Q4 2023 Controladora Vuela Compañía de Aviación SAB de CV Earnings Call

[music].

Operator: Good morning, everyone. Thank you for standing by. Welcome to Volaris' fourth quarter and four year 2023 financial results conference call. All lines are in listen-only mode.

Good morning, everyone. Thank you for standing by welcome to <unk> fourth quarter, and four years 'twenty to 'twenty three financial results Conference call.

All lines are in listen only mode.

Operator: Following the company's presentations, we will open the call for your questions. Please note that we are recording this event. This event is also being broadcast live via webcast and can be accessed through the Volaris website. At this point, I would like to turn the call over to Ricardo Martinez, Investor Relations Director. Please go ahead, Ricardo.

Following the company's presentation, we will open the call for your questions. Please note that we are recording this event.

This event is also being broadcast live via webcast and can be accessed through the Lars website.

At this point I would like to turn the call over to Ricardo Martinez Investor Relations Director. Please go ahead Ricardo.

Ricardo Martinez: Good morning, everyone, and thank you for joining us. With us is our President and CEO, Enrique Beltran, our airline executive vice president, Holger Blankenstein, and our Chief Financial Officer, Jaime Polo. They will be discussing the company's fourth quarter and full year 2022. After work, we will move on to your questions.

Good morning, everyone and thank you for joining the call.

<unk> is our president and CEO and Rick <unk> our.

Our airline executive Vice President Holger blanket thing.

And our Chief Financial Officer Jaime pulse.

They will be discussing the company's fourth quarter and full year 2022 results.

After work.

We will move on to your questions.

Ricardo Martinez: Please note that this call is for investors and analysts. Before we begin, I would remind everyone that this call may include forward-looking statements within the meaning of applicable security laws. Forward-looking statements are subject to several factors because the company resolves to defer materially from as described in the company's filings with the United States SEC and Mexico's CMB. These statements are made only half of the day they are made, and Bolares undertakes no obligation to update or modify any forward-looking statement of Enor Ernst Perelman.

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

Before we begin.

To remind everyone that this call may include forward looking statements within the meaning of applicable securities laws.

Forward looking statements are subject to several factors that could cause the company results to differ materially from expectations.

Described in the company's filings with the United States, SEC, and Mexico and Bebe.

These statements.

Only as of the date, they are met and <unk> undertakes no obligation to update or modify any forward looking statement.

Ricardo Martinez: Our numbers are in U.S. dollars compared to the fourth quarter of 2020, only on order white. And with that, I will turn the call over to you.

In our earnings press release.

Our numbers are in U S dollars compared to the fourth quarter of 2022.

This order white noted.

And with that I.

I'll turn the call over 'twenty.

Enrique Javier Beltranena Mejicano: Thank you, Ricardo, and thank you all for joining us today. During 2023, we learned a lot when resizing the operations and turned a very complex situation into a solid financial result for the fourth quarter. On an absolute basis, we recorded our highest ever historical quarterly T-Rod video.

Thank you Ricardo and thank you all for joining US today. During 2023, we learned a lot when resizing the operations and turned it very complex situation into our solid financial results for the fourth quarter.

On an absolute basis, we recorded our highest ever historical quarterly rise not only that we were profitable for the quarter posting a net income of $112 million.

Enrique Javier Beltranena Mejicano: Not only that, but we were profitable for the quarter, posting a net income of $112 million. Our quarterly and full year 2023 performance demonstrated resilience in the face of challenges encountered throughout the years, such as the extended FAA downgrade of Mexico to CAT-2, aircraft on ground AOGs due to Pratt and Whitney's preventive accelerated inspections, and slot restrictions at Mexico City International Airport. These challenges have tested our managerial and operational flexibility, and the mitigation plan outlined in our recent earnings call has proven effective. Now, let's review how we closed the fourth quarter. Operating revenue grew 9.6% year over year, with unit revenue rising 10.7% on ASMs that contracted 1.1%. EBIT and EBITDA margins expanded by 11 points and 6 points, respectively, versus the same period of 2020. I think it is important, Duempa.

Our quarterly and full year 2023 performance demonstrated resilience in the face of the challenge encountered throughout the year such as <unk>.

10, the FAA downgrade of Mexico to cut two aircraft on ground Eog's due to Pratt and Whitney <unk> accelerated inspections and slot restrictions at the Mexico City International Airport.

These challenges have tested our managerial and operational flexibility and the mitigation plan outlined in our recent earnings call has proven effective now let's review how we closed the fourth quarter operating revenue grew nine 6% year over year with unit revenue right.

And 10, 7% on Asm's that contracted one 1% EBIT and EBITDA margins expanded by 11 point and six points, respectively versus the same period of 2022.

I think it is important to us.

Emphasize the value of the lessons we learned during the fourth quarters rapid changes, we took advantage of strong demand, while adjusting our network sites, placing focus on prioritizing passenger service, which led to positive outlook.

Enrique Javier Beltranena Mejicano: The valuable lessons we learned during the fourth quarter's wrap-up. We took advantage of strong demand while adjusting our network size, placing a focus on prioritizing passenger service, which led to positive outcomes. We improved our proficiency in implementing effective cost control measures; we acknowledged the crucial significance of being proactive, and our management and team were so. Our competitive advantages, including flexibility, and effective negotiation. Moving to the Engine Preventive Accelerated Inspections, remember that in November we signed a compensation agreement with Pratt & Whitney. The agreement will help to address certain fixed costs associated with aircraft groundings during inspections and will complement outline mitigation initiatives, which Jaime will explain the accounting for. Volaris analytical tools for predicting engine performance have proven, ensuring our successful efforts towards maintaining a reliable passenger service. However,

We improved our proficiency in implementing effective cost control measures, we acknowledged the crucial significance of being proactive in our management and team were showcased our competitive advantages, including flexibility effective negotiations and crisis management move.

Moving to the engine preventive accelerated inspections remember that in November we signed a compensation agreement with Pratt <unk> Whitney the agreement will help to address certain fixed cost associated with aircraft grounding doing inspections and will complement outline mitigation initiatives, which I will explain the accounting details.

Polaris analytical tools for predicting engine performance has proven accurate ensuring our successful efforts towards maintaining a reliable passenger schedule.

However, despite an approximate 30% increase in shop capacity announced by breath persistent delays in materials availability at engine shops are anticipated.

Enrique Javier Beltranena Mejicano: Despite an approximate 30% increase in shop capacity announced by Pratt, persistent delays in materials availability at engine shops will result in win-to-win turnaround times exceeding 300 and are likely to extend into 2020. Pratt is working hard to ramp up production of new materials, including full-life discs, improved shields, Termal Foils, new software that eliminates vibration, plus several structural improvements that will be initially incorporated for new aircraft deliveries and will be available later this year for engines inductors for, Most important Pratt is standing behind them.

This will result in wing to wing turnaround times exceeding 350 days inspections are likely to extend into 2026.

Brett is working hard ramp up production of new materials, including full life discs.

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<unk> oils, new software that eliminates vibrations plus several other structural improvements that will be initially incorporate the four new aircraft deliveries and will be available later this year for engines and Doctor shop visits most important.

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Whereas top priority has always been the safety of our embargoes on our customers.

June 2023, we have grounded 16 aircraft on average per month impacting roughly six 5% of our future bookings.

Enrique Javier Beltranena Mejicano: Our highest priority has always been the safety of our ambassadors and our customers. Since June 2023, we have grounded 16 aircraft on average per month, impacting roughly 6.5% of our customers. To address this, during the second half of last year, we needed to re-accommodate and or compensate affected passengers, which meant absorbing in a resized capacity low-fare bookings that consequently diluted unit revenues and added some. Beginning in October, however, we started to see positive outcomes from our capacity rationalization. We will reduce capacity in the domestic Mexican market while we continue to re-accommodate our affected passengers. Additionally, overall Mexican domestic market capacity contracted as we, along with one of our domestic competitors, progressively removed GDF and GDP.

To address this during the second half of last year, we needed to re accommodate and or compensate affected passengers.

Which meant absorbing in the resized capacity low for bookings that consequently diluted unit revenues and added some incremental costs beginning in October. However, we started to see positive outcomes from our capacity rationalization efforts, we reduced capacity in the domestic Mexican market.

While we continue to re accommodate our effective passengers.

Personally overall Mexican domestic market capacity contracted as we along with our one of our domestic competitors progressively removed <unk> engines for inspections.

At the same time, we instituted strategic commercial measures to protect our financial performance in domestic Mexican domestic market, we canceled routes in the ramp up phase and adjusting frequencies on other saturate the routes.

Furthermore, we strategically redesigned capacity in the U S Mexico international market, focusing on goods for enhanced loads and higher unit revenues rather than pursuing market share for.

For 2024, we anticipate that on average our network on an ASM basis will approximately 45% international and notable increase from 35% in 2023, which will increase U S dollar denominated revenues.

