Controladora Vuela Compania de Aviacion, S.A.B. de C.V.

Welcome to Volaris' first quarter 2022 financial results conference call. All lines are in a listen-only mode. Following the company's presentation, we will open the call for your questions and answers. Please note that we are recording this event. This event is also being broadcast live via webcast and may be accessed through the Volaris website. Those following the presentation via the webcast may post their questions on the platform and they will be either answered by management during this call or by Velaris Investor Relations team after the conference is finished. To send your questions via the webcast platform, you need to click on the question marks just below the video area in the upper left corner and type your inquiry. At this point, I would like to turn the call over to Renato Bellamone, Velaris' Senior Corporate Finance and Investor Relations Director. Please go ahead, Renato.

Good morning, everyone, and thank you for joining the call. With us is our President and CEO, Enrique Beltranena, our Airline Executive Vice President, Holger Blankenstein, and our Chief Financial Officer, Jaime Pous. They will be discussing the company's first quarter 2022 results. Afterward, we'll move on to your questions. Please note that this call is for investors and analysts only. Before we begin, please let me 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's actual results to differ materially from expectations, as described in the company's filings with the United States SEC and Mexico's CNBV. These statements speak only as of the date that they are made, and Volaris undertakes no obligation to update or revise any forward-looking statement. As in our earnings press release, all our numbers are in US dollars and compared to the first quarter of 2021, unless otherwise noted. It is now my pleasure to turn the call over to Volaris' President and CEO, Enrique Beltranena.

