Q4 2022 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call
Yes.
[music].
Good morning, everyone. Thank you for standing by.
Welcome to utilize this fourth quarter and full year 2022 financial results conference call.
All lines are in 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.
A live webcast and maybe accessed through the <unk> website.
Those following the presentation via webcast may pose their questions on the platform.
The management team will answer them during this call or the fourth Investor Relations team will answer them. After the conference call is finished.
So some of your questions via the webcast platform click on the question Mark below the video area and.
Probably in the upper left corner.
I would like to turn the call over to Ricardo Martinez Investor Relations Director. Please go ahead Ricardo.
Good morning, everyone and thank you for joining the call.
With us he is our president and CEO Enrique will turn into.
Our airline executive Vice President Holger Blanked this thing.
Our Chief Financial Officer Jaime Poles.
They will be discussing the company's fourth quarter and full year 2022 results.
After war, we will move on.
On to your questions.
Again.
Please note that this call is for investors and analysts only.
Before we begin.
Let me remind that this call may include forward looking statements within the meaning of applicable securities laws.
Forward looking statements are subject to several factors that could cause the company's results to differ materially from expectations.
As described in the company's filings with the United States S. EC and Mexico's E. N. BB. These statements speak only as of the date they are made and <unk>.
<unk> undertakes no obligation to update or modify any forward looking statements.
As in our earnings press release.
Our numbers are in U S dollars compared to the fourth quarter of 2021, unless otherwise noted.
And with that I will turn the call over to Henrik.
Thank you Ricardo and everyone for joining us today, we're pleased to be speaking again after seeing many of you in New York, who are our investors day in early December .
In the few months. Since then you have undoubtedly heard from our peers about global airlines prevalent challenges as they look across 2023 and beyond we are not in the same position.
As we recap our full year 2022, and turn to our expectations for this year <unk> has taken the necessary measures to ensure stability and profitable growth.
We prepared for our growth by hiring and training almost 1500 pilots and over 2800 flight attendants among others in 2022 alone.
That will remain stable in 2023, our leverage is well below industry levels and will drop sequentially in the upcoming quarters, we have a strong balance sheet and cash generation capabilities with a conservative debt position and healthy pregnancy conditions, our new fleet financing you sign on to <unk>.
Any advice and commerce sales and leasebacks and Capex associated with Bradley repayments, 91% of our total debt is related to long term growth through lease liabilities with no exposure to rising interest rates.
In addition in April we will enter a new era for Golar is receiving the first meal delivery from the largest ever Airbus order placed by U S alone within the <unk> portfolio airlines, allowing us to reduce our CASM ex fuel going forward through improved fleet ownership costs.
Our fleet plan aims to drive further efficiencies low costs going lower.
Bottom line, we remain committed to delivering sustainable and profitable growth in a disciplined manner. The combination of a differentiated revenue management strategy and strict control of costs enabled our operating earnings to offset their own $550 million of full year fuel price impact.
Faulting in a margin of five 9% in the second half of the year.
And throughout 2023 as you will see in our guidance, we expect significant EBITDA research.
Speaking of a differentiated revenue management strategy, we moderated ferrocene specific price sensitive domestic market to deliver strong load factors and raised base fares in the international markets, including Central America to offset the higher fuel cost in our longer sectors. During the last quarter in Sealy revenues.
Singer posted a 6% increase compared to the same period in 2021 for the full year 2022, <unk> grew 26% in line with our guidance comprising 22% growth in the domestic market and despite Mexico says hey, yea categories that was limitations a remarkable 34.
Growth in our international markets, we were able to grow in the Transborder market between Mexico, and the U S close our central American operation structures.
An essential role in this international growth offset the cut two limitations and diversifying our growth expansion without relying on any particular region as.
As we said at our Investor day, such growth was driven by a unique opportunity during the pandemic and in the future. We'll continue growing at a moderate rate very well corners of the market pricing behavior.
Looking back at 2022, our team is proud to have transported more than $30 million of customers last year consolidating our position as the largest airline in Mexico by passengers to put this into perspective with transport over 85000 passengers across our more than 560 operations each day. This.
It means that the number of passengers we fly daily is almost equivalent to the combined capacity of Yankee Stadium in CD field <unk>.
Finally during the fourth quarter, we closed negotiations for 2023 with our labor Union committing to an eight 2% salary and benefits increase in contrast, our low cost competitors in the U S. Having instituted labor pay increases willing to the double digits, sometimes into percentages in the <unk>.