We successfully boosted ancillary revenues to an all time high accounting for over 50% of total operating revenues in the fourth quarter simultaneously, we have effectively manage hourly workforce reducing its size.

Head count quite sustainable DVD at over 80 hours per month for each pilot and flight attendant.

Another key focus is liquidity at year end, our cash position was at a level comparable to last year's balance. Additionally, our debt maturity profile and leverage remained healthy.

Enrique Javier Beltranena Mejicano: At the same time, we instituted strategic commercial measures to protect our financial interests. In the Mexican domestic market, we cancelled routes in the Ramp-Up phase and adjusted frequencies on oversaturated roads. Furthermore, we strategically reassigned capacity in the U.S., focusing on routes for enhanced loads and higher unit revenues rather than 2024. We are confident that on average, our network on an ASM basis will approximate 45% international, and not a small increase from 35% in 2023, which will increase US dollars. With success.

Our ongoing efforts to mitigate risks will safeguard profitability in line with our primary objective of generating shareholder returns in accordance with our long term strategy.

For this year, where legacy strategy is based on three core pillars. The pillar number one is fleet and capacity.

Litigation lies in preserving business continuity, while minimizing disruptions to our core operations like therapies and passenger experience.

To achieve this we secured additional capacity that will supplement for some of our GTS inspection, but the fleet.

Accordingly, we executed lease extensions of America that were scheduled for delivery and secured great operating leases for additional aircraft, thereby balancing capacity reduction with operational requirements. Furthermore, we successfully negotiated the acquisition of additional experience.

Enrique Javier Beltranena Mejicano: Boosted ancillary revenues to an all-time high accounting for Total Operating Revenues in the fourth quarter. Continuously, we have effectively managed our labor force, reducing its size and health count while sustaining productivity at over 80 hours per month for each pilot. At year-end, our cash position was at a level comparable to last year's value. Additionally, our debt maturity profile and leverage remain. Our ongoing efforts to mitigate risks will safeguard profitability and align with our primary objective of generating shareholding, in accordance with our long. This year, Volaris is tracking... is based on three core pillars. Pillar number one is fleet and capacity.

During this quarter with Larry's analyzed with lease capacity and we concluded that it was not strategically productive across the region.

Regarding growth it is important to note that as a capacity returns to our fleet in 2025, we will be prudent and rational.

Notably building on our lessons learned we now have significant flexibility with our scheduled deliveries of new aircraft and lease expirations that will allow us proactively manage capacity and prioritize profitability.

We focused on our passengers by clearly and consistently communicating capacity and root availability.

Our efforts have proven effective despite where lawrence's advanced booking profile being particularly challenging incentives.

Pillar number two network optimization and profitability.

We view, our GTS capacity reduction as an opportunity and we will capitalize on this opportunity to achieve strong profitability as we did bouncing back from the pandemic.

Enrique Javier Beltranena Mejicano: Our dedication lies in preserving business continuity while minimizing disruptions to our core operations, flight service, and passengers. To achieve this, we secured additional capacity that will supplement some of our GTS inspections. Accordingly, we executed lease extensions on aircraft that were scheduled for redelivery and secured straight operating leases for additional aircraft, thereby balancing capacity reduction with operational requirements. Furthermore, we successfully negotiated the acquisition of additional aircraft. During this quarter, Volaris analyzed wetlist capacity, and we concluded that it was not strategically productive or cost-effective.

Our strategy involves redesigning our network and reallocating capacity to prioritize profits over defending market share in highly competitive gap.

Capitalizing on the return of category, one we plan to increase higher margin international flights and take advantage of reduced capacity throughout Mexico, aiming for stronger yields and unit revenues without compromising network defensibility, we're boosting T RASM and effectively managing cosmetics our demand is distinct.

And more elastic driven by appealing prizes and safety for both switching passengers the convenience for growing adopters and frequent passengers and the resilience of our VFR network.

Anticipate ancillary to constitute more than 50% of our total revenues. We expect this to further enhance our profit profile with attractive margins the labor market in our regions virus significantly from that in the United States. Additionally, we distinguish ourselves by maintain.

A healthy balance sheet.

We're volary stands out from the U S industry and low cost carriers in South America, notably for example, we recently agreed a mutually satisfactory, 5% wage increase in Mexican pesos for 2024 effective February one.

Enrique Javier Beltranena Mejicano: Regarding growth, it is important to note that as capacity returns to our fleet in 2025, we will be prudent and rational. Building on our lessons learned, we now have significant flexibility with our scheduled deliveries of new aircraft and lease expirations that will allow us to proactively manage capacity and prioritize. We focused on our passengers by clearly and consistently communicating capacity and route availability. Our efforts have proven effective despite Volaris' advanced booking profile being particularly challenging. Pillar number two is network optimization.

All other costs remain controlled with a lower ASM is expected to be the primary constraint on cost performance each year important to note that once the capacity is reinstated our cost advantage will increase versus our competitors.

Pillar number three elevating passenger experience and cultivating talent for future growth in previous disruptions. We've navigated challenges, we're laying foundations for long term growth at this time is no exception.

Enrique Javier Beltranena Mejicano: We view our GTF capacity reduction as an opportunity, and we will capitalize on this opportunity to achieve strong profitability as we did bouncing back from the pandemic. Our strategy involves redesigning our network and reallocating capacity to prioritize profits over defending markets, in highly competitive Capitalizing on the return of Category 1, we plan to increase higher-margin international flights and take advantage of reduced capacity throughout Mexico, aiming for stronger yields and unit revenues without compromising net income. We are boosting T-RASM and effectively managing CASM-X. Our demand is distinct and more elastic, driven by appealing prices and safety for bus switching passengers. The convenience for growing adopters and frequent passengers and the resilience of our DFR. We anticipate ancillary revenues to constitute more than 50% of our total revenues. We expect this to further enhance our profit profile with attractive earnings. The labor market in our regions varies significantly from that in the United States.

During this pause in our growth our focus on differentiating <unk> includes renewing the customer promise to foster a positive brand perception.

Offer a new optimized and reliable schedule with no need for further cancellation.

Investing in technology as a growth platform and balancing short term efficiency with long term talent needs.

Before I turn the call over to Kroger I want to highlight that our valued ambassadors consistently demonstrate exceptional dedication and work it.

I am optimistic.

Our market guidance supported by positive trends in travel our successful execution of the capacity reduction and itinerary realignment further strengthens this confidence moving forward, we will continue to prioritize profitability and we'll maintain a conservative approach to managing our balance sheet.

I would now like to turn the call over to <unk>, who will cover our fourth quarter operational performance and commercial plan for 2024.

Thank you and good morning, everyone.

All we had a very dynamic 2023 that featured strong headwinds and robust demand throughout our network.

During the last year, we navigated the prolonged recovery of category one.

Enrique Javier Beltranena Mejicano: Additionally, we distinguish ourselves by maintaining a healthy balance. Here's where Volaris stands out from the U.S. industry and low-cost carriers in the South. Notably, for example, we recently agreed a mutually satisfactory 5% wage increase in Mexican pesos for 2024, effective February 1st. All other costs remain controlled, with lower ASMs expected to be the primary constraint on cost performance.

Government related capacity reductions at Mexico City International Airport, and the announcement of GTS engine related accelerated inspection, leaving.

Moving to aircraft grounded.

Despite these challenges we grew increasing by 10% compared to 2022 and expanding our fleet by 12 aircrafts.

Our full year 2023 results included a robust fourth quarter, which benefited from strong demand over the holiday season, our excellent operational execution and steps to address the impact of the aircraft on ground.

For 2023 as a whole.

Ancillary revenues represented 49% of total revenues an increase of approximately eight percentage points compared to 2022.

Throughout the year, we implemented initiatives contributing to this increase.

In spring, we introduced the annual pass, allowing <unk> customers to fly as much as they want only paying airports.

Enrique Javier Beltranena Mejicano: It is important to note that once the capacity is reinstated, our cost advantage will increase versus our price. Pillar number three, elevating the passenger experience and cultivating talent for future growth. In previous disruptions, we've navigated challenges while laying foundations for the long term. This time is no exception. During this pause in our growth, our focus on differentiating Volaris includes renewing the customer promise to foster a positive brand perception. Offer a new, optimized, and reliable schedule with no need for further cancellation. Investing in technology as a growth platform and balancing short-term efficiency with long-term talent. Before I turn the call over to Holger, I want to highlight that our valued ambassadors demonstrate exceptional dedication.

We are approaching 30000 annual past flyer in under a year or Vica membership featuring the new zero per ticket continues to attract strong contributing to 15% of our key detail the unbundled fare gaining traction with smaller businesses.

And we are tendering it more to cater to this segment now double clicking on the fourth quarter.

Our network wide load factor rose to a strong 88, 1%.

Including a 91, 8% load in our Mexican domestic market.

We manage capacity so that RPM growth was flat despite a decrease of 1% in ASM highlighting demand remained especially strong in our core market and station.

