Good morning, everyone. Thank you for standing by. Welcome to Valaris First Quarter 2025 Financial Results Conference Call. All lines are in 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 can be accessed through the Valaris website. At this point, I would like to turn the call over to Ricardo Martínez, Investor Relations Director. Please go ahead, Ricardo. Ricardo Martínez: Good morning, 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 2025 results. Afterwards, we will move on to your questions. Please note that this call is for investors and analysts only. Before we begin, please remember 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 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 they are made, and Volaris undertakes no obligation to update or modify any forward-looking statements. As in our earnings release, our numbers are in U.S. dollars compared to the first quarter of 2024, unless otherwise noted. And with that, I will turn the call over to Enrique.

Good morning, everyone, and thank you for joining us. To kick off our call today, I will address the current geopolitical environment affecting the North American airline industry and how Volaris remains well-positioned to capitalize on long-term sustainable growth in our most valuable markets. This is a result of our team's proven ability to adapt during downturns and accelerate when opportunities arise. We delivered practically in full on our first quarter 2025 guidance despite highly volatile conditions. Holger and Jaime will speak about the strengths that drive our optimism about the future. Over the past three months, political and trade dynamics between the United States and key economic partners, particularly Mexico, have seen ongoing volatility. This has created uncertainty across industries and among consumers, prompting a more cautious outlook. As we mentioned on our previous earnings call, travelers are waiting for greater clarity around border policies, tariffs, and broader economic conditions before making bookings. In response, Volaris has and will continue to adjust capacity to align with evolving consumer behavior. I want to emphasize that Volaris recognizes the Mexican government's rigorous commitment to swiftly addressing issues in the U.S.-Mexico relationship. Managing these matters requires a constructive, forward-looking, and bilateral approach, one we fully endorse and view as a positive step toward regional stability. From my personal perspective, Mexico's cautious, responsible, and proactive response to various U.S. initiatives has enabled it to make significant progress on key issues in the bilateral agenda, positioning both the country and Volaris as an appealing investment opportunity. Even in this environment, we continue to see the resilience of the VFR travelers in the Mexican domestic market, where we drove a load factor of 89%. On the international front, our load factor in the U.S. transborder market came in slightly below last year's result. We grew…

Thank you, Enrique. Good morning, everyone. For the quarter, our ASMs increased by 6% versus the first quarter of 2024. As Enrique mentioned, we flew a reliable schedule during the quarter, a testament to our coordination across operations and commercial teams. Operational performance once again was very solid in the quarter, with an on-time performance of 83.6% and a scheduled completion rate of 99.6%. We also continue to implement multiple initiatives to improve customer service and are seeing results as reflected in our first quarter Net Promoter Score of 39%. During the quarter, although TRASM came slightly below guidance, we sustained healthy loads through fare stimulation. This resulted in a 17% decline in quarterly TRASM, which reached $0.078. Our total load factor for the quarter was 85.4%, down 1.6 percentage points compared to the prior year. True to our ULCC business model, we adjusted our base fare by 29% network-wide during the quarter to maintain load factors. This reduction was also largely impacted by a 20% depreciation of the Mexican peso against the U.S. dollar. However, ancillaries once again demonstrated low-price elasticity and played a key role in supporting overall revenue, underscoring the relevance of our offerings to customers, particularly those flying on longer, higher-margin sectors. Average ancillary revenues per passenger reached $53, marking our sixth consecutive quarter above the $50 threshold. While this represents a 7% year-over-year decline, it still accounted for over 50% of total operating revenues, which is relevant because we are preserving ancillary services as a value added to the customer. To that end, we continue to make progress in evolving our ancillary strategy. During the quarter, the new Volaris app was launched, designed to significantly enhance the passenger experience and ancillary upsell during the day of travel. The app streamlines personalized bookings, boarding, access to…