<unk> and <unk> are still struggling to staff their operations approval of the labor contract, it's clauses and the percentage increase in <unk> was achieved based on the new Mexican law with 88% of personal voting in favor of moving on to costs and to demonstrate our commitment to low cost.
Leadership, we successfully keep CASM ex fuel for the entire year at $4 26.
Nearly the same level as in 2021, we're one of the lowest cost operators in the world. In contrast in the United States CASM X fuel rose, 17% for the legacy carriers and 24% for the low cost carriers. This is not only a cost controlled story, but an improvement of our competitors.
<unk> cost position in the Transborder market.
Well there is now as an even better cost structure than the U S carriers widening our cross border advantage Polaris is in control of its unit cost trend down the road our cost advantage will remain as unit revenues returned to normal levels as we affirmed at our Investor day for 2023 were.
Currently planning for <unk> to grow by around 10%.
Maintaining flexibility to add a few percentage points should market demand garanti or should Mexico cut one be restored earlier this year.
This capacity growth has been clients proactively anticipating potential challenges such as delays of America manufactures and the availability of experiences.
Well, we are convinced that moderating the pace of our capacity growth is the best decision. Our long term expansion opportunity is as important as ever we continue to capitalize on both switching and demographic tailwind in Mexico, and Central and South America, we are well positioned to leverage <unk>.
Our shifts in population and transportation print with diversified growth of it.
Our load factors are stellar and demonstrate Latin demand for our low cost offering.
Routes to the U S. Also remained popular as we continue to connect families across the continent, where could Bert to shift capacity to northbound routes opened Mexico returned to category one status, which we remain optimistic will happen in the next six months.
Next I would like to address specific concerns.
Decembers Winter storm Elliot.
The storm hit the U S and affected Mexico's northwest airports, 46% of our fleet was operating in the affected areas.
Our most important impact the airport was the one we have a closing due to weather conditions in an airport, where we last year accumulated more than 9 million passengers and average of 24000 passengers per day.
Closing started on the 20 <unk> of December and was extended until the 'twenty six affecting almost 75000 passengers on December 27th in just 72 hours, we regularized operations in all world areas systems mitigated delays of passengers by relocating them to new flights and competence.
Hated them currently has no outstanding customer complaints at the Mexican customer protection agency perfect Golar.
<unk> did not have a material financial effect due to the store.
This storm could not have come at the worst time for our passengers who were trying to get home to loved ones over the holidays, we knew how important travel west or where passengers over the holidays remember our deep rooted purpose to serve our visiting friends and family Mark.
Knowing how important travel was during the festive season, we pushed our system as hard as we could have delayed trips when we otherwise might have canceled all in the hope of being able to deliver for our passengers I reiterate my deepest apologies to our customers. Both said we did learn a lot.
From these circumstances as a result, we are preparing much better recovery procedures upgrading customer resolution software systems and dramatically improving our communication protocols, while it will support improving management practices a third.
Third party contractors, but again if anything this equation is the remainder of our strength and a company compared to our peers. The financial cost was minimal and our operations are strong enough to recover quickly.
Regarding the recovery of category one during the last quarter of 2022 progress was made on three different fronts. The FAA returned to Mexico. This month the work on restoring category one status and made substantial progress closing 29 observations related to budgetary constraints and controls.
The remaining 10 findings are related to changes in aviation law that aren't necessary related to regulations in.
In December Mexico's President submitted to Congress amendments to the aviation law there.
The remaining changes required to restore cut when steps.
The Mexican authorities expected next FAA assessment visit by the end of March.
Finally, cabotage right within Mexico.
Initiatives submitted by the President Congress and club some regulations to provide foreign carriers limited cabotage rights within Mexico's domestic market two weeks ago industry leaders met with the secretary of Transportations team and Congress members to explain how well the Mexico domestic market itself and while we don't consider.
The opening of cabotage rights to be needed.
We feel the discussions for approval of the law with all necessary regulations to clear cut too has been positive and have taken into account the industry concerns. We expect the final resolution of this matter before the end of March.
Finally, as we enter the year's first quarter, we see no signs of economic deceleration near shoring is reducing unemployment and great warehouse occupancies, taking place in the northern States. In fact, we're seeing healthy levels of traffic and solid booking curves for the upcoming spring season.
