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

decrease in 2024, with a full year down 13%. Domestic capacity was significantly impacted, declining by 22% in 2024. Although it is projected to increase in 2025, it will remain around 10% below 2023 levels. Mexico to the US is the strongest performing region for Volaris with a 16% growth in 2024 and rational growth projected into 2025. Other regions like Mexico to Central America and Central America to the US and intra-Central America were highly volatile through much of 2024 but we are seeing good yields following rationalized capacity and are monitoring the Central American market for additional opportunities. Importantly, we now continue to evolve our network. In 2024, we optimized slot availability at Mexico City International Airport and strategically shifted capacity from the domestic market to the U.S. market following Mexico's Category 1 upgrade. At the end of 2024, about 40% of our capacity was in the international market. We recently launched new routes for sale covering core domestic cities as well as routes to California and Texas. We remain focused on flying in profitable markets and continue to leverage our entire network. For the quarter, our ASMs were down only 5% versus the fourth quarter of 2023, which included the first groundings of GTF-related aircraft. We delivered an outstanding schedule during the peak holiday season despite severe weather in Chicago and Tijuana, registering a 99.2% schedule completion. On-time performance within 15 minutes was 82.2%, up nearly 8 percentage points from last year. In the fourth quarter, we restarted growth of our presence in core Volaris markets of Guadalajara and Tijuana with additional frequencies in those profitable markets. We also improved connectivity between our core markets and the city of Monterey. During the quarter, We started to observe changes in booking conditions following the United States presidential elections, which we believe is driven by the incoming administration's migration and protectionist rhetoric. We adjusted fares accordingly, sustaining strong loads. Our total load factor for the fourth quarter was 87.3%, down just 0.8 percentage points compared to the prior year. with our domestic and international load factors in line with last year's results. Given the deceleration in base fares, our overall chasm of 9.3 cents came in weaker than expected. However, this result was bolstered significantly by ancillary sales, which were a record $57 per passenger for the quarter, demonstrating strong execution of our ULCC model. As you know, around 40% of our route network faces no air competition and on those routes we compete solely against buses. Bus switching remains integral to our core strategy and will continue to be a key focus. However, customers are no longer choosing Volaris based only on our low fares. They are actively engaging with our digital platforms, joining our affinity programs and strengthening their loyalty with each repeated purchase. Capturing and capitalizing on this recurring demand is essential to differentiating our business. In 2025, Volaris will introduce several significant innovations to enhance our ancillary strategy. As we had previously shared, we are planning to bundle our four core ancillary offerings into a single affinity portfolio to drive greater ancillary penetration and value for our customers. These affinity programs have demonstrated strong momentum. Annual path grew 68% year over year in 2024. VPath solidified its position as an innovative subscription model. V Club membership expanded to 1.3 million active members and now represents one of the most important loyalty programs in the region. Our co-branded credit card now has almost 1 million active cardholders. All in all, we now have a significant amount of customers in our affinity programs. an important building block to generating more recurring revenue streams and increased purchasing frequency of our passengers. We believe our affinity programs will solidify Volaris as a leader for value-seeking passengers, including frequent flyers, corporates, and small and medium businesses, in addition to our VFR and leisure base. In tandem, we are upgrading Yavas, our dedicated vacation business to have similarly broader appeal to hire ticket passengers. To further enhance customer experience, Volaris is preparing to launch a new mobile app in the coming weeks, reinforcing our commitment to digital innovation and customer engagement. The new app will significantly improve the customer experience, streamlining personalized bookings boarding, access to affinity programs, and self-service. Built with the latest advancement in software development, it provides greater flexibility to adapt to future updates. Overall, Volaris continues to enhance its distribution strategy, increasing the share of direct digital channel sales across our website, mobile app, call centers, and airport sales. In 2024, we relaunched our co-chair agreement with Frontier and launched a new co-chair with Iberia Airlines. The co-chair with Frontier now accounts for approximately two percentage points of our cross-border load factors. Volaris will continue exploring further opportunities on alliances without sacrificing the core of our ULTC model. Turning now to our commercial outlook for 2025. As Enrique noted, we have adjusted base fares in the first quarter in response to softness in US VFR traffic, which we believe is influenced by geopolitical uncertainty. We expect that this is a temporary market condition and will continue monitoring demand patterns closely, just as we did at the start of the first Trump administration. The first quarter of this year will face a challenging year-over-year comparison due to exceptional results in the first quarter of 2024 when substantial capacity came out of the Mexican domestic market due to Pratt & Whitney engine inspections and the Boeing MAX 9 groundings. We expect to return to a usual first quarter seasonality followed by a stronger second half. Additionally, the shift of Easter into the second quarter will further impact our results. Now I will turn the call over to Jaime to walk through our fourth quarter and full year financial results.

