Q3 2023 Controladora Vuela Compañía de Aviación SAB de CV Earnings Call

[music].

Okay.

Good morning, everyone. Thank you for standing by welcome to Polaris is third quarter 2023 financial results Conference call. All lines are in a listen only mode. Following the company's presentation. We will open the call for your questions. Please note that we are recording this event this event there.

Is also being broadcast live via webcast and can be accessed through <unk> website. At this point I would like to turn the call over to Ricardo Martinez Investor Relations director.

Please go ahead Ricardo.

Good morning, and thank you for joining the call.

With me today.

He is our president and CEO and recurrent Brennan.

Our airline executive Vice President Bulger blankets thing.

And our Chief Financial Officer Jaime pose.

They will be discussing the company's quarterly results.

After work.

We will move on to your question.

Please note that this call is for investors and analysts only.

Before we begin please remember 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.

Described in the company's filings with the United States S E T and Mexico's C. M. D. B piece statements speak only as of the date they are made.

<unk> undertakes no obligation to update or modify any forward looking statement.

As in our earnings press release, our numbers are in U S dollars compared to last year's quarter, unless otherwise noted.

And with that I will turn the call over to Eric.

Thank you Ricardo and everyone for joining us today.

I want to begin by highlighting the quarter's results compared to last year's figures in.

In the third quarter <unk> increased by 10% total operating revenue by 8% a beat by 11% and EBITDAR by 18%.

Before we explain in detail the third quarter results, which Hogan and Jaime will present, a lot of there is two key topics. The first one Pratt and Whitney G. T F N genius preventative accelerated inspections and the second one is Mexico City International Airport slot restructuring and if a yeas category one.

Capacity ramp up plan.

Regarding the first topic the.

The Pratt and Whitney preventive accelerated inspections, I want to provide a clear and comprehensive overview of our current knowledge of the situation.

These tissue effects, not only varieties, but 42, where nice globally, including two in Mexico, Pratt <unk> Whitney's parent company RPX Corporation.

He built in July and September that the problem with the powder matter in a high pressure turbine. This.

Will necessitate accelerating spectrums of G D E F and G and so on Airballs 80, 20 meal families.

Approximate 3000 engines worldwide William their goal with inspections from 2023 to 2026.

These inspections are Monday built by the FAA after a specific number of cycles, depending on the engine type.

Currently the FAA has only issued the first service is structured for the initial batch of LNG.

<unk> top priority has always been and will continue to be the safety of our ambassadors and customers. Thus we're diligently following old preventive airworthiness directive.

Our current visibility over the situation is limited to the initial batch as informed by RPX to the operators.

The current estimate is that depending on the work scope.

It will take roughly 250 to 300 days on average for these changes to be removed and inspected and never returned to the operator to go back into service.

RPX Earth estimates that prepping Whitney will take a financial hit of about $6 billion to $7 billion of.

Of which 80% is customer support, namely financial compensation to carriers and the remaining 20% is labor and material costs for the works.

We are currently negotiating with Pratt and Whitney regarding their initial financial support for Polaris issues corresponding to these first batch of agencies.

We expect to reach an agreement with Pratt <unk> Whitney in the next months.

And will reflect the negotiated compensation and support package in our financial statements was that agreement is in place.

There is still work to be done to finalize this initial agreement I must commend Pratt and Whitney for their responsiveness and their relative meant for the financial strain on Polaris due to the current N genius.

They have actively collaborated with us to mitigate any significant impact on our financials based on guidance from patent with me. We expect there will be additional work required on the new engine lasting into 'twenty, four and 'twenty five beyond the initial preventively expectations well.

We are in discussions with Pratt and Whitney on how best to mitigate these ongoing issues and to ensure appropriate compensation and support tubular eyes. We don't expect to have any clarity on the longer term impact on the first quarter of 'twenty 'twenty four we will provide subsequent updates as appropriate.

Today with Larry's fleet comprises 126 aircraft of which 22 way 321 meals and 50 180 20 news may be temporarily affect.

Once the initial directed was published where there isn't Brett immediately identified the engines requiring preventive accelerating inspections in September there was an 8% reduction in ASM and an estimated revenue impact of $18 million versus the forecast associated with our regional published.

Capacity.

Thus on October 10th we revised our ASM growth for the full year 2023 to be 10% versus our previous guidance of approximately 13%.

This translates to a fourth quarter 2023, total capacity remaining virtually flat compared to the fourth quarter of 'twenty two.

Despite this capacity reduction in our forecast, we anticipate that our total operating revenue for the year will remain at the low end of these years annual guidance provided in February reaching approximately $3.2 billion.

The situation is still evolving, but we anticipate engine inspectors will limit capacity deployment from the engines to be inspected until they are completed by 2026.

Management is looking for alternative solutions to mitigate the impact and will consider for example, extending leases and identifying available CEO aircraft.

It is premature to forecast the potential impact on our 2024 growth plan, but notwithstanding our mitigation initiatives. It is fair to assume that we will be forced to shrink our capacity in 2024 as a result of these engine issues.

As we've done in the past the galleries management team will again do our best to respond to the challenge. We have designed the mitigation plan to manage changing variables and generate shareholder value as an ultra low cost carrier, we're always focused on managing costs, we control and implementing strategic initiatives.

To offset the impact of those we do not control in this case. These initiatives include first we are optimizing our network by taking advantage of the recovery of Mexico, Scott, one status, reducing growth to new markets and putting capacity on underperforming routes.

Second we are maintaining strategies to stimulate demand and enhancing ciliary penetration to drive unit revenues third as noted above we are currently negotiating lease extensions for several <unk> aircrafts initially scheduled for delivery in 'twenty 'twenty, four and 'twenty 'twenty five fourth we're implementing additional.

Cost efficiency initiatives, which included reducing gradually very expensive in the short term.

Fifth on the OEM side, we are maintaining our new Airbus aircraft deliveries for 24, and 25, which currently includes 24 already financed aircraft. Additionally, we are actively pursuing further tactical additions in both aircraft and engines RPX has stayed at a quote we're still able to the.

<unk>, new engines and spare parts due to the deployment of the angles scanning spectrum.

Moving onto the second key point on Mexico City International Airport in Cat one the Mexican Aviation Authority has announced the reduction of the Mexico City Airport from 52 to 43 aircraft slots per hour effective January eight to 2024 after the holiday season ends.

As a result of this adjustment Polaris will have for our aircraft lines available for redeployment to other domestic stations, primarily serving routes to the U S. Following the cut went up.

For 2023, our estimated EBITDAR margin is anticipated to achieve a proximately, 26%. We will continue to execute diligently our mitigation plan in the short term.

To manage our costs around our reduced operating fleet size.

We'll thoughtfully retaining key personnel so that we may resume our long run growth trajectory.

And superior cost profile when the engine inspection situation has passed.

I will turn the call over to Hoeger to discuss our quarterly operating results and go forward network strategy.

Thank you Enrique and good morning, let me highlight some critical aspect of <unk> performance in the third quarter.

During the quarter, our rpm's demonstrated robust growth at 9.2% outpacing a sams, which grew at a rate of eight 2%.

S. EMS were aligned with our plant in July and August while rpms exceeded expectations.

The positive momentum in our domestic passenger base highlighted in our second quarter call through mid July <unk>.

Continued throughout the quarter, resulting in solid domestic volumes and load factors.

Domestic ASM finished the quarter, 2.2% higher year over year International Asm's increased by 22% driven by a substantial capacity reallocation to Central America.

Seeding last year's levels.

We capitalized loads in our domestic network during the quarter, achieving outstanding load factors network wide.

Overall, we achieved a total load factor of 86, 4% for the whole quarter.

Surpassing 85, 6% recorded in the third quarter of 2022.

In July and August the Pratt situation affected capacity by approximately 3%.

However, parking the aircraft affected by the G. T F engine issues in September resulted in a 1.9% decrease year over year in domestic ASM.

A reduction versus the original plan of 8%.

Despite strong demand in the Mexico U S market, we experienced in load factor contraction of about 10 percentage points in Central America.

This was mainly due to a substantial 74% year over year increase in capacity a strategic move as part of our preparations for December.

Listening us optimally for the upcoming high season, notably demand for VFR travel in the region remains robust.

In spite of the challenges posed by the initial round of G. T F engine inspections.

<unk> demonstrated remarkable resilience in the operational performance and a solid net promoter score throughout the third quarter. This was evident in our strong metrics, including volumes efficient utilization and notably.

Ancillary revenue penetration.

Despite a sub optimal operating environment, we delivered record quarterly aircraft utilization last quarter, a meaningful tailwind to ASM growth.

Regarding unit revenue.

<unk> for the quarter came in at 8.37 turns at 2% increase year over year helped by a stronger peso.

This result was driven by increased volumes and ancillary revenue per passenger which grew by 26% year over year. This was partially offset by an average base pair of $48, 13% lower year on year as we intentionally kept stimulating demand to maintain law.

Woods.

Our ancillary strategy has delivered solid results and we are delighted with its rapid growth.

In the third quarter ancillary revenues reached $49 per passenger setting a new quarterly record and representing significant progress.

We are fully dedicated to emphasizing this strategy acknowledging it's crucial role in enhancing revenue and margins during the third quarter ancillary sales represented remarkable 50% of our total operating revenues.