This is partially due to several deal wins in our core markets, including the trend of near shoring low unemployment rates robust remittance flows and high levels of foreign direct investment.
Now I will turn it over to Jose who will provide greater detail on our fourth quarter and full year commercial and operational dynamics.
Thank you Enrique and good morning.
Despite the mentioned challenges we diligently accomplished what we planned in 2022 growing capacity into the mid twenties, while holding controllable costs nearly flat.
We finished the year driving profitability with a solid fourth quarter.
Let me give you more color on the quarter starting with capacity.
And then when you mentioned <unk> increased by 18% year on year for the entire network. This figure includes 16% growth in domestic and 24% growth in international markets.
Critically this expansion wasn't diluted exhibiting a solid 87, 3% load factor up from 86, 9% in the fourth quarter of 2021, and demonstrating that our new routes and deepened frequencies continue to attract demand.
Our diverse network encompasses central and South America, allowing us to pursue profitable growth despite domestic market constraints.
Given the outstanding demand for flights to and from those regions, we successfully passed through incremental increases in our international markets.
In the fourth quarter, we launched three new routes that connect our central American markets with significant Latin American communities in the United States.
San Pedro Sula to Miami, San Salvador to Houston, and San Salvador to Oakland.
We are very excited about these routes as they embody the strong trends we are seeing in the VFR travel and the recovery and growth of the Central American market.
Our international markets across Central America, South America, and the United States continue to exhibit strong demand.
Domestically the routes, we launched in 2022 from taluka, and Philippe analysts are maturing as expected we maintained around 30 aircraft flying from Mexico City International Airport and will continue in 2023, we saw unit revenue grow in tandem with capacity in the fourth quarter with <unk>.
Some increasing both year on year and sequentially to eight six cents from eight <unk> in.
In the fourth quarter of 2021, and eight 2% in the third quarter of 2022.
However, the quarter story was ancillary which registered $41 per Pax a record ancillary.
And salaries also reached an all time high proportion of our operating revenues at 42%.
We're especially pleased with these results for water. They are a step in the right direction towards our medium term goal of having 50% of our operating revenues derived from ancillary.
But more importantly, greater adoption of ancillary service will allow us to keep our base fares low further stimulating demand.
Pending our low cost advantage over our peers and expanding our key competitive advantages in buses. In addition, we will accelerate our V club membership.
Which will be a tailwind to our ancillary revenues changes to this program will be launched at the end of this week.
We are also opening a prominent channel for customers to further engage with Polaris offerings.
In January 2023, we announced our participation in FEMSA loyalty program through OXXO.
The largest retailer in Mexico, which will allow users to earn and burn daily point, and an ecosystem of restaurants apparel stores retailers and much more.
Upon launch at the end of this April the program stands to be one of the largest affinity platforms in Latin America with many notable brand and around 20 million users already signed on her.
Helping us attract even more first time Flyers.
As always customer experience is a top priority for Polaris as Enrique mentioned, our mandate to connect families across the Americas, especially around the holidays figured prominently as we contended with acute weather effect. This December .
Winter Storm Elliott and the United States and severe form in Tijuana impacted our flight service. However, it is essential to note that these delays did not reflect any deficiency in our technology, our systems, but simply a disruption at the time, when we had maximized our operations to enable homebound travel.
For as many members of families as we could.
Fortunately, we fully recovered flight says within 72 hours at a minimal cost a testament to the people and technology, we invested in.
Discrete events aside our operational performance was excellent in the fourth quarter with an overall on time performance of 74%.
We also raised the bar for efficiency registering utilization records of around 900000 ASM per aircraft per day.
Our operations were unwavering as loads on our flights remained robust throughout the quarter with load factors surging into the 90% in the last two weeks of December during peak travel as we look towards the first quarter of 2023.
We remain optimistic as we have not observed any signs of deceleration of a looming recession.
We saw healthy traffic growth at the beginning of the year and booking curves are solid into spring.
We continue to see strong consumer demand in all markets, particularly in the United States and Central America now I will turn the call over to Jaime to discuss our financial performance for the quarter.
Kroger I want to discuss our fourth quarter and full year 2022 financial results.
Highlighting our strong financial performance, despite the fuel price headwinds we saw throughout the year.
We accomplished guidance on every line, particularly on our revenue and CASM ex fuel growth.
Total operating revenues for the fourth quarter reached $820 million.
22% increase compared to 2021, driven by higher unit revenue.
