidly five our strong market position and contributed to the favorable results we are presenting today.
It is unfortunate for US 2%. These strong results for the quarter and for a COVID-19 here in the shadow of the current geopolitical crisis and macroeconomic situations.
The company performed well in the fourth quarter and better in the full year.
We generated total revenue of 14 billion vessels in the quarter, an increase of 73% versus 2020 and 43% versus 2019.
Speaking about our EBITDAR and EBIT margins for the word, we're 37% and 21% respectively.
For the full year of 2021, we grew our revenues by 29% to a total of 45 billion bezels and de Levered and EBITDAR margin of 36, 7%.
Our disciplined ultra low cost strategy, where we remain focused on containing controllable costs has allowed us to position ourselves as a global airline margin, neither and one of the fastest growing airlines in North America.
In addition to solid growth.
We generated positive cash flow of $235 million during a pandemic year if.
If we went into 11% of our market capitalization at the end of 2021 .
Moreover, we have one of the most robust balance sheets compared to any other Latin American carrier and our global Ultra low cost carrier appears at the end of the fourth quarter. Our adjusted net debt to EBITDA ratio was two five times the lowest level.
In the company's history.
I wanted to highlight what I believe to be the key reasons behind our strong financial performance.
First while our east has demonstrated our ability to adapt to changing demand weakness.
Second while our east has plenty of market opportunities both at home and abroad.
Our growth plans remain flexible.
Fourth our ultra low kasman depth structure position Golar is worth for the softness.
Speaking about our demonstrated ability to adapt to changing demand weak.
Over these last two years, we have seen rapid market changes, resulting from the surges of COVID-19, bargains, our seasoned executive team has been through many demand cycles and he's able to respond by weekly recognizing these fluctuations and be about equal.
Neither resulting in our ability to restore strong the RASM and CASM X fuel that have the liebert EBITDAR levels, well above our domestic and international peers.
Looking into 2022 we remain focused on performing well for our customers and better for our shareholders.
We respect what were plentiful market opportunities both at home and abroad in our home market of Mexico. We continue to observe that demand for air travel is more in line with an emerging market countries.
Driven by the fast pace of growth of Mexico's emerging middle class.
Vos demand for travel and switch from long haul Ballston traveled work continues robustly.
The industry was also filling the void of more than 60 aircrafts than our competitors removed from the market.
Internationally, our near term opportunities are centered on the central and South Mary <unk>.
Growing from our separate dummy science, you know Saba in Costa Rica.
In the second half of the year, we expect the lesion of U S growth opportunities for Mexico enhanced by fully optimizing our closure partnership with frontier.
Our growth plans remain flexible.
We will only grow in the market if it makes sense for us to do so our management team remains disciplined and flexible we're not tied to a specific market, if it's not performing well relative to our expectations.
Each new or additional capacity is not ramping up as expected we will relocate that capacity.
Hi, Walter a low pass and debt structure position.
<unk> well for success.
I will focus on that low cost has rewarded us with being in the outstanding position of having one of the lowest cost structures not only domestically, but in the world.
We also did not need to leverage our balance sheet.
Our domestic and international competitors cat.
On the flip side, we benefited from favorable out of the aircraft pricing as part of our participation in the large multi airline integral part in Israel.
These aircraft allow us to maintain our fuel efficiency advantage and cement our growth through the end of the decade.
The result is that not only can we remain broadly double when other airlines cannot but our relative cost gap advantage is likely to widen further in these rising interest rates and fuel environment.
As shown on slide four we believe that Golar is this consistent performance demonstrates our resilience.
And it is essential to highlight that we're in a stronger financial position now than before the pandemic began.
Although the earnings are now focusing on recovery and repaying the debt what ice is looking for additional avenues of growth as continued opportunities for our business model remain plentiful.
Finally, I want to remind you that Polaris is the most significant player in the emerging Mexican market with the privileged position to continue growing.
I would now like to turn the call over to our airline executive Vice President Hoeger Blanked Stein to these calls our operations and provide more details on our performance.
Thank you Enrique.
Moving to slides five and six.
We think that our consistency in reporting solid results is the best way to demonstrate our ability to adapt quickly to changing demand.