Notably our V club membership program, including the highly successful zero ticket fair introduced this summer experienced sustained growth passengers with V club memberships now constitute 18% of our total passengers.

Reflecting a significant increase from 8% compared to the third quarter of 2022. In addition to our understanding of bus switching passengers. We are just starting to drive the adoption of ancillary products and encourage repeat service through our loyalty based programs.

Our affinity program with OXXO the largest retailer in Mexico is still in its early stages and we envision it evolving into the largest platform in Mexico with Polaris as one of its cornerstones looking into the fourth quarter, we see solid bookings across our network as we approach the heart.

Today seasoning with demand trends largely resembling the ones we saw in the third quarter.

Regarding our network Polaris sought to critical developments in the third quarter with Mexico recovery of category, one status and Pratt <unk> Whitney's G. T. F engine inspection announcement, we were pleased to announce that recovery of category. One status on September 14th are significant.

<unk> achieved over two and a half years after the initial downgrade in the past months with diligently pursued regulatory authorizations to increase our flight frequencies between Mexico and the U S.

Additionally, our Codeshare partnership with frontier is set to resume in December although the G. T. F engine preventative accelerated expansions have affected our ability to reallocate aircraft for U S bound routes more than anticipated. We are on track to introduce four aircraft lines onto Mexico to U S routes Baidu.

December representing a 19% increase in capacity compared to last year's levels. Our management team is also working to optimize our network for the parked aircraft expected in 2024 by identifying and reducing capacity a long ramp up and underperforming routes looking to the.

Next year, we will focus on prioritizing our most profitable routes while doing so we will maintain a prudent approach to protecting realize long term growth prospects. Our commitment involves preserving our leadership in our domestic core markets, while leveraging the category one upgrade for routes to the U S.

Mulcahy asleep, we plan to scale back certain trunk routes, specifically, we will be reducing capacity on ramp up routes and at Mexico City International Airport in response to the aircraft movements reduction taking effect on January eight I will now turn the call over to highway pulse to discuss the financial performance.

<unk> for the quarter.

Thank you <unk>.

For the third quarter of 2023, Malawi's demonstrated financial performance, that's somewhat track behind our expectations.

Total operating revenues came in at $848 million, a 10% increase compared to 2022.

Driven by solid demand across our network and ancillary revenue per passenger which increased to $49 from 39, the previous year. However.

However, these resolved was partially restrained by the impact of the preventive accelerated inspections of the G. P. F N years during September.

Some was eight points 37 cents up 2% year over year.

EBITDA for the quarter totaled $207 million, an 18% increase over the prior year's quarter.

EBITDA margin was 24, 4% or an improvement of 1.6 percentage points from the third quarter of last year phase.

<unk> by lower jet fuel prices and a stronger peso.

<unk> posted an EBIT of $39 million up 11% for an EBIT margin of 4.6% flat versus 2022.

Our CASM X fuel was four point 91 dollar cents, an increase of 21%.

Operator: Good morning, everyone. Thank you for standing by. Welcome to Valerio's third quarter, 2023 Financial Results Conference call.

Mary factor driving this increase was a strong appreciation of the Mexican peso compared to the prior year.

Operator: All lines are in a listen-only mode. Following the company's presentation will open the call for your questions. Please note that we are recording this event. This event is also being broadcast live via a webcast and can be accessed through the Valerio's website.

As a reminder, a stronger peso has a net positive impact on our operating margins are still it is a headwind for unit cost given the translation of peso denominated costs into loyalty in our consolidated P&L.

Ricardo Martinez: At this point, I would like to turn the call over to Ricardo Martinez, investor relations director. Please go ahead, Ricardo.

The appreciation of the peso impacted our unit cost by <unk> 34 cents in the quarter.

Excluding this effect, our CASM ex fuel only increased 12% versus the third quarter of 2022.

Ricardo Martinez: Good morning and thank you for joining the call.

Ricardo Martinez: With me today is our president and CEO Enrique Belprenena, our airline executive vice president Holger Blankenstein, and our chief financial officer, Jaime Post. They will be discussing the company's quarterly results. Afterward, we will move on to your question.

We managed costs as effectively as possible to achieve expectation that included cyclical pressure associated with maintaining us and re deliveries that we anticipated on our Investor Day last December.

Moving to jet fuel.

The average economic fuel costs during the quarter was three point $17 per gallon.

While this equates to a 20% decrease year over year, given the lapping of last year's historic Stretchy field prices jet fuel costs have recently rapidly since the second quarter of this year up 17% sequentially.

Ricardo Martinez: Please note that this call is for investors and analysts only. Before we begin, please remember 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 findings with the United States SEC and Mexico's CMDB. These statements speak only as of the day they are made. And Bolaris undertakes no obligation to update or modify any forward-looking statements. As in our earnings per release, our numbers are in US dollars compared to last year's quarter, unless otherwise noted.

Even the recent geopolitical circumstances, we expect to continue to experience volatility in jet fuel prices.

During the quarter, we will delivery cost accruals, a 42.4 million and no sale and leaseback gains.

Total CASM came to seven point 98 cents for the third quarter.

1.7% increase compared to the third quarter of 2020.

For the third quarter, the net loss was $39 million.

The cash flow provided by operating and financing activities in the third quarter was $145 million and $87 million respectively.

Enrique Beltranena: And with that, I will turn the call over to Enrique. Thank you, Ricardo and everyone for joining us today. I want to begin by highlighting the quarterly results compared to last year's figures. In the third quarter, ESM's increased by 10%, total operating revenue by 8%, evit by 11%, and evidar by 18%.

Cash outflows to us investing where $138 million.

Capex net of pre delivery payments totaled $63 million in the quarter.

Our history to maintain operational reliability drove investment of $11 million in acquiring this spring.

The capitalized major maintenance events expenses were $37 million for the quarter.

Enrique Beltranena: Before we have explained in detail the third quarter results, which hold and high may will present, allow that it is two key topics. The first one, Pratt and Whitney GTF engines preventive accelerated inspections, and the second one is Mexico City International Airport's lottery structuring and FAA's category one capacity ramp up line. Regarding the first topic, the Pratt and Whitney preventive accelerated inspections, I want to provide a clear and comprehensive overview of our current knowledge of the situation.

Year to date Capex net of pre delivery payments stands at $186 million for the full year. We continue to expect capex of $300 million net of pre delivery payments.

Malaria is finished the quarter with a liquidity position of $764 million, representing 24% over the last 12 months operating revenue.

Given the effect of the expected Parker aircrafts on our capacity and network. It is particularly important to maintain a healthy cash position.

Enrique Beltranena: This issue affects not only Bolaris, but 42 airlines globally, including two in Mexico, Pratt and Whitney's parent company, RTX Corporation, revealed in July and September that the problem with the powder matter in a high-pressure turbine disk will necessitate accelerated inspections of GTF engines on Airbus A320 NeoFAM. Approximately 3,000 engines, well, while will they undergo inspections from 2023 to 2026. These inspections are mandated by the FAA after a specific number of cycles depending on the engine type.

In defence, we secured financing for eight this for engines through finance leases for $109 million, notably title of these leases are restructured under Japanese operating leases with call options or Joel costs represented a milestone formularies as these marks our first <unk>.

<unk> into these financing structures.

Additionally, in the third quarter will already successfully issue Mexican cross adults, what 1.5 billion Mexican pesos or $86 million.

This marks our third offering under the program approved by the CNBC and solidifies Malawi's as a regular issuer in the Mexican debt capital markets.

Enrique Beltranena: Currently, the FAA has only issued the first service instruction for the initial batch of engines. Volares top priority has always been and will continue to be the safety of our ambassadors and customers. Thus, we are diligently following all preventive airworthiness directs. Our current visibility of the situation is limited to the initial batch as informed by RTX to the operator. The current estimate is that, depending on the work scope, it will take roughly 253-100 days on average for these engines to be removed and inspected and they return to the operator to go back into service.

Overall, our balance sheet remains solid and flexible to comfortably meet our financial commitments for the foreseeable theater.

At the end of the third quarter, our net debt to EBITDA ratio remained at three five times.

As of September 30, our fleet comprised 125 aircrafts ops.

From 113 aircraft a year ago.

Seats per departure, where 194 in the third quarter and our fleet had an average age of 5.6 years. We are working diligently on our fleet plan with Airbus and maintaining our email aircraft delivery plan, which includes 24 aircraft already financed for 'twenty 'twenty four and 2025.

Enrique Beltranena: RTX Earth estimates that patent Whitney will take a financial hit of about 6-7 billion dollars of which 80% is customer support, namely financial compensation to carriers and the remaining 20% is labor and material costs for the work scope. We are currently negotiating with patent Whitney regarding the initial financial support for Volares issues corresponding to these first batch of engines. We expect to reach an agreement with patent Whitney in the next month and will reflect the negotiated compensation and support package on our financial statements, whilst that agreement is in place.

Our mitigation plan encompasses adjusting certain operating cost in anticipation of the expected reduction in our fleet.

However, we must emphasize that we would be cautious in our scaling back our operations.

We are committed to cost control. We also focus on long term growth and are mindful of the required resources to support that future editions.

Additionally, we aim to retain the flexibility to increase operations. After the engine inspections are completed quickly.

Although our unit costs will likely experience upward pressure due to capacity reductions our commitment to maintaining world class cost control remains unwavering.