For the full year 2022, while our as reported <unk>.
Total operating revenues of $2 8 billion, an increase of 29% compared to 2021 levels in line with our guidance despite the aforementioned economic volatility.
EBITDA margin for the fourth quarter increased two four percentage points sequentially to 25, 2%, though it fell 11 seven points compared to the same period of 2021 attributable to higher fuel costs EBITDA for the quarter totaled 207.
<unk> million dollars, an increase of 19% sequentially, though a 17% year on year a decrease.
Overall for the full year 2020 to visit their margin was 26% a decrease of 16, one percentage points compared to the 2020 once a year.
To note.
2020, one coke prices the EBITA margin, who has been nearly 37% EBITDA came in.
At $586 million, a decrease of 27% compared to 2021.
Fuel costs drove total gasoline to wait for the fourthquarter.
21% increase compared to the fourth quarter of 2021.
Our average economic fuel cost increased by 45% year over year.
To $3 $71 per gallon.
Overall for the full year 2022.
<unk> registered a total cost of $7 95.
Compared to $6.45 in 2021.
Economic fuel cost for the entire year search.
8% to $3 $80 per gallon.
While we are seeing jet fuel prices contract as we move through the start of 2023, we expect them to remain above 2021 levels with crack spreads also remain at higher levels. We will continue managing controllable expenses indication our leverage on cost and supporting margin in the periods ahead.
Yes.
CASM ex fuel increased seven 9% and totaled $4 79 for the fourth quarter.
At the same time for the full year 2022 remarkable level Larry's posted gasoline fuel of 426.
Just <unk>, 3% year on year.
Fight inflationary pressures throughout our operations remain significantly higher year on year.
Looking into 2023, we're focusing on restricting controllable costs given this environment.
During the fourth quarter, we broke with delivery cost of $34 4 million netted by sale and leaseback gains for a total amount of $6 6 million.
On a unitary basis. This represented $2.36 this quarter compared to zero point 18 cents in the fourth quarter of 2021.
The ongoing transition to new engine option or new aircraft and maintenance cycle explains the increase.
The cyclical events will continue or we're doing 2023 and 2024 and then gradually returned to 2019 levels as we got through the benefits of our fleet renewal.
Adjusted CASM ex fuel, which excludes fuel deliveries and sale leaseback gains totaled $4 10 compared to $3 93.
In the fourth quarter of 2021.
For the full year adjusted CASM ex fuel fell two 4% to $3 97.
For the fourth quarter net income was $28 million, which translates into earnings per ads of <unk> 24.
For the full year 2022, <unk> reported a net loss of $30 million. However, it is essential to remember that fuel expenses drove this loss in the first half of the year, we had a solid second half returning to profitability once unprecedented volatility in oil prices has stabilized.
The cash flow provided by operating activities in the fourth quarter was $168 million.
Cash outflow using investing in financing activities were $104 million and 102 million respectively.
Furthermore.
<unk> finished the quarter with a cash position of $712 million.
Representing 25% over the last 12 months operating revenues.
Well this was a slight reduction compared to previous quarters due to capital expenditures. These were mainly attributable to year end maintenance and pre delivery payments for our New York with.
We feel comfortable with this level of capital expenditure in the short term, especially as we transition into renewables.
Long term payoff is clear when comparing more lives with the most efficient carriers in the world. The main opportunity to drive our cost efficiency to the next level resides in the transformation and ownership of our Neo fleet.
With that in mind, we weren't willing to when major fronts in 2022 to ensure that golar is appropriately invested in its future and insulated from the volatility in capital markets, but many of our peers are experiencing.
Last year, we signed contracts for sale and leaseback agreements for aircraft deliveries through 2025 and over $500 million in financing to cover pre delivery payments in that period.
<unk> mentioned, we will receive our first deliveries from the 2017 in the water with Airbus next quarter.
As we said at Investor Day, Our fleet plan is both conservative with our order book expected to grow by six 6% annually through 2027 and flexible we'll route to extend through lease extensions and as trade operating leases having.
So having a free America, Florida book is especially important as the industry starts to gauge the impact of potential supplier delays, including from Airbus.
While closely monitoring this we can leverage aircraft contract extensions to mitigate the delays.
Finally during the fourth quarter, we closed the realizations for 2023 with our labor Union committing to an eight 2% salary and benefits increase.
In contrast.
Low cost competitors in the U S.
