Q2 2023 Controladora Vuela Compañía de Aviación SAB de CV Earnings Call
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Up until the last second quarter 2023 financial results Conference call.
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At this time.
Turn the call over to Ricardo Martinez Investor Relations Director. Please go on hip Colorado.
Good morning, and thank you for joining the call.
With us today are our president and CEO Enrique will turn into.
Our airline executive Vice President Bulger blankets thing.
Our Chief Financial Officer, Jaime Poles, they will be discussing the company's second quarter 2022 results.
After war.
We'll move on to your questions. Please.
Please note that this call is for investors and analysts only before we begin.
Remember that this call may include forward looking statements within the meaning probably couple of securities law.
Forward looking statements are subject to several factors.
This call the company's results to differ materially from expectations.
As described in the company's filings with the United States S T and Mexico's E M B b pieces.
It's a statement.
Only as of the date they are made.
<unk> undertakes no obligation to update or modified any forward looking statement.
As in our earnings press release, our numbers are in U S dollars compared to the second quarter of 2022, unless otherwise noted.
And with that I will turn the call over 20.
Thank you Ricardo and everyone for joining us today.
During the quarter, our company's performance was aligned with our projected full year outlook supported by favorable macroeconomic conditions, including lower jet fuel costs and a stronger Mexican peso.
We're seeing solid bookings for the summer months and remain confident in the resilience of our VFR passenger base in Mexico, and the robust demand, we see in Central America, and the United States.
We eagerly await the return of Mexico's category, one status and the growth in the domestic market, resulting from the Mexico U S near shore.
We would like to start by reiterating our revenue and EBITDAR margin guidance for the year. We will continue to focus on delivering total operating revenue between three two and $3 4 billion and an EBITDAR margin of 21% to 31%, which is an increase of 8% to 10 percentage points versus 2022.
During this last quarter, we moved capacity from the Mexican domestic market to our Central American Air Operator certificate or Aosis, alleviating the temporary overcapacity, Mexico, and achieving a more balanced supply and demand as a result, we consciously been reduced a few points of market share in domestic <unk>.
You can market to achieve higher network profitability.
Throughout the second quarter, we maintained total revenue per passenger flat taking advantage of strong in sealy have revenue to offset domestic base fare reductions. Additionally, we maintain healthy load factors. The second quarter of 2023 feature hallmark progress for our ancillary strategy, our ancillary revenues as a person.
Vintage of total revenues were 49% up from 40% in the second quarter of 2022 and 47% in the first quarter of 2023.
The reduction of base fares shows the strength of our ultra low cost carrier model stimulating volume through lower base versus.
The load factor remained healthy in the mid eighties, as we managed pricing in the domestic market to drive volumes.
Injuries have responded in kind, resulting in rpms growing just ahead of a S EMS year to date.
International and pricing there remained robust showcasing an exceptional response to our increased capacity in Central America for routes to the U S and mix.
Our plan for the second half of this year includes incorporating additional capacity to these market mainly to serve the growing VFR demand between central American the United States.
Continuing with international year to date, we have an improvement of six five percentage points of load factor climbing from high Seventy's to me the eighties.
Given strong demand in VFR markets in California, Texas, and Chicago International passengers during the semester grew 33, 5% versus the same periods in 2022.
This quarter was focused on preparation for the future as we anticipate Mexico's imminent recovery of category one status with the U S. Our team has been proactive by planning to implement network changes in Mexico Central America and later in the year in the cross border market to the U S. These adjustments will enable us to relocate.
Some of our growth towards our robust international market.
Moving into our results from the quarter Asm's grew 18% compared to the second quarter of 2022, including a 13% increase in the Mexican domestic market and a 30% increase in our international markets. Initially we plan to return eight aircraft this year, but decided to extend it.
For six of them. This decision will allow us to better handle any operational challenges related to engine availability and aircraft delivery delays during the peak summer and December holiday season.
While year to date, our ASM growth remains ahead of our 10% guidance for the entire year. This strength is attributable to our strategy of extending six aircraft rather leaders.
We now expect <unk> to grow at around 13% in 2023, including the capacity will be blow to the U S. Upon category when required.
Turning back to demand theorize them for the second quarter was $792, a 3% increase compared to this year's first quarter and a 4% reduction compared to the second quarter of last year.