Thank you, Holger. As the team has discussed, financial results during the first quarter were challenged by geopolitical dynamics. Even so, we stay focused on what we can control and respond quickly to shifting conditions. Our first quarter results are aligned with the guidance we provided. For the quarter, total operating revenues were $678 million, a 12% decrease year-over-year, driven by the depreciation of the Mexican peso against the U.S. dollar and a lower total revenue per pax. On the cost side, CASM was $0.0788, a 3% decrease year-over-year, while CASM ex fuel was $0.54, up 5% year-over-year. Average economic fuel cost declined 13% to $2.63 per gallon. In these times of volatility, maintaining one of the lowest unit costs in the industry remains our main competitive advantage. In line with our long-standing focus on cost discipline, we are intensifying company-wide cost control efforts and preserving an efficient cost structure with approximately 70% of our costs being variable or semi-fixed. On our P&L, while depreciation and amortization expense was roughly flat sequentially, it rose 49% compared to the first quarter of 2024, primarily due to an increase in major maintenance events for aircraft and engines, but aligned with our forecast. Additionally, in the other operating income line, we booked sale and leaseback gains of $7.4 million related to the delivery of three aircraft. This line also includes our aircraft grounding compensation from Pratt & Whitney. First quarter EBITDA was a loss of $10 million, representing a margin of minus 1.5%. The benefits from increased capacity and lower fuel costs were partially offset by a weaker peso as well as the absence of a one-time benefit of $41 million recorded in the first quarter of 2024 on the aircraft and engine variable lease expenses line. The benefit reflected the re-measurement of…

Thank you, Jaime. Before we finish, I want to call your attention to the following five points. Number one, we can operate and execute changes in our network with flexibility, agility, and resilience, taking advantage of around 70% of our variable and semi-fixed cost structure. This capability is tremendously valuable in moments when we need to tactically and quickly adjust capacity up or down to meet market demand. The second one, as a VFR traffic-oriented airline, Volaris is uniquely positioned to capitalize on the growing need for families to reunite. We strongly believe we are experiencing a delay in traffic rather than a shift in long-term travel behavior. With transport travelers in full compliance with cross-border regulations, and our customer satisfaction is high, we will continue to win in those markets. Third, we will keep delivering on our value proposition, offering low fares, maintaining an attractive and reliable schedule, and providing relevant ancillary options that enhance the travel experience. Fourth, the Mexican government's strong commitment to swiftly addressing issues in the U.S.-Mexico relationship positions both the country and Volaris as attractive investment opportunities. And five, Volaris was the best-performing public airline in its recovery after the pandemic. We invested our human and technical resources during the crisis to prepare for a fast restart once uncertainty eases. We are preparing once more for a strong comeback. Thank you very much for listening. Operator, please open the line for questions.

Thank you. [Operator Instructions] Our first question is from the line of Michael Linenberg with Deutsche Bank. Your line is now open.

Okay. Good afternoon, team. I guess, two questions here. One, when I look at your TRASM performance, down 17% to $0.0776, and then I look at the kind of guidance, it looks like sequentially, your June quarter may even be worse. And on an absolute basis, those are the type of numbers that we saw back in 2022 when Omicron and COVID were hitting the industry. So, my question to you is, obviously, you're driving loads with lower yields here, but the fact is, are you not seeing the level of stimulation that you would normally see in traditional discounting, and therefore, you're being forced to just take fares down to dramatically low levels here just to fill the airplanes up? What's the response to the consumer? And then, what gives you any sort of confidence that the consumer will bounce back in the second half of 2025? Thanks.

Hello, Michael, this is Holger. So, this quarter, in the second quarter, we experienced a benefit from the shift of Easter to April. But I would say that this shift was not the typical Easter shift and the regular seasonality pattern that we observed in previous years. With the unusual external forces affecting demand in the international market and also the domestic market, it's quite difficult to quantify exactly the individual factors and isolate the impact of the forces that are currently impacting the demand environment.

Okay.

So, the second quarter, yes, it has the Easter benefit, but we are seeing relatively low fares also impacted by the lower exchange rate.

Go ahead.

Go ahead, please, Michael.

I was going to say, but is it accurate that the year-over-year unit revenue decline will be larger in the June quarter than what we saw in the March quarter? Is that accurate?

Similar.

Okay. And then, just by the second half, the back half, I know you talked about the bounce back seen in the past. Are you hearing that from your customers as well? I mean, again, what gives you that confidence? Maybe there are other channel checks or survey information where you think people will -- it will bounce back in the second half of 2025. Maybe that's an unfair question. Whatever you can provide, any color? Thanks.