Thank you, Holger. Our full year 2024 financial results demonstrated the effective execution of our GTIF engine inspections mitigation plan and the resiliency of our business. We focus on controlling costs in 2024 while increasing profitability. For the year, we achieved 13% EBIT margin and 36% EBITDA margin, delivered a 126 million net profit, reduced our net debt to EBITDA ratio to 2.6 times, generated over 300 million in operating cash flow, and grew our year-ending liquidity position to $954 million. Despite temporary cost pressures associated with the ending inspections, we maintained one of the lowest gas emissions globally. Notably, at the beginning of the year, one of our capacity reduction scenarios projected an 18% decrease in ASMG over a year. However, the actual reduction was 13%, reflecting a 5 percentage point improvement due to our fleet mitigation plan. I will talk more about the steps we are taking to drive similar outcomes in 2025. But first, let me walk through the results for the fourth quarter and full year 2024. Compared to the same period last year, our fourth quarter 2024 results were as follows. Total operating revenues were $835 million, a 7% decline, giving fewer ASMs and software unit revenues, attributable to the factors already described. Top-line results were also impacted by the 20% depreciation of the Mexican peso against the U.S. dollar. We continue to manage our FX exposure by targeting collection of approximately 50% in U.S. dollars. Moving on to cost, CASM increased by 3%, to 8.04 cents, while Casomex fuel rose by 17% to 5.68 cents. Meanwhile, our average economic fuel cost dropped 20% to $2.51 per gallon. Additionally, we saw cost benefits from the weaker vessel. Unit costs remain under temporary pressure due to aircraft groundings, high in number of maintenance events, and re-delivery expenses. We expect delivery accruals and related maintenance will impact 2025 with a one-time cost of approximately $100 million. This will result in an estimated 0.3% impact on Casumix Fuel during the year. I want to highlight that strong labor relations continue to differentiate Volaris from many global airlines. We executed a revised three-year contract with our labor union that contemplates annual salary and benefit increases that keep pace with national inflation in Mexican pesos. Returning to the P&L, for the fourth quarter, in the other operating income line, we booked sale and leaseback gains of $13.6 million related to the delivery of four aircraft. As a reminder, this line also includes aircraft rounding compensation from Pratt & Whitney. EBIT for the quarter total, $117 million, down 29%, given software unit revenue and a tough comparison to our record quarterly EBIT of $164 million in the fourth quarter of 2023. EBIT margin was 14%, down 4.2 percentage points. Meanwhile, EBITR came in at $331 million. This represented an 18% increase EBITDA margin was 39.6% or 8 percentage points higher and in line with guidance. Finally, net income was 46 million profit, translating to earnings per ADS of 40 cents. Moving briefly to our P&L for the full year 2024 compared to 2023, Total operating income revenues were 3.1 billion, only a 4% decrease despite Volaris flying 13% fewer ASMs during the year. Custom was 8.03 cents, a 3% increase, with average economic fuel costs falling by 12% to 2.75 per gallon. Custom mix fuel was 5.40 cents, 12% higher. EBIT was $413 million, up from $223 million, with an EBIT margin of 13.2% or 6 percentage points higher. EBITDA total $1.1 billion, a 39% increase, with a full-year EBITDA margin of 36.3%, an increase of 11 percentage points, and also in line with guidance. Net income was $126 million, compared to an $8 million profit. Earnings translated into $1.10 per ADS. Turning now to cash flow and balance sheet data, for the fourth quarter, cash flow provided by operating activities was $308 million, our highest ever quarterly generation. Cash outflows using investing and financing activities were $85 million and $98 million, respectively. Meanwhile, our CAPEX, excluding finance fleet pre-delivery payments, totaled $160 million for the quarter and $350 million for the full year. CAPEX was driven by spare engine purchases and maintenance. With our spare engine supply in good shape heading into 2025, we expect CAPEX, excluding finance PVPs, to go down by around $100 million for this year as we don't expect to buy more engines. Volaris ended 2024 with a total liquidity position of 954 million, compared to 789 million at 2023 end. This figure represented 30% of 2024 total operating revenues. As of December 31st, our net debt to EBITDA ratio stood at 2.6 times compared to 3.3 times at the end of 2023. From our balance sheet perspective, Volaris maintains a well-structured debt profile that supports both financial stability and long-term growth. Our total debt stands at $3.9 billion, primarily composed of lease liabilities and credit lines strategically allocated for engine and fleet requirements. Within this structure, financial debt totals $800 million, including $320 million in engine financing and $361 million in PDP financial needs, reinforcing our disciplined approach to fleet modernization and operational resilience. Polaris secured around $300 million in new PDP credit lines, guaranteeing contractual airport deliveries until 2028. This reflects lenders' confidence in our long-term business, despite the near-term challenges we have faced. As of December 31st, our total fleet consisted of 143 aircraft, up from 129 a year ago, with an average age of 6.4 years. We incorporated six aircraft into our fleet during the quarter. Now, I would like to provide updates on Pratt & Whitney. Due to engine inspections, we had an average of 34 aircraft on ground during the fourth quarter and 32 aircraft on ground during full year 2024. In 2025, our capacity growth will be driven by new deliveries and by the increase of our productive fleet as engines return from the shops. Importantly, as these engines are reincorporated, this road will not add new depth to our balance sheets. Looking ahead, we have renegotiated our free delivery schedule with Airbus, more evenly distributing and postponing aircraft deliveries to conclude in 2031. Factoring in aircraft deliveries, returns, extensions, and the return of inspected engines, we project that this new schedule will support a rational ASM growth from 2025 to 2031. All of the engine inspections and repairs that Pratt & Whitney completed during 2023 and 2024 comply with the airworthiness directive regarding powder metal. Nevertheless, some of these engines will require a second shop visit in the next 18 to 24 months to install full life parts. Finally, turning to guidance, on our outlook for the full year and first quarter of 2025, we want to comment that since mid-January we have seen weakness in VFR demand for travel between the U.S. and Mexico. We assume this will be a short-term headwind as Mexico and the U.S. negotiate a resolution to these issues around the border. However, we are currently hearing heightened concerns from our passengers as they try to understand the new immigration and travel controls that could be implemented by the new administration in the U.S. As for the full year 2025, we currently expect an emitter margin of 34 to 36%, ASM growth of around 13%, which is at the lower end of our previous guidance range. This is light reduction. It's also a result of recent discussions we have had with Nervos on potential delivery delays and with Pratt & Whitney on the return to service of engines. We also think this slight low ASM growth is appropriate given the weakness in cross-border BFR demand I mentioned. We will continue to work with both ERBOS and PRACT in these issues and will closely monitor demand patterns and may have to make further adjustments to the network as the year progresses. It is also important to say that we remain positive about the course of the bilateral relationship, which means there could be upside to our full year guidance. Finally, we expect CAPEX net of finance fleet re-delivery payments of around 250 million. CAPEX will primarily encompass maintenance and re-delivery expenses. Our full-year 2025 outlook assumes an average foreign exchange rate of 21 to 21.2 Mexican pesos per U.S. dollar, We also assume an average U.S. Gulf Coast jet fuel price of $2.15 to $2.25 per gallon. Moving on to our first quarter 2025 guidance, note that it reflects several factors, including the shift of Easter back into the second quarter, the continued weakened peso, and a return to historical first quarter seasonal demand. For the first quarter, we are expecting ASM growth of around 7%, trust between 7.9 and 8 cents, driven by software U.S. to Mexico demand, given the border issue resulting from the new U.S. administration noted above, and a cash on ex-fuel to be in the range of 5.5 to 5.6 cents. In all, we expect a first quarter EBITDA margin of around 28 to 29 percent. First quarter 2025 outlook assumes an average foreign exchange rate of 20.6 to 20.8 Mexican pesos per U.S. dollar and an average U.S. Gulf Coast Jailfield price of 225 to 235 dollars per gallon. In closing, Two years ago, we committed to doubling revenues, EVITAR, and free cash flow by 2025 compared to 2019. Despite these unexpected headwinds associated with engine inspections and airbus delays, I want to reaffirm this commitment, which demonstrates our strong focus on both profitability and cash generation. Now, I will turn the call back over to Enrique for closing remarks.