Enrique Beltranena: While there is still work to be done to finalize this initial agreement, I must comment, patent Whitney for the responsiveness and their acknowledgement for the financial strain on Volares due to the current engine issues. They have actively collaborated with us to mitigate any significant impact on our financials. Based on guidance from patent Whitney, we expect there will be additional work required on the new engine lasting into 24 and 25 beyond the initial preventive expectations.

The company's net cost impact for this acquired which includes rounding compensation is forecasted to remain under control.

Sequentially for the entire year, we expect the CASM ex fuel to stay consistent with our guidance of around four point U S dollar sense.

CASM, both including and excluding fuel expenses will be netted for the compensation received from Pratt and Whitney. However, it is important to note that each line in the P&L statement will continue to reflect the actual cost of the entire fleet, including the nonproductive fleet.

Enrique Beltranena: While we are in discussions with patent Whitney on how best to mitigate these ongoing issues and to ensure appropriate compensation and support to Volares, we don't expect to have any clarity on the longer term impact until 1st quarter of 2024.

We updated our full year 2023 guidance two weeks ago to reflect parked aircraft cancellations and higher fuel prices as a reminder, our estimates for the full year are as follows.

Enrique Beltranena: We will provide subsequent updates as appropriate. Today, Volares fleet comprises 126 aircraft of which 22A321 NEOs and 51A320 NEOs may be temporarily affected. Once the initial directive was published, Volares and Pratt immediately identified the engines requiring preventive accelerating inspections. In September, there was an 8% reduction in ASMs and an estimated revenue impact of $18 million versus the forecast associated with our original published capacity. Thus, on October 10, we revised our ASM growth for the full year 2023 to be 10% versus our previous guidance of approximately 13%.

Rote of 10%.

Total operating revenues of $3 2 million.

Awesome ex fuel of 4.8 dollar sense.

EBITDA margin of 26% Capex.

Capex of $300 million net of finance repayments net debt to EBITDA ratio of three five times.

This outlook assumes an average for the full year foreign exchange rate of approximately $17 75, Mexican peso per dollar and average economic fuel price of approximately two point 80 per gallon.

Now I will turn the call over to Enrique for closing remarks.

Enrique Beltranena: These translates to a fourth quarter 2023 total capacity remaining virtually flat compared to the fourth quarter of 2022. Despite this capacity reduction in our forecast, we anticipate that our total operating revenue for the year will remain at the low end of these years annual guidance provided in February reaching approximately $3.2 billion. The situation is still evolving but we anticipate engine inspections will limit capacity deployment from the engines to be inspected until they are completed by 2026.

Thank you very much Jaime Polaris has managed numerous challenges and regulatory is that peak in recent years, including slot reductions in Mexico City International Airport, a mayor Covid crisis, a downgrade in the category of the Mexican Aviation authority soaring fuel costs, well above historical levels shifts in <unk>.

New regulations, including discussions on kawa dash, the transition to new airports significant delays from Oems the complex implementation of new engine technologies et cetera.

They were already steam has consistently responded with agility throughout these challenges adapting the company effectively in achieving considerable success a certain moments in the aviation industry absolute clarity is impossible to assess.

Enrique Beltranena: Management is looking for alternative solutions to mitigate the impact and will consider for example extending releases and identifying available CO aircraft. It is premature to forecast the potential impact on our 2024 growth plan but notwithstanding our mitigation initiatives, it is fair to assume that we will be forced to shrink our capacity in 2024 as a result of this engine issue.

We firmly believe that the current situation is no exception, where again prepared and motivated to manage their airline for a successful 2024, we will focus on managing our fleet to the best of our ability putting safety first while focusing on profitability.

Our operation May be smaller in the short term, but with continuing strong demand against reduced capacity in our markets and appropriate support from breadth and Whitney that next year has the potential to deliver an improved performance versus 2023.

Enrique Beltranena: As we have done in the past, the Volary Management team will again do our best to respond to the challenge. We have designed the mitigation plan to manage changing variables and generate a shareholder value.

Enrique Beltranena: As an ultra-local carrier, we are always focused on managing costs, we control and implement strategic initiatives to offset the impact of those we do not control, in this case these initiatives include. First, we are optimizing our network by taking advantage of the recovery of Mexico's Cat1 status, reducing growth to new markets and cutting capacity on their performing routes. Second, we are maintaining strategies to stimulate demand and enhance and silly penetration to drive unique revenues.

You very much for listening operator, please open the line for questions.

Okay.

Thank you.

The floor is now open for questions. If you have a question. Please press star one one on your Touchtone telephone at this or any time if at any point. Your question is answered you may remove yourself from the queue by pressing star one again.

<unk> will be taken in the order. They are received we asked that when you post your question that you pick up your handset to provide optimal sound quality.

Enrique Beltranena: Third, as noted above, we are currently negotiating lease extensions for several CO aircraft initially scheduled for recovery in 2024 and 2025. Fourth, we are implementing additional cost efficiency initiatives which include reducing red delivery expenses in the short term. Fifth, on the OEM size, we are maintaining our new Airbus aircraft deliveries for 24 and 25, which currently includes 24 already financed aircraft. Additionally, we are actively pursuing further tactical additions in both aircraft and engines. RTX has stated, by quote, we are still able to deliver new engines and spare parts due to the deployment of the angle scanning spectrum.

Those following the presentation via the webcast may post their questions on the platform. The management team will answer them. During this call or the relentless investor Relations team will follow up after the conference call is finished.

Please send your questions via the webcast platform click on the ask a question button and type of inquiry. Please hold while we poll for questions.

Our first question comes from Duane <unk> with Evercore ISI you May proceed.

Hey, good morning.

I just wanted to ask you maybe.

Our RASM distribution, our profitability distribution question, if you were to rank.

Your routes kind of highest RASM to lowest RASM how.

Enrique Beltranena: Moving on to the second key point on Mexico City International Airport and Cat1, the Mexican Aviation Authority has announced a reduction at the Mexico City Airport from 52 to 43 aircraft slots per hour effective January 8, 2024 after the holiday season ends. As a result of this adjustment, Polaris will have four aircraft lines available for re-deployment to other domestic stations, primarily serving routes to the US following the Cat1 up. For 2023, our estimated radar margin is anticipated to achieve approximately 26%.

How much how much lower is the bottom 10% to 15% in other words.

You haven't given 2000 for guidance here, but if you were to cut the bottom 10%, 15% of your capacity into next year, how much could your RASM improve and certainly appreciate there are a lot of moving parts here with category, one et cetera, and maybe some shift to international.

But maybe you could give us a sense for some sensitivity there.

Yeah.

<unk>.

We had a part of those all of those.

Routes that were not performing yet when the perfect balance basis okay.

Enrique Beltranena: We will continue to execute diligently our mitigation plan in the short term to manage our costs around the reduced operating fleet, while thoughtfully retaining key personnel so that we may resume our long run growth trajectory and superior cost profile when the engine inspection situation has passed.

So that 10, 15% that <unk> has in the lower tail.

Indeed.

A good amount of routes that were in development. If you remember we launched more than 40 drought. This year that were maturing okay and they were part of that okay.

Doing is yes, you're absolutely right when making the question.

Holger Blankenstein: I will turn the call over to Holger to discuss our quarterly operating results and go forward network strategy. Thank you Enrique and good morning. Let me highlight some critical aspects of Vuela's performance in the third quarter. During the quarter, our RPMs were demonstrated robust growth at 9.2% outpacing ASMs which grew at a rate of 8.2%. ASMs were aligned with our plans in July and August while RPMs exceeded expectations. The positive momentum in our domestic passenger base highlighted in our second quarter call from mid July continued throughout the quarter, resulting in solid domestic volumes and load factors.

We're cutting down that capacity, we're cutting down the nonprofit doubled capacity and the less profitable routes and that accounts.

That probably improves our trials.

Somehow between 5% to 8%.

Okay appreciate it.

There are a lot of moving parts.

It is also fair to assume that there will be some capacity reductions in the.

Mexican domestic market since two out of the three airlines, which account for 70% of the market are going to be affected by the patent Whitney engine issue. So lots of moving parts in the domestic market.

We have got one back into international markets. So.

Holger Blankenstein: Domestic ASMs finished the quarter 2.2% higher year over year. International ASMs increased by 22% driven by a substantial capacity reallocation to Central America, exceeding last year's levels. We catalyzed loads in our domestic network during the quarter achieving outstanding load factors network wide. Overall, we achieved a total load factor of 86.4% for the whole quarter, surpassing 85.6% recorded in the third quarter of 2022. In July and August, the Pratt situation affected capacity by approximately 3%.

We will see where things turn out once we have a fleet plan.

I think it is important to say Duane that our forecast for the year and already includes the downtime of aircrafts that we have.

Forecast for this quarter.

Okay. Thanks for those thoughts and then just just on compensation.

I assume at a minimum aircraft ownership.

And the cost to make these repairs.

Are on the table, but what about other cost staff staff costs, presumably you hired.

Fly this capacity.

What other forms of compensation are on the table.

Holger Blankenstein: However, parking the aircraft affected by the GTS engine issues in September resulted in a 1.9% decrease year over year in domestic ASMs, a reduction versus the original plan of 8%. Despite strong demand in the Mexico-U.S, market, we experienced a load factor contraction of about 10%age points in Central America. This was mainly due to a substantial 74% year over year increase in capacity, a strategic move as part of our preparations for December positioning us optimally for the upcoming high season.

