Good morning, everyone, and thank you for standing by. Welcome to Volaris' Second Quarter 2016 Financial Results Conference Call. All lines are in a listen-only mode. Following the Company’s prepared remarks, we will open the floor for question-and-answer. Instructions on how to ask a question will be provided at that time. Please note that this event is being recorded. At this point, I would now like to turn the conference call over to Mr. Andrés Pliego, Volaris' Financial Planning and Investor Relations Director. Please go ahead, sir.

Good morning, everyone, and thank you for joining the call. With me today, we have Enrique Beltranena, CEO; Fernando Suarez, CFO; and Holger Blankenstein, CCO. They will be discussing the Company's second quarter 2016 results as we announced today. Afterwards, we will move on to questions. Please note that this call is for investors and analysts only. Any questions from the media will be taken on an individual basis. Before we begin, please let me remind everyone that some of the statements we will make on this call would constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are subject to a number of factors that could cause the Company's actual results to differ materially from expectations for reasons described in the Company's filings with the U.S. Securities and Exchange Commission. Furthermore, Volaris undertakes no obligation to publicly update or revise any forward-looking statements. It is now my pleasure to turn the call over to our CEO, Enrique Beltranena.

Thank you, Andrés. Good morning, and welcome to everyone participating on the call today. Volaris continues delivering a strong financial and operational performance, driving the improvements in revenues and operating metrics as well as seeing profitability, despite exchange rate pressures and a seasonally weaker quarter. Adjusted EBITDAR for the second quarter increased 42% year-over-year with an adjusted EBITDAR margin of 35%, a 4 percentage point increase year-over-year in line with the guidance given in our prior earnings call. Volaris' ability to increase total revenue per available seat mile or TRASM resulted in a 5% unit revenue growth year-over-year, hence demonstrating that we can combine high growth with unit revenue expansion. We keep on stimulating demand with our low base fares and switching bus passengers to air travel. In a region, total non-ticket revenues increased 35%, 35% year-over-year. We operated at a low factor of 86% derive from an RPM and ASM growth of 24% and 19% year-over-year respectively. It reflects the company's efforts focused on continuing our growth and a network diversification strategy, despite not having the benefit of the Holy and the Easter weeks during this year's second quarter. Volaris plays an increasing role as a key market player, being [indiscernible] of -- for over two-thirds of the Mexico's passenger volume growth, primarily because demand stimulation of our bus switching campaign. The Mexican DGAC statistics reflected solid market demand with overall passenger volume growth for Mexican carriers of 9% year-over-year during April and May. Volaris passenger volume for the quarter increased 26% year-over-year, transporting 3.6 million passengers. The average aircraft utilization in our network was of 12.5 hours for the quarter. In addition, we added eight new routes, six domestic and two international, in line with our point-to-point strategy. We continue our push towards growing on ticket revenues. Many…

Thank you very much, Enrique. I look forward on expanding upon our financial performance for the period. Total operating revenues for the second quarter reached Ps. 5.1 billion, an improvement of 25% compared to the same period last year. During the second quarter, non-ticket revenues reached Ps. 1.3 billion, an increase of 35% year-over-year. Non-ticket revenues now represent 26% of total operating revenues for the company. U.S. dollar denominated revenues represent approximately 30% of total operating revenue, helping partially insulate us from exchange rate devaluation pressures. Moving on to cost. CASM was Ps.1.19 [ph] for the quarter, a 6% year-over-year increase, mainly driven by the average exchange rate devaluation of 18%. This impacted dollar denominated cost line items such as fuel, aircraft and engine rent expenses, and certain traffic and maintenance costs. When looking at CASM in dollar terms, CASM for the second quarter decreased 13%, down to $0.063 [ph]. It is important to note that we do not get the one-to-one U.S. dollar fuel price production benefit, because of the devaluation of the exchange rate. The total average blended economic fuel cost per gallon for the second quarter was $1.50 per gallon, which includes the call option premiums recognition of $0.08 per gallon. For the quarter, fuel costs represented 29% of total operating expense. In order to offset the cost pressures deriving from exchange rate and fuel price volatility, the company continues to invest importantly on its fleet plan by way of upgrade [ph] and access to new aircraft and engine technology. During the second quarter, we incorporated two additional A321s with 230 seat configuration, and we expect to incorporate six additional A321s for the rest of the year. We estimate that the unit cost reduction of the A321 is approximately 10% versus the A320. Last year, we completed…