On the revenue side, we experienced a strengthening demand curve throughout the fourth quarter.
This demand more than offset our ASM growth of 27% for the quarter.
Resulting in a healthy and relatively flat load factor compared to 2019 was 86, 9%.
Against the backdrop of strong demand and rising fuel costs, we raised revenues per passenger early in.
In the first half of the quarter more than we previously anticipated.
This early increase in revenues per passenger was the reason behind our stronger than expected traveling and overall revenue outperformance relative to our EBITDAR guidance for this quarter.
Our domestic network, representing 70% of ASM grew by 30% in the fourth quarter.
Most of this growth was out of Mexico city on existing routes.
VFR and leisure markets remained strong.
International capacity, which represents 30% of our network.
Grew by 21%.
Most of this growth was in the Mexico U S market.
We also saw healthy demand.
Key to our commercial strategy was to take advantage of our unique position in the recovery and push for growth.
Out of this pandemic.
Taking advantage of the bus switching momentum and capacity left over by weaker competitors.
Even though ASM growth was strong at 27%.
We were able to stimulate demand and achieve a strong load factor of 86, 9%.
Overall traveling in the fourth quarter increased by 13% versus 2019, while the load factor remained strong at 86, 9% with both leisure and VFR markets showing a continued strengthening in the quarter.
Compared to other airlines will ours does not rely much on business traffic.
Anthony revenues for the fourth quarter continued to show strength in.
Increasing by 45% versus 2019 to 810 pesos per passenger.
Ancillary revenue reached 42% of total operating revenues.
33% in 2019.
Customers continue to respond well to our traditional product such as baggage seat selection and bundles like the flexibility Campbell.
For 2022, our international growth will help continue to drive absolute revenues.
We are focused on growing these revenues through a more personalized experience on our website to compensate for the regulatory changes to a fair combos.
We can further drive growth in members added to our discount programs.
And the co branded co branded credit card.
At the end of the fourth quarter, we had a fleet of 101 aircrafts with an average age of 5.4 years.
Compared to <unk> 82 aircraft at the end of 2019.
Additionally, the airline maintained high aircraft utilization with 13.3 hours per day for a productive fleet.
Well ours has one of the highest utilizations globally when measured against other airline with similar aircraft types.
And the game.
Even though ASM growth was strong at 27%, we were able to stimulate demand and we achieved a strong load factor of 86, 9%.
During the fourth quarter, while ours flew more than 500 departures per day, an increase of 33% compared to the same period of 2019.
Serving over 17 different destinations in Mexico.
The United States, Costa Rica, Guatemala, El Salvador, Honduras and Columbia.
Looking ahead to the first quarter.
Despite the fourth wave of Covid in our markets we.
We reported a healthy January traffic performance.
We did observe a deep in forward bookings.
Set by healthy last minute demand.
In February we have observed a consistent decline in COVID-19 cases, with a corresponding rise in bookings.
As such we can conclude that omicron had a three week impact on sales with a minor effect on the quarter.
Especially since this is a seasonally low time of travel for us.
Every new Covid wave it had less and less impact on our revenues.
As far as the competitive environment. This remains similar to what we have already been experiencing in our markets.
Overall fare levels have remained steady.
As a reminder.
As of year end 2021, 43% of our routes had no air competition.
Turning to slides seven and eight.
We highlight that we have plenty of market opportunities both at home and abroad.
In the domestic market.
We benefit from having been in these markets for quite some time, and we know them well.
Our low debt and ultra low cost structure position us well to continue stimulating demand in this market.
We also continue to make inroads by educating bus travel that are advanced purchase there is competitive to the bus fare price.
For the same trip.
Covid has helped elevate awareness of the cleanness of flying in a plane versus riding a bus.
We believe that many of our new customers behavior is likely to stay.
They are more aware of the relative safety and efficiency of flying while ours versus a less comfortable experience sitting for long hours on a bus with no air filters.
Our services are.
Our surveys have suggested that roughly 60% of our customer.
Who go by Air do not come back to travel on the bus.
Looking ahead.