Our overall load factor for the second quarter was 84, 6% down one percentage point year on year.
April started with healthy load factor of 85, 8%. Our second most robust result for that month in the past decade, even considering flat traffic for Holly week, the week long Catholic observers and the eastern holiday in the first week of the month.
No factors for May and June were sequentially softer 84, 5% and 83, 3%, respectively. However, we have identified certain temporary or one off factors that influenced the dismal that rage.
Making me local and social media circulated an anonymous unsigned later widening of a potential strike and work stoppage by Golar is flight crews in June . This story provided further reverberations in the local press.
In addition, the Mexican aviation industry has been dealing with its category two downgrades from the FAA for over two years, while there are signs of regaining category. One status soon the restoration process has been long and burdens.
Mexico Savvy Asian authorities have stated that the government has completed all the necessary procedures had met the requirements set by the FAA.
Once the U S authorities announced their upgrade we're prepared to utilize the flexibility in our business model to redeploy approximately 5% of our total capacity to international markets in the fourth quarter. This strategic move will alleviate pressure on those markets, while providing the much needed capacity for U S routes.
We will also reactivate all the important strategic levers where upon the return of capital what are your one one of our top priorities is resuming the codeshare agreement with frontier, which will strengthen our network and provide enhanced travel options for our passengers.
The upside of the category one rest of the issue is the opportunity to utilize the 35 meals delivered to us since Mexico with foundry. These.
These aircraft are primarily allocated for domestic operations, meaning we are not fully capitalizing on therapy.
However, once cut the already one is reinstated we can leverage these modern and fuel efficient aircraft on longer routes.
This strategic move will optimize fuel consumption and assessing our competitive cost advantage. Moreover, it aligns with our commitment to sustainable travel.
Regarding cost our CASM for the second quarter was 740 dollar sense, making a notable 13% decrease compared to the same period of last year.
This reduction is attributable to the stabilization of fuel costs from last year's high levels CASM X fuel stood at $4 82 dollar cents for the quarter in line with our full year expectations. These achievement was attained despite the strong appreciation of the Mexican peso non engine availability costs and aircraft delivery.
Any delays.
Moving now to our fleet growth plan anchored around that were outstanding 143, all Neo aircraft Order book, which you plus a 117 80 21 Eric.
There was established along with the Indigo group in 2017 during the second quarter, we took delivery of our first Eric.
This is the start of an era, providing meaningful fleet cost ownership reduction and sets the stage for many of it if it's in the coming years like low cost going nowhere, while our environmental impact will also be reduced.
This time I would like to highlight significant recent commercial developments that speak to our growth strategies evolution in the future.
We announced 40, new domestic routes in Mexico, 33 of which presently have no other air series.
We launched our annual pass and all you can fly annual membership program.
Now the only earning in Latin America with an offering of this nature.
We founded Polaris to democratize flying and continue to pursue our mission of intro using both writers to claim too.
To date, we have served over 10 million first time Flyers, many of whom traveled with US again multiple times year.
Larry's, we prioritize both switching and lawyer passengers. So we have partnered with OXXO the largest retailer in Mexico for our affinity program. We have improved our ability to convert first time passengers into loyal customers, our low fares, our new affinity program are crucial in growing and retaining our COO.
Customer base.
Our passengers repeatedly travel with us where areas during the second quarter among all airlines in the year's first half, whereas registered the lowest complaint ratio at profitable Mexico Consumer Protection agency among all airlines in the year's first half with this achievement woolery demonstrated its commitment to quality and customer.
<unk> I'm glad to inform you that valor is an integral partners for Deere and Weezer announced an investment in clean June U S. Based startup focused on accelerating sustainable aviation fuel products. Likewise in further support of our fleet plan and sustainability program, we announced the selection of Pratt <unk> Whitney.
Coefficient GT F N Gs 464, Airbus <unk> hundred 21 Neo family aircraft in June . This agreement also includes a long term maintenance contract now I will turn the call over to Holger to explain our market evolution and commercial innovations in greater detail Leaseholder go ahead.
Thank you Enrique and good morning.
I'm pleased to share that the second quarter of 2023 marked a period of continued robust international growth and an exciting announcement of new domestic routes to expand our network and bolster ancillary performance.
