Q3 2022 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call
Conference specialist by pressing the star keep our by DRAM.
After todays presentation, there will be an opportunity to ask question and please note that this event is being recorded.
I would now like to turn the conference over to <unk>, <unk> Senior corporate Finance and Investor Relations Director. Please go ahead Sir.
Good morning, everyone and thank you for joining the call with us as our president and CEO , Kevin Stout Nana.
Online executive Vice President Hogan, Liechtenstein, and our Chief Financial Officer High Nichols, who will be discussing the company's third quarter 2022 results. Afterwards, we will move on to your questions. Please note that this calls for investors and analysts only.
Before we begin please let me remind everyone that this call may include forward looking statements within the meaning of applicable securities laws forward looking statements are subject to several factors that could cause the company's actual results to differ materially from expectations as described in the company's filings with the United States SEC and Mexico CNBC.
These statements speak only as of the date. They are made and <unk> undertakes no obligation to update or revise any forward looking statements.
As in our earnings press release, all our numbers are in U S dollars and compared to the third quarter of 2021, unless otherwise noted and with that I'll turn the call over to Enrique.
Thank you Renato and thank you everyone for joining us today I'm very proud of our third quarter results as they distinctly reflect the unique flexibility and resiliency of Polaris is ultra low cost business model the progress of our long term growth strategy and the discipline of our executive team.
Total operating revenue grew by 20% to $769 million in the third quarter and EBITDAR came in at $175 million with an EBITDAR margin of 22, 8% rising seven percentage points from the second quarter of 2022 due to our.
Remarkable utilization levels and cost advantage, coupled with a slight contraction in jet fuel prices.
Cost per available seat mile ex fuel for the third quarter was 4.07 usn's in an operating environment that continues to prove to be challenging for our industry.
We demonstrated continued success in spite of inflationary pressures executing areas, where we continue to itself highlighting our success of having one of the lowest cost structures in the word overcoming geopolitical impact on stimulating demand through the surgical expansion of our network.
<unk> grew by 22% for the third quarter compared to 2021 and by 48% compared to 2019.
Our strategically planned growth has been both consistent and profitable.
We posted net income of $40 million for the quarter as evidenced by our third quarter results. We released yesterday <unk> continues to distinguish itself in the global aviation industry delivering solid performance that translates to enduring disciplined growth.
We have consistently anticipated strong demand in our visiting friends and relatives and leisure markets, which show no signs of a slowdown and where we have demonstrated our ability to fill capacity on overtake box demand at far better fares than any public competitor in the continent. During the summer peak we've had.
Strong on time performance. Despite the congestion at the Mexico City International Airport and had positive net promoter scores as well. These results are especially remarkable given that accompanied the aforementioned increase in our capacity and expansion of our network. We had no shortages of.
Pilots crew members or operational interruptions due to staffing and we successfully anticipated this need by hiring and integrating more than 3500 ambassadors in the past 18 months.
Well typically we see load factor peak in July and reductions towards the end of summer in this year. Our load factors increased every month in the third quarter from $84 seven in July to $84 90 in August and we reached an all time monthly record high of 87 four in September .
Our bookings are solid and we expect to maintain a strong load factor for the remainder of the year.
We'll discuss this development more later on we remain in a very solid financial position with leverage ratios below the industry average we ended the quarter with $750 million in cash and equivalents at the end of September our net debt to EBITDAR ratio was three four times.
Commenting on Mexico's FAA category status, we have been diligent in convenient two national authorities that recovering 31 is our foremost concern challenging the growth of Mexican carriers and domestic economic development. We have knowledge that there has been a renewed effort and that there is a diligent and expedite.
Added remediation plan in place from the civil aviation authorities going forward.
He can advantage of the disruption in the Mexican market as a result of the pandemic, where there is capacity outgrew the industry, increasing 48% in terms of ASM versus 2019 drilling in the void that was created by significant industry attrition.
This was an extraordinary opportunity and we grabbed it in fact, according to <unk> <unk> was the largest airline in Latin America in terms of passengers in 2021 for 2023, we believe that profitable and prudent growth is the best strategy and we're planning for ASM capacity growth.