So, we are confident that the second half of the year is going to be better. We've seen in the past that VFR traffic bounces back quite significantly, especially in the summer season. And in the second half of the year, typically, visiting friends and relatives want to see their families and travel in the high season. And remember that the second half of the year is seasonality-adjusted better than the first half of the year. We are monitoring bookings very carefully for any signs of improvement, and we believe that the second half of the year and July and August are going to be much more stable than the first half of the year.

Okay. Thanks everyone.

Thank you. Our next question comes from the line of Stephen Trent with Citi. Your line is now open.

Good afternoon, gentlemen, and thanks very much for taking my question. The first one is sort of a little bit of a follow-up on Mike's question, to a degree. When you look at -- certainly, there's been a lot of geopolitical craziness, everybody sees that. But when you look at price action with your shares back to COVID lows, operations certainly are not back at COVID lows or free cash flow. Any sort of high-level thoughts about share repurchases at these levels, or is it not really something in the cards?

Steve, how are you? I think our priority this year is cash preservation, and we're going to be focusing on that, Steve. To maintain a strong balance sheet, lowering the debt and preserving cash, not take action on buybacks in our mind.

Great. I appreciate that, Enrique. And just one really quick follow-up. When we look at your guys' fuel prices, jet fuel kerosene prices, are there any particular airports where the pricing or the regional crack spreads are very high, for example, versus other airports you service?

Yes, Steve. Normally, Tijuana, Guadalajara is more expensive than fueling in Mexico City or Monterrey. And basically, the network, that's why the total economic fuel cost is higher than other competitors.

Okay. Very helpful. Thanks, Enrique.

Thank you. Our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Your line is now open.

Hey, thanks. I wonder if you could just walk us through monthly trends, trying to better understand the trajectory into 2Q here. What was the RASM decline in March? How is that playing out in April? And are you seeing any signs of stabilization in domestic markets yet?

Duane, this is Holger. Good morning. So, this March, we did not have the effect of Easter and the spring break. So, versus last year, we had a relatively weak March. However, this shifted into April, and we're seeing better results for April in terms of TRASM. And as I mentioned earlier, we are closely monitoring a range of indicators to assess demand trends going into May and June, while we are also focusing on what we can control, which is capacity. And that's why we've pulled back capacity for the second quarter. It's very important to note that we have a lot of flexibility in adjusting capacity, and that enables us to respond very quickly if there are clear signs of demand recovery as we go into the third quarter and the summer season. We are engaging, we are observing very closely the different distribution channels and tracking microeconomic and macroeconomic factors to identify early signs of demand improvement. And the booking curves for July and August make us cautiously optimistic that there will be a recovery of the VFR traffic. We believe that VFR traffic has to travel in the high seasons to visit friends and family, both in the U.S. and Mexico.

Just to maybe put a finer point on that, are there any differences at this point in point-of-sale Mexico demand versus point-of-sale U.S. for your transborder?

No, there's no difference in the point-of-sale, Duane.

Okay. And then maybe just lastly, on the Copa relationship, how do you see that relationship playing out in Central America versus the Panama originating to Mexico, which you highlighted? Maybe to ask it a different way, how would you see your Central American operation changing, if at all, as a result of this partnership?

We don't foresee a change in the Central American operation. Our Central American operation is focused very much on VFR traffic between Central America and the U.S., which we would continue to service directly. And the Copa relationship is built as a bilateral code share, especially between South America, Central America, and Mexico.

Okay. Thank you.

Thank you. Our next question comes from the line of Tom Fitzgerald with TD Cowen. Your line is now open.

Hi, everyone. Thanks so much for the time. I wonder if you could just help us think about the range of outcomes here, and I appreciate that it's incredibly fluid. But in the event demand does recover as well as you think it will, how should we think about capacity growth in 2026? Is low-double-digits reasonable? And then, in the event it's a more sustained downturn or the border just remains muddled that it's depressing VFR traffic, like in the more risk-off scenario, how are you thinking about capacity growth into next year?

Hi, Tom. I think it is important that we maintain ourselves focused on what we're doing right now and how to manage the situation right now. Having said that, we remain very, very concentrated in managing this capacity down. So, so far, we are thinking about a low-single-digit growth in the next year.