Throughout this quarter, we have implemented various initiatives to enhance both the conversion of bus travelers to air passengers and increase passenger repetitiveness.
Regarding our second quarter results I would like to highlight that we achieved seven percentage points of the 18% capacity growth by driving superior utilization of our fleet, particularly Larry on longer routes. We saw remarkable progress with a daily average of 900.
9000 available seat miles per aircraft per day up from 835000 in the same quarter last year.
Additionally, we achieved $13 four daily block hours traveling experienced a slight decrease in the second quarter due to reduced eighth gears on domestic routes aiming to recover volumes.
However, this impact was offset by solid ancillary performance.
As a result total revenue per passenger reached 93.4 dollars higher than the $92 $6 achieved in the second quarter of 2022.
Total revenues per departure increased by 3%, while the overall load factor for the second quarter fell one percentage point year on year. The domestic market saw a 3.5 percentage point reduction nearly offset by a robust four nine percentage points growth in the international market.
Currently we are facing a short term excess of capacity and to address this we have taken action to reduce capacity on domestic trunk routes. We are also reshuffling, our domestic capacity to alleviate pressure on specific higher density routes.
And to pair for redeployment to the Central American market and the Mexico to U S routes upon the recovery of Cat one.
Furthermore, we haven't counted infrastructure constraints, particularly at Mexico City International Airport.
Our our slots have been reduced however.
However in June we announced 14, new domestic routes to connect underserved Mexican market aiming to alleviate this pressure and provide bus customers with a new alternative for travel.
This expansion seeks to replicate our successful models in setting VFR and leisure traffic in Tijuana and our strong base in Guadalajara.
Mexico's position as the largest trading partner to the U S and the emergence of near shoring create a favorable economic environment with higher employment better wages increased consumer spending and a stronger peso.
With a large strategic network concentration in the northern and central parts of the country, we are well positioned to benefit from these trends and anticipate further growth and market presence in the medium term.
All of the newly introduced domestic route began operating in the first week of July and we are pleased with the early turn out if traffic and growth. In addition to our success in the domestic market. We continue to experience strong growth in Central America.
<unk> two U S routes. This region rose by 76% at June compared to last year's levels and passenger volume increased by 32% in the first half of 2023.
To capitalize on the growing demand, we have a strategic advantage with our two central American Aoc's.
As part of our plan, we aim to allocate up to three additional aircraft with this region during the second half of the year.
Raising the total count to nine.
Our competitors in Mexico, lack alternative Aoc, leaving them with no other options to deploy additional capacity outside Mexico.
So far this year, we have opened international routes from El Salvador to Houston.
Ami, Oakland, Ontario, and California, and Guatemala to Chicago.
This brings us up to 24 routes operated by our Central American Aoc and more than 1 million passengers transported year to date, turning our focus to ancillary revenue, we experienced remarkable adoption of our ancillary product in the second quarter.
With our cutting edge approach driving a 25% year over year increase and a 10% increase versus the first quarter of 2023, reaching a record of $46 per passenger.
Ancillary revenue contributed over $9 per passenger more than in the second quarter of 2022.
Ancillary client to 14, 9%.
Up nine six percentage points year on year as a proportion of our total operating revenues.
These impressive results were achieved through innovative offerings, such as our V Club membership program, which has seen a doubling in sales compared to the first quarter.
Introducing the annual path and membership that provides unlimited flight for a yearly fee will allow us to enhance our load factors for last minute bookings and sale of distressed inventory effectively.
The annual pass provides customers with convenient and flexible travel options, while maximizing the utilization of available seats on our flight. We will continue to develop our Yahoo travel packaging program to further contribute to ancillary growth.
Additionally, our affinity program through OXXO partners has launched making it one of the most extensive programs in Latin America.
This program aims to attract more first time Flyers and incentivize repeat passengers a trend that we have observed increasing.
Looking ahead, we are optimistic about our solid bookings for the summer months supported by attractive low fares in our domestic markets, we anticipate traveling improvement year over year for the second half of the year.
In conclusion, we remain confident in the resilience of our VFR passenger base.
In Mexico at the same time, we will continue to experience robust demand in Central America, and the United States.
We eagerly await the return of Mexico's category, one status and are well prepared to seize the opportunities it will bring for.