However, in the fourth quarter, we had to reduce domestic ASM by 11, 2% year over year, while growing international ASM by 21, 7% due to the accelerated inspections required by practice.

Our capacity focus.

It wasn't adding frequencies to the U S transporter market.

Capitalizing on the restoration of Mexico's category, one to strengthen our presence in the U S Mexico market.

This not only allowed us to reallocate capacity from concentrated domestic market, such as Tijuana and Guadalajara we.

Holger Blankenstein: I am optimistic about our market, guys, supported by positive trends in traffic. Our successful execution of the capacity reduction and itinerary realignment further strengthens this. Moving forward, we will continue to prioritize profitability, and we'll maintain a conservative approach to managing our. I would now like to turn the call over to Holger, who will cover our fourth quarter operational performance and commercial plan for 2020. Thank you and good morning, everyone.

We also addressed dilutions in the central American market caused by the accelerated capacity, we added last year, notably.

Fourth quarter traveling increased to nine six.

10.

Marking at 10, 7% rise compared to last year and.

And achievement ranking among the best in our history.

It is important to highlight that despite witnessing strong <unk> trend in the domestic market.

Including a 17, 4% increase in December.

Our average base here in the fourth quarter was actually 2% lower than last year. Instead unit revenue was primarily driven by effectively capturing demand.

And by robust growth in our ancillary offering we have now achieved our target of over 50% of our total operating revenues in summary, our revenues per Pax continue to be very strong.

While we observe unit revenue pressure as reported by our U S peers.

<unk> reached $55 in the fourth quarter, a 33% increase and registered $61 in December at holiday fliers increasingly chose our ancillary offering.

Holger Blankenstein: Overall, we had a very dynamic 2023 that featured strong headwinds and robust demand throughout. During the last year, we navigated the prolonged recovery of Category 1, Government Related Capacity Reduction, Yep, and the announcement of GTF engine-related accelerated inspection, leading to aircraft drowning. Despite these challenges, we grew, increasing ASMs by 10% compared to the previous year and expanding our fleet by 12. Our full year 2023 results included a robust fourth quarter, which benefited from strong demand over the holiday, excellent operational executions, and Steps to Address the Impact of for 2023 as a whole. Ancillary Revenues Represented, an increase of approximately eight. Throughout the year, we implemented initiatives to contribute. In the spring, we introduced the annual pass, allowing Volaris customers to fly as much as they want, only paying for airfare.

Looking ahead to 2024, we believe and salaries will reach 50% of total revenues for the entire year for the first time.

Our initiatives to evolve our offering this year include <unk>.

Continuously optimizing pricing through personalized and advanced pricing strategy.

Launching new products and services, including insurance option designed to offer flexibility and increase the presence of our co branded credit card.

Leveraging recurring revenue streams through initiatives like E club membership services to encourage repeat service and customer affinity, creating a new mobile app that will improve the overall passenger experience.

On a different note our transport traffic between Mexico, and the U S demonstrate consistent growth prepared by the positive impact of near shoring and the need for mobility.

We believe that any potential new restriction to land border crossing will have no negative impact on our transport of air traffic.

It is crucial to emphasize that the foundation of our traffic between the U S and Mexico, particularly along the border region is rooted in our robust network strength in the northern part of Mexico, and it has proven resilient through several cycles.

Our leisure traffic to the Mexican beaches continue.

Continues to thrive.

Unlike the challenges faced by U S carriers are leisure network predominately caters to the domestic market.

Holger Blankenstein: We are approaching 30,000 annual pass flyers under the age of, RV Club Membership, featuring the new Zero Fare, continues to attract 15%. The unbundled fare is gaining traction with smaller..., and we are tailoring it more to cater to this. Now double-clicking on the fourth quarter.

None of the domestic Mexican carriers have allocated surplus capacity to these markets contributing to a robust and sustainable nature of our operations in this segment.

Optimizing our international revenue mix is a key driver of our enhanced financial performance.

The inclusion of longer flight sector, not only ensures more efficient utilization of our fleet, but also holds the potential for other substantial benefit we estimate to reach around 50% of our collection in U S dollars in 2024, reducing foreign exchange exposure.

Holger Blankenstein: Our network-wide load factor rose to a strong 88.1%, including a 91.8% load in our maxi... We managed capacity so that RPM growth was flat, by a decrease of 1% in AFI. Highlighting Demand Remains, especially strong in our core market. However, in the fourth quarter, we had to reduce domestic ASMs by 11.2%, year-over-year, while growing international ASMs by 21.7% due to the accelerated inspections required by CAPACITY FOCUS. The focus was on adding frequencies to U.S. transport, capitalizing on the restoration of Mexico's Category 1 to strengthen our presence in the U.S. This not only allowed us to reallocate capacity from Concentrated Domestic Market We also address dilutions in the Central American market caused by the accelerated capacity we added. Notably, fourth-quarter travel increased to 9.6 U.S. cents, marking a 10.7% rise compared to last year, and an Achievement Ranking among the best in our history. It's important to highlight that despite witnessing strong fair trends in the domestic market, including a 17.4% increase in December 2020, our average base here in the fourth quarter was actually 2% lower than last. Instead, unit revenue was primarily driven by effectively capturing demand and by Robust Growth in our Antillery.

On our P&L.

The positive trajectory extends further with the increasing adoption of the ancillary offerings, particularly popular among passengers on extended journey combined with improved domestic yields attributed to lower industry capacity. We are poised for robust traveling result in 2000.

24.

This encouraging trend initiated in the fourth quarter of 2023 is already evident and booking curve indicate a continuation of this favorable trend in the coming months.

Aligned with our 2020 for guidance.

Passenger experience remains a priority however in the second half of last year, our passengers experienced an unfortunate number of cancellation due to the mentioned challenges earlier on.

We are committed to reversing this trend in 2024 competing more reliable schedule.

Our priority will be delivering the valores format.

To our customers and flying them reliably.

Safely and on time, we are doubling down on making all into actions with the lifestyle sensible, especially for the day of departure.

This will enhance customer satisfaction with an increasing mobile affinity.

This effort remains crucial for fostering strong and recurring demand for the <unk> product.

Regarding the network this year will generate a more balanced ASM production with a split of around 55% in our Mexican domestic market and 45% international.

The restoration of category one with.

We further support capacity allocation to the United States, enabling us to increase frequencies on historically profitable routes.

We are excited about our partnership with Frontier Airlines despite.

Despite the disappointment of Mexico's downgrades category, two and the past two years.

Holger Blankenstein: We have now achieved our target of over 50% of our total operations. In summary, our revenues per pack continue to be very strong, while we observe unit revenue pressures reported by our U.S. Ancillary per pax reached $55 in the fourth quarter, a 33% increase, and registered $61 in December. Holiday Flyers Increasingly Trolls are in Antelope

Which impeded us from fully capitalizing on this collaboration we are keen to revive our engagement this year and anticipate achieving significant outcome.

We are well positioned with our enhanced brand presence and greater distribution power.

Concurrently we've witnessed frontier's growth in their market position.

It is important to highlight that our partnership with frontier remains genuine featuring a codeshare and an overarching marketing collaboration.

Holger Blankenstein: Looking ahead to 2024, we believe ancillaries will reach 50% of total revenues for the entire year for the first time. Our initiatives to evolve our offerings this year include continuously optimizing pricing through personalized and advanced pricing strategies, launching new products and services, including insurance, designed to offer flexibility and increase the presence of our co-branded credit cards. Leveraging recurring revenue streams through initiatives like V-Club membership services to encourage repeat service, and creating a new mobile app that will improve the overall path. On a different note, our transborder traffic between Mexico and the U.S. demonstrates consistent growth propelled by the positive impact of near-short and the need for mobility. We believe that any potential new restriction on land border crossings will have no negative impact on our transborder air traffic.

Absence of an ATI with frontier underscores the authenticity of our relationship.

As we move forward with reactivating. This partnership we eagerly anticipate operating on a more level playing field in central and South America. We are also planning capacity adjustments and a smaller footprint.

Our markets are demonstrating sufficient capacity in summary, we see the opportunity to have a positive 2024 by delivering on our ongoing commitment.

Increased PRASM through better fair improved load.

Our strong network and ancillary growth and sure cost leadership and simplicity.

Deliver exceptional passenger experience and extract value from our network and ultimately become the preferred carrier in our markets.

I will now turn the call over to Jaime to discuss our financial performance for the fourth quarter and full year 2023.

Thank you Holger.

We are pleased to report that despite the external challenges discussed earlier, our fourth quarter performance allow us to turn and accumulated loss in the first nine months into a positive net income.

Compared to the same period last year, our fourth quarter 2020 through results are.

Total operating revenues of $899 million, a 10% increase notwithstanding the 1% year over year reduction in <unk> due to the continuous strong demand and outstanding the ancillary revenue improvement.