As mentioned previously bookings are getting back to normal post the fourth wave of Covid earlier in the current quarter.
While the domestic market remains competitive it has not been anything we have not already been experienced.
Our presence in the market as well as our low cost structure positions us well for success.
One head wind.
The shift of Easter to mid April , which will move some of the first quarter revenue into the second quarter.
On the international side.
90% of our capacity is from Mexico to the U S.
While our capacity growth remains constrained due to Mexico too.
We benefit from high relative market shares in traditional beer firewalls.
Visiting friends and relatives account for most of our Mexico to U S passengers.
Our northbound leisure traffic also remain healthy.
Looking ahead, we expect Mexico to get back to Cat one stages.
With the U S. In the second half of the year 2022.
At that time, we will resume growth in this market.
We will also be able to further benefit from our partnership with Frontier Airlines.
Central America is still relatively small representing 3% of our capacity.
We currently have four aircraft in the region.
In the quarter, we saw 19% growth evenly split between VFR and leisure traffic.
Overall Central America continues to lag the recovery in the domestic Mexican market by three to six months.
We are establishing our presence in this region as over time, we see a significant market opportunity.
There are currently no other central American based low cost carrier in this region.
An area that is an emerging market with approximately 50 million people.
We think we have a substantial opportunity to grow to more than 20 aircrafts over the next five years.
Yes.
Well as Costa Rica is the more established Central American Airlines.
That we operate with a separate certificates.
Regarding realized El Salvador, and the second half of 'twenty 'twenty. One we received the approval to fly on Hulu El Salvadorian Airlines certificate.
Currently we have one out of four central American aircrafts dedicated to this market.
We characterize this market as in its infancy with a lot of promise as it grows up to scale.
Particularly in the evening.
As we expect to start flying directly with the Salvadorian operating certificate to the U S. In the second quarter.
The department of transportation in the United States has already approved the route authority for Lars El Salvador.
In 2021.
We did not furlough any team member.
And hired and trained more than 600 new pilots.
Almost a thousand new cabin crew.
And about 600, New airport personnel.
We have a healthy pipeline of operation staff recruiting and we currently do not foresee a shortage of qualified candidates for the year.
In addition, we have been continuously active in our vaccination campaign with our staff.
With over 99% of ambassadors vaccinated.
Therefore.
Unlike other airlines in the region we.
We did not have to calculate Tina varies due to the lack of pilots and cabin crew doing the only corn wave.
Our capacity guidance for 2022 has not changed as we see plenty of runway for growth.
For the first half of the year.
<unk> mint will concentrate on the domestic market.
For the second half of the year, we expect more growth in the U S with cat, one recovered and Central America.
That region also recovers.
Our plan has flexibility built in and we will adjust depending on market conditions.
Our three main avenues of network growth remained the domestic Mexican market.
And the transporter markets into the U S and.
In Central America.
Well I mean airline operating certificates provide us with many strategic options.
We are currently budgeting ASM growth in the mid 20% range versus the full year of 2021.
And this percentage growth will be front loaded the first half.
Given the weak comps.
First quarter of 2021.
Okay.
Considering January as reported.
Figures and the capacity currently on sale for February and March.
Holidayed ASM for the first quarter of 2022.
Expect it to remain flat as compared to the fourth quarter of 2021.
Flying around 50% ASM growth versus the first quarter of 2021.
We believe that this additional capacity will be operated with our traditionally high load factors.
Over the next five years, the main pillars of our large investment thesis Dan.
We will continue to benefit from organic GDP growth.
Population go.
A large and growing middle class in Mexico.
And the continued switch from long haul boss too.
To air travel.
An exciting story that we continue to capitalize upon.
Now I will turn the call over to our Chief Financial Officer, and both to discuss the financial performance for the quarter.
Thanks color now I would like to discuss our fourth quarter and full year 2021 financial results highlighting our strong financial performance total operating revenues for the fourth quarter were 40 million pesos or 43% increase compared to the fourth quarter.
Of 2019.
And by the ability of the company to increase its capacity, while improving unit revenue.
For full year 2021 for lotteries reported total operating revenues of 45 million vessels and increase of 29% compared to 2019 levels.