But at the moment, we cannot comment on that it's something that we are under negotiation with PREPA.

Okay rationale in support of the company.

But we will share whenever.

The possibility of doing so.

Just want to remind you Duane because we do have a flexible labor contract based on a per hour basis.

Okay. Thank you.

Thank you one moment for our questions.

Our next question comes from Stephen Trent with Citi. You May proceed.

Holger Blankenstein: Notably, demand for VFR travel in the region remains robust. In spite of the challenges posed by the initial round of GTS engine inspections, Wolaris demonstrated remarkable resilience in the operational performance and a solid net promoters course throughout the third quarter. This was evident in our strong metrics including volumes, efficient utilization and notably ancillary revenue penetration. Despite a suboptimal operating environment, we delivered record quarterly aircraft utilization last quarter, a meaningful tailwind to ASM growth.

Good morning, everybody and thanks for taking my question.

I was just curious.

I know with category one restored now.

You should have more U S bound flights.

Any high level.

Color with respect to <unk>.

What proportion of your capacity is going to be.

Mexico to U S.

In 2024 versus what it looked like pre pandemic with the view that maybe you are now still doing.

More Central America to U S. Non stop for example, just sort of trying to sort out.

Holger Blankenstein: Regarding unit revenue, travel for the quarter came in at 8.37 cents at 2% increase year over year, helped by a stronger vessel. This result was driven by increased volumes and ancillary revenue per passenger, with grew by 26% year over year. This was partially offset by an average base pair of $48, 13% lower year on year, as we intentionally kept stimulating demand to maintain loads. Our Ancillary Strategy has delivered solid results, and we are delighted with its rapid growth.

Hi.

How are you going to be thinking about.

Northbound capacity thank you.

So Steven this is holger I can give you some color on the fourth quarter, we are planning to.

We are planning to increase capacity in the international market by around 19%.

For the fourth quarter and that is.

Driven by some additional U S Mexico capacity and then Rick you mentioned.

Considering four aircraft lines.

That were previously operated in the domestic market to be shifted into the international market in the fourth quarter.

Holger Blankenstein: In the third quarter Ancillary revenues reached $49 per passenger, setting a new quarterly record and representing significant progress. We are fully dedicated to emphasizing this strategy, acknowledging its crucial role in enhancing revenue and margins. During the third quarter Ancillary sales represented remarkable 50% of our total operating revenues. Notably our V-club membership program, including the highly successful zero ticket fair introduced this summer, experienced sustained growth, passengers with V-club memberships now constitute 18% of our total passengers, reflecting a significant increase from 8% compared to the third quarter of 2022.

And also to remind you that we added significant capacity to Central America, which includes Central America to the U S side and that's it.

In the high double digits.

Over here.

So we are focusing on growing our international capacity in the fourth quarter.

For our 2024, we're still sorting through.

The available capacity.

We will get back to you with some additional guidance on the split between domestic and international as we move through the fourth quarter.

I appreciate that hullinger. Thank you and just a very quick follow up if I may.

Holger Blankenstein: In addition to our understanding of bus switching passengers, we are just starting to drive the adoption of ancillary product and encourage repeat service to our loyalty-based programs. Our affinity program with OXO, the largest retailer in Mexico, is still in its early stages and we envision it evolving into the largest platform in Mexico, with Volaris as one of its cornerstones. Looking into the fourth quarter, we see solid bookings across our network as we approach the holiday season, with demand trends largely resembling the ones we saw in the third quarter.

I know.

Again government is I guess resuscitated Mexicana.

When you look at their flight schedules to what extent do you guys have modest overlap or maybe no overlap at all.

Sure.

Thank you.

So we have.

Okay.

Viewed initial.

Yes.

Notes of Watson plant capacities.

All of the capacity.

And then we'll launch is from the New Airport I saw the New Mexico City Airport.

Holger Blankenstein: Regarding our network, Volaris saw two critical developments in the third quarter, with Mexico's recovery of category one status, and tried and witnessed GTF engine inspection announcement. We were pleased to announce the recovery of category one status on September 14, a significant milestone achieved over two and a half years after the initial downgrade. In the past months, we've diligently pursued regulatory operations to increase our flight frequencies between Mexico and the US. Additionally, our culture partnership with Frontier is set to resume in December, although the GTF engine preventative accelerated inspections have affected our ability to reallocate aircraft for US bound routes more than anticipated.

There is about half of the routes are all currently overlapping with us from iPhone and half are completely new routes for lifestyle. So I'm very limited overlap so far.

For us with a new airline.

Okay. Thanks, again whole girl I'll leave it there I appreciate that I suppose it would be.

In the 1% to 2% ASM.

Overlap.

Right now.

Perfect very helpful. Thanks, Thanks very much.

Thank you.

One moment for questions.

Our next question comes from Helane Becker with TD Cowen you May proceed.

Thanks.

Holger Blankenstein: We are on track to introduce four aircraft lines onto Mexico to US routes by December, representing a 19% increase in capacity compared to last year's levels. Our management team is also working to optimize our network for the parked aircraft expected in 2024, by identifying and reducing capacity along ramp up and under performing routes. Looking to the next year, we will focus on prioritizing our most profitable routes. While doing so, we will maintain a prudent approach to protecting Volaris long-term growth prospects. Our commitment involves preserving our leadership in our domestic core markets, while leveraging the category one upgrade for routes to the US. Simultaneously, we plan to scale back certain trunk routes.

Everybody and thank you for the time today.

Earlier this week or late last week. It is reported by the three publicly traded airports in Mexico that.

Holger Blankenstein: Specifically, we will be reducing capacity on ramp up routes and at Mexico City International Airport in response to the aircraft movement's reduction taking effect on January 8.

They had reached an agreement on charges with the government and the government put out a note that said air fare should come down 9% to 12% as a result of that agreement on charges and I'm wondering if that how that will affect you guys. If at all.

So helane, we've been tracking the process with airport groups very closely and.

All I can say firms today that it's firm today is we received a letter that was sent by GAAP.

Two.

The GAC or to the authority.

They are proposing a reduction of 10% of two us effective that same day.

Okay, So that may impact the total price.

Jaime Post: I will now turn the call over to Hyde Pulse to discuss the financial performance for the quarter. Thank you, Holger. For the third quarter of 2023, Valerio demonstrated his financial performance that somewhat tracked behind our expectations. Total operating revenues came in at $848 million, at 10% increased compared to 2022, driven by sound demand across our network and Enthigia Revenue per passenger, which increased to $49 from $39, the previous year. However, this result was partially restrained by the impact of the preventive accelerated inspections of the GPF engines during September.

The tickets to the consumers.

Great. That's it I'm wondering if that while effective. So then one word answer is yes. It will.

Yes, it will even the positive base.

<unk>.

Because your costs are going down.

That ROI.

Why don't you have to reduce your ticket prices to the customer.

Were not affected by any of those changes.

Our pricing structure is not being affected by any of the changes to our charges are pass through charge that we put into the ticket price. So the total ticket price for the consumer that they pay on a website is going to be reduced but not our actual fair or ancillary revenue.

Jaime Post: Trasum was $8.37 up to 2% year-over-year. Evidar for the quarter totaled $207 million, and 18% increased over the prior year's quarter. Evidar margin was 24.4% or an improvement of 1.6% at points from the third quarter of last year. Favour by lower-year through prices and stronger peso. Volaris posted an EV of $39 million, up 11% for an even margin of 4.6%, flat versus 2022. Our Casum Exil was $4.91 and increased of 21%.

Got it Okay got it I understand what you're saying now thank you and then just one.

The club members I heard you say that I think membership doubled.

In the past one year, which is very impressive.

I will limit as to how many members you are willing to accept.

Into the program or is it kind of an unlimited number.

No Helane.

We don't have a limit on how many of the top members would.

We'd like to welcome welcome to our program ideally the more the more members we have the more captive audience, we haven't been more repeat business. We have so we highly welcome these developments.

Jaime Post: The primary factor driving this increase was a strong appreciation of the Mexican peso compared to the prior year. As a reminder, a stronger peso has an positive impact on our operating margins. Still, it is a headwind for unit costs, given the translation of peso-denominated costs into dollars in our consolidated P&L. The appreciation of the peso impacted our unit costs by 0.34 cents in the quarter. Excluding this effect, our Casum Exil only increased 12% versus the third quarter of 2022.

Okay. Thank you. Thank you very much.

Thank you one moment for questions.

Our next question comes from Michael Lindenberg with Deutsche Bank You May proceed.

Hey, good morning, everyone.

I guess, how does your fleet of 125 airplanes, how many Airbus as they are now grounded and as you think out over the next 12 months or so do you have sort of a rough sense of how many airplanes will be on the ground.

Jaime Post: We managed costs as effectively as possible to achieve expectation that included cyclical pressures associated with maintenance and deliveries that we anticipated on our investor day last December. Moving to just fuel, the average economic fuel cost during the quarter was $3.17 per gallon. Well, this equates to a 20% decrease year over year, given the lapping of last year's historic search in fuel prices, yet fuel costs have risen rapidly since the second quarter of this year, up 17% sequentially.