Thank you, Jaime. Over the past 18 months, Key United Airlines leaders have speculated about the survival of the low-cost carrier business model. I want to emphasize, Volaris' position as an ultra-low-cost carrier in Mexico is unique. As the largest airline in Mexico by passenger volume, We enjoy a robust domestic market share and ultra-low-cost carriers represent over 70% of the passenger domestic market and we both hold a cost leadership over legacy carriers. Moreover, Mexico's distinct ability to convert bus passengers and recurring travelers has driven growth in the country's emerging air travel market in the last 15 years. We continue to see plenty of runway for this secular trend. Having said that, we believe there are some truths in the U.S. leaders' philosophies about what makes a superior model airline. We agree that strategic evolution and operational changes to keep up with industry trends do not happen overnight. You have heard us for several years preach rational and prudent capacity growth. We agree that the health and profitability of the industry are dependent on rational capacity deployment. We have emphasized this principle and we enhance our focus on profitable growth for our business. We agree that airlines should operate where they have a competitive advantage. Volaris has built a strong network in markets where we are the leading airline. Lastly, we agree that cost convergence threatens U.S. carriers that were built to compete primarily with price. But Volaris is highly differentiated in that we can compete both with low fares and high value. We offer low fares. We operate an attractive and reliable schedule, but we provide relevant ancillary options that enhance the travel experience. Thank you very much for listening, operator. Please open the line for questions.

