Good morning, everyone. Thank you for standing by, and welcome to Volaris Third Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please note that this event is being recorded. At this point, I would now like to turn the call over to Maria Elena Rodriguez, Volaris Corporate Finance and Investor Relations Director. Please go ahead, Mr. Rodriguez.

Good morning, everyone, and thank you for joining the call. With us today is our President and CEO, Enrique Beltranena; our Airline Executive Vice President, Holger Blankenstein; and our Senior Vice President and Chief Financial Officer, Jaime Pous. They will be discussing the company's third quarter 2020 results. Afterwards, we will move on to your 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 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 for reasons described in the company's filings with the U.S. Securities and Exchange Commission and the Comisión Nacional Bancaria y de Valores. Furthermore, Volaris undertakes no obligation to publicly update or revise any forward-looking statements. It's now my pleasure to turn the call over to Volaris' President and CEO, Mr. Enrique Beltranena.

Thank you, Maria Elena. Thank you very much for joining us today. I want to start by thanking our family of ambassadors and our Board of Directors, who have established a track record of managing the challenges presented by COVID-19 and have given Volaris the fastest airline recovery in North America. Let me detail our key achievements. First, cost per available seat mile ex fuel improved by 50% versus previous quarter towards our pre-COVID levels. Despite the slump in capacity in the second and third quarter of 2020, Volaris cost per available seat mile ex fuel decreased from USD 0.10 to USD 0.05, which is lower than many players' level in a normal year. Volaris is among the 3 lowest unit cost operators worldwide, and we are fully committed to continue our cost reduction path with the goal of reducing our costs even further than our pandemic levels, notwithstanding the current environment and as a result, gaining further competitive advantage. Secondly, Volaris has one of the fastest capacity recoveries in the world. During September, capacity was 84% versus the previous year with a book load factor of 74% and for the full quarter, ASM recovery was at 75% of the previous year, which is the highest in the Mexican market. Volaris is regaining capacity much faster than its competitors because over 70% of Volaris' point-to-point network is deployed on VFR and leisure routes, which are the fastest recovering segments in our markets. Additionally, Volaris continues to expand its passenger base by aggressively converting first-time flyers through bus switching campaigns. Thirdly, Volaris continues to take strict measures to preserve liquidity. Closing the third quarter with $365 million in cash and cash equivalents. Third quarter cash burn was almost 50% lower than expected and that was mainly driven by higher sales and…

Thank you, Enrique. During the ramping up process of the third quarter, we achieved the following top line figures. TRASM for the third quarter was MXN 1.03, with a year-over-year decrease of 32%. July and August were months of ramp-up and capacity remained stable through September, allowing a focus on TRASM. September TRASM was only minus 7% versus 2019. Total ancillary revenues per passenger reached a record MXN 614 for the quarter, an increase of 14% year-over-year. Non-ticket revenue now accounts for 45% of total operating revenue, driven by the resiliency of air ancillaries such as the new combo fares. The total ancillary revenue line increased 300% versus the second quarter of 2020 and decreased 30% year-over-year due to the reductions in capacity. In terms of operational reliability, on-time performance was 93% for the third quarter. Volaris capacity recovery increased throughout the quarter. July and August were months of ramp-up, and capacity remained stable through September. In the third quarter 2020, the ramp-up started in the domestic market, followed by the U.S. market shortly thereafter. In total, Volaris operated 85% of domestic ASMs versus the same period in 2019. In the international market, Volaris operated 54% of ASMs versus the same period in 2019. For the fourth quarter, we expect a faster international ramp-up due to the Central American operations restart and a higher transborder capacity. The capacity growth had a positive impact on sales. And as a result, improved marginal contribution, cash and EBIT. Sales continue to show a weekly increase in both base fare and ancillaries with non-ticket revenues now higher than last year. Cash inflows are now covering the normal outflows associated with operations prior to repayment of supplier concessions granted earlier in the year. The majority of sales are still relatively shorter term than in 2019.…

Thank you, Holger. Now I will continue the discussion of our results in accordance with the figures filed with the Securities and Exchange Commission and Comisión Nacional Bancaria y de Valores. Total operating revenues for the third quarter increased 210% versus second quarter 2020, reaching MXN 4.7 billion, representing a decrease of 50% versus 2019 due to COVID-related capacity reductions. CASM ex fuel for the third quarter was USD 0.0503. Total U.S. CASM was USD 0.0675, a decrease of 43% versus the second quarter 2020 and an increase of 6% versus 2019 mainly as a result of reduction in ASMs. During the third quarter of the year, the company swing the operating loss with an improvement of 103 percentage points versus the second quarter of 2020, an operating loss of MXN 2.2 billion, with a negative operating margin of 47%. In the third quarter, EBITDA improved 24 percentage points versus the second quarter of 2020, a negative EBITDA of MXN 181 million, a margin of minus 4%. The highlights for the third quarter is our improvement on net results of 54 percentage points versus the second quarter 2020. Net loss for the third quarter was MXN 2.2 billion with a net margin of minus 46%. In the third quarter 2020, the company recorded a onetime charge of MXN 746 million. Without this onetime charge, pro forma EBIT margin would have been negative 31%, pro forma EBITDA margin would have been positive 12% and pro forma net margin would have been negative 30%. Due to our net U.S. dollar monetary liability position, the exchange rate appreciation at the end of the third quarter led a noncash FX net gain of MXN 186 million below the operating line. During the third quarter, the net cash flow using operating activities was MXN 113…