<unk> instituted labor pay increases went into the double digits, sometimes into percentage is in the 30, some fortis and there is still a struggling to establish operations. Moreover, we will continue to be conservative with our capital structure.
<unk> has one of the most robust balance sheets, among Latin American carriers in our with our peers.
At the end of the fourth quarter, our net debt to EBITDA ratio was three nine times.
Our financial debt decreased by over 10% year over year as of the fourth quarter and.
As Enrique said, 91% of our total debt comprises of leasing liabilities with fixed rates.
<unk> has no refinancing pressure our fleet comprise one clubs around 17 aircrafts as of December 31 up from 101 at the end of the 2021 we.
We also added five new aircraft during the quarter by the end of 2023, we expect meals to comprise 60% of our fleet on our way to an all new fleet by 27.
As of the end of the fourth quarter, while our lease fleet has an average of 192 seats per aircraft and I never age of five four years with 54%, meaning your models.
We are seeing the benefits of the new transition already.
Moving to a reduction of one 2% in gallons per thousand asn's compared to the previous year.
We expect this trend to continue during the first quarter of 2023.
So today the transition to meals has already represented cumulative savings of 99 million gallons or around $367 million.
This is our core premise for our fleet transition, which will yield fuel savings over the next five years of approximately 300 million gallons or around $1 billion.
We view this as the most effective fuel price hits, we can have we.
We are not managing for the short term, but rather to create long term value.
Looking into 2023, we are seeing robust from growing demand, which gave us confidence that we will continue to see us from roads and unit revenues as we execute our capacity growth plan.
We also expect to extend our superior track record on controlling costs.
For our full year 2023 guidance, we assume an average foreign exchange rate between $19 25 to 1975 pesos per dollar.
Her to Gulf Coast jet fuel price.
Three three and $3 $1 per gallon.
Thinking toward consideration these variables we expect.
At the same growth around 10% versus 2022.
This growth rate anticipates potential challenges such as aircraft manufacturer delays in engine availability.
Total revenues to within the range of three two to $3 $4 billion.
CASM ex fuel to be in the field of four six to $4.08 EBITDA.
EBITDA margin between 29% to 31%.
Capex of around $300 million net finance pre delivery payments.
And finally, the net debt to EBITDA ratio below or equal to two five times.
With capacity moderating our heavy focus in 2023 will be on profitability.
Mainly as we drive toward our medium term ROE of at 33% EBITDA margin now I will turn the call over to Enrique for closing remarks.
Thank you very much Jaime can finish today I would like to remind everyone that our triple go from Investor day to double revenue EBITDAR and free cash flow from 2019 levels by 2025 remains top of mind for our team.
Notably we are 58% of the weight doubling revenue as of December 31, 2022, and our 2023 guidance shows that we expect to advance significant EBITDA and free cash flow generation this year.
No matter the environment, we remain disciplined on costs prudent with capital deployment and focused on rewarding our customers and investors.
Want to finish thanking our ambassadors for their significant contributions in 2020 I firmly believe that we have a remarkable group of hard working and muscles and committed shareholders within our family. Thank you very much we're listening and for all your contributions during 2022 operator please.
<unk> open the line for questions.
Thank you.
Well now open for questions.
But do you have a question. Please press star one on your Touchtone phone at this time or anytime.
If at any point. Your question has been answered you may remember at South Hampton.
By putting star two.
Questions will be taken at me or whether they are let's see yeah. You post your question that you pick up your handset.
Cause I optimal sound quality.
Parents can also.
Any questions.
That's fine.
You need to click the question Mark just glad the video area in the upper left corner and type. Your question. Please call probably Paul a question.
Our first question comes from Duane <unk> with Evercore ISI. Please go ahead.
Hey, Thank you for the time.
So we noticed some E.
Changes or may be volatility in the schedules into into the second quarter.
Mexico to U S capacity and I Wonder I know you've made some brief comments on the call but.
Has there been any movement on.
Kind of a cat to upgrade is there any chance that that gets accelerated.
So duane thank you very much decrease in rebates.
Sure.
We have seen the process going on really well I mean.
Basically as we said that maybe from the 39 points that were raised there.
It's only 10 missing from which are about half of them are related to law and order have upped our systems are things that need to be put in place.
We've had we've had the age here a week ago, which went through a process of now gladly come back by the end of March.
Once they go back and provided that the BC.
Decide to go ahead and raise the category. There's a couple of months that requires.