<unk> of up to 10% year over year. However, we are prepared with a flexible plan that allows us to accelerate that growth should the environment improve.
We can leverage characteristics lease extensions to capture additional demand if needed. It is important to note that with this tactical modulation of 2023 capacity growth, we are not compromising our medium term growth rate.
All things considered we view of where succession strategic vision.
Stones to strong growth potential for <unk> to remind everyone. We're learning is structure one of the best earnings in the work and we remain focused on an ultra low cost business model, our disciplined approach to containing controllable costs has allowed us to sustain our cosmic fuel despite the strong rate of.
Inflation in the recent past regarding both our customers and shareholders, we are well positioned to perform and grow regardless of the operating environment, our highly experienced and stable management team has overcome every magnitude of operating an external challenge, while becoming the leader in markets with.
Huge growth potential due to low air travel penetration since our founding every time, we have aimed to grow in field capacity. We have achieved it always with a firm commitment to works long term shareholder returns regarding our debt and capital flexibility. It is worth noting that we receive.
<unk> no governmental support during the pandemic and needed to know emergency liquidity demand crashes as a result, our leverage ratios and maturity profile are far better than most of our peers, our strong liquidity and having already secured our mid term financing need pro to the breadth delivery payments.
Provide us with the balance sheet flexibility to invest in growth opportunities. Finally, we remain in the early innings of growth when comparing Mexico to similar economies and geographies.
We believe <unk> is on track to double its size driven by an increase in flights per capita in Mexico. Total flights per capita reached <unk> 55 versus <unk> 20, when we started flying Meanwhile, many central American markets shared the same economic profile as Mexico, providing a premier source of growth in Peru.
As we increased service in that region also we remain prepared to execute our full U S growth strategy. One Scott one is restored now I will turn it over to hunger, who will present in greater detail the company's third quarter commercial and operational dynamics. Please hold or go ahead.
And good morning, as <unk> noted during the quarter, we saw strong demand, resulting in solid load factors in both domestic and international markets.
These robust overall load factors increased consecutively each month during the quarter.
Third quarter <unk> came in at $8, <unk> up 6% versus third quarter, 2019, and down two 4% year on year.
Given the excellent performance in the third quarter of last year.
A remarkable performance last year proved to be a difficult basis for comparison, when we were the fastest recovering and best performing publicly listed airline in the world.
In 2021, the demand for travel in Mexico began to recover well ahead of the U S. The out of the ordinary unit revenue premiums in the U S market. We are witnessing today were achieved by <unk> last year. In 2022, we are observing a normalization of traveling growth in line.
With longer term trends in 2022 <unk> for the third quarter for example was 6% above 2019.
In the meantime, our focus on maintaining the lowest possible operating cost remains unwavering.
We continue to have one of the lowest unit cost of any public airline in the world Despite significant inflationary pressures.
<unk> two network airlines discount carriers win the battle through superior seat mile cost not high fares, which generate a competitive advantage through time.
During the first two quarters of the year for allowance pushed to partially pass through the incremental fuel costs.
In the third quarter instead, we chose to modulate base fare increases in certain price sensitive domestic markets to avoid demand reductions, we partially recovered fuel price increases through volume.
Overall year to date pass through was 66% versus 2019 and in the international market. We managed to completely pass through the full price increase versus 2019 capacity increased by 22% for the entire network, 21% in the domestic market and 26% in the Internet.
So the market.
In the third quarter, we observed a very healthy load factor of 85, 6% in.
In line with our strong third quarter in 2021.
This showed a very strong demand response to our capacity expansion in the third quarter. Since early independent make we have commented that center Americas recovery has been six to nine months behind that of Mexico. We are now fully seeing the effects of this rebound.
Which we expect to continue.
The pace and impact of the rebound has been similar to the U S. This year and provide confidence in our view for the region into 2023 and the overall network. We expect a similar demand trend for the fourth quarter as we move into the holiday season, and we are seeing encouraging short term momentum driven.
By very strong bookings for the end of the year as well as into early next year.
In the U S. We were able to grow ASM on existing routes. Despite Mexico's FAA cat two rating by reestablishing all of the large pre COVID-19 capacity in the transport market. We added the equivalent of two additional aircraft to existing Mexico to U S routes during the quarter.