By a stronger ancillary revenues that resulted in a higher unit revenue in 2021 and senior new revenue represented 43% of total operating revenues compared to 34% in 2019.
Awesome ex fuel for the fourth quarter increased 3% compared to the same period of 2019.
Closing at four points your weight U S dollar sense Nick.
Company maintain its discipline ultra low cost structure, despite the inflationary pressures in Mexico and the U S.
For the full year 2021 more laddish posted our CASM ex fuel of 425 years dollar cents, an increase of 7% due to lower utilization earlier in the year higher maintenance costs under delivery expenses, we continue to focus on containing our controllable costs.
Total CASM for the quarter close at $6 60 U S dollar cents, a 3% increase compared to the fourth quarter of winter 19, mainly due to higher fuel prices. The average economic fuel cost per gallon increased 16% in the fourth quarter overall for full year 'twenty 'twenty.
One malawi's raised her a total castle of six point 45 U S. Dollar sense. The same level reported in 2019, despite the macroeconomic headwinds confirming the financial benefit of the renewal of our fleet. The company continues its discipline commitment to maintaining one of the law.
Always unit costs in the global aviation industry.
For 2022 the company expects to continue seeing volatility in fuel prices, considering the international macroeconomic environment as well as additional inflationary pressure.
Nonetheless, collages management will closely follow a microeconomic trends to react swiftly and we will continue to pursue further cost efficiencies to maintain a healthy cost structure.
<unk> will continue to benefit from a high percentage of Neo aircraft in its fleet, which is our best natural hedge against higher fuel prices and one of our main competitive advantages.
The company expects fuel savings between 24, and 28 million gallons in 2020 or over $70 million as human coin market prices compared to 2019 through investment in neil's of aging another initiatives.
Increasing fuel efficiency is part of a licensee as your goals and it's also helpful to the P&L, especially in our HIFU price environments like we are currently facing.
While higher fuel prices impact all airlines Malawi's. This combination of greater seat density aircraft and now we're more fuel efficient fleet means better word per passenger for will need to move up less than other competitors to offset the rising cost of fuel.
As a result of changes in the way, we measure our business performance.
Calculation of our selling first base on our U S dollar denominated expenses and the increase in newer international or market operations, we change our functional currency from the Mexican peso to the U S. Dollar as of December 31st 2021, we.
We believe the U S. Dollar most accurately reflects the current environment, we operate in and the adopting these new functional currency will bode mitigating impact of Mexican peso volatility over our financial results and simplify the reason of our financial statements by the public in general which will improve.
The comparability of Polaris with other companies in the market and allow better forecasting by the street.
Result of this change we also concluded that the hedging strategies related to non derivative financial instruments would no longer be effective and should be terminated.
The noncash accounting charge related to lease termination generated a one time foreign exchange loss of $109 million or the equivalent to $2 25 billion vessels recorded as part of the comprehensive financial results, leading to a net loss of 200 million pets with.
The one time charge <unk> would have posted a net profit of $1 6 million vessels for the water Ifs.
Effective January 1st the company will provide figures in U S dollars, we discover responding comparison to previous periods.
For the full year 2021, Malawi's reported a net income of $2 1 billion vessels adjusted net income excluding onetime noncash accounting charge related to the changing functional currency was 349 billion pencils, a 47% increase over prior year.
Company reported adjusted earnings per share of three point 30, Threep vessels and adjusted earnings per a D S or one point 62 U S dollars.
For the fourth quarter EBITDAR was $5 2 billion pesos with an EBITA margin of 37% overall in 'twenty 'twenty. One we'll always reported EBITDA of $16 4 billion pesos, an increase of 53% compared to 2019 as I mentioned earlier these.
The result was driven by higher capacity.
LT load factors and substantial unit revenue, while maintaining our cost discipline.
Our margin for 2021.
36, 7% an increase of five nine percentage points compared to 2019 figure.
Furthermore, malawi's delivered cash generation of $2 6 million vessels for the fourth quarter and $5 2 billion peso for 2020 , one closing the year with $15 3 million pesos or $741 million in cash and cash equivalents, representing 34 four cent.