Thank you.
I'd say the process to go through it.
Yeah.
The U S government.
So it is and then we'll probably have a resolution.
Do.
You like to remember that once that happens, we still need to sell.
The routes, so so ramping up capacity.
With respect.
Is something only that is going to happen by by the last quarter. Okay. So yeah.
I would say that this process that we can think about it.
Okay. That's great. So that's kind of consistent.
Consistent with what you've.
You said in the past and then I wanted to ask you just a fleet related question.
On the <unk> hundred 20 ones maybe for <unk>.
What sort of emissions or what sort of markets are best suited.
For these loans.
He ones.
I met with them and the network are there are there some markets where.
Kind of the margin profile is you know is is less attractive.
And then can you just speak generally to lease rates that you're seeing on.
These <unk> hundred 20 ones that you are taking delivery of and how that compares to the lease rates on the aircraft that are out the door re delivering.
Duane Thank you.
This holder and so on the <unk> hundred 21 machines.
We have done.
In this year is we've changed the mission to longer stage lengths.
So that gives us.
In terms of profile.
In terms of generating more ASM per aircraft per day. It makes the cheap more productive and as we see a lot of strength in the in the U S Mexico market.
We did change the allocation of the $8 21 to more U S, China, as well and more tiguan offline.
So we have slightly changed emission profile of creative suite, you wanted to the benefit of cost and revenues and then I'll pass it over to Jaime for your question on each of these states.
Hi, Duane.
These factors behind by the first deal that we signed we cited before there were flying in 2020 in 2015.
And what we are.
To your point on <unk>.
On the market.
New ones that we are getting are substantially.
No.
That wage.
We're going to start getting the benefit going forward on that.
In addition, as we mentioned in the call that we're getting the benefit of receiving the indigo order aircrafts.
Leasebacks are based on the prices that we got from India.
Okay. Thank you.
Our next question comes from Helane Becker with Cowen. Please go ahead.
Oh, Thanks, operator, hi, everybody I hope all is well.
Yeah, because it's.
Sir I just have a couple of questions here.
Can you say.
What percent of the increase in CASM ex is related for for 2023 is related to labor cost increases and are there any other headwinds we should know about.
And it also it absolutely increases related to their fleets and basically on the rail delivery expenses and depreciation not related to the labor the labor doesn't.
Affect or impact the increase in the CASM ex for 2023, Israeli fleet delivery expenses, my payments and a little bit airport cost in particular for the international operations.
Okay. That's very helpful. Thank you and then my other question is.
Oh boy for Hooker I think hold or you said that you were moderating Saracen your core domestic market and I think I want to make sure I got this right raising fares in the international markets.
Can you say, a if that's correct and B can you say, whether or not there's greater uptick uptake rather on ancillary in international versus domestic or is it about the same.
So helane this is jose.
And regarding the fuel pass through we've been quite successful given the strong demand in international markets.
To accompany it absolutely the share increase and also the U S Mexico as well as the Central America U S markets.
And loads continue to be very healthy despite increases in the domestic market we have.
A two sided picture we have the trunk routes that are competed in there we opted to go for high load factors.
Stimulate volumes stimulate markets and maintain our base case are quite low.
And volume generates a higher ancillary revenues right because.
People buy additional services after they buy the ticket and then we have.
46% of our routes.
At our without competition competition that only compete against buses and there we have a little bit more flexibility on the pricing side and we have taken advantage of that in the domestic market as well.
So that's that's what's happening on it on the <unk>.
<unk> decided.
Ancillary.
Our revenues per passenger typically what we see in the international markets ancillary revenues per passenger are higher as well because people just take more bags on their international trips.
Got it okay.
Thanks, Holger. Thanks team, that's all very helpful.
Thanks, Helane, Thank you Lee.
Our next question comes from Michael Lindenberg with Deutsche Bank. Please go ahead.
Hi, Good morning. This is actually Shannon Doherty on for Mike. So it sounds like demand for the March quarter as Shang in Mexico can you update us on demand profile in Costa Rica, and El Salvador operations and are some of the you know approximately eight aircraft you're taking this year are expected to be used under these aoc is to serve the U S. Mark.
<unk>.
Thanks.
Sure. This is holger again, so what we've said in the past is that the.
Central American recovery is six to 12 months behind what we saw in terms of recovery from Covid in Mexico, and the U S. So we are.