Okay. That's incredibly helpful. Thank you so much, Enrique. Then, just as a follow-up, how would you characterize the competitive capacity environment in the domestic market? Do you view your peers as deploying capacity rationally as well? Or is anybody cheating at all? Thanks very much again for the time.

Yeah. So, Tom, we do expect or we do see capacity moderation as well from our domestic peers and also international peers. As we go through the second quarter, in the short term, we do expect our peers to also cut capacity, supporting a recovery of TRASM. That's what we are currently observing. So, capacity moderation in the market as a whole.

Thank you. Our next question comes from the line of Rogerio Araujo with Bank of America. Your line is now open.

Yeah. Hi, gentlemen. Thanks for the opportunity. So I have one here. When we are looking at previous years where Volaris delivered EBITDA margins close to the mid-30%s, which was the previous guidance, we look at the second Q margins on those years, which were 2015, '21, and '24, and the second Q margins were somewhere between 31% and 41%. And now, with the guidance at 24%, 25%, it seems that it's significantly below than what the usual seasonality would indicate for the previous guidance to be reached. So, my question is, what if uncertainties remain for longer? What kind of margins could we see for the year if the 6 to 16 percentage points difference on the second Q versus other years, if that is any kind of proxy or not, what can you share with us on that scenario? Also, we saw 20% higher passengers in Mexico versus pre-COVID levels, or even more than that, despite the ongoing Pratt & Whitney engine recall. Do you see some overcapacity in Mexico? And if that uncertainty remains for longer, would you see competitors and even Volaris postponing some aircraft deliveries or even retiring current leases? And lastly, what about when all the grounded capacity returns to the market? Does this worry the company somehow? That's it. Thank you very much.

Let me try to wrap up a little bit on what you're asking. The first thing is that due to this ongoing economic and geopolitical uncertainty, we are currently unable to reaffirm our full year EBITDA guidance or guidance through the rest of the year, other than for the quarter, okay? The second thing that is really important is, and I think we are showing it in a very important way, a cut down from 13% to 15% of ASM growth down to 8% to 9% tells you how concerned we are to produce a better TRASM. And we are confident that these actions will lead to a sequential TRASM improvement starting in the summer, positioning us for recovery in the second half of the year. Finally, I think it is important to say that we remain concerned about the ASM growth going forward, and we are managing that again, as I already told. Having said this, it's really important to maintain in the back of your minds the capacity of the company to adapt its capacity up or down, okay, and we think that if we get the traction that we need, we might be changing that to a much better performance for the end of the year, okay? But I think it's really important that you guys don't make yourselves a premise that assumes that the TRASM is going to be similar to the last two quarters, because we strongly think that we can get a better TRASM and an improvement through the end of the year.

Just adding up on the fleet size. What we planned when we started with the engine troubles was to reduce capacity in 2024, planning in the long future, so that whenever all of the engines are going to be flying again. So, we already rescheduled our fleet plan with Airbus. In addition, we have 40% of the fleet is going to be leaving within the same period of time. So, we can manage capacity up and down with the deliveries that we are going to be experiencing within the next five years, so that our capacity matches the demand of the market.

If we speak about Pratt, okay, I think it is well understood and very well managed by our team. We do have a multi-year compensation agreement we have in place, and although I cannot provide further details due to confidentiality, we continue to work with Pratt & Whitney to improve the throughput. Having said that, we're expecting our down level of fleet to be similar to the last two quarters throughout the rest of the year. I think the strong coordination across our operations and scheduling, and maintenance teams has maintained operational continuity. Our scheduled completion ratio is more than 98.5%, and we are confident in our ability to execute as this situation evolves.

Okay. That was very clear. Thanks, gentlemen. If I can ask one last point here on redelivery costs. It was $54 million this quarter, 8% of revenue. Can you remind us when this is going to normalize and by how much? Thank you.

This year, 2025, and start to go lower in 2026 and get back to normal in 2027. It's a mix of the redelivery expenses plus the AOGs of the aircraft on the ground to the engines, and that's why it's the highest at the moment. And it should normalize them back to 2023 levels until 2028.

Thanks so much.

Thank you. Our next question comes from the line of Jens Spiess with Morgan Stanley. Your line is now open.