Meanwhile, given our high relative market share on VFR routes, we were able to achieve higher fares and good load factors on the U S routes, we expect U S demand to remain strong as we head into the fourth quarter and 2023 until Mexico returns to Cat one we will focus on both.
Mexican domestic growth in our core markets and U S Central America growth leveraging our two air operator certificate in the region.
We continue to consolidate our market position in Central America, where we saw capacity and revenue increases of over 200% year on year <unk>.
Demand has been particularly strong in El Salvador, and Costa Rica, and we are pleased to report that in just one year after obtaining our operating certificate in El Salvador as of September we have transported over 262000 passengers.
We have seen strong demand and good acceptance of the ultra low cost model, especially in our U S. Central America routes, demonstrating the strength of our low cost offering in these markets and the growth potential that they represent central American passenger profiles are very similar to our typical in Mexico <unk>.
Our segment and we understand their needs very well we are convinced that we will be successful in replicating in that region. What we have done for more than a decade in Mexico. In addition to Central America. We also continue to diversify the network, which is demonstrated in the growth in our core domestic.
The markets in terms of <unk> the.
The market has absorbed this additional capacity very well with better unit revenues in all markets versus 2021.
In terms of new routes and destinations we inaugurated additional slides from the Philippians less International Airport. We now serve nine routes and 19 daily operations and volumes are ramping up as customers get familiarized with the new airport.
We also launched operations from to look at International Airport with five routes.
So far at this station we have seen early successes in line with high volumes during the high season in all we opened 15 new routes this quarter on the other hand, we maintain our discipline constantly reviewing and emphasizing route profitability.
For our bus switching passengers and price sensitive customers, we will keep fares competitive and generate high load factors.
While our customers are more price sensitive volume tends to be more resilient in downturns. In addition.
We create a basis for trade down of more premium passengers from legacy carriers in downturns.
It is important to bear in mind that around 46% of our routes compete exclusively against buses.
In Mexico, the air market growth opportunity remains high and we expect the market to grow at a multiple of GDP for at least the next five years.
Regarding cost efficiencies.
Utilization in the third quarter was around 900000 <unk> per aircraft per day, one of the highest in our peer group.
We remain focused on increasing the utilization of our fleet, which has an immediate effect on unit costs.
We also continued to reduce our service cost per customer by refining our chat application and have several additional technological advancements under development average fares were $56 in the third quarter, while non ticket revenue recovered to $39 accounting for 41% of total operating revenues.
Non share revenues continue to improve as we have digested and absorbed Mexico's restrictions on charging fees for carry on bags.
<unk> continued to be a strategic focus and have increased thanks to investment in artificial intelligence, driven pricing tools and differentiated offerings.
We expect to continually grow ancillary revenues and have several new products and offerings in the pipeline.
We are in line to finish the year with a guided capacity increase of 25% for the full year of 2022.
We are currently planning a 10% ASM growth for 2023, we may adjust tactically once we have better visibility on the global macroeconomic outlook and cat. One is resolved as Enrique described the growth opportunity in the Mexican market is immense and we will continue to.
Emphasized bus switching traffic and exclusive routes over the next five years, we are in a strong position to seize these opportunities and I will now turn the call over to Jaime to discuss our financial performance for the quarter.
Thanks <unk>.
Total operating revenue for the third quarter was $769 million.
At 20% increase compared to 2021 due to the expanded capacity pair with increasingly healthy load factors and solid unit revenue.
EBITDAR margin contracted compared to the same quarter of 2021 attributable to higher fuel costs.
Our total $175 million.
An improvement of 64% sequentially and a 33 year on year decrease.
EBITA margin increased seven three percentage points sequentially to <unk>.
92, 8% down $18 one points against the third quarter of 2021.
In line with our guidance, we expect to close the year with an EBITDA margin in the low twenties, which implies a mid <unk> margin for the fourth quarter.
CASM ex fuel decreased <unk>, 5% and total for <unk> as.