Holger Blankenstein: It is crucial to emphasize that the foundation of our traffic between the U.S. and Mexico, particularly along the border regions, is rooted in our robust network strength in the northern part of Mexico, and it has proven resilient through several phases. Our leisure traffic to Mexican beaches continues to thrive. Unlike the challenges faced by U.S. carriers, our leisure network predominantly caters to the domestic... None of the domestic Mexican carriers have allocated surplus capacity, contributing to a robust and sustainable nature of our operation. Optimizing our international revenue mix is a key driver of our... The inclusion of longer flight sectors not only ensures a more efficient utilization of our fleet but also holds the potential for other substantial benefits. We estimate to reach around 50% of our collection in US dollars in 2024, reducing foreign exchange exposure on our. The positive trajectory extends further with the increasing adoption of ancillary offerings particularly popular among passengers on extended journeys.

Gasoline was $7 31.

Decelerating, 2% year over year few what's the driver of the decrease with our average economic fuel cost falling by 16% to $313 per gallon while.

While CASM ex fuel increased 11% and total $4 86.

Before discussing profits it is important to note that during the fourth quarter compensation from patent Whitney is included in the P&L, mainly as part of the other operating income.

This accounting 19 also includes aircraft sale and leaseback gains another accrual cancellations.

Part of the mitigation plan for the Indian inspections, we extend an aircraft leases not only for 2024, but also for 2045.

Total $164 million, an increase of 173% reflecting improvement in PRASM the benefit of aircraft lease extensions and a favorable fuel cost.

This resulted in a margin of 18% and 11 percentage points increase EBITDA totaled $281 million or 35% increase EBITA margin was 31% an improvement of six percentage points.

Holger Blankenstein: Combined with improved domestic yields attributed to lower industry capacity, we are poised for robust traveling results in 2020. This encouraging trend, initiated in the fourth quarter of 2023, is already evident, and booking curves indicate that this favorable trend will continue in line with our 2024. Passenger experience remains a priority, however... In the second half of last year, our passengers experienced an unfortunate number of cancellations due to the mentioned challenges earlier.

Significant see from our performance in the first nine months of the year.

Net income rose $212 million translating into earnings per ads of <unk> 96.

The cash flow provided by operating activities in the fourth quarter was $218 million.

Cash outflows, using investing and financing activities were $113 million and $82 million respectively.

Now moving to our 2023 year results were now financial performance stands out compared to 2022.

Holger Blankenstein: We are committed to reversing this trend in 2000. Completing a More Reliable Our priority will be delivering the Volaris promise to our customers and flying them reliably and safely. We are doubling down on making all interactions with real-life persons, especially for the day of...

Total operating revenues of $3 $3 billion, an increase of 14%.

Ghassan of $7 81.

A one 7% decrease over 2022.

The average economic fuel cost for the full year decreased by 18% to three point $11 per gallon.

Holger Blankenstein: This will enhance customer satisfaction with an increasing mobile affinity. This effort remains crucial for fostering strong and recurring demand for the Volaris. Regarding the network, this year will generate a more balanced ASM production with a split of around 55% in our Mexican domestic market and 45. The restoration of Category 1, will further support capacity allocation to the United States, enabling us to increase frequency on Historically Profitable. We are excited about our partner. Despite the disappointment of Mexico's downgrade to Category 2 in the past two years, which impeded us from fully capitalizing on this collaboration.

Cancel them ex fuel of 481.

Reflecting a 12, 8% increase.

I want to emphasize that both total operating revenues nine gasoline fuel results.

Language.

Outlook, even as we initiated there for rounding in the third quarter.

EBIT was $223 million up from $44 million for 2022, with an EBIT margin of 7% up five three percentage points.

EBITA came in at $823 million.

An increase of 40%, while EBITDA margin was 25% an increase of four seven percentage points.

Net income was 8 million translated into earnings per avs or <unk>.

Polaris finished the year with a total liquidity position of $789 million, representing 24% of the last 12 months operating revenues.

Holger Blankenstein: We are keen to revive our engagement this year and anticipate achieving significant. We are well positioned with our enhanced brand presence and greater distribution. Concurrently, we've witnessed frontier's growth in their... It's important to highlight that our partnership with Frontier remains genuine, featuring a culture and an overarching marketing collaboration. The absence of an ATI with Frontier underscores the authenticity of our relationship, as we move forward with reactivating this partner. We eagerly anticipate operating on a higher level. Central and South America.

Our net debt to EBITDA ratio decreased to three four times from three nine times at the end of 2022.

The short term maturities for further financial debt.

Are attributed to pre delivery payments, we chair roles will eventually return upon aircraft delivery.

In other words.

I'll now discuss low and manageable refinancing exposure in the short to medium term.

Our capex net of fleet pre delivery payments amounted $252 million.

As of December 31st our fleet comprised of 129 aircraft up from 117 aircraft at year ago sits where the partner were 197 in the fourth quarter and our fleets kind of never a change of five seven years.

Jaime Polo: We are also planning capacity adjustments and a smaller footprint where markets are demonstrating In summary, we see the opportunity to have a positive 2024 by delivering on our ongoing increased travel through better fares, improved load, strong network, to Cross Leadership and Simplicity, delivering an exceptional passenger experience and extracting value from our services, and ultimately becoming the preferred carrier. I will now turn the call over to Jaime to discuss our financial performance for the fourth quarter and full year 2018. Thank you, Holger.

Looking forward, we are working diligently on our fleet plan with Airbus and normally maintain our near term aircraft deliveries scheduled.

We expect 17 scheduled aircraft deliveries in 2024, and 2025, all with PDP find 19 and senior leaders are committed.

We are entering this year with important financial data wins that put us in a good position to meet our yearly goals.

Therefore.

Our outlook continues as follow.

The first quarter of 2024, we expect a reduction of 16% to 18% year over year.

Russell of eight five to $8 77.

Jaime Polo: We are pleased to report that, despite the external challenges discussed earlier, our fourth quarter performance allows us to turn an accumulated loss in the first nine months into a positive one, learning, compared to the same period last year, our fourth quarter 2023 results. Total Operating Revenues of $899 Million, a 10% increase, notwithstanding the 1% year-over-year reduction in ASI due to the continuing strong demand and outstanding ancillary revenue improvement. Custom was $0.0731. Accelerating 2% Year-over-Year, Fuel was a driver of the decrease, with our average economic fuel cost falling by 16% to $3.13 per gallon, while gas and mixed fuel increased 11% and total 4.86% for Discussing Profits.

CASM ex fuel in the range of five 5% to five seven and 10.

Please note the primary cause of CASM ex fuel increased the capacity results shown in the specific fixed costs linked to the run that fleet not fully compensated or perhaps they would you release and finally, we expect an EBITDA margin of 25% to 27%.

For the period. This outlook assumes an average foreign exchange rate of 17, 17, 20, Mexican pesos per U S dollar and an average economic fuel price of approximately $2 55 to $2 65 per gallon.

For the full year 2024, we expect a reduction of 16% to 18% year over year.

EBITA margin in the range of 31% to 33%.

Capex net of finance fleet pre delivery payments of approximately $200 million.

Our full year 2024 outlook assumes an average exchange rate of $17 70, 217 Navy Mexican pesos per U S dollar and average economic fuel price of approximately 250 to $2 60 per gallon for the year.

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

Thank you very much Jaime before we begin the Q&A session I want to emphasize that Polaris is dedicated to our biosimilars and customer safety and we'll be there.

Earnings play a crucial role in connecting communities, we must simplify safety reliability and humanity.

In practice this philosophy in composites the safety first mindset discussed today in our participation in relief airports last October we provided free transportation for emergency responders volunteers stranded tourists and transport the humanitarian cargo two from there.

Core region after they're a station of sugarcane Otis in January we hosted an event discussing the role of air transportation and preventing child and adolescent traffic.

Jaime Polo: It is important to note that during the fourth quarter, compensation from Pratt & Whitney is included in the P&L, mainly as part of the other operating income. Accounting Night also includes aircraft sales and lease by Gaines and other accrual cancels. As part of the mitigation plan for the engine inspections, we extended aircraft leases not only for 2024 but also for 2025, totaling $164 million, an increase of 173%, reflecting the improvement in the classroom, the benefit of aircraft lease extensions, and the favorable fuel cost. This resulted in a margin of 18% and 11 percentage points.

Additionally, in commemorating 10 years of Larry's, joining export and nongovernment organizations dedicated to fighting child exploitation and trafficking with Simon is then to expand the protocol blower operations in countries of <unk>.

Central and South America, we.

We will continue to reaffirm our commitment to the people and the communities we serve.

We are confident that our corporate sustainability initiatives will foster long term commitments from our stakeholders.

Of course today, we have spent the past 18 years, creating advantages for velocities that make us different we primarily serve the resilient VFR market and attract first time Flyers, our controllable costs remaining check our network has been planned to capitalize on.