Any point in time.

Yes, as I said, Michael we have 50 tool.

New engine aircrafts.

<unk>.

Okay.

Given that this is now we're releasing every certain number of cycles 2800 cycles for basically the 100 3800 cycles for the <unk>.

Most of those aircrafts will go through the provision through the preventive rubbish.

Yes.

Okay, and how many are on the ground.

Jaime Post: Given the recent geopolitical global circumstances, we expect to continue to experience volatility in jet fuel prices. During the quarter, we will delivery costs for courrals of 42.4 million and no sale and lease by gains. Total Casum came to $7.98 for the third quarter at 1.7% increase compared to the third quarter of 2022.

Jim.

And maybe moving underground it maybe.

Today, we have 16 aircraft grounded okay.

And does that number and <unk> as we move through the next 12 months or so does that number get better or is that kind of a rough.

Got it.

So in every week, Okay. That's why it's so important.

I think Michael what were trying to do is we're thinking on our customers and we have to publish an itinerary schedule, which is which is solid.

Jaime Post: For the third quarter, the net loss was $39 million. The cash flow provided by operating and financing activities in the third quarter was $145 million and $87 million, respectively. Class Outlooks used in investing were $138 million. CapEx, net of delivery payments total $63 million in the quarter, our strategy to maintain operational reliability, drove investment of $11 million in acquiring experience. The capitalized major maintenance events expenses were $37 million for the quarter, year-to-date CapEx net of delivery payments stands at $186 million for the full year, we continue to expect CapEx of $300 million net of delivery payments.

Reliable and it's not changing for the customers. That's why from the other side I mean for US it's really important to speak in terms of the incentives because <unk>.

Aircrafts going in aircrafts going out engines going up yes.

And it's going to be really variable. So I don't think it's related.

Important to speak of an aircraft or engines for you guys, who who make your prognosis based on <unk> and for the customers who need a reliable.

It reliable schedule. So I think the most important way of managing this is managing through a prognosis based on the assets.

Okay I agree I, just I'm trying to get a sense on knowing that we cover the last source I'm trying to get a sense of how many airplanes.

Jaime Post: Volaris finished the quarter with a liquidity position of $764 million, representing 24% of the last full month operating revenue. Given the effect of the expected broker craft on our capacity and network, it is particularly important to maintain a healthy cash position. In this sense, we secure financing for eight Esperengings through final releases for $109 million. Notably, part of these releases are a structure under Japanese operating leases with collabsions or Yolkos, representing a milestone for Volaris as these marks our first entry into these finances structures.

They have to extend the leases on and that's actually my second question, which is.

In your conversations with the lessors.

What sort of response are you getting on the cost of the new lease because what we're hearing is that with narrow bodies scarce and everybody asking for extensions at the same time.

Interest costs, Gary Hi that in some cases the response, we're getting from the lessor.

Is a much higher monthly rental price under the extension than what they were currently benefiting from despite the fact that the airplane.

There's a lot older right it should be a lower lease rate not a higher lease rate. So that would be my second question is just on your early.

Jaime Post: Additionally, in the third quarter, Volaris successfully issued Mexican pros adults worth $1.5 billion Mexican pesos or $86 million. These marks are were served offering under the program approved by the CNBB and solidifies Volaris as a regular issuer in the Mexican debt capital markets. Overall, our balance sheet remains solid and flexible to comfortable meet our financial commitments for the foreseeable future. At the end of the third quarter, our net debt to evite a ratio remain at 3.5 times.

Conversations with the lessors.

Is it.

Does it appear that these new extensions would be a bit more expensive than what you currently have thanks for thanks for taking my question.

Youre welcome Michael This is Scott.

Net.

The types of numbers, we will be extending 18 aircrafts that were supposed to read with delivery in 2024 and 2025 okay.

The new rent environment has changed due to the situation.

Jaime Post: As of September 30, our fleet comprised 125 aircraft, up from 113 aircraft a year ago. Six per departure were 194 in the third quarter, and our fleet had another exchange of 5.6 years. We are working diligently on our fleet plan with Airbus and maintaining our inner aircraft delivery plan, which includes 24 aircraft already financed for 2024 and 2025. Our mitigation plan encompasses adjusting certain operating costs in anticipation of the expected reduction in our fleet.

Still rents will be lower than the new fleet that we have.

Extend shows when range within 24 months.

48 months normally lead source preferred that the airline that is already operating the plane extended plain rather it to even to somewhat new.

<unk> expenses.

The airplane for the other airlines, but you are right.

The pricing environment has has the increase if you compare.

Early this year on Tuesday.

Jaime Post: However, we must emphasize that we would be cautious in scaling back our operations. While we are committed to cost control, we also focus on long-term growth and are mindful of the required resources to support that future. Additionally, we aim to retain the flexibility to increase operations after the engine inspections are completed quickly. Although our unit costs will likely experience upward pressure due to capacity reductions, our commitment to maintaining world-class cost control remains unwavering.

Great that's super helpful. Thanks, Thanks, everyone.

Thank you.

One moment for questions.

Okay.

Our next question comes from Ross <unk> with Bank of America, You May proceed.

Hey, gentlemen, thanks for the opportunity I have a couple here.

First one on Vimeo margin guidance provided.

It implies a very strong EBITDAR margins for fourth Q.

Despite the higher oil price around 33, 34% is that correct and what is driving that.

Jaime Post: The company's net cost impact for the third quarter, which includes rounding compensation, is forecasted to remain under control. Consequently, for the entire year, we expect the Catholics feel to stay consistent with our original guidance of around $4.us cents. Custom, both including and excluding fuel expenses, will be netted for the compensation received from Patan Whitney. However, it is important to note that each line in the PNL statement will continue to reflect the actual cost of the entire fleet, including the non-productive fleet.

I can do that.

The other following that answer thank you.

So I'll take the first part of that question. Thank you.

And so in the fourth quarter.

We are expecting a high single digit year on year growth in total revenue per available seat mile.

And we believe that those improvements will mostly come through better ancillary revenues. Following the same trend of improvements that we have year to date.

Jaime Post: We updated our full year 2023 guidance two weeks ago to reflect part their craft, cancellations and how you feel prices. As for reminder, our estimates for the full year are as follows. A SM Road of 10%, Total Operating Revenues of 3.2 million, Casamix fuel of $4.8 cents, Evita margin of 26%, Capix of $300 million net of finance plays in repayments, net debt to evita ratio of 3.5 times. This outlook assumes an average for the full year foreign exchange rate of approximately $17.75 Mexican pesos per dollar and an average economic-filled price of approximately $2.80 per gallon.

And remind everyone that we are entering into one of the best quarters of the year will be high season of December and November.

There is also leveraging the return of Cat one in December.

And.

We will grow in the U S Mexico market as we already.

Blaine.

And.

Remind everybody that the guidance that we've given already includes the affected <unk>.

Through the present Whitney engine situations, where the capacity guidance, we talked about already in that number.

Okay. That's very clear. Thank you my second question is regarding the financial compensation.

Enrique Beltranena: Now, I will turn the call over to Enrique for closing remarks. Thank you very much, Jaime. Olarys has managed numerous challenges and regulatory's topic in recent years, including slot reductions in Mexico City International Airport, a mayor COVID crisis, a downgrade in the Capella of the Mexican Aviation Authority, souring fuel costs well about historical levels, shifts in aviation regulations, including discussions on Cabotash, the transition to new airports, significant delays from OEMs, the complex implementations, implementation of new engine technologies, etc. The Olarys team has consistently responded with agility throughout these challenges, adapting the company effectively and achieving considerable success.

No.

You guys mentioned, 6% to $7 billion.

Financial compensation estimated 80%.

Me too.

Compensated the airlines and treat thousands of engines.

So.

Can we do like a if you do an average compensation by engine.

Do we reach something bad is close to our best gas and is it going to be.

Similar compensation for each age enough I'll just use 3000.

Or it's going to be very different across airlines.

I see.

That's the question you need to do to our Dx.

Operator: A certain moments in the aviation industry absolute clarity is impossible to assess. We firmly believe that the current situation is no exception, we are again prepared and motivated to manage their airline for a successful 2024. We will focus on managing our fleet to the best of our ability, putting safety first while focusing on profitability. Our operation may be smaller in the short term, but with continuing from demand against reduced capacity in our markets and appropriate support from Pratt & Whitney, the next year has the potential to deliver and improve performance versus 2023.

I cannot answer for RPX.

They negotiate their compensation packages I could tell you, but we are trying to negotiate and how we are trying to negotiate that.

Eight.

Brian Harris.

Limitations from from.

From a contractual perspective, you mentioned the number but what we are planning to Lou and I think this is really important is expected before the end of this quarter, we will release a forecast both as a sentence that will be flying in the following quarter and second a an amount the total amount that will be.

Operator: Thank you very much for listening, operator, please open the line for questions. Thank you. The floor is now open for questions. If you have a question, please press star 1-1 on your touchstone telephone at this or anytime. If at any point your question is answered, you may remove yourself from the queue by pressing star 1-1 again. Questions will be taken in the order they are received. We ask that when you post your question that you pick up your handset to provide optimum sound quality.

Be accounted.

As part of the quarter compensation.

Okay.

Very clear. Thank you very much have agreed on.

Thank you one moment for questions.