As we diligently manage inflationary pressures throughout our operations that were higher year on year for the full year. We now expect CASM ex fuel to increase only 1% despite headline inflation of around 9% in the communities where we operate.
During the quarter, we book with delivery cost accruals of $28 $7 million net it by selling leaseback gains for a total amount of $1 $2 million.
On a unitary basis. This represented $2.32 this quarter compared to <unk> 25 cents in the third quarter of 2021 and zero point sales in this third quarter of 2019 the.
The increase is explained by the ongoing transition to new engine option or neo aircraft and maintain on cycle due to the current fleet H. This cyclical events will continue on an upward trend.
In 2023, and 2024, and then gradually returned to 2019 levels.
For that reason.
We believe it is also helpful to track adjusted CASM, which excludes fuel with deliveries in sale and leaseback case, which totaled $3 78.
<unk> to $3.96 in the third quarter of <unk> 21, and $3 92 in the third quarter of 2019 decreases of two 4% and.
Four 5% respectively.
Meanwhile.
Higher fuel costs, where we saw some relief during the quarter drove total CASM to $7 85 for the third quarter at 24% increase compared to the third quarter of 2021 with a sequential improvement of 65 versus last part.
Our average economic fuel cost increased 72, 2% year over year to $3 $96 per gallon this quarter versus $4 $4 per gallon in the second quarter.
Even a certain inflationary pressures received we anticipate largely maintaining the controls we have implemented and hasten our leverage on cost and supported margin in future periods.
For the third quarter net income was $40 million, which translates into earnings per ads of <unk> 36.
The cash flow generated by operating activities in the third quarter was $88 million.
Net cash flow used in investing and financing activities was $51 million and $46 million respectively.
Are there more <unk> require 9 million of cash for the third quarter closing with $750 million in cash.
Cash and cash equivalents.
Representing 28% over the last 12 months operating revenues.
This cash use is a result of the second quarter fuel consumption, which was paid during the third quarter. However, total cash generated year to date rose by $9 million.
<unk> continues to have one of the most robust balance sheets, among Latin American carriers, and our global peers at.
At the end of the third quarter, our net debt to EBITDA ratio was three four times compared to two eight times in the same period of 2021 and two nine times in the second quarter of 2022.
While the increase in this ratio reflects the aforementioned macroeconomic challenges for operating profitability. During the past 12 months, particularly rising fuel prices net debt to EBITDA ratio is in line with our long term goal.
Our debt remains very healthy with financial Dev, having decreased 7% year over year as of the third quarter.
Please note that our own 93% of our total debt is made up of leasing liabilities with fixed rates, while <unk> has no refinancing pressure like many of our global peers will face in the coming years.
Our growing number of new aircraft remains a centerpiece in mitigating costs, allowing us to keep both expenses and first lower than peers.
Each fuel price volatility and preserving our bottom and top lines we.
We expect meals to make up 54% of our fleet by year end on our way to a nonlinear fleet by 2027.
The news are.
So part of our broader progress in konin fuel efficiency and reducing emissions.
We also significantly improve the utilization of our existing aircraft in the third quarter.
Our gallons per ASM decreased one 5% year over year and $6 five against 2019 levels.
We expect the same trend during the fourth quart.
You consume <unk> was nine six gallons of one 5% decrease.
As consumption efficiency is among the best in class worldwide.
Meanwhile, we have signed contracts for sale and leaseback agreements for aircraft deliveries through 2025 and have secured more than $500 million of pre delivery payments for all aircraft in our order book to be delivered during the next three years.
Our fleet was comprised of 113 aircraft as of September series, a solid increase from 94 aircraft a year prior as we move forward with our fleet transformation plan.
As Scott mentioned, we fill them with solid load factors and maintain high aircraft utilization will.
We delivered one 8% to 19 CEO in September and incorporated 100, <unk> hundred 20, New we are on track to end 2022 with 116 aircraft.
As of the end of the third quarter.
He says fleets kind of an average of 190 seats per aircraft and an average age of five.
Five five years of which 51% were new models.
New aircraft are up to 18% more fuel efficient than the legacy counterparts and are integral to progress against our sustainability goals.
Overall, we are seeing robust demand throughout our network as.
