Controladora Vuela Compania de Aviacion SAB de CV Q4 2024 Earnings Call Transcript

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

Question: Michael Linenberg - Deutsche Bank Securities Inc. - Analyst : Hey, good morning, everyone. I have a few here. I want to get back to your guide for March quarter RASM down 15% year over year. I know you called out some softness US to Mexico VFR traffic. I'm curious, are you seeing a bigger impact from US originating or Mexican originating? And as part of that question, how much of it also includes FX, which I know is down 17% year over year? Is there a stage-length component? And is there an Easter effect? So it seems like there's maybe multiple elements that are actually impacting that RASM guide. Holger Blankenstein - Controladora Vuela Compania de Aviacion SAB de CV - Executive Vice President - Commercial Airline and Operations Hello, Michael, this is Holger. So let me --

Question: Michael Linenberg - Deutsche Bank Securities Inc. - Analyst : Okay. So that's helpful. And then as I think about the -- this is to Jaime, the $13.6 million that gains that you took on sale leasebacks, when we think about the cash inflow as a result of those transactions, is that similar in magnitude or is it meaningfully different? Just trying to reconcile both the P&L versus the cash flow impact. And thanks for taking my questions. Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President Hello, Michael. This is Jaime. If you look, it corresponds to six aircrafts, so it's the standard, sail and lift bags per aircraft which is going to be around $3 million. And remember, when you compare versus 2023, the main difference will be in the variable lease expenses. Since last year, we took a benefit of around $33.5 million related to the extensions that we took to protect the capacity in '24 and '25. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 24, 2025 / 4:00PM, VOLARA.MX - Q4 2024 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call

Question: Duane Pfennigwerth - Evercore ISI - Analyst : Hey, thanks. Good morning. I wonder if you could put a finer point on the Easter shift impact. I know that's a pretty meaningful variable for you. So could you quantify that in terms of RASM percentage points or margin percentage points in the first quarter? And then relative -- I know it's early, but relative to the year-over-year RASM decline that you've guided to, in the first quarter, do you have any early thoughts on the shape of that into the June quarter? Holger Blankenstein - Controladora Vuela Compania de Aviacion SAB de CV - Executive Vice President - Commercial Airline and Operations Hello, Duane. This is Holger again. So I can tell you that the Easter season, the bookings still look quite solid, and obviously, that accounts for the Easter currently is in April. So obviously the TRASM decline we're seeing in the first quarter is mostly driven by that and the FX change that we observed versus last year. Overall, we don't break out guidance of TRASM for the full year but -- for the June quarter, but what I can tell you is that we're currently expecting a single-digit, mid-single-digit decline of TRASM for the full year in US dollar-denominated terms.

Question: Duane Pfennigwerth - Evercore ISI - Analyst : Got it. Okay. And then just lastly on the Pratt impacted aircraft, I know you've been working to offset delays with engine purchases and lease extensions, but can you speak to the throughput you're seeing on the impacted engines? Again, isolating for the AOGs that you have, how are you seeing throughput changing? And then high -- any high-level thoughts on the compensation that might be running through the P&L year over year into 2025? Thank you for taking the questions. Enrique Beltranena Mejicano - Controladora Vuela Compania de Aviacion SAB de CV - President, Chief Executive Officer, Co-Founder, Director So the first answer is the whole throughput of engines depends on several things. So let me break it down. The first one is unexpected removals, which during the last quarter of last year were higher. I mean, we were expecting somewhere around two to three unexpected removals. We went up to six, okay. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 24, 2025 / 4:00PM, VOLARA.MX - Q4 2024 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call The second thing, it's about inducting engines into the real maintenance line and because it's not just about sending the engines to the shops, but it is about the real induction about that. Real induction have been really well during the whole year, but then in December, we saw a reduction of those inductions. We did catch-up in January and then February has been kind of slow. And then the third element is about what happens in the line of maintenance and there are three, four steps in that line of maintenance. In the second part of it, it depends heavily on maintenance spare parts and the materials they need for it. And we have seen in January and February a slow move on that and the engines being kind of retarded because of that. Net-net, during 2024, it was okay-ish. The last three months, December, January, and February, we are seeing a much slower move than what we saw during the full year last year. Speaking about compensation, I will pass it over to Jaime. Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President Duane, you should think about a compensation based on aircraft on ground. Last year, we have 32 aircraft on ground average. This year, with information we have today, we expect to have 30. It's going to be substantially similar in order for you to model.

Question: Thomas Fitzgerald - TD Cowen - Analyst : Hey, thanks so much for the time. Question on aircraft ownership cost. Is that 250 number for DAR in the fourth quarter, is that a good run rate to use for 2025? Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President It will be higher, Tom. And we can follow up for you to work on the model with the IR team.

Question: Jay Singh - Citi - Analyst : Hello. Do you hear me now?

Question: Jay Singh - Citi - Analyst : Yeah, okay. So cool. So when we think of Volaris' high free cash flow yield, do you have any view on the long-term capital deployment once we get past the GTF engine [around]? Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President Yes. We are reducing CapEx this year. Long term, I think you are having notices. We have legal limitations to do any buyback or dividend currently, but that number has substantially been reduced going down from $148 million at the end of 2023 to only minus $22 million. So in the future, it will be a strategic tool that we may be able to use.

Question: Jens Spiess - Morgan Stanley S.V., S.A.U. - Analyst : Yes, hello. I just wanted to clarify one prior answer you gave on the CASM. Jaime, you mentioned that you expect it to be similar as last year, but your guidance for the first quarter is lower than what you had last year. So that would mean that from the second quarter to the fourth quarter, your CASM would be higher actually than what you had on average in 2024. Is that correct? Am I understanding that correctly? Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President If you look at full year, CASM was -- in 2022, CASM ex was $0.054. That number should be similar to the year because we are growing.

Question: Jens Spiess - Morgan Stanley S.V., S.A.U. - Analyst : Exactly. And you had -- sorry, maybe I was looking at the number. I thought you had $0.057 last -- yeah, you're right. Correct. I understand now correctly. Yeah, it's clear now. Thank you. I understand that now. All right. So for just a follow-up on the aircraft on ground. I know you like to guide through ASMs and I appreciate that color. But just in terms of number of aircraft, I was curious of the progression. How are you seeing -- I don't know, how many aircraft do you expect to have on ground by mid-year, by the end of this year? And maybe also if you could give a bit more numbers there for 2026, 2027 would be very much appreciated. Thank you. Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President I think in general, it's hard too early to tell what's going to happen in '26, '27 or beyond. For this year, with information we have with Pratt and Whitney, it's around 30 aircraft average. You are going to see a higher number in this quarter, probably around 32. And we will update this number on a quarterly basis because things are really changing from time to time. And we expect that that number of around 30 should remain also in 2026.

Question: Rafael Simonetti - UBS - Analyst : Thank you for taking the questions. If you could please give more color on costs, mainly on salaries and leases. Salaries showed a big growth year over year in fourth quarter. And looking at the third quarter, that was a decrease year over year. And also, variable leases increased on a

Question: Rafael Simonetti - UBS - Analyst : Okay. Thank you. Enrique Beltranena Mejicano - Controladora Vuela Compania de Aviacion SAB de CV - President, Chief Executive Officer, Co-Founder, Director Thank you.