Our last 12 months' operating revenue cash and cash equivalents include the issuance of our first sustainability link asset backed notes.
Net cash flow generated by operating activities in the fourth quarter was $5 1 billion vessels due to increased total operating revenues and improved PRASM during the fourth quarter.
Cash flow used in investing and financing activities was $1 4 billion pesos and 1.8 million vessels respectively.
The company's best use of its got generation Eastern Warwick, Rhode slips a network for the future.
Polaris is one of the most robust balance sheets, among the Latin American carriers, and our global peers at.
At the end of the fourth quarter, a word adjusted net debt to EBITDA ratio was two five times.
<unk> 235 times in the same period of 2019, and 2.8 times in the third quarter of 2021, a record level in the company's history.
In comparison, our main domestic and U S competitors have a never a generic desk leave at a ratio of over seven times, which places us in an advantageous position in a rising interest rate environment.
During the fourth quarter the company incorporated seven New <unk> hundred 20, New York Rep into each fleet.
At December 31st 2021 .
This fleet was composed of 101 aircraft with an average of 5.4 years, Malawi says fleet had an average of 187 seatbelt aircrafts, 82% of its aircraft are sharklet equipped and 45% are new engine option or new models, we expect.
<unk> 2022, with approximately 115 aircraft, depending on nervous system delivery scheduled compliance increasing to 54% of our Neo fleet.
On November 15, Bulgari sign a new British sorted with Airbus for 39, eight to 21, Neil and 25 to 21 the options securing its wrote in the second half of the lag. In addition to acquiring these aircraft at attractive pricing.
<unk> negotiated with Airbus the conversion of 28 to 20, new to weight with only one new aircraft from our 2017 purchase order.
Certain amendments to Mexican tax loss came into effect in 2022.
Including changes to provisions related to value added tax or what the.
The company is currently on the license the full effect of the amendments, which could be material and their applicability to the Mexican airline industry is.
These provisions if applicable to their lending industry would be limited to international flights to Mexico is starting abroad and could limit the ability of the company to credit a percentage of that trading the company in connection with purchases of its own goods and services.
Against the company's liability for but collected from its customers based on the proportion of those international flights.
We believe that these amendments while potentially appropriate for other industries should not apply to the airline industry. As a result, we are evaluating all of our options to address and mitigate.
Moving now to slide 11, assuming no significant disruptions related to COVID-19.
Latorre macroeconomic and geopolitical events would impact more Larry sills business and budgeting exchange rate of 20 point 80 to 21 point 10 pesos per U S. Dollar we expect for the full year 2022.
Mid twenty's growth in terms of a your sense compared to 2020 one.
Revenue in the range of 2.6 to 2.8 million Jewish dollars Capex in the range of 140 to 144 million Jewish dollars.
We did not think it is appropriate to provide further guidance due to a growing geopolitical and macroeconomic concerns.
Including the described in Mexican tax law Amendment until we are better able to evaluate the respective potential impacts. We believe malawi's is one of the best Ronald for low cost carriers with a healthy balance sheet, which allow us to continue executing our disciplined rotor study despite the aforementioned invite.
<unk>.
Now I will turn the call over to Enrique for closing remarks.
Thank you very much high men holder.
Moving now to the next slide will always is committed to delivering growth during the following years through a sustainable corporate business mode.
In 2021, we continue to make brokers in incorporating our youth E strategy unfolding it into Huawei business, establishing meaningful environmental and social industry goals.
Regarding our commitment to these closing our performance when he is G issues. We're pleased to report that in 2021 will remain a member of the down young sustainability Mila Pacific Alliance Index being the only airline in Latin America, including the index.
For the first time, we are now a member of the year's G mixed stock exchange towards the index.
Finally, we have a resilient and effective ultra low cost global business model.
Strong balance sheet with healthy liberate it solid recovery with ample opportunities to increase our presence in our markets and most importantly, the commitment of an experienced management team to help navigate the earnings towards maintaining consistent and sequential levels of profitability.
Despite the potentially volatile macroeconomic and geopolitical environment, we are optimistic about the company's growth.
Thank you very much for listening operator, please open the line for questions.