As we continue to see stable growth two and through the end of 2022, despite the macroeconomic and geopolitical challenges faced throughout the year.
Our full year 2022 guidance is now.
<unk> growth of 25% versus 2021.
Operating revenue in the range of two $8 billion to $3 billion.
CASM ex fuel to increase by around 1% compared to 2021.
EBITDA margin in the low twenties, and finally capex of $145 million.
Our outlook assumes a full year average foreign exchange rate of 2025 to 2030 peso per dollar and an average economic fuel price of $3 85 to $3 $90 per gallon and assumes no significant unexpected disruptions.
We will continue executing our long term strategy, while maintaining flexibility and discipline to manage through and profit doing external volatility.
Now I will turn the call over to Enrique for closing remarks.
Thank you very much Jaime we have built and consistently implemented the resilient and attractive ultra low cost business model.
<unk> is under control, we have a strong balance sheet with healthy leverage and most importantly, we have the commitment of an experienced management team as well as the sound advice of a world class Board of directors to navigate through the challenges ahead. Finally, I wanted to remind everyone that we will be hosting a.
The investors day at the New York Stock Exchange on December six I look forward to seeing many of you there and sharing greater insights into our strategic vision for the future. Thank you very much for listening operator. Please open the line for questions.
Thank you we will now begin the question and answer session.
Good question, Greg Star then one on your touch sensor.
If youre using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
There's no.
All material leases and with the rock.
Sure.
And our first question today will come from Duane <unk> with Evercore ISI.
Please go ahead.
Hey, Thank you good morning.
Yeah.
On Central America can you talk about how many aircraft will be dedicated to this and in 2023.
How has that kind of changed from your initial expectations.
And if you get two resolved.
Next year, how would how would that how would those planned shift.
Good morning Duane.
On Central America.
Currently we have five aircrafts in the region three in Costa Rica in tune with our airline operating certificate in El Salvador.
And we are on track to add additional aircraft.
Sure.
Alc's there next year, we're still finalizing the numbers given the recent results.
We will likely see some additions into Central America.
Bear in mind.
As we have mentioned earlier the recovery in Central America, and South America has been six to 12 months behind the recovery in Mexico.
So last year, we slowed down our growth in Central America, and lately, we're seeing very good uptick in demand and the recovery in the region.
So we feel quite bullish on the return of Central America track.
Traffic.
Also <unk>.
Given the situation in Mexico.
It gives us an opportunity to grow to the U S. Our two hour VFR markets in the U S as well.
Already serviced from Mexico.
Okay.
Okay, sorry, so.
The five not to put too fine a point on it but do you think the five goes to what next year.
Okay.
We are still working on the final numbers, but we're going to add at least two aircrafts.
To the content Central America next year.
Okay, Okay, and then just shifting gears.
The guidance for the year implies.
Pretty healthy acceleration.
<unk> and revenue growth not only year over year, but also.
Versus 2019.
Despite the fact that capacity is.
It doesn't really accelerate and so.
Is that a function of better yields like what is driving the.
Kind of implied acceleration in top line here. Thank you for taking the questions.
So duane.
Looking at the fourth quarter booking curves and.
They look pretty healthy so what's driving the expansion in geographic.
Is is a load driven volume driven expansion in the third and the fourth quarter.
Mainly in the domestic market.
Seeing a quite healthy volumes.
<unk>, probably somewhat lower price points.
And in the U S market in Central America market, which we're seeing low driven expansion and very healthy average fares as well.
Yeah.
Okay. Thank you.
And our next question will come from Helane Becker with Cowen. Please go ahead.
Thanks, very much operator, hi, everybody and thanks very much for your time.
So as you as you think about getting back to cat one if we assume that occurs.
In the say by mid 2023.
How should we think about opportunities for growth in the second half of next year.
And maybe U S versus Central America and.
How should we think about your capex potentially changing in that.
In that environment.
Helane.
So.
<unk>.
Couple of things here.
We are currently envisioning a return to cut.
One in Mexico.
Next year 2023, probably somewhere around mid year mid to end 2023.
That gives us the opportunity to continue to grow in the U S. As <unk> mentioned during his prepared remarks.