The return to cat, one and our culture with where there is not repeat <unk> balance sheet is strong on our fleet plan is flexible.

Our strategy has proven effective and resilient these unprecedented market conditions represent an opportunity to keep our focus from establishing our industry profile to prioritizing profitability and shareholder returns moving forward shareholder value creation remains as important to us.

Jaime Polo: If you take our total, $281 million, a 35% increase. The margin was 31%, an improvement of 6 percentage points. It's a significant shift from our performance in the first nine months of the year. Net income rose to $112 million, translating into earnings per ADS of 96%. The cash flow provided by operating activities in the fourth quarter was $218 million.

Our favorite before.

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

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

Questions will be taken in the order. They are received we ask that you post your question.

That you pick up your handset to provide optimum sound quality.

Jaime Polo: Cash Outflow Using Investing and Financing Activities was $113 million and $82 million, respectively. Now, moving to our full 2023 results, our annual financial performance stands out compared to 2023. Total operating revenues of $3.3 billion, an increase of 14%, capital of 7.81 cents, a 1.7% decrease over 2022. The average economic fuel cost for the full year decreased by 18%.

Those following the presentation via the webcast may post their questions on the platform.

The management team will answer them during this call.

Lars Investor Relations team will follow up after the conference call is finished.

To send your question via the webcast platform click on the ask a question button and type your inquiry.

Please hold while we poll for questions.

Our first question.

It comes from the line of Duane Fenech worth of Evercore ISI. Please go ahead Duane.

Hey, Thanks, good morning.

So I wanted to I wanted to ask you about your international mix before the GTS issues.

Jaime Polo: $3.11 per gallon, and gasoline was 4.81 cents, reflecting a 12.8% increase. I want to emphasize that both total operating revenues and gas and mixed fuel results align with our annual outlook, even as we initiated the aircraft groundings in the third quarter. EBIT was $223 million, up from $44 million for 2020, with an even margin of 7% of 5.3 percentage points. Evitar came in at 823 million dollars.

You had a plan to increase international win.

Category, one came back and now given the constraints.

We're redeploying the international but also cutting back domestic something like 25%.

In the first half of this year. So I guess the question is what do you think is the ideal if you didn't have these fleet constraints.

Jaime Polo: An increase of 40% Relevator margin was 25%, an increase of 4.7%. Net Income was $8 million, translated into earnings per ADS of $7. Bolares finished the year with a total liquidity position of $789 million, representing 24% of the last 12 months' operating revenue. Our net depth to emitter ratio decreased to 3.4 times from 3.9 times at the end of 2022.

What do you think the ideal mix of domestic versus international and is there anything about.

How your network.

He is being reconfigured today, that's sort of surprising you positively maybe maybe 45 or 50 is the right mix.

So duane.

The full year as we said in the call.

We're planning to get get to 45% international was 55% domestic.

That is very much in line with what we had planned we will add more flying lines to the U S. So we will see an increase in capacity. Despite a full year reduction of all overall network capacity and most of the reduction will come from the domestic market. So we're not planning any decline.

Jaime Polo: The short-term maturities of our financial debt are attributed to pre-delivery payments, and Chervos will eventually return upon aircraft delivery. In other words, Volaris has low and manageable refinancing exposure in the short to medium term. Our CAPEX Net-of-Fleet Pre-Delivery Payments amount to... As of December 31st, our fleet comprised 129 aircraft, up from 117 aircraft a year ago. Seats per departure were 197 in the fourth quarter, and our fleet had an average age of 5.7 years.

In the in the U S.

And if you look at the first quarter.

The domestic reductions in <unk> will be.

In in the high 20 percentage points and the.

International will actually increase by by 9% approximately 9% to 10%.

But.

Clearly I need to underline that we will not abandon any.

All of our core domestic markets. So we will continue to defend them and be very present in those core domestic market.

Okay, I guess, just a follow up there hold or do you think this 45% mix is closer to optimal or if you had a blank sheet of paper would it be.

Jaime Polo: Looking forward, we are working diligently on our fleet plan with Airborne and are maintaining our near-term aircraft delivery schedule. We expect 17 scheduled aircraft deliveries in 2024 and 2025, all with PDP financing and St. Louis but committed. We are entering this year with important financial tailwinds that put us in a good position to meet our yearly goal. Therefore, our outlook continues as follows for the first quarter of 2024. We expect a decent reduction of 16 to 18% year-over-year. Ransom of 8.5 cents to 8.7 cents, Custom is fueling the range of 5.5 to 5.7 tons. The primary cause of gas and mixed fuel increases is a capacity reduction and a specific fixed cost linked to the grounded fuel not fully compensated for or Pratt's AOG released.

Back to the 30% that you were doing historically.

I think.

We had too much capacity in the domestic market Duane.

We always on their lineup during the last year and we have to ship it.

Some of that capacity due to the U S. So the answer is by now the mix I think it's the right mix.

Plus it gives us that bad debt charge. This foreign exchange protection by almost 50% of the collections in U S dollars were protecting the 62% level that we have or exposure that we have on board.

Foreign exchange on the cost side, so it's balancing very well right now and I think the target for this year is very optimistic.

[laughter].

Okay, Great and then just just to follow up on the on the GTS grounding.

Jaime Polo: And finally, we expect an inhibitor margin of 25% to 27%. For the period, this outlook assumes an average foreign exchange rate of 17 to 17.20 Mexican pesos per U.S. dollar and an average economic yield price of approximately 2.55 to 2.65 per U.S. dollar. For the full year 2024, we expect an ASM reduction of 16 to 18% year over year, with a margin in the range of 31 to 33 percent. CAPEX Net-of-Finance Fleet Pre-Delivery Payments of approximately $300 million, our full year 2024 out, consumes an average exchange rate of $17.70 to $17.80 Mexican pesos per U.S. dollar and an average economic yield price of approximately $2.50 to $2.60 per gallon.

What is the what is the incremental update today, what have you learned from.

From Pratt over the course of the last quarter and how should we be thinking about the timing of the resolution of these issues in other words is it sort of consistent with what you were thinking is is it longer or is it shorter.

And I guess the punch line as it relates to Valera I know, it's very very early.

But how should we be thinking about 2025 growth I assume it's a very wide range of outcomes.

But I just could could capacity to be down again next year for example, and thank you for the thoughts.

Oh.

I think.

We keep managing things like one time, okay. So that's very important.

As I said during my my explanation.

Our analytical tools for predicting engine performance has proven to be accurate and we have ensured.

It's successful airports, where that having said that as I said product.

Enrique Javier Beltranena Mejicano: Now, I will turn the call over to Enrique for closing. Thank you very much, Jaime. Before we begin the Q&A session, I want to emphasize that Volaris is dedicated to our ambassadors and customer safety and well-being. As airlines play a crucial role in connecting communities, we must exemplify safety, reliability... In practice, this philosophy encompasses the safety-first mindset discussed today and our participation in relation to it, laptop.

He is taking a little bit more time at the shops because of lack of materials.

And.

But what we're seeing is.

An accelerated process fixing the different products that they have.

And we strongly think that 2025 is still going to be like that somewhere around 350 to 400 basal and shop.

Then eventually I would say somewhere like February March of next year, we might see a reduction that might affect the numbers for next year, but that's just a prediction based on today's forecast and I will go one to say that it's going to be shorter right I just wanted to say that.

Enrique Javier Beltranena Mejicano: We provided free transportation for emergency responders, volunteers, stranded tourists, and transported humanitarian cargo to and from the Acapulco region after the devastation of Hurricane. In January, we hosted an event discussing the role of air transportation in preventing child and adolescent trafficking. Additionally, in commemorating 10 years of Volaris joining, a Non-Government Organization Dedicated to Fighting Child Exploitation and Trafficking. We signed them

I think we are in the right process towards the right solution.

Okay. Thank you for the thoughts.

Thank you.

Our next question.

Comes from the line of Stephen Trent of Citi. Your question. Please Stephen.

Thank you very much gentlemen, or good morning can you hear me, okay by the way.

Enrique Javier Beltranena Mejicano: Expand the protocol to our operations in... Central and South America, will continue to reaffirm our commitment. We welcome the fact that our corporate sustainability initiatives will foster long-term commitment. To discuss today, we have spent the past 18 years creating advantages for Volaris that make us. We primarily serve the resilient VFR market and attract first-time producers.

Yes, we hear you well.

Oh great.

Thanks, very much and Ricky.

So just one or two quick ones for me I think first as a follow up to <unk> question. When we think about the greater emphasis on north bound U S routes.

Fair to say kind of near to medium term there should be less expansion on these domestic.

Enrique Javier Beltranena Mejicano: Our controllable costs remain in check, our network has been planned to capitalize on the return of Cat 1, and our closure with Frontier is not, Solaris' balance sheet is strong, and our fleet plan is... Our strategies have proven effective and resilient. These unprecedented market conditions represent an opportunity to shape our focus. Establishing Our Industry Profile to Prioritizing Profitability and Shareholding. Moving forward, shareholder value creation remains as important to us as ever.