Thank you, Fernando. Well, as you can observe, Volaris reported a very strong quarter today, despite the exchange rate pressures and a seasonally weaker quarter. This was a direct result of rigorous work and execution across the company, service to our customers and focus on value creation for our shareholders. All in, the company produced the last 12 months pre-tax adjusted ROIT of 22%. I think our ultra-low cost carrier model has been very successful and resilient in Mexico and the U.S. We believe it can successfully work in other market and we plan to continue diversify in our geographies. Once again, I wish to thank our management team for its dedication and of course our ambassador's daily efforts make Volaris one of the most dynamic companies in the airline sector around the world. I also want to thank you my direct management team, who is doing an amazing job. Thank you for your attention. Operator, we are ready to open the call for questions.

Thank you. Ladies and gentlemen, at this time, the floor is open for your questions. [Operator Instructions] Our first question comes from Duane Pfennigwerth with Evercore ISI.

Hey. Thanks, guys. Good morning.

Hey, how are you doing Duane? Good morning.

Good. Thank you. With respect to your capacity guidance, 12% midpoint in the third quarter, can you give us a sense for how you're thinking about the fourth quarter, and maybe initial expectations for 2017 as well?

Duane, we are maintaining our full year growth rate of 13% to 19%. And again the range for the third quarter is 11% to 13%. If we were to break it down between international and domestic, we would see a skew towards international in the third quarter ASM growth. In terms of 2017 we're still working on developing the plan.

Okay. Can you talk about the ancillary revenue items that may not have fully contributed here in the third quarter? What are the initiatives that you're working on that that might incrementally contribute beyond the second quarter?

Hi Duane, this is Holger. Good morning. Well, ancillary revenue generation continues to be the cornerstone of our commercial strategy. And we have grouped the initiatives in three different categories. First, we continue to have a long list of product that we are going to rollout and that we have rolled out in the past. We are improving the distribution channels. I think a testament to that is our new website, which is very much focused on converting ancillary product. And third, we are doing a lot on the pricing of the ancillaries. So we’ve significantly improve the way we price ancillaries pre-purchase, during the purchase, after the purchase and at the airports. I think those will be the three elements of the ancillary. And we have a lot of maturing products that customers continue to accept better as they understands, how does a low cost model works, be at carried on baggage, check baggage, an insurance product, a credit card, and/or Volaris club. So all of these products are maturing very nicely.

In terms of the long list of new products, can you give us a general idea of what those types of services might be?

Yes. We are currently very much focused on commission based products. So we are moving ahead in our credit card program, we are moving ahead in travel commerce, so hotels, rented cars, transport options for our customers, the cross-border bridge in Tijuana [ph] we are charging as a commission product. So there is a lot of things on the travel side that we're working on.

Okay. And can you give us an update on the competitive environment, how you're seeing trends in the domestic market and also in the international market in the second half of the year?

We do see a continued strong demand both domestically and internationally. Definitely the bilateral agreement that is about to be ratified as and commence forth will definitely bring additional momentum to the market. The fare and yield environment both in the international and the domestic market has been quite stable. We do see some growth of low cost -- U.S. low cost carriers, but that growth is very much focused on the beach destinations in Mexico. So overall, relatively positive picture, despite FX pressures.

Okay. Thank you.

Thank you, Duane.

Our next question comes from Stephen Trent with Citi.

Good morning, gentlemen, and

Hello.

Hello. How are you?

We are doing great, Steve. Thank you for your questions.

Great, and thanks for the time. Gentlemen, I’ve just was curious and when I think about the second quarter. Were there any cost items that you might characterize as one off so or cause a non-recurring just to get my thoughts around the operations.

Yes. Steve. In terms of the second quarter, we did experience an increase in contingent rents within the aircraft and engine rental. We expect to have some of it still in the third quarter within the $77 million both on rent amount that we gave guidance upon for the third quarter, but that should decrease in the fourth quarter, it should be smaller number than that.

Okay.

Other than [indiscernible] in rent, nothing else extraordinary that we could point out. In general, we have FX pressure across the different cost line items that we were able to somewhat offset.