If that were not the case, we do have the flexibility with our three operating certificates to continued growth in the U S.
Through Central America.
Okay. That's helpful and then sue.
On the Capex.
No just.
Just on the Capex question.
This year, he is going to mainly be driven by maintaining the delivery expenses, although wisely.
The same as this year.
And then what Youre seeing.
But we are seeing key here is.
Shifting capacity from some market storage solar markets.
Still conservative in the numbers that we have.
It's not just a matter of deteriorating one with you also have the economic downturn, which we're CE that will mostly affect the U S has to be careful because we do not add more capacity, but simply shift capacity year round within minutes.
Okay. That's hugely helpful. Thanks, Enrique and then just one follow up question.
Other airlines you may need. Thank you Enrique you mentioned that you are doing well with all your employees everything keeps labor contracts that are coming due that we should be aware of.
Yes.
Our labor contract is due by insurers teams next year.
The company has to do a renew well.
Salaries fringes and benefits this year.
And we are already working on it.
Okay. So just a quick follow up on that.
In Mexico does it work that on the day. The contract comes due you have a new extension or is it like in the U S where you can keep operating without the extension until you get one.
Well, it's I would say, it's both ways I mean, it depends on the year in defense in the economic conditions.
The only thing that.
This year, given inflation and everything we have to do some moves.
We're working with the union on that.
Okay. That's very helpful. Thank you.
Thank you Brito here.
Okay.
And our next question will come from Mike Lindenberg with Deutsche Bank. Please go ahead.
Yeah, Hey, good morning, everyone I guess this is Rick.
And even hunger.
No just the news last week that the competition authorities in Mexico have blast.
Veeva Allegiant antitrust immunized agreement.
Have your thoughts on that and does that that would be unique and kind of are you LCC world, where you'd have to you LC fees.
Flying Trans border with API.
Is that getting you to sort of rethink your longstanding relationship with frontier and possibly.
Maybe expanding that.
Something similar just your thoughts on that.
I think we need to to.
<unk> six <unk> one thing before we do anything I mean, yes on one side. This is Steve for Veeva was approved but.
Entering.
Entering into effect until we sold to <unk>.
Mhm.
Our thoughts with frontier is we continue to seem to be very high about our closure with them.
And we will try to expand or do whatever we have to do in order to improve to the best conditions that contract. So we both excel in our markets.
Okay and then.
Second question sort of switching gears here and this is just behind me I mean can you just give us some detail on.
Thoughts on.
What tax rate you are planning, what we should use in our models for the fourth quarter and then just in the third quarter why there was such a large tax benefit what drove that what were the underlying drivers of that thanks for taking my questions.
You're very welcome Michael Michael basically the tax benefit that we got this quarter is because we have provision.
Income tax for the year assuming.
And so as we have been experiencing a loss for the first Street partners.
Basically reversing.
Type of provision.
Effective tax rate it should go back to similar levels of 2021 and 2019.
Yeah.
Okay, great and what is the same.
I remember it was what does that like 30% is that something that makes sense.
Got it got the legal ones and then 30% okay great.
Alright, very good thanks, everyone.
And our next question will come from Stephen Trent with Citi. Please go ahead.
Good morning, everybody and thanks for taking my questions.
Just first maybe one for you if I may.
You mentioned sale leaseback.
Transactions through <unk>.
2025, I believe you said sort of any high level view.
To what extent, we could see some operational gains come from both.
Yes, yes.
We pointed out in the in the call Steve.
We're trying to rule as you'll notice we breakdown the total CASM in the CASM ex fuel and food online with adjusted CASM ex fuel.
Yes.
I'll focus on the core CASM.
Going forward 2003.
And in 'twenty, four and then coming back in 'twenty five 'twenty six we have a lot of red deliveries, which basically are going to be affecting.
The custom I mean, its hard for U S analyst to figure while the core CASM of the company.
So that's why we break break it out.
Next year.
Net net.
Well.
Ill provide some further guidance at the investor call on how the year is going to roll off we are right now at basically on budget season.
The hunger games, we began in Malawi.
We will have more detail during the investor call.
