Controladora Vuela Compania de Aviacion SAB de CV Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Duane Pfennigwerth - Evercore ISI - Analyst : Hi, thank you. Good morning. Can you help us think about the shape of capacity into the first quarter and the first half of 2025? You've given us a preliminary view on the year, but I wonder if you could speak to how you expect maybe to start the year from a growth perspective in the first quarter. Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President Thanks for your question. So we are finalizing our operating plan, but we're looking at growth in the mid-teens for the first half of 2025, approximately. And that's still a little bit under discussion depending on the situation at Pratt & Whitney and Airbus.

Question: Duane Pfennigwerth - Evercore ISI - Analyst : Okay. And then with respect to the new administration, I know it's only been a few weeks here, but any early view on how the relationship may be changing? Any new policies you care to highlight? Enrique Beltranena Mejicano - Controladora Vuela Compania de Aviacion SAB de CV - President, Chief Executive Officer, Co-Founder, Director Duane, this is Enrique Beltranena. To be honest with you, we have met recently the new authorities, and we expect, to a certain extent, some continuity on the aviation policies as the same party is basically heading the government. We have established a close communication and interactions with the new authorities. And we have conveyed the need to continue promoting the healthy development of the sector. We have secured the level playing field among all industry participants. We have strengthened and modernized regulators. We think we can facilitate access to competitive inputs. And finally, I -- consolidate the Mexico City metropolitan airport system, among other priorities. Those are the topics that we have on our agenda with the conversations that we have with the recent government, and this is what we expect.

Question: Guillermo Mendez - JPMorgan Chase & Co - Analyst : Hey, good morning guys. And thanks for taking my question. Can you help us think about the recent FX depreciation in Mexico, the ability that the company might have to pass it through into fares? And Enrique, one follow-up on your comments about the new administration. You mentioned about the Mexico City hub. Any views if the slots restrictions could change anytime soon? Thank you. Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President Guilherme, this is Jaime. I will answer first the question on FX, and then I pass it over to Enrique for the political questions. On FX, Guilherme, as you noticed, as we increase the network to the US in the cross market, we are now at a 41% collections in US dollars. Our goal is to increase that to 50%. And in addition, we invest 90% of our cash balance in US dollars. We have a natural hedge based on the company since our cost expense is 60%. So we are basically naturally hedging the FX impact on our business. Enrique Beltranena Mejicano - Controladora Vuela Compania de Aviacion SAB de CV - President, Chief Executive Officer, Co-Founder, Director This is Enrique Beltranena. Speaking about the reactions of the new government in terms of the metropolitan airports, what we saw yesterday in a meeting that we had with this Under Secretary of Transportation is that the general in charge of the agency regulation said that there are a lot of pressures in terms of changing the slots and the number of slots in Mexico City and that they don't think it's going to happen. And the second thing that he stated is that they expect to continue doing what they have done during the last six years in terms of number of slots and the way they are managing the system, except for the discussion of the new regulation that has been discussed and proposed that it's probably going to be approved in the following month or 1.5 months.

Question: Stephen Trent - Citigroup Inc. - Analyst : Good morning, gentlemen. And thanks very much for taking my question. Sort of a follow-up first off. Jaime, I think you said 50% of collections and 90% of cash balances are in US dollars. As we think about what those numbers might look like long term, do you think they stay around that level or maybe they possibly tilt further towards the dollar? Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President Hello Steve, today, we are at 41% collection in US dollars. We aim to increase that to 50% next year based on the network that we are planning to grow into the international markets. And we keep to maintain the way we invest the money, always above 90% in US dollars. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 3:00PM, VOLARA.MX - Q3 2024 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call

Question: Stephen Trent - Citigroup Inc. - Analyst : Thanks very much

Question: Thomas Fitzgerald - TD Cowen - Analyst : Thanks very much. Can you help us think about the other operating income line in 2025? Do you think that will be lower than it is in '24? Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President This is Jaime, Thomas. It will be a little lower because we expect this year, as you know, we are around 34 aircrafts average during the full year down to the engine inspections. That number should go down to 30, 31. So that line, we will have a similar percentage down trade next year.

Question: Rogerio Araujo - BofA Securities - Analyst : Thanks for the opportunity and congratulations on the results. I have a couple here. The first one is, what were the main surprises to Volaris as the company has guided a margin last quarter, but delivered higher margin than previously thought? And do you judge those items as sustainable going forward? This is the first one. And the second, if you could give us an update, if there was any change in terms of timing expectations for Pratt & Whitney engine recalls, anything you could share here would be useful. Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President This is Jaime. On your first answer, I think the surprises was the fuel price and better TRASM than we budgeted. And can you repeat the second question, please?

Question: Rogerio Araujo - BofA Securities - Analyst : Perfect. Thanks very much.

Question: Jens Spiess - Morgan Stanley - Analyst : Yes. So, I have a question on the profitability of international -- your international routes versus domestic. If I understand it correctly, as capacity returns, you will be prioritizing international routes. And assuming the peso stays around the current level, like on average, how is the profitability of those international routes versus domestic currently? And also, could you please clarify, I didn't get the hedging, for how long have you hedged 30% off your fuel needs? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 3:00PM, VOLARA.MX - Q3 2024 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call Enrique Beltranena Mejicano - Controladora Vuela Compania de Aviacion SAB de CV - President, Chief Executive Officer, Co-Founder, Director So, on the route profitability, domestic versus international, we typically don't break that down. But we can tell you that growth is going to be rather balanced next year between domestic and international. Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President This is Jaime. On the hedge questions, what we hedge is what's 30% of the consumptions of the months of November, December of this year and January of next year with Asian calls with a strike price of $2.25.

Question: Jens Spiess - Morgan Stanley - Analyst : Perfect. Very clear. And if I may, just one follow-up. You mentioned that you expect to continue with the mix of international versus domestic as you redeploy capacity, but then how will you raise your revenue mix from 41% to 50%? That's what I'm struggling to square. Enrique Beltranena Mejicano - Controladora Vuela Compania de Aviacion SAB de CV - President, Chief Executive Officer, Co-Founder, Director So it's going to be due to a maturing of the routes that we added to the -- this year, the capacity that we added this year to the US market, to the trans-border market, and additional frequencies and routes and destinations that we're going to open next year into the U.S. Also, one important point to mention is that the ancillaries on the international markets are typically somewhat higher than domestic, and that also drives an improved TRASM performance.

Question: Michael Lrc - Torso Bank - Analyst : Question to Jaime. I know you answered the question for 2025 as it relates to the other operating line. Fourth quarter, should we assume roughly 34 airplanes on the ground? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 3:00PM, VOLARA.MX - Q3 2024 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President Yes. I think for the fourth quarter, it's better than the third. We expect to have around 32 aircrafts average, on the ground. As Michael, that line is

Question: Michael Lrc - Torso Bank - Analyst : Okay. And then sort of related to that, I know last year, a lot of times, the fourth quarter is usually a time when we see airlines decide to extend leases. And so in some cases, we do get a credit in the redelivery line. I know we had that last year in the fourth quarter. Is there going to be something impacting the fourth quarter this year with respect to the redelivery line? Could that actually be a credit rather -- or a reversal, I guess, is maybe the way I'm saying it. Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President No, Michael. We did all of the extensions of 2025 in the fourth quarter of last year and the [first Q] of this year. So when you compare '23 to '24, you're going to see that notice. So the variable lease on engine line will be on the historical level without any one-off.

Question: Michael Lrc - Torso Bank - Analyst : Very good. Thank you.