For the second half of the year the seasonally stronger semester, we are looking forward to several top line tailwind.
Including solid booking curves stable International Affairs, a return of Cat, one strong central American growth.
And more solid domestic network and a ramp up of ancillary projects all contributing to lifting ancillary revenues towards 50% of total operating revenues.
I will now pass the call over to Jaime to discuss our financial performance for the quarter.
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Thanks Oliver.
In the second quarter of 2023 will always posted a 27, 1% EBITA margin an improvement of 11 five percentage points during.
During the quarter to cause normalized from last year's a spike and we are not forecasting disruptions in the jet fuel market for the remainder of 2023 with only seasonality driving movements in price levels for.
For the full year, we now expect Gulf coast jet fuel prices in the array chalk $2 55 to $2 $65 per gallon versus a range of three to $3 10 in our general outlook.
EBITA for the quarter totaled $212 million nearly double the prior year.
We maintain our full year EBITDA margin guidance in the 29% to 31% range EBIT totaled $51 million with an EBIT margin of six 5% up from a negative two 8% in the second quarter of 2022 net income was 6 million.
Translate into earnings per ads of <unk> points here of $5 six total operating revenues for the second quarter amounted to $782 million, a 13% increase compared to 2022.
For the full year, we maintain our top line guidance of three two to three $4 billion with.
<unk> revenue growth of 12% to 19% versus 2022.
And as Rick explained, we now expect full year capacity to increase by around 13% up from 10% in our original outlook, while the appreciation of the Mexican peso positively impacting our T RASM by zero point $78.
Our CASM was directly impacted by fewer points 19 dollar sense against the second quarter of 2022 X fuel unit cost increase as budget.
Driven by the Mexican peso appreciation and the delivery cost, which will peak in 2023, and 2024 and gradually returned to 2019 levels by 2020, we.
We maintain our 2023 CASM ex fuel guidance to be in the range of four seven to four point dollar thing.
Contrary to what has happened in other jurisdictions.
This gas control labor cost without any significant bulk and has kept its local currency increase in line with the Mexican inflation rate. In addition, we are budgeted to improve our full time equivalent employees per aircraft at the end of the year to 58 Ftes. The same level, we had in 2019.
Before starting to fill the void created by airlines have underneath the market. We are committed to leveraging our cost efficiency strength and cost efficiency as our primary competitive advantage our cost performance give us confidence that during the year second half we can compensate for the temporary unit revenue.
And OEM related lease cost, while generating profitability in line with our full year goals total CASM came to $740 six for the second quarter falling 12, 9% compared to the second quarter of 2022.
Our CASM ex fuel for the quarter was $482.
14, eight yearly increase our adjusted CASM, excluding fuel expenses and aircraft engine buyable leases expenses or a delivery cost and sale leaseback gains total for $43.
Compared to four points here with <unk> in the second quarter of 2022, an increase of 10.1% moving to fleet during the quarter, but Larry cited the three aircraft, bringing our total number of aircraft to 123.
We have 70, Airbus Niels comprising 57% of all aircraft and are projected to close the year at 127 aircraft considering a nervous potential delay of at least two aircraft until 2024 seats.
Seats per departure rose to 194 in the second quarter at 3% increase year over year and our fleet had an average age of five five years in the quarter, we will be able to lease expenses of $40 million net it buy sell and leaseback gains of $6 million Polaris.
Finished the quarter with a total cash level of $655 million.
Stenting, 21% over the last 12 months operating revenue the cash flow provided by operating activities in the second quarter was $159 million cash flow used in investing activities was $102 million in cash flow used in financing activities was 109.
Capex net of pre delivery payments total $54 million in line with our full year guidance of $300 million.
Our strategy to maintain operational reliability drove investments of $35 million in acquiring the spare engines. The capitalized major maintenance events expenses were $22 million for the quarter at the end of the second quarter, our net debt to EBITDA ratio was three five times down from $3 eight.
Thanks at the end of the first quarter, although our focus remains on deleveraging in the mid term, we expect our net debt to EBITDA ratio will likely surpass the initial projections for the entire year likely reaching approximately two eight times. This outcome is probably influenced by the flu.
<unk> related difficulties, we previously addressed.
Now I will turn the call over to Enrique for closing remarks.