Thank you. The floor is now open for questions. If you have a question, please dial star 11 on your 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. Questions will be taken in the order that they are received. We ask that when you post your questions, you 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 is finished. To send a question via the webcast platform, click on the Ask a Question button and type your inquiry.

Please hold while we poll for questions. And our first question is going to come from the line of Michael Linenberg with Deutsche Bank.

Your line is open. Please go ahead.

Oh, 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, U.S. to Mexico VFR traffic. I'm curious if are you seeing a bigger impact from U.S. 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.

Hello, Michael, this is Holger. Hey, Holger. what we're seeing in the transporter market. Basically, since the US elections in November, we've seen a reduction of traffic and willingness to travel in both sides, both the US and the Mexican side in our VFR segment. However, it's very important to note that the high seasons, Christmas, the first part of January, the Easter high season were quite robust. The bookings were quite robust and the Easter outlook looks pretty healthy, despite all the noise in the trans-border relationship. In January, kind of mid-January, toward the inauguration of the Trump administration and in the early weeks of February, we saw that trend continue. However, I would say towards the end of February, we've seen a marked improvement. of willingness to travel in the trans-border market. That's where we are right now, and we continue to see, obviously, a base fare pressure in the domestic market by FX, and maybe a slight reduction of leisure traffic to the U.S., given the 20% peso devaluation, because it just makes travel to the U.S. and vacationing in the U.S. just so much more expensive.

Okay. 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.

Hello, Michael. This is Jaime. Hi. If you look, it corresponds to six airprats. So, it's the standard, 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 dollars related to the extensions that we took to protect the capacity in 24 and 25. okay thank you very much thank you one moment as we move on to our next question

Our next question comes from the line of Dwayne Finningsworth with Evercore ISI. Your line is open. Please go ahead.

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, you know, RASM percentage points or margin percentage points in the first quarter and 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?

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 travel decline we're seeing 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 travel for the full year, but for for the June quarter But what I can tell you is that we're currently expecting Single digit mid single digit decline of travel for the full year in US dollar denominated terms Okay, that's helpful and then maybe can you give us some sense for you've guided specifically for chasm and

X in the first quarter, but I don't believe you have for the year. So maybe you could expand on your thoughts of the shape of that chasm beyond the first quarter.

Hi, this is Jaime. I think it should be at the same level of 2024, notwithstanding the first quarter number.

Got it. OK, 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 are seeing on the impacted engines? Again, isolating for the AOGs that you have. How are you seeing throughput changing? And then 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.

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. The second thing, it's about inducting engines into the real maintenance line 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're 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.

Dwayne, just to think about a compensation based on aircraft on ground. Last year, we have 32 aircrafts on ground average. This year, with the information we have today, we expect to have 30. It's going to be substantially similar in order for you to model. Thank you for the detailed thoughts. You're welcome, Dwayne.