Domestic Interstate bus routes in Mexico.

Yes, that's correct, Steven we accelerated our expansion into the U S. So we're going to.

Have a higher percentage of our business in the international this year end.

We will shrink capacity in the domestic market absolutely.

Great. Thank you Holger.

And just another related question to that.

Refresh my memory.

Very helpful color on domestic versus international.

Within that could you unpack a little bit how you're thinking now about Central America to U S non stop or a central America to Mexico.

Operator: Thank you very much for listening, operator. Please open the line. Thank you. The floor is now open for questions. If you have a question, please press star 11 on your touchtone phone at this or any time. If at any point your question is answered, you may remove yourself from the queue by pressing star 11 again.

Yes, Stephen So last year, we accelerated our expansion into central American market to the U S. Given the restrictions in Mexico with cap.

Two stages of Mexico.

This year, we have.

Rightsize, the central American capacity, where are we shifting some of the capacity back to the domestic market in Mexico, and Chile, Mexico U S market. So we will see a slowdown of the accelerated growth that we saw last year.

Operator: Questions will be taken in the order they are received. We ask that you post your question and pick up your handset to provide optimum sound quality. 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 Volaris Investor Relations team will follow up after the conference call ends. To send your question via the webcast platform, click on the Ask a Question button and type your answer.

However, Central America continues to be a cornerstone of our growth strategy and we believe in the long term opportunities in central and South America.

So it may hold there I think it's really important to understand that the whole move that we're doing remains within our core practice of shifting passengers from that basis.

Into the aviation market and the markets that we're tackling are also robust markets.

<unk> is being reinforced in those markets all over the place in Central America in Mexico in Mexico to the U S.

Operator: Please hold while we poll for questions. Our first question comes from the line of Duane Pfennigwerth of Evercore ISI. Please go ahead, Duane.

Okay Super helpful that that that makes a lot of sense and many thanks gents.

Okay.

Thank you.

Duane Pfennigwerth: Hey, thanks. Good morning. So I wanted to ask you about your international mix. You know, before the GTF issues showed up, you had a plan to increase international when Category one came back, and now, given the fleet constraints, you're redeploying to international but also cutting back domestic by something like 25% in the first half of this year. So I guess the question is, what do you think is the ideal? If you didn't have these fleet constraints?

Our next question.

It comes from the line of Michael Lindenberg of Deutsche Bank. Your line is open Michael.

Hi, Good morning, guys actually Shannon Doherty on for Mike.

Just my first question.

That's been up and running for about two months now are you seeing any competitive impact thus far.

Oh, no that Mexico flying.

With very small traffic volumes.

And.

I think thats basically where we are.

And.

There are only operating our children.

Phillipe actually list the new airport.

And.

Those side of attacks.

I cannot comment on anything further.

Holger Blankenstein: What do you think the ideal mix of domestic versus international is? Is there anything about how your network is being reconfigured today that is sort of surprising you positively? Maybe maybe 45 or 50 is the right mix. So, Duane, for the full year, as we said in the call, we are planning to get to 45% international and 55% domestic, and that is very much in line with what we had planned. We will add more flying lines to the U.S., so we will see an increase in capacity despite a full-year reduction in all overall network capacity. Most of the reduction will come from the domestic market, so we're not planning any decline in the U.S. And if you look at the first quarter, the domestic reductions in ASMs will be in the high 20 percentage points, and the international will actually increase by 9%, approximately, 9 to 10%. Clearly, I need to underline that we will not abandon any of our core domestic markets.

That's fair and maybe you can elaborate a little bit on <unk> question, how are your Costa Rica, and El Salvador operation and can you remind us how many aircraft are maybe.

Today, and maybe how this has been impacted by the Cheesecake cramming.

And our plan for 2021.

So.

Shannon Thank you.

So currently.

We are planning for this year six aircraft in the region, we have two.

Alc's or in Costa Rica, and El Salvador.

Traffic is mostly focused on U S to Central America, which is really an extension of our core business. The core VFR business that were also operating between Mexico and the U S.

We don't see any.

Effect.

On the Central American business.

Due to the GTS engine issues, we have.

Being able to shift around capacity, so that the impact on our central.

American business is not there and as I said.

We continue to believe in the Central American opportunities.

Thank you.

Thank you.

Our next question.

It comes from the line of <unk> <unk>.

Bank of America. Your line is open Rosario.

Holger Blankenstein: So we will continue to defend them and be very present in those core domestic markets. Okay, I guess just to follow up there, Holger, do you think this 45% mix is closer to optimal? Or if you had a blank sheet of paper, would it be, you know, back to the 30% that you were doing historically?

Thank you hi, guys. Thank you very much for the opportunity I have a couple here one is on costs.

If you could please provide some.

Incremental information on the aircrafts the manganese variable lease expenses. This line it became positive this quarter.

What can we attribute it to.

Holger Blankenstein: I think we had too much capacity in the domestic market, Duane, as we always underlined during the last year, and we had to shift some of that capacity to the U.S. So the answer is, by now, the mix. I think it's the right mix. Plus, it gives us the advantage of this foreign exchange protection. By having almost 50% of the collections in U.S. dollars, we're protecting the 62% leverage that we have or exposure that we have on foreign exchange on the cost side.

And also the other operating expenses line.

Hey, much above what we were seeing best quarters.

And what could explain that and one off impact and what is the recovery level going forward.

This is the first one and then they can make the second one later thank you.

Sure. If you look at the Echostar <unk> lease expenses.

For the Remeasurement due to extensions of it plays out with Duke.

Also the red delivery re measurements remember a spiral that mitigation plan.

We extended the place we bought planes.

Enrique Javier Beltranena Mejicano: So it's balancing very well right now, and I think the target for this year is very optimal. Okay, great. And then just to follow up on the GTF grounding. What is the incremental update today? What have you learned from Pratt over the course of the last quarter? And how should we be thinking about the timing of the resolution of these issues? In other words, is it sort of consistent with what you were thinking? Is it longer? Is it shorter?

[laughter] casuals over those provisions.

Yeah.

Sorry, I think I missed it.

Other operating expenses explanation sorry about that.

Okay.

It's basically as a result of the growth of the business.

Consider that we have added 12 aircrafts into a business that we shipped capacity teams was marketing that for Q. So the line is not any.

One time effect is yours as part of their natural growth that cheap.

The domestic or international.

Enrique Javier Beltranena Mejicano: And I guess the punchline as it relates to Valeris, you know, I know it's very, very early, but how should we be thinking about 2025 growth? I assume it's a very wide range of outcomes. But I just, you know, capacity could be down again next year, for example, and thank you for the thoughts. Well, I think, Duane, we keep on managing things like one day at a time, OK? So that's very important. As I said during my presentation, our analytical tools for predicting engine performance have proven to be accurate, and we have ensured a successful effort for that.

Okay pretty clear. Thank you my second question is regarding margins.

So the 31% to 33% margin guidance for this year.

Is somehow negatively impacted.

By a lack of scale in all day.

The SG&A cost that are not being diluted into more capacity, but at the same time. It has a positive effect on the compensation from <unk> and also the higher yields that are these capacity constrained is causing.

Any gas.

What is it going to be a normalized margin.

Enrique Javier Beltranena Mejicano: Having said that, as I said, Pratt is taking a little bit more time at the shops because of a lack of materials, OK? But what we're seeing is an accelerated process fixing the different prompts that they have. And we strongly think that 2025 is still going to be like that, somewhere around 350 to 400 days on the shop. And then eventually, I would say somewhere like February or March of next year, we might see a reduction that might affect the numbers for next year. But that's just a prediction based on today's forecast.

When aircrafts.

Our back to operate.

Thomas off you'll have enough positive effect on <unk>.

Cost dilution, but at the same time.

One the margins in that and the competition already then what would be.

Your best Gazzam under my lies at the margin level going forward. Thank you.

I think our target is to be profitable and that will enroll.

In the meantime, we'll be to consistently deliver reached a low to mid <unk>.

<unk> EBITDA margin.

The goal.

Yeah.

Uh huh.

Okay. Thank you very much have a great time.

Hmm.

Thank you.

Our next question.

Comes from the line of Helane Becker of TD Cohen.

Thanks, very much at Behr, Hi, guys can you just comment I have two questions. One on how we should think about the maintenance credits.

Enrique Javier Beltranena Mejicano: And I don't want to say that it's going to be shorter right now. I just want to say that I think we're in the right process toward the right solution. Okay, thank you for the thoughts. Thank you. Our next question comes from the line of Stephen Trent of Citi. Your question, please. Thank you very much, gentlemen, and good morning. Can you hear me okay, by the way? Yeah, we hear you, bro. Oh, great. Thanks very much, Enrique. Just one or two quick ones for me.

And on my second question is how are bookings looking for Holy week.