Thank you the floor is now open for questions. If you have a question. Please press star one on your Touchtone phone at this or any time.
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The first question is from Duane <unk> with Evercore ISI. Please go ahead.
Alright, thanks, Thank you and good morning.
Firstly just on your your load factor you know high Eighty's, 87%.
As we think about kind of the longer term. Our plan is is high eighty's kind of optimal for you is it is it mid eighties, how do you think about sort of the optimal ideal load factor up for Valero is longer term.
Hi, Duane and good morning.
And also a low cost carrier.
Target high load factors and high volumes, obviously seasonality plays a big role so.
So we typically see them high eighty's low ninety's in the high season and.
Low to mid <unk> in the low season, so an average of 80, 586% would be our longer term target.
That's great and then if I could and I hope I don't go too far down the path here, but on the on the functional currency change.
Can you talk a little bit about what enabled you.
To do this was it was it just a function of your USD revenue increasing to a level that that enables you to do this.
And I and I know you said, you're not going to sort of go back and restate anything but.
Could you just talk high level, obviously, we totally agree it's going to reduce the volatility.
Quarter to quarter around the balance sheet, but maybe if we just look back at 2021, what would the impact have been on margins and on leverage.
Okay, and just going off what a labor law to change to U S functional currency Duane it's a combination of the revenue generation in the call.
Also we have in dollars.
The way we are basically that we're mining our first warehouse Etfs, so that enables us to switch from peso to U S functional currency.
Okay, and then and then just looking back I guess, what would the impact have been on your margins.
Or your leverage say in 2020 one.
I think a gander on what he is going to take a wait and.
Volatility of the Mexican net FX swings and from muscle mass that also correct.
Unfortunately, not so now that we would change the functional currency, we were able to get out of the natural hedge portion that impact the way.
And the people view our numbers, so it's going to be more sustainable.
The way, we report without hiccups on the exchange gains foreign exchange loss.
First off just a little slower than the U S.
Okay, Great and then just last one and again, sorry for going too far on this.
It's our understanding that the income statement would be converted at an average exchange rate and the balance sheet at a at a sort of quarter end exchange rate is that is that how we should be looking at the financials. Historically, thanks for taking all the questions.
Yes, that's correct.
Thank you very much.
Thank you Duane.
Next question is from Josh Milberg with Morgan Stanley . Please go ahead.
Hey, everyone. Thank you for the event and congrats on the results I have two questions related to your 2022 guidance. The first one is just the.
The outlook you provided for the year gets a good sense of how overall T RASM could evolve, but I just wanted to ask for a little more perspective on how your ancillary revenue per passenger performed this year.
You could also give a little more detail on the one or two products, but you've seen most driving but non ticket upside.
That would be great and actually what will happen.
I also wanted to.
Yes.
We'd expect ancillary per Pax to reach the 50% threshold.
That's my first question.
Yeah.
Well, Josh Thank you for your question.
We continue to have an interesting pipeline of new products, which we're pushing them through our booking system. We also talked a lot about personalization and better pricing in the past and that's something that continues to evolve.
We see upside on that in 2022.
So we do believe that we have some upsides in.
Our revenue per passenger in the India ancillary revenues also interesting to note regarding the higher fuel price environment.
Product are less price sensitive with the customer.
So we will see.
And probably some price increases in some of our ancillary product as we go through this high fuel price environment.
So we.
We are targeting to reach 50% of revenues in the medium term and we don't have a time specific timeline on that but that's certainly our target.
In the medium term.
Yes.
Okay. That's great. Thanks, thanks for that color.
One I had was.
I got that you expect the.
Upgrade to come in the second half.
Sounds like Youre pretty confident that it will in fact come through but I just wanted to understand if it were delayed how much that could affect your growth for this year the capacity growth.
And if you could also just address what's left to be done about that.
A few process that would be great.
Yeah.
So.
During the current weak.
Sure.
Assessment of gene has been working with the Mexican aviation authorities to continue.
In reviewing the progress of the corrective action plan.
Which obviously had a significant brokers during this week.
It seems that the.
We are able to progress substantially in six areas of concern.
