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

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. 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.

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 Blankesten, and our Chief Financial Officer, Jaime Poz. They will be discussing the company's fourth quarter and full year 2022 results. Afterward, we will move on to your questions. Please note that this call is for investors and analysts only. Before we begin, please 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 that could cause the company results to defer materially from expectations, as described in the company's filings with the United States SEC and Mexico's CNBB. These statements speak only as of the date they are made, and Volaris undertakes no obligation to update or modify any forward-looking statement. As in our earnings pre-release, our numbers are in US dollars compared to the fourth quarter of 2022, otherwise noticed. And with that, I will turn the call over to Enric.

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 TRASM. Not only that, 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 the challenge encountered throughout the years, such as the extended FAA downgrade of Mexico to Cat 2, aircraft on ground AOGs due to Pratt & Whitney preventive accelerated inspections, and slot restrictions at the Mexico City International Airport. 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 six points respectively versus the same period of 2022. I think it is important to emphasize the value of the lessons we learned during the fourth quarter's rapid changes. We took advantage of strong demand while adjusting our network size, placing focus on prioritizing passenger service, which led to positive outcomes. We improved our proficiency in implementing effective cost control measures. We acknowledge the crucial significance of being proactive, and our management and teamwork showcased our competitive advantages, including flexibility, effective negotiations, and crisis management. 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 grounding during inspections and will complement outline mitigation initiatives, which Jaime will explain the accounting details. Volaris' 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 Pratt, Persistent delays in materials availability at engine shops are anticipated. This will result in wing-to-wing turnaround times exceeding 350 days. Inspections are likely to extend into 2026. Pratt is working hard ramp up production of new materials, including full-life discs, improved seals, thermal foils, new software that eliminates vibrations plus several structural improvements that will be initially incorporated for new aircraft deliveries and will be available later this year for engines inducted for shop visits. Most important, Pratt is standing behind its product. Volari's top 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 future bookings. To address this, during the second half of last year, we needed to reaccommodate and or compensate affected passengers, which meant absorbing in a resized capacity low fare 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 continued to reaccommodate our affected passengers. Additionally, overall Mexican domestic market capacity contracted as we, along with one of our domestic competitors, progressively removed GTF engines for inspections. At the same time, we instituted strategic strategies commercial measures to protect our financial performance. In domestic Mexican domestic market, we canceled routes in the ramp-up phase and adjusted frequencies on oversaturated routes. Furthermore, we strategically reassigned capacity in the U.S.-Mexico international market, focusing on routes for enhanced loads and higher unit revenues rather than pursuing market share. For 2024, we anticipate that on average, our network on an ASM basis will approximately 45% international and not a little increase from 35% in 2023, which will increase US 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 managed our labor force, reducing its size in headcount while sustaining productivity 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. Our ongoing efforts to mitigate risks will safeguard profitability and align with our primary objective of generating shareholder returns, in accordance with our long-term strategy. For this year, Volaris' strategy is based on three core pillars. The pillar number one is fleet and capacity. Our dedication lies in preserving business continuity while minimizing disruptions to our core operations, flight service, and passenger experience. To achieve this, we secured additional capacity that will supplement for some of our GTS inspection impacted fleet. Accordingly, we executed lease extensions on aircraft that were scheduled for re-delivery and secured straight operating leases for additional aircraft, thereby balancing capacity reduction with operational requirements. Furthermore, we successfully negotiated the acquisition of additional spare engines. During this quarter, Volaris analyzed wet lease capacity and we concluded that it was not strategically productive or cost efficient. Regarding growth, it is important to note that as 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 to proactively manage capacity and prioritize profitability. 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 and sensitive. Pillar number two, network optimization and profitability. 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 market share in highly competitive sectors. 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 unique revenues without compromising network defensibility. We're boosting tierism and effectively managing CAS MEPS. 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 VFR network. We anticipate ancillaries 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 varies significantly from that in the United States. Additionally, we distinguish ourselves by maintaining a healthy balance sheet. Here's where Volaris 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 1st. All other costs remain controlled with lower ASMs expected to be the primary constraint on cost performance this 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 while laying foundations for long-term growth, and 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 needs. Before I turn the call over to Holger, I want to highlight that our valued ambassadors consistently demonstrate exceptional dedication and work ethic. I am optimistic about our market guidance supported by positive trends in TRASM, our successful execution of the capacity reduction and itinerary realignment further strengthens this confidence. Moving forward, we will continue to prioritize profitability and will maintain a conservative approach to managing our balance sheet. I would now like to turn the call over to Holger, who will cover our fourth quarter operational performance and commercial plan for 2024.