Helane.

The maintenance spread then.

It's something which is containing a computer ensure lithia agreement between Pratt and Whitney on Boulardii. So I cannot give that many details on it but.

But having said that.

Explain inquiries this accounts for the first line of the P&L.

Credit that you see there.

And.

And I think it is compensating the.

Vast majority of lower fixed costs.

Okay, and it's not covering all that and it's not a recovery the revenues that were lost.

Stephen Trent: You know, first as a follow-up to Duane's question, when we think about the greater emphasis on northbound US routes, it would be fair to say, kind of near to medium term, there should be less expansion on these domestic interstate bus routes in Mexico. TheFNDC.com: Yes, that's correct, Stephen. We accelerated our expansion into the U.S., so we're going to have a higher percentage of our business in the international market this year, and we will shrink capacity in the domestic market. Absolutely not.

Okay great.

It is difficult given the confidentiality agreement to give more details, but what we're planning.

A forecast so far were numbers, especially that CASM number and EBITDAR.

On a quarterly basis and will provide for the second quarter at a guideline right at the beginning of the following quarter.

Okay, that's very helpful. Thanks and delayed.

Booking curve for the spring break and the Easter Hiseq.

But just to remind everyone that Easter falls into the last week.

So just as much as the first quarter and then most of it in the standard of care.

In April.

So it.

It will be just what first quarter looks solid.

Holger Blankenstein: Great. Thank you, Holger. And just another related question to that. If you could refresh my memory, you know, very helpful color on domestic versus international. But within that, could you unpack a little bit, you know, how you're thinking now about Central America to the U.S. nonstop or Central America to Mexico? Yes, Stephen. So last year, we accelerated our expansion in the Central American market to the U.S. Given the restrictions in Mexico, we've kept two states in Mexico.

We started that work.

Yeah.

Okay.

Any guidance that we provided to you.

Yes.

Eight.

Sure.

Sure.

13%.

If I break that down.

No.

So that's the math.

Okay.

Absolutely.

Yes.

No.

It did.

Right.

The team.

And the network taking advantage of that.

We're expanding the scope.

We are seeing.

Sure.

Towards the first quarter.

Holger Blankenstein: This year, we have right-sized the Central American capacity. We're reshifting some of the capacity back to the domestic market in Mexico and to the Mexico U.S. market. So we will see a slowdown of the accelerated growth that we saw last year. However, Central America continues to be a cornerstone of our growth strategy.

Hi, Pete.

And that's very helpful. Hunger. Thank you very much.

Thank you Olivier.

Thank you.

Our next question.

Comes from the line of Bruno Amorim of Goldman Sachs. Your question. Please Bruno.

Yes, good morning, everybody. So I have two questions. The first one to follow up on margins you delivered 31% in the fourth quarter. If we adjust for seasonality. This implies on a run rate and all that.

Enrique Javier Beltranena Mejicano: And we believe in the long-term opportunities in Central and South America. If I may, Holger, I think it's really important to understand that the whole move that we're doing remains within our core practice of shifting passengers from buses into the aviation market, and the markets that we're tackling are also bus markets, and the capacity is being reinforced in those markets all over the place, in Central America, in Mexico, and in Mexico to the U.S. Okay, super helpful that that makes a lot of sense and many thanks. Thank you. Our next question comes from the line of Michael Linenberg of Deutsche Bank. Your line is open, Michael.

The basis of around 28% and you're guiding for a 31% to 33%. This year. So you are implying an improvement.

Between the fourth quarter of last year, and why do you expect for the full year 2000.

24 can you help us understand where the improvement comes from is it bad theyre pricing more than offsetting a last.

Fix it caused dilution or something else and the second question you.

You have alluded to that just certain extent, but you know can you clarify in terms of point of sale roughly how much of sales do you expect to come from the U S. Either with Mexico, you mentioned at some point international versus domestic routes in the breakdown of revenues from that perspective, but it will be interesting to hear from you.

Michael Linenberg: Hi, good morning, guys. This is actually Shannon Doherty on for me. My first question is, you know, Mexicana has been up and running for about two months now. Are you seeing any notable competitive impact thus far? We all know that Mexicana is flying with very small traffic volumes, and I think that's basically where we are. And they're only operating out of Aeropuerto Felipe Angeles, the new airport. And that's the truth; those are the facts.

And what do you expect for the breakdown in terms of point of sale will land with these new.

The configuration of the network more tilted towards international Thank you.

Okay. So I'll start out with answering your question from the revenue perspective.

Clearly this year, we're seeing an improved unit revenue that.

That is driven by.

The solid demand, we see in the domestic market and international market. Despite the reduction in capacity.

Enrique Javier Beltranena Mejicano: I cannot comment on anything further. That's fair. And maybe to elaborate a little bit on, you know, Steve's question, how are your Costa Rica and El Salvador operations doing? Can you remind us how many aircraft are under these certificates today? And maybe how this has been impacted by the GTF groundings versus your original plan for 2024? Thank you. So, Shannon, thank you. Currently, we are planning for this year six aircraft in the region. We have two AOCs in Costa Rica and El Salvador.

We are seeing also.

Very solid fare environment and we are.

<unk> ancillary revenues further so it comes to unit revenue improvement comes from load fares and ancillary in 2024.

And obviously, we rightsize our network and we shifted the capacity.

Into the most profitable markets.

You already mentioned in terms of point of sale.

The ASM split that we expect towards the end of the year is going to be $45 55, and then if you look at U S dollar collections and point of sale its actually more balanced it's going to be somewhere around 50 50.

Okay.

And that should result in an EBITDA margin guidance that we gave you for the full year of 31% to 33% for 2024.

Holger Blankenstein: The traffic is mostly focused on U.S. to Central America, which is really an extension of our core business, the core VFR business that we're also operating between Mexico and the U.S. We don't see any effect. On the Central American business, due to the GTS engine issues, we have been able to shift around capacity so that the impact on our Central American business is not there. And as I said, we continue to believe in the Central American opportunity to belong.

And that's from the revenue perspective.

Thank you.

Thank you.

Our next question.

It comes from the line of Pablo recall there of Santander. Please go ahead Pablo.

Hi, Good morning, I don't know if you can hear me.

Yes.

Thanks, I have a question on labor.

Are you seeing in terms of labor increases or your operations in Mexico.

So as I stated in my my.

The presentation the company was able to close the negotiation with the Union.

With a base salary increase for the year of 5%.

Okay.

Okay.

Thanks.

Youre welcome.

Holger Blankenstein: Thank you. Our next question comes from the line of Rogerio Arajo of Bank of America. Your line is open, Rogerio.

Thank you.

Yeah.

It's been about for our next question.

Our next question comes from the line of Neil Glynn of Air Power you have.

Please mail.

Hey, good morning, if I could ask two questions. Please the first one just following on from the last question on labor.

Rogrio Arajo: Thank you. Hi guys. Thank you very much for the opportunity. I have a couple here.

Rogrio Arajo: One is on costs. If you could please provide some additional information on the aircraft and engine variable lease expenses. This line became positive this quarter. What can we attribute it to? and also the other operating expenses line came much above what we were seeing in past quarters, and what could explain that and the one-off impact, and what is the recovery level going forward. This is the first one, and then I can make the second one later.

Youre, obviously, reducing capacity, 16% to 18% of head count came down in the fourth quarter. I think you mentioned can you confirm what kind of magnitude head count should fall in 2024 versus 2023 in the context of that capacity costs.

And then the second question.

Salaries of get clarity, but a big focus within this call can you give us a sense today how.

How much higher.

International routes are relative to domestic in terms of the federally proportion of total revenue I guess, if the if the total of 49% across the overall network.

Jaime Polo: Thank you. Sure. If you look at the air-conditioning variable lift expenses, it accounts for the recovery net due to the extensions of the planes that we took and also the delivery remeasurements. Remember, as part of the mitigation plan for the AOEs, we extended planes, and we bought planes. No, that's not something that would be appropriate.

You must be maybe hitting 60% or so on international routes. Thank you.

So answering your first question.

It's going to be a little bit higher than what it was last year. There's two reasons for that the first one is because of the embargo.

The variable capacity that we have during the year, sometimes we go up and sometimes we go down in terms of the aircrafts that we are.

Operator: Thank you for watching. I hope you enjoyed the video. If you did, please like, share, and subscribe.

Sending or putting down because of the anticipated revisions.

Operator: I'll see you next time. Sorry, I think I missed the other operating expenses explanation. Sorry about that. It's basically a result of the growth of the business. Consider that we have added 12 aircraft to the business, and we ship capacity to the U.S. market in the 4Q. So the line is not any specific one-time effect.

And.

And the.

Then it's going to be a little bit higher also because in terms of technical professionals, we need to continue preparing people and.

And we have this growth for the next year or we need to be prepared to some growth during next year and especially the following year. So so we preserve the technical capacity, that's why it's going to be maybe.