The technical assistance continues working her needs.
And it's been visit so once the months.
35 brokers and corrective actions.
We continue sustaining that.
The process.
I mean, the next steps for R&D is to finished closing the 28 28 observations.
And then we need to we will have another another <unk> being another.
<unk>.
Review of everything by an independent group other than the one that's doing the assessment.
We think that simple and that's peak until the.
And of the stream and <unk>.
As to that.
We'll see what happens.
Having said that so think which is really important if you look at our report.
Incremental capacity in the last quarter of last year was 21% in terms of the U S. So the learnings have been able to manage capacity and continue moving ahead with its capacity process into the U S.
Through the end of the year.
We really need it.
And we really need to continue working on it and.
We will be assessing whatever we need to do.
Holder to complement on the last quarter with respect. Thank you Enrique just like to highlight two additional points and we do have two operating certificates in Central America will access how're doing well as Costa Rica, which allows us to diversify our network not only to south and Central America, but also to fly directly to the U S from Central America.
Give us.
There's still growth opportunities in the international market and dish.
Despite Mexico being an CAD tool.
For the Mexican U S markets on multiple routes, we have not reached the capacity limits defined Polaris by the FAA.
Intercut to process and this will enable us to add capacity on existing routes to the west even in 2022.
Yes.
Okay, that's great color and Richard Hilgert. Thank you very much have a nice day.
Your next question is from Phillip and Nelson with Citibank. Please go ahead.
Hello, everyone. Thanks for taking my question I have two questions actually Oh started the first one.
First one is quite simple I just wanted to have a view on.
Regarding to the.
The change in functional currency to U S dollars and why don't you have a.
His view on how much revenue do you generate in U S dollars compared to Mexican pesos a revenue.
<unk> 43 per se.
What I'll be around 40 or 45.
On the Mark.
Okay, Great and the second one is regarding competition in terrorists are I know that we are seeing a lot of volatility in the if you are in the in those days regarding oil prices, but.
As you as far as you have seen in this first tumor.
Two months of the year end of the last quarters.
What is the the extent to which our competitor competitors are raising tariffs Darius and reassessing our oil prices.
So a couple of comments on that.
Pricing and demand and competitive environment. So in the fourth quarter as you saw in our results we demonstrated that.
We were able to offset fuel price increases with higher traveling.
And.
I think it's very important to note that and gives them a fuel efficient fleet.
<unk> hundred 20 meals.
Our first need to increase proportionately less than our competitors fears.
On top of that.
We have a high percentage of ancillary revenues.
Give us a competitive advantage in a rising price environment.
Passengers as I noted before are typically less price sensitive to price rises in the ancillary products.
If we look at the market as a whole.
We have observed that the domestic market has been a lot more rational in terms of pricing.
In the post Covid era.
And.
Even through the first quarter of 2022, we have been able to increase fares on some trunk routes.
Without impact on demand.
Spike significant capacity increases in those markets from Austin from other competitors.
Okay, great. Thanks for the.
The answers.
The next question is from Pablo <unk> with Barclays. Please go ahead.
Hi, Thanks for taking my question with either new capacity deployment for 2022.
Which segments are you expecting to deploy such growth. She seems at least releasing nations are in Mexico are already very well served what's where is the opportunity here or.
Or in other words do you think that leisure travel. These are oversupplied. Thank you.
So regarding our capacity guidance for 2020% to 25% at the midpoint that we're currently targeting and the growth is going to be quite well distributed among international markets.
And the domestic market.
We're going to continue to focus on building our core markets.
Which is the VFR and leisure segments in the center of Mexico, and in our core markets of Guadalajara and Tijuana servicing.
Leisure destinations and defeat VFR, good destinations, both in Mexico and D wave.
We see that.
The seat capacity in the Mexican market is just now reaching pre COVID-19 levels.
Thus, we see that the market is absorbing this additional capacity very well and demand is higher than pre COVID-19 levels. So we're seeing a very healthy market environment right now.
Perfect. Thank you.
The next question is from Alejandro <unk> with Credit Suisse. Please go ahead.
Hey, Howdy, everyone. Thank you for taking my questions two questions from my side. The first one on the employee cost.