Okay. Very helpful, very helpful. And on the few hedges that you guys mentioned, apologies I couldn’t hear too well. I believe you said for next year 50% of the need at, and I didn’t hear the strike price. And if I could trouble you for the strike price you mentioned one. And two, if you could also comment on whether, you’re also using a call options as a hedging strategy?

That is correct. Steve, we continue to utilize call options, and I’ll repeat the percentages for 2016, ’17 and the first half of 2018. We have 55%, 50% and 37% respectively for the next two years and the first half of 2018. In terms of average price of the strike price, it’s $1.99 per gallon, $1.51 and $1.67 for these periods mentioned.

Okay. Super, that’s very helpful. And just one last question if I may. What do you think about the Central America strategy, and the fifth and sixth freedom traffic rights pretend to lot out of Central America? Any color on what you’re seeing in that market in terms of competitive movements, is it primarily U.S. LCCs doing point-to-point, or how are you seeing the competitive market there?

Holger, can you help me out with the first part, and then I’ll complement. Okay.

Sure. Central America is a market that we see quite a lot of ultra-low cost potential. Currently, there is -- the fare environment and the yield environment in Central America is quite high. We’ll give you more details on the project once we have the Costa Rican AOC process continue. As Enrique mentioned in the call, we are in the fourth out of five phases, however, as we also mentioned during Enrique’s intervention, we see a potential size of the operation that is similar to what we currently operate into the U.S., as full potential.

Okay. That’s super. Thanks for that Holger.

Yes. So in terms of dynamics, Steve, there is one new low cost carrier, which is in the process of certification. I mean, it’s already certified and it has been announcing the launch of its operations, much more to the world’s charter operations and that’s [ph] Colorado Costa Rica.

Okay. That’s very helpful, gentlemen. I’ll let someone else ask a question, but thanks again for the time.

Our next question comes from Helane Becker with Cowen & Company.

Thanks a lot operator. Hi guys, thank you for the time. Can you say Enrique, what percent of your passengers are first time fliers?

Yes. Helane, it’s difficult, because it’s based on each station, and specifically, because of the travel traffic that we are managing, Helane. But we think the saying is between 18% and 34% of our travelers are first check on bus fares, and the whole statistics that we manage based on the service is between 5% and 7% of our travelers are first time travelers.

Okay. And that’s been, I think that’s been fairly consistent, right? It’s not increasing yet, is it?

It’s not increasing Helane, because of the numbers in the buses are so big, so in terms of percentage, sometimes it’s difficult to remind. But what we see is, and we were clear about that is that, the growth of the market in Mexico, more than two-thirds of it is accredited to [indiscernible].

That’s really helpful. Thank you. And then just my follow-up on…

We are very clear that a lot of that traffic is coming from the bus shifting of it [ph].

Okay. And then my follow up question is that, I think the U.S. has been kind of the driver for RASM growth. Did that continue into the second quarter? And if so, should we expect that for the rest of the year?

Let me pass that to Holger.

Helane, we’ve managed to generate RASM growth in the domestic and the international market. Demand has been quite strong in both markets, despite a significant ASM growth. So yes, the FX has helped us in driving growth in the international market, but the domestic market is also quite strong.

Great. Okay. Thank you for your help. I appreciate the time.

Our next question comes from Ulises Argote with Santander.

Hi, guys. Thank you very much for the call. Quick question regarding the yields, we have seen competition increasing yields. With the FX at current levels, would it make sense for you to increase your yields? And I don’t know, if you can comment a bit on what can we expect in terms of the strategies here going forward? Thanks.

Can you explain, what do you mean in terms of yield?

Yes. The yield that you are charging this quarter, it fell 1.5%. We have seen the competition increasing. So I don’t know, if you can elaborate a bit on what the strategy can be there?

Yes. But being the bus being at the ultra-low cost carrier, when we speak about yields, we speak about call total yields. Are you asking about base fares, or are you asking about total yields?

No. The base fares. Sorry.

So our strategy continues to be focused on total yield, so TRASM. And what you will see in subsequent quarters is that we will remain with our strategy of reducing our base fares, and that is going to be offset by increase in ancillary revenues and being a very low factor exit airline. So we are all about stimulating demand to lower base fares, and that is the strategy we will continue.

Okay. Very clear. Thanks.

Our next question comes from Michael Linenberg with the Deutsche Bank.

Hey, Michael. How are you doing?

Hey. How is everybody?

Very good. Thanks for your question. Okay.