Jaime Polo: It's just a part of the natural growth that shifts the mix within the domestic and international. Okay, pretty clear. Thank you. My second question is regarding margins. So the 31-33% margin guidance for this year is somehow negatively impacted by a lack of scale and all the SG&A costs that are not being diluted into more capacity. But at the same time, it has a positive effect on the compensation from Pratt and also the higher yields that this capacity constraint is causing.

1% higher when the 5% higher than what we had last year.

Referring to the second question hold on Williams with you, yes, so clearly the international portion.

Ancillary pieces is higher than the domestic portion.

Mostly driven by higher bag.

Revenues and seems like seat assignments for the longer stage length continue to vary.

We don't provide the exact breakdown, but I can tell you that the U S and international portion is higher than domestic and das.

Ancillary percentage as a total for the 2024 will be helped by shift of capacity two internationally tiers.

Jaime Polo: Any guess on what is going to be a normalized margin? When the aircraft are back to operate, you know, in terms of you having a positive effect on cost dilution but at the same time a negative one on margins and the compensation already done? What would your best guess on a normalized margin level going forward? Thank you. I think our target is to be profitable, and our goal midterm will be to consistently deliver a low to mid-series editor margin. That's the goal. Okay, thank you very much. Have a good one!

Great. Thank you.

Thank you excuse me. This concludes today's question and answer session I would like to invite Mr. Boucher name yet to proceed with his closing remarks. Please go ahead Sir.

Thank you operator, thank you everyone like the past several months the year ahead will be challenging and rewarding I want to thank you all of our family of ambassadors the board of directors our investors.

Burgers, and the doors and suppliers for their unwavering support and commitment to Polaris I look forward to addressing you all next quarter and seeing you in the following conferences during now due in the next couple of months. Thank you very much.

Helane Becker: Thank you. Our next question comes from the line of Helene Becker of TD Cohen. Thanks very much, operator. Hi, guys. Can you just comment?

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

Operator: I have two questions. One is how we should think about the maintenance credit, and my second question is how are bookings looking for Holy Week. Helene, the maintenance credit is something which contains a confidentiality agreement between Pratt & Whitney and Volaris, so I cannot give that many details on it, but having said that, Hymex Flame Query accounts for the first line on the P&L, and that's the credit that you see there.

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Jaime Polo: And I think it's compensating for the vast majority of our fixed costs. Okay, and it's not covering all of that, and it's not recovering the revenues that we're losing, okay? Right. It is difficult, given the confidentiality agreement, to give more details, but what we're planning is to give a forecast of our numbers, especially the CASN number and EVDAR, on a quarterly basis, and we'll provide for the second quarter a guideline right at the beginning of the following quarter. Okay, that's very helpful. Thanks. Cooking Curve for Spring Break and the Easter High Season, just to remind everyone that Easter falls into the last week of March, so just as much as the first quarter and then most of it in the second quarter of May as well.

Okay.

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Holger Blankenstein: And then I can tell you that the bookings for the first quarter looked solid, and the project was started at work. As I mentioned, with the guidance that we provided to you, we are expecting our funding to be 8.5 and 8.7 million dollars, which is up 13% this year, but if I take that down to the rest of Amnesty International, we are dealing with quite a solid amount of money, which I think will be helped by the reduction in capacity that we put in the network. It is very important to see that the UK has been able to take advantage of the same kinds of new investments. To quote Martin Luther King, "That's very helpful, Holger."

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Holger Blankenstein: Thank you very much. Good evening, everybody. Thank you. Our next question comes from the line of Bruno Amorim of Goldman Sachs. Your question, please. Yes, good morning, everybody. So I have two questions.

Bruno Amorim: The first one is a follow-up on margins. You delivered 31% in the fourth quarter. If we adjust for seasonality, this implies a run rate on an analyzed basis of around 28%. And you're guiding for, you know, 31 to 33% this year. So you are implying an improvement between the fourth quarter of last year and what you expect for the full year 2024. Can you help us understand where the improvement comes from? Is it better to price more than upset less fixed cost dilution or something else?

Sure.

Yes.

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Holger Blankenstein: And the second question, you have alluded to that to a certain extent, but can you clarify, in terms of point of sale, roughly how much sales do you expect to come from the U.S. vis-a-vis Mexico? You mentioned at some point international versus domestic routes with the breakdown of revenues from that perspective, but it would be interesting to hear from you what you expect the breakdown in terms of a point of sale will land with this new configuration of the network more tilted towards international. Thank you. Okay, so I'll start out by answering your question from the revenue perspective. Clearly, this year we're seeing an improved unit revenue that is driven by the solid demand we see in the domestic market and international market despite the reduction in capacity.

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Holger Blankenstein: We're also seeing a very solid fare environment, and we are pushing ancillary revenues further. So the unit revenue improvement comes from loads, fares, and ancillaries in 2024, and obviously, we right-sized our network, and we shifted the capacity into the most profitable markets, as Enrique already mentioned. In terms of point of sale, the ASM split that we expect towards the end of the year is going to be 45-55, and then if you look at US dollar collections and point of sale, it's actually more balanced; it's going to be somewhere around 50-50. And that should result in an EBITDA margin guidance that we gave you for the full year of 31 to 33% for 2024. And that's from the revenue perspective.

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Operator: Thank you. Our next question comes from the line of Pablo Riccardo of Santander. Please go ahead, Pablo. Hi, good morning. I don't know if you can hear me.

Ricardo L. Alves: Yes. Thanks. I have a question about labor.

Enrique Javier Beltranena Mejicano: What are you seeing in terms of labor increases for your operations in Mexico? As I stated in my presentation, the company was able to close a negotiation with the union on a base salary increase for the year of 5%. Thank you. Thank you. Thank you. Thanks, Enrique. You're welcome. Thank you. All right. Standby for our next question. Our next question comes from the line of Neil Glynn of Air Control Tower. Your question, please, Neil. Hi, good morning. If I could ask you two questions, please? The first one just following on from the last question on labor, you're obviously reducing capacity 16 to 18%, and headcount came down in the fourth quarter, as you mentioned.

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Neil Glynn: Can you confirm what kind of magnitude headcount should fall in 2024 versus 2023 in the context of that capacity cut? And then, on the second question, ancillary has clearly been a big focus within this call. Can you give us a sense today of how much higher international routes are relative to domestic in terms of the ancillary proportion of total revenue? I guess if the total is 49% across the overall network, you must be maybe hitting 60% or so on international routes.

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Enrique Javier Beltranena Mejicano: Thank you. So, answering your first question, it's going to be a little bit higher than what it was last year. There are two reasons for that.

Okay.

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Okay.

Thank you.

Enrique Javier Beltranena Mejicano: The first one is because of the variable capacity that we have during the year; sometimes we go up, and sometimes we go down in terms of the aircraft that we are sending or putting down because of anticipated revisions. And then it's going to be a little bit higher also because, in terms of technical professionals, we need to continue preparing people, and we have this growth for next year, or we need to be prepared for some growth during next year and especially the following year. So we preserve their technical capacity. That's why it's going to be maybe 1% higher, 1.5% higher than what we had last year.

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Holger Blankenstein: Referring to the second question, Holger, we'll answer you. Yeah, so clearly the international portion in the ancillary pieces is higher than the domestic portion, mostly driven by higher bag revenues and things like seat assignments for the longer stage length itineraries. We don't provide the exact breakdown, but I can tell you that the U.S. and international portion is higher than the domestic portion.

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Holger Blankenstein: And thus, the ancillary percentage as a total for 2024 will be helped by a shift of capacity to international itineraries. Great, thank you. Thank you. Excuse me.

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Operator: This concludes today's question and answer session. I would like to invite Mr. Beltranegna to proceed with his closing remarks. Please do so.

Okay.

Enrique Javier Beltranena Mejicano: Thank you, operator. Thank you, everyone. Like the past several months, the year ahead will be challenging and rewarding.

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Operator: I want to thank you, our family of ambassadors, the board of directors, our investors, bankers, the lessors, and suppliers for their unwavering support and commitment to Volaris. I look forward to addressing you all next quarter and seeing you at the following conferences during the next couple of months. Thank you very much. This concludes the Volaris conference call for today. Thank you very much for your participation and have a nice day.

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Operator: ESOcast is produced by ESO, the European Southern Observatory. ESO, the European Southern Observatory, is the pre-eminent intergovernmental science and technology organization in astronomy, designing, constructing and operating the world's most advanced ground-based telescopes. ESO, the European Southern Observatory, is the world's first intergovernmental scientific and technological organisation. ESO is the world's largest intergovernmental scientific and technological organisation, ESO, the European Southern Observatory, is the world's largest intergovernmental scientific and technology organisation ESO is the world's largest intergovernmental scientific and technology organisation ESO, the European Southern Observatory, is the world's largest intergovernmental scientific and technology organisation, ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? [inaudible] C-Hawk C-Hawk C-Hawk, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?

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