Thank you Jaime in summary in the second quarter of 2020, we marked significant achievements, we have realized showcasing the advancement of our diversified growth strategy and reinforcing our position as the leading Mexican heritage.
We work glass cost has been instrumental in creating opportunities for sustained growth. As a result, we are on track to achieve or no targets. Besides evolve we will continue to exercise and screws in the capacity and being conservative with our balance sheet, which will allow us to anticipate challenges and capitalize on opportunities.
<unk> in our markets in ways few global operator, Scott.
We have been and continue to position <unk> for the long term. This translates into future growth, we will drive returns for our shareholders and provide a solid long term investment opportunity.
I wanted to close his remarks by reinforcing our commitment to double revenue EBITDAR and free cash flow from 2019 levels by 2025. Thank you very much for listening operator, please open the line for questions.
Thank you.
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Please hold while we poll for questions.
Our first question comes from the line of Stephen Trent with Citi. Your line is open.
Good morning, gentlemen, and thanks very much for taking my question.
I had two for you the first if I may.
When do you think about the new airport and to loom.
What are your high level thoughts about.
Servicing that airport.
<unk> is also maintaining.
The operations that you already have and Ken Kun. Thank you.
No.
Yes.
So Steve Good morning. Thanks for your question I personally met the people from <unk> last week.
I think it's too early in the equation to say, what we will end up doing there from a market perspective seems to be a good alternative.
But we haven't made any decisions to move further on on Peru.
Okay.
Okay I appreciate that Enrique I appreciate it.
And just one other quick one.
Let me kind of a high level view, whether it's become easier or more difficult too.
AD domestic.
Route since.
The government open Philippe handle this airport I know for you guys you added a bunch of routes and I was wondering if.
If anything has changed in the process or as it was before thank you.
Even so we've been adding.
Routes to our domestic network, we've been diversifying our presence in some of the smaller in secondary cities, we announced the opening of 14, new domestic routes.
The quarter and that is the highest number of routes. We've opened in one quarter in the history of the company so well.
We continue on the same path as we've said focusing very much on our core market and <unk>.
Identifying opportunities for bus switching.
Okay.
Alright.
Steve very helpful.
I would only add Steve that there is no change in terms of how we will approve routes to be flowed into the future.
Yes.
Okay. That's perfect very helpful. Thanks, gentlemen.
Okay.
Thank you.
Please standby for our next question.
Our next question comes from the line of Duane <unk> work with Evercore. Your line is open.
Hey, guys good morning.
Just on.
On cat one.
Specifically, what what should investors be watching to gain comfort.
That is that it's going to happen.
And the timing.
On when it will happen.
Thank you very much Duane I appreciate your question.
Yes.
Let me tell you I mean bold already she's ready and prepared and will move forward in accordance with the Mexican use historically Stein.
We will focus on our core markets in our core beer for our customers.
We are still sticking to the possible date, which is some time.
During the fourth quarter.
Okay.
I guess just to follow up there Enrique.
Great.
For a minute from a U S investors perspective.
Could they be watching vis vis the process to gain comfort that there.
That timing is on track.
Okay.
Luke.
I think the first thing that you need to see is that the.
U S recognizes that there has been a big progress.
<unk>.
The authority in Mexico.
Things Scott brokers tremendously.
The second thing, which is really important is approval of the loss, which were already approved in our welding process.
Third topic is do you need to pay attention to the U S Bureau of Cressey process, which.
Harsh it's times.
It's process and I think you guys will be gaining.
Concrete is once they come out.
They finished that process.
And start requesting the dot's too.
Erase it could take years.
Yes.
I appreciate that thoughtful response I understand it's not an easy not an easy question.
Just with respect to.
The comment about positive T RASM in the second half.
Could you put a finer point on that do you expect it to be both in.
In the third quarter and in the fourth quarter or is it more <unk>.
Quarter weighted and just related to my first question is there a dependency on getting cap one to bring that to fruition.
Duane now suddenly.
We see a seasonally.
Better second half of the year traditionally an ethical ourselves so certainly.
We will see some uplift in <unk> versus the first half of the year.
In addition to that.
We do see a return of cat one towards the end of the third beginning of the fourth quarter. Then we could just mentioned and we have a plan in place to reshuffle capacity take some pressure off the domestic.
And reallocate that to the international markets.
That includes.