Okay. That's very helpful. Thank you and just one very quick follow up.
I think there was a news a few weeks ago that the Mexican government wanted to establish some sort of airline it.
Kind of struck me that maybe they're doing something like that Columbian government does with SAP Hana, but.
Any high level color on.
Where they are with that or.
How it might even marginally affect your operations or do you see it as kind of a non issue. Thank you.
Thanks, Steve look.
There's been a lot of stock.
New action in reality to this.
The way they see it as validation is always become a better competitor with new competitors. So.
I just want to remind everybody that Mexico is a country with two of the most efficient airlines in terms of unit costs and work in.
<unk> has more than 46% of its network without their competition and operates 54% of traffic in the ASC airports, which were the ones not concession to the private entities.
They were considered.
Economic service for their own towns.
So we don't envision bigger competition on top of what we do and.
We continue working on a normal way.
Just following up on what could happen.
Okay.
Sounds great Thanks, and reach out I'll, let someone else ask a question I appreciate that.
And our next question will come from here.
<unk> with Bank of America. Please go ahead.
Yeah, Hey.
Thanks for taking.
Taking my questions I have a couple here the first one.
If I'm not mistaken the previous growth guidance for 'twenty three in terms of capacity it was mid single digits.
10%. So is this right there there has been an acceleration of capacity growth expectations and wear shoes.
At least 10% as an increase be allocated if you could break down the market sooner between domestic Mexico Central America.
Maybe U S Mexico.
You've got that everyone is these regained.
And.
That's the first question and the second one.
Regarding our margins Duvall, our wish to below two and juice as a downcycle margin and if so what should be a more normalized level.
Which which level of margins do you see it.
As a.
Let's see.
Why do you expect to be.
And up next year or 24, when when the category one.
Is fully regain and capacity to be added again to the U S and what should drive Valero.
To deliver that if that's the case that's it thank you.
Ill tackle the question on growth and then pass it over to Jaime on the margins.
We had previously mentioned in the previous earnings call our high single digit growth as the baseline growth for 'twenty, three and we're now, saying, 10%, which is marginally higher.
And.
We may adjust that growth tactically once we have a better visibility on the macroeconomic outlook for next year and once category one is resolved.
So we see that as a baseline growth, it's probably somewhat lower than what you are used to with four large growth, but we are specifically, saying that we're not compromising the longer term growth prospects in future years of the company.
In terms of where that growth is going to come from.
Until Mexico returns to catch one we will focus our growth next year on both the Mexican domestic market.
In most of our core markets, so the Pacific Coast, Tijuana, Guadalajara, and secondary cities within Mexico.
And we're also going to grow U S Central America with additional frequencies and new routes.
We already mentioned leveraging our tour air operator certificate in that region.
And then towards the end of the year as category. One returns we will we take our growth plans for the U S market into our VFR destinations.
In the U S.
Yeah.
I'm talking about margins basically as you noted this year the margin has been impacted mainly by the fuel price.
So provided it.
It's around 78 to $80 and the company should be.
Low to mid <unk>.
EBITDAR is structurally going forward.
Okay. Thank you erinn.
Yes.
Yeah go ahead sorry.
Okay.
No guarantee.
Rodrigo. Please go ahead, yes. Thank you so I'll follow up just to follow up on.
No one category or one but do you see the U S airline is adding capacity to Mexican market.
In these past several weeks and.
Also in upcoming.
Weeks bookings.
Or do you see more stabilized capacity in U S Mexico.
So the U S Airlines did add capacity.
The U S Mexico market in 2021 in early 2022, mostly in the beach destination. So.
<unk> customers going to visit the Mexican beach destination.
It is a market that we currently don't operate in and.
And what we've seen lately is that.
The U S airlines have retracted some of that capacity additions.
Because of the strong demand in the mix in the U S domestic market, where they needed that capacity over the summer.
I think rajiv.
Something very important that you need to take in consideration when you look at the margins.
We worry that you are seeing in the U S. Today, it's exactly what you saw in <unk> 2021.
Demand for travel in Mexico began to grow well ahead of the U S. Okay.
So what you're seeing today in the financials of learners is basically with the.
Way back to normalization in terms of yield.