Our next question comes from Jeremy Mendez with Jpmorgan you May proceed.

Hello, everybody and thanks for taking my question I have two follow ups actually the first one zone international capacity, so falling cat, one and they were moving in.

Operator: Those following the presentation via the webcast may post their questions on the platform. The management team will answer them during this call or their relaris investor relations team will follow up after the conference call is finished to send your questions via the webcast platform. Click on the ask a question button and type your inquiry. Please hold while we pull for questions.

Have you been facing some competition from U S carriers by adding more capacity to the U S. Because we understand that over the cat situation most of the.

The most profitable routes were compensated by U S carriers.

And the second one offs related to capacity if that by removing the capacity from Mexico City Airport.

If you are adding some additional flights from <unk>, we're just removing your overall exposure to Mexico city. Thank you.

Duane Pfennigwerth: Our first question goes from Duane Pfennigwerth with Evercore ISI. You may proceed. Hey, good morning. I just wanted to ask you maybe a, like a Rasm distribution or a profitability distribution question. If you were to rank your routes, kind of highest rasm to lowest rasm, how much, how much lower is the bottom 10 to 15 percent? In other words, you know, you haven't given 24 guidance here, but if you were to cut the bottom 10 to 15 percent of your capacity into next year, how much could your Rasm improve?

So in terms of U S capacity I can tell you that.

Our airline focuses on a different market segment and many of the U S carriers. We are focused on our VFR core markets flying from the Central Mexico to some of the Mexican heritage population markets in the U S that have no direct service, while many of the U S carriers focus on leisure destinations in Mexico and.

I would also like to remind everyone that we are seeing in an increasing CASM gap between us.

In Mexico, and our U S peers, and so we believe we are well positioned to take advantage of it.

Duane Pfennigwerth: And certainly appreciate there a lot of moving parts here with category 1, et cetera, and maybe some shift to international, but maybe you could give us a sense for some sensitivity there. The first of the, we had a part of those of those routes that were not performing yet on a profit balance basis, okay? So that 10, 15 percent that you have in the lower tail includes a good amount of routes that we're in development.

Demand in the U S Mexico transporter market.

Regarding the capacity in the Mexico City Metro area. We are currently operating in key airports, we are reducing capacity in Mexico City International Airport and as <unk> mentioned, we are using that capacity to fortify our U S Mexico.

Capacity in the short term.

Duane Pfennigwerth: If you remember, we launched more than 40 routes this year that we're maturing, okay? And they were part of that, okay? So what we're doing is yes, you are absolutely right on making the question. We are cutting down that capacity, we're cutting down the non-profitable capacity and the less profitable routes. And that accounts that that probably improves our Rasm somehow between 5 to 8 percent. And there are a lot of new moving parts.

Away from Mexico.

Are there other markets, Mexico seat from Mexico to the U S. Maybe I can just add that.

Okay Super clear thank you.

Thank you one moment for questions.

Our next question comes from Bruno Amorim with Goldman Sachs. You May proceed.

Thank you so I have two questions first one.

It's a follow up on the guidance for margin.

As previously discussed the guidance implies a significant improvement in the fourth quarter.

Duane Pfennigwerth: It's also fair to assume that there will be some capacity reductions in the Mexican domestic market since two out of the three airlines, which accounts for 70 percent of the market, are going to be affected by the present with the engine issue. So lots of moving parts in the domestic market. And we have cut one back in the international market. So we will see where things turn out once we have a full plan. I think it is important to say doing that there were forecasts for the year end already includes the downtime of aircrafts that we have forecast for this quarter.

Is this guidance, including any.

Potential benefit from compensation should be received from from Archie acts are arguably math of dose effect. So I'm just trying to understand try to extent the margin delivery in the fourth quarter could be a good proxy for the future and the second question is a is a clarification on the aim genes that have alright.

We have been grounded in what type of feedback are you receiving from.

Archie acts in terms of.

The duration of this process, how many days where they need to go through the.

Enrique Beltranena: Okay, thanks for those thoughts. And then just on compensation. I assume at a minimum aircraft ownership and the cost to make these repairs are on the table. But what about other costs, you know, staff cost, presumably you hired to fly this capacity. What are the forms of compensation are on the table? But at the moment, we cannot comment on that. It's something that we are under negotiations with track. But track has been paid rational and supported of the company.

The whole inspection process. Thank you.

Hi, This is Scott I will answer the first question, yes. It has the benefit of the compensation of the Whitney the guidance for the fourth Q you will see in two lines that was mentioned in the call on the other operating income line and on their maintenance expenses line.

I think on the second part of your question. This is <unk>.

Jim.

<unk> stated yesterday in their call that they are still seeking about 250 to 300 days.

Enrique Beltranena: But we will share whenever we have the possibility of doing so. I just want to remind you, doing that we do have a flexible label contract based on it by our pace. Okay, thank you. Thank you. One moment for questions.

Duration for the total turnaround arms for the ages.

Okay. Thank you.

Okay.

I'm sorry.

Thank you one moment for our next question.

Our next question comes from Pablo <unk> with Barclays. You May proceed.

Stephen Trent: Our next question comes from Stephen Trent with City, he may proceed.

Hi.

Holger Blankenstein: Good morning, everybody, and thanks for taking my question. I was just curious, I know with category one, we're stored now, you should have more U.S, bound flights, you know, any high level color with respect to what proportion of your capacity is going to be Mexico to U.S., you know, in 2024 versus what it looked like pre-pandemic, you know, with the view that maybe you're now still doing more central America to U.S, non-stop, for example, you know, just sort of trying to sort out how you're going to be thinking about your Northbound capacity.

Guys. Thanks for taking my question I have a quick one on <unk>.

On basically.

Like to have more color on your ability to source new aircrafts.

In the first half of next year, how do you think.

That is happening in the likelihood of you.

Having some extra aircrafts.

Thank you.

Thank you Pablo first we have our own purchase order with Airbus.

We'll be receiving 11 aircrafts in 2020 for uncertainty in aircraft in 2025.

We already have that.

Good practical.

Spectation to receive those aircrafts. In addition, we already secured extensions for the 2024.

Holger Blankenstein: Thank you. So Stephen, this is Holger, I can give you some color on the fourth quarter. We are planning to we are planning to increase capacity in the international market by around the 19% for the fourth quarter and that is driven by some additional U.S. Mexico capacity. As Enrique mentioned, we're considering four aircraft lines that were previously operated in the domestic market to be shifted into the international market in the fourth quarter.

Previously leased aircraft that we deliver.

And we are looking at other aircraft.

When we went to Pablo.

We don't want to speak to a short term problem. It creates a long term program. So we are really doing analysis aircraft by aircraft on a P&L basis before we decide to we see.

<unk>.

To try to mitigate.

The EPS impact, but we have been really thinking about long term success and short term profitability.

Holger Blankenstein: And also to remind you that we added significant capacity to central America, which includes central America to the U.S, flying and that's up in the high double digits year over year. So we are focusing on growing our international capacity in the fourth quarter. For 2024, we are still sorting through the available capacity and we'll get back to you with some additional guidance on the split between the domestic and international as we move through the fourth quarter. Appreciate that Holger.

Perfect. Thank you.

Thank you one moment for questions.

Our next question comes from Alber Alberto Valerio of UBS you May proceed.

Hi, Thanks for taking my questions.

So I was just like a follow up on the Mexican Adobe has shown we see chicken.

Very low at this moment, some relative and 50% from this call.

That followed the overlap is small.

<unk> received very few.

Holger Blankenstein: Thank you and just a very quick follow-up if I may. You know, I know the Mexican government is, I guess, resuscitated Mexican. You know, when you look at their flight schedules, you know, to what extent do you guys have modest overlap or maybe no overlap at all, you know, just just trying to sort that out. Thank you. So we have reviewed initial press notes of what their plan capacity is. All of the capacity that this new airline will launch is from the new airport, IFA, the new Mexico City Airport.

Aircraft at this moment, but do you see any potential liability cheap on privilege for the airline and then you can call a legal dispute.

Do you think that there'll be restrict should that then.

Yes.

And Michelle planted for the fleet.

And Keith it is multiples of the market. Thank you.

I mean again, we need to say that Polaris has advocated preferred competition with equal conditions for all market participants.

Have demanded equal treatment.

<unk>.

Closely monitoring the implementation process for any new entrance. The good news is this last week.

Holger Blankenstein: And there is about half of the routes are currently overlapping with us from IFA and half are completely new routes from IFA. So very limited overlap so far for us with the new airline. Okay, thanks again, Holger. I'll leave it there. I appreciate that guys. It would be in the 1-2% ASM overlap right now. Perfect. That's very helpful. Thanks very much. Thank you. One moment for questions.

Oh, sorry.

The aviation authority head.

Made it really clear that they were not going to allow the new airline to have.

Better benefits.

And.

That's the way they have stated that.

It is important also to say that.

<unk> started selling but then they interrupted and their tickets are now.

Dale.

Legacy chemical.

Okay.

Didn't remind you guys I mean with equal.

Helane Becker: Our next question comes from Helane Becker, with TD Kallen. You may proceed. Thanks very much, everybody.

With with fair competition Polaris has always been a very good car youre competing with any.