Three aircrafts to Central America, which should also help lift traveling so we have certain actions in place and plans in place to improve traveling for the second half of the year.
Okay, maybe I misunderstood did you say you expect year over year improvement in T. RASM in the second half or just that you expect a better second half versus the first half.
Both.
Both statements are true.
That's what we thank you very much thank.
Thank you guys.
Thank you please standby for our next question.
Our next question comes from the line of Helane Becker with TD Cowen Your line is open.
Thanks, very much operator, hi.
Tim just a couple of questions on the new route I think you said.
A couple of times that there were.
40, or something new domestic routes and about 33 of those have no competition, just kind of curious about the size of.
The market on a daily basis, and what's the load factors on those new routes look like and and is there.
<unk> to improve the load factor.
So yes. These are 40, new domestic routes are in <unk>.
Most of these secondary cities in the domestic market.
We have.
A combination of.
Target markets there they are all.
Focused on generating and stimulating demand we have some leisure routes in there from secondary cities, but we also have a lot of VFR markets in there.
Yes.
Big focus city is Backheel why now what to me he Cali and fully account. So these are secondary cities that previously didn't have direct service to other cities in Mexico.
Traditionally is the case new routes have ramp up periods in the domestic market typically somewhere between six and nine months early indications are that.
The routes are performing as expected.
<unk>.
We are stimulating.
The demand in these new routes with very attractive pricing and are building those factors as expected.
Okay, I think thats helpful.
Hmm.
Okay, and then shifting just.
Shifting gears a little bit on.
Their capacity plans so.
There was a plan to return the a 390 <unk> right.
So you have are.
Are there still April 19th or are they gone and then as you see on these root tissue think about the right aircraft in the market I mean, I would think is secondary cities they would.
They would lend themselves to a smaller aircraft rather than a larger aircraft but.
I don't know what what's the size of your smallest aircrafts now and and will it be a drag on load factors.
In terms of fleet Lane, we already returned two 880 this year and we have is still in the fleet three airplanes, which are going to leave it next year.
Yes.
Having said that I will pass it over to closure for the user to replace it.
So in the domestic market, we have a mix of <unk> hundred 20 ones and <unk> hundred Twenty's and we have shifted capacity of 822 longer stage length routes and that has helped lift our productivity in the fleet and.
Has that contributed to our ASM capacity growth in the first quarter first half of the year.
Four new routes, what we typically do is we start with very.
A few frequencies per week.
These new routes.
About two to three weekly frequencies and we employed the 80 20 or <unk> hundred 21.
And as we stimulate demand in these new markets, we add weekly frequencies instead of up gauging the aircraft.
Okay.
I had the feeling that you have a problem with our load factors.
One could make that really clear okay.
I think we did have a little bit of overcapacity during the quarter. It took us a little bit of correct that moved some itineraries.
Created these new routes moves the capacity to Central America, and we ended up basically solving the problem. So to meet what is very important to leave very clear in your mind is that there is not a demand problem I mean, we are.
We're an ultra low cost carriers. So what we do is we basically eight reduce our pricing.
Increase our ancillary seemed the same proportion and that worked perfectly so there's not an underlying demand reduction behind what you are asking and I want to leave it very clear, it's not a monitor of sizing of aircrafts for us. The aircraft size is really important because of the cost so.
Let's be absolutely clear, we do have the right aircrafts, the right capacity and the right loads going forward.
Oh, Thanks, Enrique it's not a load factor problem I have it's more a capacity problem I have.
Just getting over your skis in getting in getting too.
Yes, the way I would say it is going into markets that are secondary or tertiary with large aircraft may not have the desired effect.
Longer term, but that's that's fine you explained it very well and I appreciate it. Thank you very much.
Thank you.
Yeah.
Thank you.
Please standby for our next question.
Our next question comes from the line of Michael Lindenberg with Deutsche Bank. Your line is open.
Oh, Yeah, Hey.
Good morning, everyone I guess.
Yeah.
Enrique back to your point about allocating I guess, 5% more capacity to international markets. It does look like international is doing a bit better.
If we think about the first half of the year, how much more profitable we're international than domestic and presumably I think your domestic is probably just back of the envelope is is is losing money.
And as we think going forward.