Great. Hey, Enrique and Team. I guess two questions here. Maybe, Holger is the one, who can answer this. I’m just curious given the weakness in the currency over the last year. Just how travel patterns have shifted between the U.S. and Mexico. And I just, I’m curious about the how the point of sales strength has changed, like are you just, are you seeing a much bigger pickup in traffic originating in the U.S. to Mexico in your transporter markets. Anything that you can give us, any numbers on that, maybe how it shifted would be helpful?

Sure, Michael. Let me start with the VFR market. Remember that our core market is the VFR market, and we’ve seen quite a lot of resiliency in the U.S. VFR markets. 33% of our total revenues are U.S. dollar denominated, and there is quite a lot of resiliency in the VFR market. Point of sales here has remained quite similar, 50% in the U.S. and 50% here in Mexico. In the leisure market, we’ve seen certain deceleration in the North bound Mexico to the U.S. North bound leisure markets, and that has shifted quite a lot to Mexican leisure destination. And we are adjusting the capacity accordingly.

Okay. Good. And then my second question, and Holger, this maybe a question for you as well. You mentioned earlier in the call that you announced or started eight new markets, I think two international and six domestic. And I am just curious about the ramp up, typically, when you are a smaller carrier and you don’t have a lot of cities that you serve, it may take longer to ramp up to maturity. But now you have a healthy density throughout your network, and in some markets like Guadalajara, you have maybe some of the highest, you may have almost more presence than any other carrier, and that’s I believe the case in Tijuana. So as you add new routes, including some of these routes that maybe previously had known service and cross border markets into the U.S. for example. Are you seeing a much faster ramp up to maturity or to profitability? Is that showing up with the more recent launches? If you could go into detail on that, that would be great. Thanks.

So in general, let me tell you quickly. We have opened eight new routes in the domestic and international markets. And typically, what we see in the domestic market ramp ups are a little bit faster between six months, and in the international markets ramp ups are a little bit slower 6 to 12 months. And yes, where we are strong, where we have a leading position, obviously our market entries are a little bit easier.

Okay. Very good. Thank you.

And then as we -- and then maybe just to add Michael, as we move into Central America, and as we have the new AOC in Central America and Costa Rica specifically, while our brand is not that penetrated in Costa Rica and in Central America, so we expect a little bit slower ramp ups in those markets in Central America.

Okay, great. All right. Thanks, Holger.

Our next question comes from Renato Salomone with Itaù

Hello, gentlemen. Thanks for taking my questions.

Renato, how are you doing? Welcome to the call.

All right. Thank you. My first question is regarding the cash strategy, it’s proven to be a wise and efficient strategy to hold more cash in dollars. Is it something that we can expect going forward? Is there something some bans that the Board has set for you to work with? Can you give us some more on what to expect going forward?

Renato, you are right. We hold most of our unrestricted cash in dollars, and we intend to continue doing that, it does play a role in terms of FX hedge. And also, it’s not just unrestricted cash, we have guarantee deposits, such as fleet related and maintenance reserves, there are also dollar denominated. S So that also helps in having a very high net U.S. dollar asset monetary position. So in that sense, we are comfortable with that.

Okay. And the next question is regarding salaries. This line has come for the past two quarters a bit higher than I had in my model and we saw since the fourth quarter a bit of a decoupling with [indiscernible] in there that we need to take into account?

Renato, salaries basically are in line with our expectations. If you see a slight variation on the upside to that, it has -- is related with variable compensation. Remember that, we have a very variable compensation scheme. So as we hit targets for the company, we do pay a little bit more in terms of variable compensation

Perfect. Thank you.

At this time...

I do remember something important that is for you to consider it, as a difference in what is going on the South, South America, Mexico has been able, despite of the devaluation to control its inflation rate.

Certainly. Thank you.

At this time, we have no further questions. I will now turn it back to Mr. Enrique Beltranena for closing comments.

Thank you very much to everybody. Thank you very much once again to the team, and to the management team, and ambassadors -- and general ambassadors that make Volaris success in everyday. I would also like to thank you very much our investors and tell you guys that we are confident for our next quarter results, and that we will keep on working, creating the best performance with the low cost carrier that we can. Thank you very much, and have a great day.

Ladies and gentlemen that concludes today's presentation. You may disconnect your phone lines, and thank you for joining us this morning.