Yield trends and.
Youll see a perfect control those costs, which is very important going forward because once the yields.
Premiums disappear it's going.
Going to BMO cost and that seemed to be really important in the equation going forward.
Yeah.
Fair enough. Thanks, so much have a great day everyone.
And our next question will come from Alejandro <unk> with credit Suisse.
Go ahead.
Thank you Enrique.
Quick question follow up on that.
Guidance from them.
Alicia yield for the fourth quarter, so considering that the capacity guidance was narrowed.
25% and.
On revenues between $2 eight 3 billion.
We assume favorable load factors drove some would be would need to increase on a sequential basis. So.
Considering that for this quarter, we saw a slight decrease.
On yields my question would be what are you expecting for thrust them for this fourth quarter and what have you seen in the industry.
So yes, youre right, we are seeing very solid bookings for the remainder of the year, which translates into a higher <unk> for the fourth quarter.
Then we saw in the third quarter.
So you should expect a better travel for the next quarter and that also represents a better <unk> versus the same quarter in 2021, which was already a pretty good quarter. So.
Should see a sequential improvement here.
That is again driven by a solid loads in the domestic market and solid loads in the Central America to U S and Mexico through the year.
In addition to good yields in those markets as well.
Thank you.
From an industry wise I mean.
Do you have any high level thoughts on the yields.
Industry Hum.
Or the yield brands in the industry for this for the fourth quarter also.
Yeah, well I can tell you that.
The Mexican market.
Been quite stable and rational in terms of yield and pricing in the last 24 months.
After the <unk>.
<unk> of one of the players are.
Aeromexico has been very much focused on the more premium part of the market.
And has <unk>.
Restarted its long haul operations generating.
Similar premiums as we've seen with some of the U S legacy carrier.
And the other competitors there are low cost.
Competitor Aviva has been growing in the Mexican market, especially in Mexico City.
<unk>.
And in Central America, we've seen a good rebound of demand and pricing as well.
So overall I would characterize the market is quite rational and stable.
Perfect. Thank you.
And our next question will come from Alberto Valerio with UBS. Please go ahead.
Hi, good morning, Thanks for taking my.
One on my side.
What do we should look out for the figured one starts to come back.
Any specifically.
Safety reason that it should be that Mexico is doing or infrastructure.
<unk>.
And is there any data that is comfortable to just run through them.
Americans.
This decision.
So.
Yes.
I would say.
In general there are things happening that are moving along.
Much better than what I.
Let's see.
<unk> seen a couple of months before.
We have seen changes in functional areas like the secretary of transportation.
The under Secretary.
Head of the regulator has happened in the last months.
Uh huh.
We have seen.
The secretary of transportation itself.
Working on.
Building strong deals in with Macau.
And that has been completed and the support.
The the future scenarios of Mexico are flying to Washington.
On Friday of this week speak with FDA.
They are working on the required changes to the aviation regulations. They are working on mechanisms for financing.
The <unk>.
Expenses that they need to.
To spend for getting the category back.
And we're seeing a sustained.
Recovery of the general issues that are affecting the ASR category.
No.
I am positive about it.
Im seeing also.
<unk> developments.
On some infrastructure and required us on these restructuring.
Hi.
And some improvements in Cancun, so in general I feel very optimistic about everything thats happening it has taken us a little bit more time, but.
We remain positive.
Okay.
Fantastic.
You guys have any statistics data for months.
Water.
We are budgeting for the second half of next year.
We are closely monitoring that.
Okay.
Thank you very much.
And this will conclude our question and answer session I would like to turn the conference back over to the management for any closing remarks.
Thank you very much operator, I want to express my sincere gratitude to our family of ambassadors the board of directors investors. So we're bankers resource and suppliers for their commitment and support that has driven boulardii stood.
Our strong position with such exciting opportunity ahead.
<unk> is an amazing.
<unk>.
Compathy to invest and Im looking forward to see all of you.
We investors meeting.
On December six and.
New York Stock exchange, it will be great to see everybody face to face again.
I'm really thrilled about the future and everything that will be explaining their formularies next year and the following years. Thank you very much to everyone.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.