Is there a bit of a secular change here, where maybe the international markets are going to generate better margins for you going forward, maybe because some of these markets that you're in you're the only carrier in the market, maybe it's better growth potential and maybe we're seeing a maturation of the domestic market I know, there's a lot of questions in there, but I'm trying to square.
<unk>.
Why your international are doing so much better than your domestic.
And we'll just capacity well that solve that thank you.
So a couple of comments here.
Michael regarding domestic and international.
Overall currently as Enrique mentioned, we do see a temporary.
Slight excess of capacity in the domestic market driven by the fact that.
Our competitors have.
Very few places other than domestic market to allocate new capacity coming in into their fleets.
As a reminder, we do have two central American aoc's to be able to mitigate some of the.
Excess capacity in the domestic market for us.
Now if we look at the split between international and domestic.
Are allocating more capacity and we have plans to allocate more capacity once cat cat one comes back.
And if we look at.
Our cost structure against some of our international competitors cost structure that that cost gap has widened over.
Over the last two years and that gives us a sustainable.
Competitive advantage going forward.
Especially in the transporter market to the U S. So yes, we're looking at.
Higher international growth going forward once category one comes back.
Okay and then.
Just one quick follow up for Jaime I was going to ask the question about <unk>.
Big picture as a stronger peso better for you, but you actually broke out the difference is the impact that it had on CASM and the impact that it had on RASM can you I missed it but it looked like the way. The math was it is a stronger peso is much better for you, but can you can you give us the impact on the two components. Thank you.
Yeah.
Okay.
Sure Michael it's starting with castle total gas so the impact of the better effects for the quarter was 14 919 sales U S dollars and for the Gaslog fueled it was.
0.6, you a sense.
In the <unk>.
It's twice the benefit.
Impact the cost.
The number.
On the <unk>.
Okay.
Was <unk> 78 dollar sense the benefit during the quarter due to the strong pace.
Okay. So then what I think.
Oh go ahead sorry.
Oh no.
What I've said is that for every 5% depreciation of the Mexican currency is.
EBITDA margin improved approximately nine percentage points in EBIT margin.
One four percentage points improvement.
So you have a flue online.
Sure.
And that's a 5% movement in the currency I guess appreciation.
That's correct.
So then just to go back on the CASM ex what why did that move up a bit more than it would seem like the strong peso had some effect, but it did it seemed like there was a bigger impact there is that maybe because of some of the ground at.
Airbus is because of the <unk> is there an issue there.
Okay.
Okay.
Partially yes.
Remember the Investor Day, we mentioned that because you are comparing <unk> versus 2022 there.
You should of course based on the re deliveries.
Fleet substitution, which that are counted.
Yeah, there were different related costs of 441 U S census dollars.
But these are still aligned with the expectations that we have nothing to worry about.
Okay very good you answered all my questions. Thanks, everybody appreciate it.
Thank you.
Please standby for our next question.
Our next question comes from Atlanta, La Jerry L. A roadshow with Bank of America. Your line is open.
Yeah, Hi, guys. Thanks for the opportunity I have a couple here first one already delivery costs. It seems there was a $40 million expense this quarter.
How can we read this.
In relation to expectations, perhaps coming quarters.
I understand Barry.
<unk>.
Currently having hired very deliberate causes then why do which what would you call it normalize it.
Scenario and to win should it go and what can we seek.
About a normalization Samir every week in terms of delivery very deliberate crosses once it normalizes.
The first one.
Secondly, if I may is ancillary revenue you mentioned there is some projects that we're excited about for the second half of the year.
Can you please give us a little bit more detail on them I know you will have some but.
What are you.
What are you more most excited about thank you.
Hi.
Mentioned basically the rail deliveries it should impact that we're gonna be seen at 23.
<unk> 24 start going down in 'twenty five.
Going back to 2019 levels in 'twenty towards by the end of 2020, beginning of 2027, so it's only temporary.
But based on the fleet substitution.
We explain a lot during the Investor day in December .
That's basically the main reasons why the jump in those two lines notice in this quarter, which should continue the rest of the year.
And regarding ancillary revenues, we have a couple of things that are.
We are working on and we are maturing number one clearly.
The uptake in our V Club membership program has been Oh.
Seeding, our expectations and now contribute some.
Inefficient amount of our sales and as we build that out we're going to see improvements number two.