thank you very much renato and thank you everyone for joining us today we're happy to report continuous strong traffic and revenue results in the first quarter in mexico's domestic market we continue to see a strong recovery of demand that started a year ago in other markets such as the domestic us carriers have recently begun to experience a similar recovery Slide 3 highlights that the key reasons behind our strong performance and success haven't changed. First, Volaris has demonstrated an ability to adapt to changing demand quickly and has also been able to gradually pass through the impact of the recent rise in fuel prices. Second, Volaris has plenty of market opportunities both at home and abroad. Volaris' strength in the fair environment continues with our VFR customers who value our scheduled reliability and our leisure customers attracted to our many point-to-point leisure destinations. Third, our growth plans remain flexible and current demand strength confirms that we can fill in the mid-20s ASM growth guidance for the year without sacrificing profitability. Fourth, our ultra-low cost and strong balance sheet allow us to absorb volatility better than our competitors and position Volaris well for the future. Regarding our first quarter performance, we generated total revenue of $567 million in the period, an increase of 80% versus 2021 and 53% versus 2019. We generated a positive cash flow from operating activities of $196 million. our EBITDA increased by 52% to $97 million. Today, I would like to focus on two main topics. Our ability to pass through the increase in fuel costs and the rationale behind Volaris' growth strategy. Let me start with the pass-through of the fuel cost. Volaris's ability to pass through incremental fuel costs begins with the fact that we continue to have the lowest unit cost of any operator publicly trading in the Americas. We entered the first quarter with excellent entry-level basefers and ancillaries from the fourth quarter, which helped the company's performance. The strong demand was sustained in both quarters, with an 87% low factor in the fourth quarter and 84% in the first quarter. Through the Omicron wave, we demonstrated the superior reliability of our operations once again. During the first quarter of 2022, Omicron negatively impacted demand in late January and early February. At that point, we pushed more for volume and at the same time selectively increased base fares and ancillary prices. Once COVID cases decreased, we gradually pushed fares up without sacrificing volume. The incremental cost of fuel price and volume during the first quarter was $149 million, or a 157% increase versus the first quarter of last year. Polaris was able to pass through to revenues 95% of the effect during the quarter, sustaining a healthy 84% low factor for the period and closing the quarter with a TRASM level of $7.00. Due to the fair increases implemented throughout our inventory in the first quarter, we built a good foundation through forward bookings to gradually absorb the fuel cost pressure in the upcoming quarter. So far, in the second quarter, we have seen this strong low factor sustained and our forward bookings remain strong, demonstrating that our core VFR and leisure passengers are eager to travel and our current growth plan is consistent with this demand. So now speaking about growth, we have identified the recurring investment concern regarding Volaris' growth strategy. Capacity growth in mature markets typically matches GDP growth. This is not true for Volaris' core markets. Volaris operates in an emerging market with low air travel penetration. Over the last 10 years, the company's ASM's compound annual growth rate was 13% versus Mexico's average GDP growth of just 1%. We have managed to grow while generating value for our shareholders and building a market-leading franchise that we believe is extremely difficult to be replicated by existing players or new entrants. And here's why we believe we can sustain the growth trend with profitability. First, Mexico's territorial size and population. The distance between Tijuana and Cancun is roughly the same as New York to Los Angeles or Paris to Jerusalem. And Volaris's ultra-low fares are designed to stimulate demand in under-penetrated aviation markets such as Mexico. Much of the financial and revenue strength is concentrated in our three local core markets of Tijuana, Guadalajara, and Cancun. Our network strength is primarily explained by our historical growth in Tijuana and Guadalajara. These two markets have been top performers for us, and we plan to continue to grow there primarily by adding frequencies to existing destinations. And this is not surprising, considering that GDP growth in this northern Mexican region resembles an emerging growth market. We also plan to continue to grow in our southern Mexican market of Cancun. Although GDP growth has been weaker in that southeast region, tourism from outside the region continues to support and grow this unique destination. It is estimated also that around 38 million Mexicans have migrated to the U.S. in the last decades. Last year, they sent their conationals at home around $52 billion in remittances, equivalent to 4% of Mexico's GDP. The remittance effect into an emerging market does not exist in a developed or matured economy. Our webpage has become a remittance system to transfer money from the U.S. to Mexico for the relatives to fly and the same effect we are seeing now in Central America. Speaking about Central American countries have these three similar patterns and we believe we can successfully replicate in that region what we have done from Mexico to the U.S. in the last 16 years. The second fact are Mexico's population characteristics. It is well known that one of Bolares' target market is BFR middle class. The company was conceived and perfectly fitted with its model to tackle this specific market. They usually travel with their relatives and are used to transporting themselves by bus from point to point, which creates a higher cost pressure for themselves. An essential component of our domestic growth strategy remains bus routes and the switching from bus to air travel. We compete exclusively with buses in 46% of Volaris' network with no air competition. Having one of the lowest unit cost structures worldwide, we have successfully tackled the bus market and produced a low average base fare of $46 per segment, which is even lower in the domestic market. We have a more appealing value proposition than buses on trips larger than 6 hours. This is unique to Mexico and Volaris has no conflict of interest that prevents us from grabbing market share from bosses. Our target segment for our domestic growth is to appeal to the 90 million Mexicans who we have targeted to use bosses to travel. This is equivalent to the total population of Germany. This emerging middle-class segment in Mexico is the fastest income-growing segment in our core markets. It grew 7% from 2010 to 2020, according to INEGI. We tailor our product by offering low-based ferries and promoting ancillaries designed to the needs of these passengers. As a result, 43% of our total revenues come from ancillaries, giving us a powerful formula to tackle the VOS market profitability. The third fact are the air travel dynamics. As proof of our success, trips per capita in Mexico doubled to 0.55 from our founding in 2006 to 2019, and this indicator is now back to an uptrend. Volaris accounted for 56% of the domestic aviation growth in that period, primarily with first-time flyers coming from the buses and virtually doubling the size of the domestic market in terms of passengers. Suppose we aspire to be at Colombia's, Chile's, Turkey's, or Malaysia's air trips per capita. In that case, the Mexican domestic market could be 1.3 to 3.6 times bigger than today. We have identified over 325 potential new routes to grow that fit ideally with our low-cost, low-fare business model. However, We will do it this year by adding frequencies to our existing network. We remain flexible and disciplined, and if we begin to see any sign of weakness, we will quickly reign in that growth. We are also growing internationally in the US border VFR market, with 30% of our capacity. Toward the end of the year, we expect our trans-border performance to be enhanced by fully optimizing our kosher partnership with frontier airlines. This is currently restrained by Mexico's FAA category, which we hope will be upgraded by the end of the third quarter. Finally, we are looking ahead to the future and positioning ourselves with international growth avenues. Central and South America, where we are growing from our separate air operator certificates in El Salvador and Costa Rica, with similarities in population characteristics and transportation dynamics. We believe that Volaris' consistent performance demonstrates our resilience and adaptability. It is essential to highlight that we are in a stronger financial position than before the pandemic, with higher cash levels and lower financial debt. While other earners are now focusing on recovery and repaying the debt taken during the pandemic, Volaris is focused on executing its growth strategy. Our ambassadors remain a vital part of this strategy and I want to thank them for staying focused on providing a safe, reliable and consistent travel experience for our guests. The Air Force have been an essential part of our strong performance. I would now like to turn the call over to our Airline Executive Vice President, Holger Blankenstein, to discuss our operations and provide more details on our performance. Thank you, Enrique.