Thank you. One moment as we move on to our next question. Our next question is going to be from the line of Tom Fitzgerald with TD Cow, and your line is open. Please go ahead.

Hey, thanks so much for the time. A question on aircraft ownership costs. Is that 215 number for DAR in the fourth quarter? Is that a good run rate to use for 2025?

It will be higher, Tom. And we can follow up for you to work on the model with the IR team.

Okay, okay, that's helpful. And then I guess, I know it should be a tailwind for you guys longer term, right, as you start to take on more aircraft from the Indigo order book. Would you just help us remind how we should think about that over the longer term in 26 and 27? Thanks again.

Correct. Remember that right now, since last year, we're getting hit in the right of use because of the groundings of the FX. Now, going forward, that will remain this year and next year on a similar level. But after that, we are not incorporating fleet. We are acquiring new fleet by putting planes that are on route into productive. So that should really benefit the financing cost without need to leverage the company.

Thank you, and one moment as we move on to our next question. Our next question comes from the line of Jay Singh with Citi. Your line is open.

Please go ahead. Mr. Singh, your phone may be on mute.

Hello, do you hear me now?

Yes, sir.

Yeah, okay, so cool. So when we think of Valeris' high free cash flow yields, do you have any view on the long-term capital deployment once we get past the GTS engine problems?

Yes.

You know, we're reducing capex this year. Long-term, I think you are having notices. We have legal limitations to do any buyback or deviant currently, but that number has substantially been reduced, going down from $148 million at the end of 2023 to only minus 22. So in the future, it will be a strategic tool that we may be able to use.

Okay, awesome. And the other follow-up question I have is, have you noticed any hiccups in remittances from the U.S.?

No, we haven't seen any reductions in remittances right now. It's probably too early to say how the full year is going to pan out. The only thing we are noticing is certain hesitancy to travel in the cross-border market in the low seasons, not in the high seasons.

Thank you so much.

Thank you. And one moment as we move on to our next question. And our next question comes from the line of Jens Spies with Morgan Stanley. Your line is open. Please go ahead.

Yes, hello. I just want to clarify one prior answer you gave on the chasm. 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? I mean, understanding that correctly?

If you look at full year, CASM was, in 2022, CASM X was 5.4. That number should be similar to years because we are growing.

Okay. Yeah, your guidance is 5.5 to 5.6, right?

That's for the first Q, not for the full year.

Exactly. And, oh, sorry, maybe I was looking at the number. I thought you had 5.7 last year. Oh, yeah, yeah, you're right. Correct. I understand now correctly. Yeah, it's clear now. Thank you. I understand it 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 caller. 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.

I think generally it's hard to tell what's going to happen on 2026, 2027 or beyond. For this year, with information we have with Pratt and with Airbus, 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. 2026?

Okay. All right.

Thank you. Thank you. One moment as we move on to our next question. And our next question comes from the line of Raphael Simonetti with UBS. Your line is open. Please go ahead.

Thank you for taking my question. If you could please give more color on costs, mainly on salaries and leases. uh 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 this is increased on a quarter over quarter basis uh i would like to note that was caused by the addition of your craft thank you i think in terms of the salaries some benefits they are all flattish the number it's being held due to the effects because all of the salaries are in pesos and that's the main driving of this

of the number. And also we have an impact on the revenue profit sharing that by law we need to provide that we book it on the 4Q of last year.

Okay, thank you.

Thank you. This concludes today's question and answer session and I would like to invite Mr. Beltranian to proceed with his closing remarks. Please go ahead, sir.

Thank you very much, operator. 2024 was a difficult but very rewarding year. You can expect us to maintain our discipline throughout 2025. We will keep our heads down, do the work, navigate the near-term turbulence in certain of our markets while staying very focused on the long-term, continuing to build the world-class ultralocals carrier airline. I would like to extend a sincere thank you to our family of ambassadors. to the board of directors, to the investors, the bankers, the lessors, and suppliers for the commitment to Volaris in 2024. I look forward to working with you all in 2025, and I am looking forward to keep on doing the best we can with this tremendous team we have, and we'll speak to you again for you for our first call in late April. Thank you very much, operator. Thanks for everything.

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