Thank you very much, Jaime and Holger. You together with José Luis had done an amazing work within your teams. During the last couple of weeks, I did a visit to some governors in Mexico as well as to some ministers in Costa Rica to promote our destinations and to generate alliances with the tourist industry throughout attractive low fares. Altogether, we aligned our efforts to lead the revamping of aviation and tourism. I can proudly say that the referred actions were very well received, and we will continue joining airports with our stakeholders, to continue ramping up the industry and tourism in our regions. Airbus and Volaris have presented to the Mexican and the Central American authorities and to the press recent results on Airbus studies regarding potential COVID transmission associated with flight. Those facts plus experience gained having flown more than 4.5 million passengers safely and no crew members infected onboard speak of the confidence we can regain from our clients. Volaris' top priority is to return to earnings per share. We will continue with a thorough cash preservation, managing capacity, cost preservation and increasing total revenues per ASM. As we are already on our profitability runway, we are going to capitalize on our lowest CASM position amongst our competitors by exploring opportunities upon our strong business model. I want to thank the entire Volaris family, our Board of Directors, ambassadors, especially our investors and the suppliers for their tireless efforts and commitment in this challenging environment. Operator, please open the line for questions.

[Operator Instructions] And we will take our first question from Duane Pfennigwerth with Evercore ISI.

Can you just review -- you said a lot of good things there. Can you just review how many aircraft have left the Mexico market since the start of the pandemic? And I assume that's primarily a domestic number. Or would you consider it a mix of domestic and international?

So Duane, for the Mexican competitors, mostly the 2 Mexican competitors that operate mostly from Mexico City International Airport, we expect that 107 narrow-body aircraft are going to leave the market by December 2020. Those are already publicly announced. And that represents 86 Airbus A320 Volaris equivalent aircraft and about 1/3 of the total narrow-body fleet in the country.

And then with respect to airport opportunities, you've talked a little bit the last couple of quarters about expansion opportunities in Mexico City. Any update there since last quarter?

So Duane, as we announced in the call, we have operated -- we have started operations in 5 new domestic markets from Mexico City. And we are also adding capacity in the U.S. market from Mexico City with also some new routes to California and to Texas. They are starting this week and next week for operations. They are already on sale. Yes.

That's great. And if I could sneak one last one in. You mentioned kind of the restart of Central America. Can you just talk a little bit about what geographies, what countries are reopening and when that's occurring?

Yes, Duane, we will start operations on the 23rd of November. And we will follow a same -- similar ramp-up strategy as we did in Mexico. And once we achieve profitability, we will start analyzing progressive growth. The plan is to restart operations in similar routes as we had before the pandemic. So very much focused on intra CAM, CAM to Mexico and CAM to the U.S. with the 4 destinations we have in the U.S. and eventually, then we will have progressive growth as -- once we achieve profitability.

And we will take our next question from Helane Becker with Cowen.

So I just have 1 or 2 questions. The first question is, on the new international routes, Holger, you mentioned Dallas and Fresno and kind of exciting cities like that. So I have 2 questions about that. One is how long will you stay in the market. Like how long do you give the new routes a chance to mature and be accretive to earnings or cover costs or however you measure it? And the second, are those routes that are -- have strong populations on either side so that the visiting friends and relatives market makes sense for you to fly there? And then I think you have a code share still with Frontier. Are they big in those cities? And does it make sense from that perspective? So 1 question with 3 sub questions.

Right, Helane. So let me tell you about our new destinations in the U.S. All of them have a very similar characteristic. They have been successful from Guadalajara in the VFR segment. And now that we have the opportunity to add capacity from Mexico City, we will take advantage of the large VFR traffic as well. Remember, Mexico City is the largest Mexican market, largest Mexican city. And what typically -- we try to get to marginal contribution as quickly as possible on new routes. That happens typically in the first 6 months of operations. And then to full profitability in international markets, typically, we look for a ramp-up between 12 to 18 months.

Okay. That's great. And then I just had one other question. Jaime, I thought you said something that I missed actually, embarrassingly enough. I thought you said you took a charge in the quarter, and I didn't catch what that was for, onetime charge.