Helane Becker: I'm thank you for the time today. Earlier this week, or late last week, it was reported by the three publicly traded airports in Mexico that they had reached an agreement on charges with the government. And the government put out a note that said airfare should come down 9% to 12% as a result of that agreement on charges. And I'm wondering if that how that will affect our government. You guys, if at all.

Other competitor since we were founded.

Okay.

No no very clear just one more question on my side about Tullow. My thought is any news on the Colombia.

Alright.

It's not just selling tickets on the airports, we will rollout in the OECD.

These airport thank you.

So as I stated it didn't the last time the last call.

We are absolutely interested into lumen, we may fly from <unk>.

It's in the final phase of being constructed finished and.

Helane Becker: So, Helane, we've been tracking the process with their port groups very closely. And all I can say firm today that it's firm today is we received a letter that was sent by GAP to the DGAC or to the authority where they are proposing a reduction of 10% of two as effective that same day.

Once we have clarity of safety and.

Way, we can fly there then we will start acting our structure and announcing capacity but.

I think for US, it's really important to have absolute clarity on how we fly and how we approach how we take off and the way we operate.

Helane Becker: Okay. So, that may impact the total price of the ticket to the consumers. Right. That's what I'm wondering if that will affect you. So, then the one where it answers, yes, it will. Yes, it will be on the positive basis because your costs are going down. But won't you have to reduce your ticket prices to the customer? We're not affected by any of their changes. Our pricing structure is not being affected by any of their changes.

Safety is always the first thing for us.

Okay. Thank you very much everyone.

I think it's important for you guys also to understand we are now the only public company in this country. Okay. The only airline public company as a result of that we cannot publish capacity that BD is not approved by the authority or that it is not legally.

Legally without storing it to fly that route.

Thank you one moment for our next question.

Helane Becker: The two are charged is a pass through charge that we put into the ticket price. So, the total ticket price for the consumer that they pay on our website is going to be reduced, but not our actual fair or ancillary revenue.

Helane Becker: Got it. Okay. Got it. I understand what you're saying now.

Our next question comes from Neil Glynn with Air Control Tower you May proceed.

Good morning, everybody, if I could ask two questions.

First of all following up on some of the U S commentary on.

There is a lot of capacity from each of the three Mexican airlines hitting the market over the next few months.

Helane Becker: Thank you. And then just on the club members, I heard you say that I think membership doubled in the past one year, which is very impressive. Is there a limit as to how many members you're willing to accept into the program or is it kind of an unlimited number? No, Helena, we don't have a limit on how many of the club members we'd like to welcome to our program. Ideally, the more members we have, the more captive audience we have and the more repeat business we have. So we highly welcome this development.

And I'm interested in your take as to the ability of that capacity to hit the ground running so to speak or how do you think about the lag to maturity of some of those routes.

Helane Becker: Okay.

And then the second question you had mentioned your first foray into the gel coal market.

Your sister company with her in Europe has been using that market for quite some time.

Im interested in terms of why now for that for the telco market.

Sure Josh Coates play a bigger role for you in the future. Thank you.

I will start first with the second question <unk> basically in the past.

Operator: Thank you. Thank you very much. Thank you. One moment for questions.

We had an explore the geological Japanese market, we did our first threep during the month of May.

And we see the banks and some other players and this is the first approach we are dealing with engines with GSI smaller risk foreign exposure for Latam area.

Michael Linenberg: Our next question comes from Michael Inenberg with Deutsche Bank, you may proceed. Oh, yeah, hey, I'm good morning, everyone. I guess out of your fleet of 125 airplanes, how many aerobuses are to out-grounded? And as you think out over the next 12 months or so, do you have sort of a rough sense of how many airplanes will be on the ground at any point in time? Yes, as I said, Michael, we have 52 Neil-Engent aircrafts, so which is kind of half of the fleet, okay?

Michael Linenberg: And given that this is now a revision every certain number of cycles, 2,800 cycles for the 800 cycles for the 830, 800 cycles for the 830s, most of those aircrafts will go through the revision, through the preventive revision. Okay, how many are on the ground? Maybe none are grounded, maybe today, we have 16 aircraft grounded. Okay. And does that number, Enrique, as we move to the next 12 months or so, does that number get better, or is that kind of a rough guide?

The Japanese investors.

We're concerned about the London market in particular to chapter 11.

Breaches under their prior contracts from some Latin American Airlines.

<unk> is good news that we were able to.

While short term after the visit to be enabled to execute a transaction on lending we already have the sale and leaseback for most of the place of 'twenty 'twenty four and 2025, we do have.

Some shelves.

End of 2025.

It would be interesting thing we can accommodate a transaction. So it is probably the cheapest money due to the tax benefit the Japanese would they have accelerated depreciation so.

What's.

Careful falls, but they knew waste.

Of the banks and investors.

We are really optimistic on the view that the policy backdrop had on the story of what Larry said, where we are.

The first question.

The line was cut it so we could hear you.

If you can repeat it please.

Sure. It was really a question about how long it takes about this new capacity into the U S to perform here.

Michael Linenberg: It depends on every week, okay? That's why it's so important. I mean, I think, Michael, what we're trying to do is we're thinking about our customers, and we have to publish a maintainer area and schedule, which is solid and it's reliable and it's not changing for the customers. That's why, on the other side, I mean, for us, it's really important to speak in terms of the essence, because we'll have aircrafts going in, aircrafts going out, engines going off.

Existing you at Ash work given securities as disparate routes being introduced but there are three all three Mexican airlines, introducing a lot of new capacity.

At around the same time.

So regarding the U S.

I can tell you that term international new routes typically have a longer ramp up time than domestic routes.

However, we are not introducing any new routes, we are adding capacity to existing markets that we already operate and that require more capacity because we are seeing.

Michael Linenberg: And it's going to be really variable, so I don't think it's really important to speak about aircrafts or engines for you guys who make your prognosis based on ASMs, and for the customers who need a reliable schedule. So I think the most important way of managing this is managing through a prognosis based on ASMs. Okay. I agree. I'm trying to get the sense on knowing that we cover the left source.

Extremely high loads in those markets. So the ramp up time of those.

Increased frequencies are significantly lower.

And we're going to be focusing on our Mexican heritage core market, which is very different to the U S carriers as I as I already mentioned.

<unk>.

Many thanks.

Okay.

Thank you.

Enrique Beltranena: I'm trying to get a sense of how many airplanes you may have to extend the leases on, and that's actually my second question, which is in your conversations with the left source, what sort of response are you getting on the cost of the new lease? Because, you know, what we're hearing is that with narrow bodies scarce and everybody asking for extensions at the same time, and interest costs vary high. That in some cases, the response they're getting from the left source is a much higher monthly rental price under the extension than what they were currently benefiting from, despite the fact that the airplane is a lot older.

Excuse me. This concludes today's question and answer session I would like to invite Mr. Bill Cimino to proceed with his closing remarks. Please go ahead Sir.

Thank you very much so before I end the call I want to specially thank our ambassadors, who have been working hard again to optimize our operations in light of this engine inspections, and changing schedules changing reservations and accommodating to the new environment.

Enrique Beltranena: Right. It should be a lower lease rate, not a higher lease rate. So that was my second question. It's just on your early, you know, conversations with the left source. Is it, you know, does it appear that these new extensions would be a bit more expensive than what you currently have? Thanks for taking my question. You're welcome, Michael, this is Jaime. In types of numbers, we will be extending 18 aircrafts that were supposed to be delivered in 2024 and 2025.

As always I want to thank our board of directors investors bankers lessors and suppliers for their unwavering commitment and support.

But let me tell you something.

Really positive.

The way, we can manage the situation and I look forward to addressing you all again in the <unk>.

In the next future. Thank you very much. Thank you operator, thank you everybody.

Thank you. This concludes the <unk> conference call for today. Thank you very much for your participation and have a nice day.

Okay.

[music].

Enrique Beltranena: The new rent environment has changed due to the situation. These rents will be lower than the new fleet that we have. Extensions will rain between 24 months to 48 months. Normally, less source preferred that the airline that is already operating, the plane extends the plane, rather to give it to someone new. They don't need to look through any expenses, they are playing for the other airline. But you are right. The pricing environment has increased if you compare it from early this year on to today. Great, that's super helpful. Thanks, thanks everyone. Thank you. One moment for questions.

Okay.

Okay.

[music].

Rogerio Arajo: Our next question comes from Rogério Arajo with Think of America, you may proceed. Hey, Jackman, thanks for the opportunity. I have a couple here. The first one on the new margin guidance provided, it seems that it implies a very strong radar margin for 4th queue. Despite the higher oil price, around 33, 34% is that correct? And what is driving that I can do the other following that answer. Thank you.

Jaime Post: So I'll take the first part of that question. Thank you, this is for. So in the fourth quarter, we are expecting a high single digit year on year growth in total revenue per available seed mile. And we believe that those improvements will mostly come through better and still revenues, following the same trend of improvements that we have here to date. And we remind everyone that we are entering the one of the best quarters of the year with the high season of December and November in there.

Jaime Post: We've also leveraging the return of cap once in December. And we will grow in the US Mexico market as we already explained. And remind everybody that the guidance that we've given already includes the affected aircraft through the present Whitney engine situation so that capacity guidance we talked about already includes that number. Okay, that's very clear. Thank you.