<unk>.
Products around insurance and helping the customer.
Insurer for their entire trip.
We're working on that and then is as we already mentioned.
We just launched our affinity program with a retail partner OXXO. That's in early stages of development.
And we should see a more material contribution to ancillary revenues towards the end of year end in 2024.
Overall, we have mentioned in the past that our business to achieve 50% of total operating revenues through ancillary revenues.
We are probably going to achieve that them early then than anticipated.
And <unk>.
This is just a milestone one milestone in our journey to offer more competitive base fares.
With optional value added offerings on top so suddenly the.
The 50% Mark is not at the end of the line.
Okay very clear if I may one follow up from the first question what was the 2019 levels probably read delivers.
Four in 'twenty.
Since <unk>.
U S dollar sense.
Yeah.
Okay.
2000 2020.
Thank you.
20 <unk>.
Okay perfect. Thank you very much have a great day.
Okay.
Thank you.
Please standby for our next question.
Our next question comes from the line of Bruce.
<unk>.
Goldman Sachs. Your line is open.
Yes, good morning, everybody. Thank you for it.
The opportunity to ask the question I just wanted to have.
Have your helps you better understand the changes to the guidance with you.
Costs or the fuel prices have fallen significantly year to date.
So you know the environment now from a cost perspective, much better than before and even so you are not increasing your margin guidance for the year, which might suggest that we can ask on the pricing side vis vis what you were expecting earlier in the year.
<unk> category, one might play a part here, but correct me if I'm wrong, but you are not expecting a major contribution from cuts you're going to want to see it right. Maybe you are now counting on on the I like the Navy that is the initial plan. So what's happening there in the east demand weaker if competition is fiercer.
Any color there would be helpful. Thank you so much.
So in general.
A lot of things happening in the revenue equation, which I think are important the first one is.
We do have.
To balance capacity.
For the third quarter end of third quarter and fourth quarter.
Based on what is going to happen both with engines.
B, there's two aircraft that are being delayed by Airbus that will not be arriving.
Towards the end of the year see Theres, obviously because of the economies in the U S and Mexico.
Some some reduction of pricing.
And.
In general.
We're trying to balance the new capacity versus the old capacity.
The introduction of new routes in the U S because of cut their warehouse social or ramp up okay.
In general those are the most important factors, but too many things happening in the equation, having said that I think sticking to our EBITDAR margin guidance is something really good and it takes us back to a level from 29% to 32% which is really good.
31%.
Yeah.
Thank you.
Thank you.
Please standby for our next question.
Our next question comes from the line of Alberto Valerio with UBS. Your line is open.
With the monitoring I think Mike My question.
And Apple.
Uh huh.
One quick one on my side.
We heard today in the morning, but nobody can we be recalling 200 engines.
Extra maintenance outage.
I would like to know esports has one off craft those changing.
Are any of <unk> competitors.
Mexico. Thank you.
That's correct.
We heard it right going in their conference. This morning that they have that their mind, a rare condition and Paolo metro used to manufacture certain engine parts.
Which will require accelerated quality inspection.
Calculating about.
200 engines that need.
To be inspected by mid September of this year, and it's going to be a program a progressive program, which is calculated to be in the following six months. Thanks Scott.
The company.
Two.
To retain six of the aircrafts that were.
Close to leave this year and we extended those six aircraft.
This feature will allow us to better handle better any operational challenges related to engine availability and aircraft delivery delays.
During.
The last two quarters okay.
Too early to calculate what's the real impact and where it's going to be the impact but.
I think the company has the provisions and has been working and then accelerated way to try to to come to control the product.
Yeah.
Okay. Thank you.
Yeah.
Thank you.
I'm showing no further questions.
This concludes today's question and answer session I would now like to invite Mr. Qi.
Please go ahead Sir.
Thank you very much operators as always I want to thank Joe we're familiar for both of those to the board of directors investors bankers to the source suppliers for.
For their commitment and support during another quarter I look forward to addressing you all again in October and <unk>.
Hopefully I can see some of you in September when we celebrate 10 years of being public. Thank you very much to everybody. It was a great pleasure to be with you. This morning.
Yeah.
Ladies and gentlemen, this concludes the Polaris conference call for today.
Very much for your participation and have a nice day.
Okay.
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