Seen a strong rebound of demand.
ALC is in Central America, and that is reflected in the high low debt assuming traffic reports.
In the past months.
So we are quite happy with the development and the recovery in Central America.
We will allocate additional capacity to Central America. This year. We currently have six aircraft flying in Central America, and we expect that some of the deliveries. This year are going to go to Central America as well.
Actually they have announced new as it relates you mentioned in his script.
We will continue to develop our network in central and South America.
Great. Thanks, that's helpful and so.
On the news about Aeromar I knew that they may not have been really notable competitor to you guys. But can you just comment on how its bankruptcy may impact you, maybe you pick up some share between Mexico City and the beach destinations any color there would be helpful.
Yeah.
This is in recurrent revenue.
I'm very sorry about the cease of operation as a former and.
But we're doing right now is helping the government with its driving the passengers and we have allowed the former relates to apply for the job symbolize provided obviously that they fulfill our internal requirements and certifications.
Omar.
It is important to say is first it was it's very small.
Mitch Hi, guys Regional Airlines.
And as a result of that.
It was really small.
The impact in the market is very very measured.
Okay very small.
<unk>.
Yeah.
I think.
It's there is no impact in any.
Of the larger carriers.
And I think that's something which is really important to say is that this is the last.
<unk> that was operating in Mexico with a lot of financial problems for many many years.
And that.
I would say so.
Which is really important but by no means it reflects a systemic failure Mexican civil aviation system.
Thank you tremendously helpful having a garage.
Good morning, guys.
Okay.
Your next question comes from Guillermo Mendez with J P. Morgan. Please go ahead.
Good morning, everyone. Thanks for taking my questions extra two questions. The first one is a follow up on the guidance into their ships and the assumptions behind the guidance. So if you could share the breakdown between domestic and international out of the 10%.
Capacity increase for the year and Rick you mentioned at the beginning are saying that you have flexibility to adjust your capacity. According to demand the reporting to the 'twenty changes on the FAA discussion.
Just wondering what the blue Sky scenario for.
For capacity for the year if things.
All right.
And the second question is related to Nearshoring is it's basically how should we think about.
And just for interest leading to traffic in the short term longer term. Thank you.
So regarding the <unk>.
A breakdown of the growth base of 10% for the year, we're seeing slightly higher international growth. This year, despite being category two in Mexico.
It is driven by the up gauge of are.
U S Mexico rose to 20.
21 capacity, but also.
The already mentioned growth in our Central American Whiskeys in the U S.
I really wasn't that flexibility or growing that from <unk> to <unk> or <unk> is basically remember that we had ceased to be delivered this year.
Three of them in the Prescott.
In the second half, we already were really proactively.
And that basically relates to <unk>.
Already extended the.
But we are going to go wherever we can we're gonna be originally that we deliver on the bridge that we have the flexibility for the second half to keep those.
Three aircrafts, we see that got one comment earlier.
All growth as operating case further delays from the already once that Airbus has voted vials.
Therefore that challenge that the industry faces.
Finally, this is a breakthrough.
I wanted to say that our plan considers GAAP when you recover that as we said by the fourth quarter and we have planned a shift of domestic capacity to fulfill the purpose.
But.
Although we see positive progress we would expect it to be commercially viable before this Scott.
That's that's very clear thank you and it bodes nearshoring question.
We believe that near shoring continues to be.
Macroeconomic trends.
We observed in the long term, which puts Mexico.
In a very good position economically.
For the foreseeable future and we are seeing that effect in our.
Markets, which are mostly concentrated in the northern part of Mexico, We've seen strong volume and strong demand in those markets and we believe that that is partially driven by the new flooring effect and the higher employment rates, we've seen in the northern part of the country.
Yes.
In Monterey.
A couple of weeks ago, and then there was a big one.
And.
It is impressive to see that.
Romero.
Operations had an investment of companies like.
Human dose.
Warehouse facilities and.
And it is important to say I mean, there is for example, Monterey Washington into rate base and not one single square meter warehouse available right now.
Unemployment is down to zero.
That's super clear. Thank you for I think it's important.
And to the 11th.
Our next question comes from Philip Milstein like Citi. Please go ahead.
Hi, guys.
Good morning, and thank you for taking my question. So I have two questions from my side one thing is have.
Have you learned anything new.
From starting operating with Santa Lucia Airport.
Instead of Mexico City Airport.
And the second question would be to what extent.