That's right. It was a onetime charge of MXN 746 million. It's related to an adjustment on the northern border value-added tax rate that was applied to the Mexican carriers. And the amount in our case since we are the clear leader in Tijuana, it was significant.

And we will move next with Mike Linenberg with Deutsche Bank.

Just a couple here. Jaime, I want to go back to the cash burn for the fourth quarter. I just want to make sure I heard you right. You did say, I think, $1 million per day, but then you qualified that. I wasn't sure if that included -- whether it was predelivery deposits or other financial items. So if you could clarify that. And then just on an apples-to-apples basis, how does that compare to the burn -- the daily burn rate in the September quarter?

Sure. Basically, as I mentioned, the cash burn comes because we are going to start paying for the deferrals of the second and the third quarter. Remember that 20% of the deferrals with respect to the lease agreements are going to be paid in the fourth quarter. So that's why the cash burn is higher in the fourth quarter and the third one. Operating wise, we are going to be positive.

Okay. That's actually very helpful, which kind of gets me to my next question, which your top line was down 50% this past quarter. Your capacity, I guess, in the month of September was 84% of last year. This quarter, you're going to be 90%. Your top line is probably not going to be down as much. Are we at -- we must be pretty close to -- I know that Enrique and Holger and Jaime, you've talked about the next step is to get to profitability, but I almost want to take it back a step and more about, at what point do you get to breakeven from a cash flow perspective? It does feel like that you may be able to do that this quarter or maybe not because you are making up these deferral payments with respect to the lessors. Is it conceivable that we get there maybe by the month of December? Or is breakeven cash flow a more likely probability in the March quarter of 2021. Just anything that you can provide me that sort of gets me to -- that sort of gets us to that objective?

We are not going to get there in this quarter, Michael. In addition to the deferrals, we are going to need to collateralize some letters of credits with cash. And also the heaviest part of the deferrals are going to hit the first half of the next year. So depending on how we are able to push farther away, as I mentioned before, from deferrals from 2021 to '22, we may get cash breakeven.

Okay. That's actually -- that's very helpful. And then just my last question on...

Michael, may I just add that cash inflows are now covering the normal outflows associated with operations prior to repayments of supplier concessions granted earlier in the year. And as we increase our capacity into the fourth quarter and we are observing steady increases in sales, as a matter of fact, in some days and weeks, sales are already higher than the same days in 2019. So just to keep that in mind -- so it's all about the repayments of concessions we received earlier in the year.

Yes. No, that's actually very helpful. And then just the last one, and maybe, Holger, you can answer this. It is pretty -- as they say, never let a good crisis go to waste, and you're obviously taking advantage of the fact that Mexico City has now become open. I mean we're just watching the amount of service. I guess, you mentioned, what, 11 new city pairs. But those slots, how does it play out if we go out a year or 2? Are those slots, once you start the service, will you be able to hold on to them? Is there the possibility down the road that, say, one scenario, maybe it's a remote or not a likely scenario, but that somebody steps up and infuses a lot of capital into Interjet, and they come back and they demand the use of those slots. How do -- how does that slot situation play out?

Michael, as you know, there's a current waiver on the use it or lose it laws in general worldwide included Mexico that was pushed by IATA. Despite that, there's not a waiver or you don't pay it, you don't lose them. So as long as the airlines owe money to the Mexico City airport, they are not going to be able to hold those slots. And the reduction in capacity is so big because of the heavy percentage of operations at both Interjet, and Northern Mexican carriers have -- there -- I think there's going to be for certain room to grow and to maintain the new operations that we are putting into Mexico City.

And just one -- just squeeze in one last one on Mexico City. Holger, if you look at your -- and thanks for that Jaime. If you look at your schedule in the December quarter out of Mexico City, what -- just based on capacity, what is your share now maybe versus what it was a year ago? It does seem like it's moved up pretty meaningfully.

So in terms of the domestic Mexico City share, we have a 33% share. So we're clearly #1 in Mexico City as well. And in terms of total, if you add the international as well, our ASM share would be 26%, which also positions us as a market leader in Mexico City if you look at all the operations from Mexico City.

That's pretty impressive for an airport that was always fourth or fifth.

Sorry. And let me correct my statement. Aeroméxico continues to be bigger in Mexico City. So we're #2 player in the domestic and in total in Mexico City. Nationwide, we are clearly #1.

[Operator Instructions] And it appears that we have no further questions at this time. I would now like to turn the program back to our presenters for any closing remarks.

So thank you very much to everybody to participate this morning. I really appreciated the support that we had during the quarter, all the conversation with our investors and everything that we have done. Thank you very much again for the support in the actions that we're taking. And we hope to continue conversating with you within the quarter. Thank you very much, and have a great day.

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.