Enrique Beltranena: My second question is regarding the financial compensation. So you guys mentioned six to seven billion dollars in financial compensation estimated 80% coming to competitive the airlines and 3000 engines. So can we do like a if you do an average compensation by engine? Do we reach something that is close to a best guess? And is it going to be a similar compensation for each engine of all this 3,000? Or it's going to be very different across airlines?

Enrique Beltranena: I think that's a question you need to look to our DX. I cannot answer for our DX and how they negotiate their compensation back. I can tell you what we're trying to negotiate and how we are trying to negotiate it. And it's the problem I have is I have a limitation from the contract from perspective to mention the number. But what we're planning to do, and I think this is really important is effective before the end of this quarter, we will release a forecast, both of the ASNs that will be flying in the following quarter. And second, an amount, a total amount that will be accounted as part of the quarter compensation. Okay, very clear. Thank you very much. Have a great one. Thank you.

Guillermo Mendes: One moment for questions. Our next question comes from Guillermo Mendes with JP Morgan. You may proceed.

Guillermo Mendes: Hello, everybody. And thanks for taking my question. I have two follow ups. Actually, the first one's on international capacity. So following CAT one and removing, and had you been facing some kind of competition from US carriers by adding more capacity to the US. Because when there stands that over the CAT 2 situation, most of the most profitable routes were compensated by US carriers. And the second one also related to capacity is that by removing the capacity from Mexico City Airport.

Guillermo Mendes: If you are adding some additional flights from IFA where you're just removing your overall exposure to Mexico City. Thank you. So in terms of US capacity, I can tell you that our airline focuses on a different market segment than many of the US carriers. We are focused on our VFR core markets flying from the center of Mexico to some of the Mexican heritage population markets in the US that have no direct service.

Guillermo Mendes: While many of the US carriers focus on leisure destinations in Mexico. And I would also like to remind everyone that we are seeing an increase in chasm gaps between us here in Mexico and our US peers. So we believe we're well positioned to take advantage of additional demand in the US Mexico Transporter market. Regarding the capacity in the Mexico City Metro area, we are currently operating in three airports. We are reducing capacity in Mexico City International Airport.

Guillermo Mendes: And as I mentioned, we're using that capacity to fortify our US Mexico capacity in the short term. Away from Mexico City and in other markets Mexico City from Mexico to the US. Maybe I can just add that. Okay, super clear. Thank you. One moment for questions.

Bruno Amorim: Our next question comes from Bruno Amorim with Goldman Sachs, he may proceed. Thank you. So I have two questions. First one, it's a follow-up on the guidance from margin. That's pretty easily discussed. The guidance implies that the city can improve it in the fourth quarter. Is this guidance including any potential benefit from compensation to be received from RGX, or is it net of those effects? I'm just trying to understand. Try to extend the margin that the leaves in fourth quarter could be a good proxy for the future.

Jaime Post: And the second question is a clarification on the engines that have already been grounded. What type of feedback are you receiving from? RGX in terms of the duration of this process. How many days will they need to go through the whole inspection process? Thank you.

Jaime Post: Hi, this is Jaime. I will answer the first question. Yes, it has the benefit of the compensation of bottom with me, the guidance for the 4Q. You will see in two lines as mentioned in the call on the other operating income line and on the maintenance expenses line.

Enrique Beltranena: I think on the second part of your question, this is Enrique Beltranena. RGX stated yesterday in their call that they are still thinking about 250 to 300 days of duration for the total turnaround times for the engines. Thank you.

Operator: One moment for our next question.

Pablo Ricalde: Hi guys, thanks for taking my question. I have a quick one on the unbankingly.

Jaime Post: I would like to have more color and on durability to source new aircraft in the. In the first half of my year, how do you think that is happening and the likelihood of you having some extra aircraft in the least market? Thank you. Thank you, Pablo. First, we have our own purchase order with Airbus. We will be receiving 11 aircraft in 2024 and 13 aircraft in 2025. We already have that contractual expectation to receive those aircrafts. In addition, we already secured the extensions for the 2024 previous aircraft to be delivered.

Enrique Beltranena: We are looking at other aircraft. What we want to do, Pablo, is we don't want to fix a short-term problem and create a long-term problem. We are really doing analysis aircraft on a PNL basis before we decide to bring a CEO aircraft to try to mitigate the DPS impact. But we have been really thinking about long-term success and short-term profitability. Perfect, thank you. Thank you, one moment for questions.

Alberto Valério: Our next question comes from Alberto Valerio, would you be as he may proceed? Thank you for taking my questions. I would like to follow up on the Mexican and the Aviation. We see chickens share very low at this moment, for some relatively 50% discount. I know that for a while the overlap is small.

Enrique Beltranena: They start to see very few eye-crafted at this moment, but do you see any potential liability on privilege for the airline and then you can call a legal dispute or do you think that they will be restricted to that then aircraft that they have initial plan for the fleet and keep that at a small portion of the market? Thank you. I mean, again, we need to say that Bolares has advocated for firm competition with equal conditions for all market participants.

Enrique Beltranena: We have demanded equal treatment for the authorities and our closely monitoring implementation process for any new entrance. The good news is this last week the FAA authority or the aviation authority had made it really clear that they were not going to allow the new airline to have better benefits. That's the way they have stated it. It is important also to say that they started selling, but then they interrupted and their tickets are now bailed until they take it. I then remind you guys, I mean, with equal with fair competition, Bolares has always been a very good carrier competing with any other competitors since we were found. No doubt, very clear.

Enrique Beltranena: Just one more question, my side, about Tulum airport is any news on the Tulum day. This is already started selling tickets on that airport. We are delighted to make any deal with these airports. Thank you. As I stated in the last article, we are absolutely interested in Tulum and we may fly from Tulum. It's in the final phase of being constructed and finished. And once we have clarity on safety and the way we can fly there, then we will start acting our structure and announcing capacity.

Enrique Beltranena: But I think for us, it's really important to have absolute clarity on how we fly and how we approach, how we take off, and the way we operate since safety is always the first thing for us.

Enrique Beltranena: Thank you very much, everyone. I think it is important for you guys also to understand, we are now the only public company in this country, the only airline public company. As a result of that, we cannot publish capacity that it is not approved by the authority or that it is not legally without authority to apply the route. Thank you.

Operator: One moment for our next question.

Neil Glynn: Our next question comes from Neil Glynn with Air Control Tower. You may proceed.

Holger Blankenstein: Good morning, everybody. If I could ask two questions, the first one's following up on some of the US commentary. I'm conscious there's a lot of capacity from each of the three Mexican Airlines hitting the market over the next few months. I'm interested in your take as to the ability of that capacity to hit the ground running, so to speak, or how do you think about the lack to maturity of some of those.

Holger Blankenstein: Then the second question you mentioned your first foray into the Jolko market. Your sister company with Air in Europe has been using that market for quite some time. So I'm interested in terms of why now for that for the Jolko market and should Jolko play a bigger role for you in the future. Thank you.

Jaime Post: I will start first with the second question. Neil, this is Jaime. Basically in the past, we hadn't explored the Jolko Japanese market. We did a first trip during the month of May and visit the banks and some of the players. And this is the first approach we are dealing with engines, which is a smaller risk for an exposure for the Latta area. Some of the Japanese investors were concerned about the Latta market in particular due to chapter 11 and reaches under the prior conference from some Latin American Airlines.

Jaime Post: So I think it's good news that we were able sort of short term after the visit to be able to execute a transaction on engines. We already have the same on this back from most of the place of 2024 and 2025. We do have some shells at the end of 2025 that it will be interesting. We can accommodate a Jolko transaction. It is probably the cheapest money due to the tax benefit, the Japanese would they have accelerated the position.

Jaime Post: So it is good. It was helpful for us that they knew with some of the banks and investors, but what we are really optimistic on the view that the Japanese investor had on the story of Polaris and where we are heading on the first question. The line was gone, so we are going to keep here if you can forbid it.

Holger Blankenstein: It was really a question about how long it takes some of this new capacity into the U.S, to perform as you are existing U.S. Network, given that clearly there is disparate routes being introduced, but there are three of three Mexican Airlines introducing a lot of new capacity out around the same time. So regarding the U.S, capacity, I can tell you that international new routes typically have a longer ramp up time than domestic routes.

Holger Blankenstein: However, we are not introducing any new routes. We are adding capacity to existing markets that we already operate and that require more capacity because we are seeing extremely high loads in those markets. So the ramp up time of those increased frequencies is significantly lower, and we are going to be focusing on our Mexican heritage core market, which is very different to the U.S, carriers, as I already mentioned.

Operator: Thank you. Excuse me.

Operator: This concludes today's question and answer session.

Enrique Beltranena: I would like to invite Mr. Beltraneno to proceed with his closing remarks. Please go ahead, sir. Thank you very much.

Enrique Beltranena: So, before I end the call, I want to specially thank our ambassadors who have been working hard again to optimize our operations in light of these engine inspections and changing schedules. All those changing reservations and accommodating to the new environment. As always, I want to thank our board of directors, investors, bankers, lessers and suppliers for their way very in commitment and support. But let me tell you something. I remain really positive of the way we can manage this situation.

Operator: And I look forward to addressing you all again in the in the next future. Thank you very much. Thank you operator. Thank you everybody. Thank you.

Operator: This concludes the Valera's conference call for today.

Operator: Thank you very much for your participation and have a nice day.