Would a legion.
Variables Alliance.
Have any.
Impacts or Roche overlap with.
Your your route routes.
Organizations are those are the two on my side. Thank you.
Thank you. This is hold the I'll quickly comment on the Santa Lucia bleeds.
We started operations in the New Airport last March so approximately one year ago.
The Santa Lucia routes are still in ramp up and are on track versus our original estimates.
We've seen good load factors low packages are healthy.
And growing steadily.
Obviously this is a completely new airports. So it takes some time for customers to.
Understand how to get there in the end to end.
What it takes to die from there.
We currently have 11 routes operating from Santa Lucia.
19 tape outs per day and.
I would say the only caveat is that the base fares are still behind Mexico City International Airport levels.
And we intentionally sustained them lower their Mexico City international to continue stimulating demand and mix traffic shift from Mexico City to goodwill.
We reported as.
As a result.
We are currently not planning on it.
They are adding more capacity from Santa Lucia, we are waiting for the existing that's too much here.
Even relationship which isn't breakeven remained relationship with us.
Allegiant Air.
B.
We don't think it's going to affect the <unk> network, because we are in BCP Richardson relative network.
Rather than maybe they should look at.
Great. Thank you very much guys.
Again, if you'd like to ask a question. Please press Star then one our next question comes from Josh Milberg with Morgan Stanley . Please go ahead.
Hey, everyone. Thank you for the call. My first question relates to your jet fuel guidance for 2023, which I believe you framed in terms of the U S Gulf coast level, rather than the economic cost. So I just wanted to ask what was the logic for that change if I understood correctly, and then also what <unk>.
Fred you anticipated between the commodity price and the all in fuel price for this year and eventually what what could move that spread up or down that's the first question.
Okay.
Okay.
Stevie styling, we basically use the Gulf coast because it is basically the easiest way for you to rise.
To see which is the one that is impacted most people.
Thank you.
Do you want to add up.
40, <unk> it will get you the total economic.
Okay, that's great I mean, so youre pretty confident in that 40% level.
For this year and don't see much variability around that makes a lot closer to change that.
And Thats not also change the game, but we're pretty comfortable so far it has been a stable.
The past six months.
Okay, perfect and then.
My second question was a follow up to an earlier question on your CASM X guidance and I just wanted to see if you could give us a rough idea of what level of aircrafts, where your delivery cost and what level of sale leaseback gains are embedded in your 2023 CASM ex guidance.
Because I'm just getting that number youll ship you got another one I can take a look at the number we'll get back with you later.
But it's basically.
They are various and he's going to be reporting 44.
Sales impact on deliveries.
And then a leaseback is minimal points here one.
Okay. That's very helpful really appreciate it.
Youre welcome guys.
Okay.
Our next question comes from Andrew you around how is the bank of America. Please go ahead.
Hi, gentlemen, thanks, so much for the opportunity.
So.
In my view there was the assumption in the guidance that is basically the company capturing.
Yet still price reduction expected for the year.
Can you confirm that and if so can you.
Please provide more details on.
The competitive environment, how far how comfortable velocity.
With supply beam.
Let's say got.
At a corporate about levels this year and also on Oi.
A few hedges if there is anything in place at this moment. Thanks.
Thanks very much.
So I'll take the first question on capacity and competitive environment the business further.
As you recall, we grew quickly since the pandemic to build our position in Mexico, and we've seen similar.
Most of the competitors in Mexico.
Now we have met those objectives.
And we will return to a more historical growth rates.
In the in the high single digits low teens and that's.
Precisely what youre seeing in 2023, we're planning.
<unk>.
At 10% ASM growth rate versus 2002, and that is that much lower and back to the historical growth rates.
And Thats the game at all.
<unk> considers Airbus delivery delays in engine.
Delayed them. So that is reflected there and we're seeing similar moderation of growth rates by our competitors.
So we believe we are in that we continue to be in a pretty healthy competitive environment.
With respect to the few hedging we don't have any position of hedging for 2023.
Okay. Thanks very much.
Thank you Roger.
Our next question comes from Don Thank you very much.
So thank you very much Derby worrying is illegal.
Targa liquidity during ticket at 33 I want to thank you.
Especially you our family of ambassadors the board of directors, the bankers, the matures and suppliers for their commitment and support.
Look forward to another strong year ahead.
As I said during the Investor meeting I think we are just getting started thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Okay.
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Sure.
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