In the second quarter of 2021 .
You announce it.
850, New head Count in addition to the older.
There are 2000 head counts in Argos between 2020 . One so what's can you say or what color you can give.
The implementation relationships plan and what can we expect going forward in terms of employee efficiency savings.
So.
Our targets were employee.
<unk>.
Continues to be a target of 58 product.
And bachelors per aircraft.
Having said that with the growth that we have and the growth that we're planning we had to hire the number of employees that we reported just now.
We.
We'll continue sticking to our targets in terms of ROE DVT yields employees.
And but we need to sustain the growth.
So you can basically say that in terms of cost that's going to be pretty stable. There's two elements.
Due to effective labor cost during the last quarter.
The first one is to use the accrual of the <unk>.
Do you or the distribution of notes.
Yes.
The profits to the employees, which is part of the new Labour rule.
Okay.
Okay. Thank you Okay and then my second question if I may in terms of thing that may.
So it seems that the gross I'm Eric <unk>.
Kind of where so many investors.
Got it.
There was a recent lifting from America Merrill Lynch.
The recent merchant frontier and spirit. So give me some corollaries did you see any kind of opportunity.
Again, we Didnt thing.
For reconciliation.
Alex we are focusing on.
Our organic growth, we are not thinking along with the Monday, we're really focused on the business and execution getting the same as we have been doing in <unk>.
In the past on Pennsylvania.
Okay. Thank you.
The next question is from Hillary Kakinada with Deutsche Bank. Please go ahead.
Hi, I think I'm, calling in calling on behalf of Mike and thanks for taking my question could you talk a little bit about your cost outlook for 2022 and you know what are the primary driver of cost inflation, but when you're talking to.
Sure Alright.
Going back to 'twenty, one so if you look at the federal funding one, but what we then just call me for a fourth 0.784 points you're awake.
Despite an inflation in Mexico, and the U S you've got to.
They are the commandment that you have on the cost side.
'twenty two.
I think the challenge of course is gonna be.
So it might take an inexpensive remember we are substituting.
Aircrafts and from.
Store near Us.
And so most of that cost is going to be impacted there.
Think about the range for 4243, CASM X fuel, which is the main impact comps from that part.
Got it got it.
And then just.
And then you talked about you know healthy last minute demand in January and rising booking in February I was wondering if you could talk a little bit about much like what youre seeing in the full light booking numbers for March and if there's anything notable there.
Yes, I can give you some color on that.
So what we're currently seeing in our booking systems is that sales and volume trends.
Continue to look positive for the first quarter of 2022.
We did have a small dip in bookings during the omicron weight, which lasted approximately three weeks.
But since early February we have seen a consistent decline in Covid cases in the U S and in Mexico, and Central America and that has been accompanied by it.
Momentum in the forward bookings for.
Period.
So looking forward to the upcoming Easter holiday, we are excited about the Easter holiday and also the summer bookings.
And.
That really points to how resilient the Mexican consumer has been and we can really see a strong leisure demand and gaining momentum in our remark.
Okay.
Got it thank you.
The next question is from Edson Murguia with Suffolk out. Please go ahead.
Alright. Thank you for taking my question I have just one regarding the capex.
On the 22 guidance.
Could you give us a little bit more call. It about the inquiries from 2021 to 2022.
This is gonna be everybody in them.
Our expectation of receiving new aircraft what would be the rationale on me two so capex. Thank you.
Well most of the Capex in connection with major tenants is so different from year to year, It's basically comes from that.
Okay. Thanks, so much.
This concludes today's question and answer session I would like to invite Mr. Bell to Anita to proceed with his closing remarks. Please go ahead Sir.
Thank you very much operator, I would like to express my sincere gratitude to our family of ambassadors to the board of directors with bankers, our resource our suppliers and most important to all of you the investor community.
For your commitment and support the Kras driven rollouts to this exciting position with such an opportunity going forward and the opportunity of growing this year. Thank you very much for everything and have a great day.
Wonderful weekend.
This concludes the Polaris conference call for today. Thank you very much for your participation and have a nice day you may now disconnect.
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