Yes. Hello. Thank you for taking my question. Just regarding the lower capacity guide, just to be very clear, the reduction versus your previous guide is mainly driven by more redeliveries, right? So, how many aircraft do you expect to redeliver this year? And how much do you expect in terms of redelivery expenses for the full year 2025? If you could please elaborate. Thank you.

Hi. How are you? We're going to be redelivering five aircraft this year. Other plans that we have, we are still managing redeliveries of 2026, which is why we have 2024, and we need to decide where we're going to keep and what we're going to extend to optimize the cost side. But if you look at this year compared to last year, you should have an impact of an additional $90-plus million in the redelivery line just associated with the deliveries of this year and 2026.

Okay. Perfect. And I mean, considering that you and your main competitor are both reacting by reducing scheduled capacity, should we not expect higher yields or load factors down the road? I mean, in other words, how conservative is your 2Q TRASM guide? And really, how much could we expect that to increase in the second half of the year? And just one follow-up, also, if the MXN stays closer to the current spot, how would that impact your 2Q EBITDA margin guidance? Thank you.

Jens, it's precisely that which is the reason we are reducing capacity. We are confident that the capacity reduction will lead to a sequential TRASM improvement starting in the summer and positioning us very well for a recovery for the second half of the year, which is seasonality adjusted, always stronger. But with these additional capacity actions, we believe that we are in a good starting position to improve yields and TRASM. And the 2Q guidance is what we are seeing today, and it assumes an FX between MXN20.20 to MXN20.40 and a fuel around $2 to $2.10, so do you already have the macros there? The visibility that we have now to the second Q is the guidance that we are providing.

Yes. But I mean, the FX is already quite strong, right? So I mean, assuming it stays at the current level...

Yes, it will be an upside, that's what we provided the assumption for.

Correct. Okay. All right, perfect. Thank you. Appreciate it.

Thank you. Our next question comes from the line of Guilherme Mendes with JPMorgan. Your line is now open.

Hey, Enrique, Holger and Jamie. Thanks for taking my question. I have two quick follow-ups. The first one is the on-demand breakdown. You speak about how VFR demand has been performing, but in terms of leisure demand, how has it been performing? And the second point is on the first quarter yield performance. If you could break down the different effects impacting negatively in terms of geopolitical effects, how would it be? Thank you.

Okay. So, let me take the first part of the question. This is Holger. In terms of the traffic customer segment groups most affected, clearly, the VFR is currently the most affected. We're seeing relatively strong leisure demand, which is also, as you can see in our traffic report, the domestic load factor continues to be quite strong. That is also driven by domestic leisure travel through the beaches here in Mexico. And as we mentioned in the prepared remarks, we opened two routes that are southbound leisure from the U.S. to Mexico, and we're also seeing relatively stable and strong demand in that niche segment of ours, southbound leisure. So, the VFR is the most affected right now. Just to reiterate what we already said, in the first quarter, TRASM clearly was impacted by various factors, which include a 20% depreciation of the peso. And if you take away that peso depreciation in constant currencies, TRASM would have only declined by approximately 7%, which is a testament to the strength of the domestic market, the relative strength of the domestic market and the leisure business.

Very clear. Thank you, Holger.

Thank you. Our next question comes from the line of Pablo Monsivais with Barclays. Your line is now open.

Hi. Thanks for taking my questions. A bit of a follow-up from previous questions. You have mentioned repeatedly in this that you can adapt to a new environment in terms of demand. But can you please provide an example of, I don't know, a period of time when demand for VFR was down and you were able to put more seats in the leisure market or in the business market and how that play out for us to try to extrapolate that experience in the past to what might happen here? That's my first question. And my second question is about cash flows. If you provide a little bit more detail on your CapEx, I think that you have $250 million of CapEx this year, and put a little bit more color on the items there, and also on the working capital needs? Thank you.

I think we have several examples of what has happened. I mean, I remember it very well through the crisis of H1N1 in 2009, where we had a recovery, and the recovery was fascinating, the way the VFR traffic recovers and the speed it recovers. The second one, I would say it's the pandemic. And I want to remind you that Volaris was the fastest recovery airline after the pandemic. And it's exactly because of that that the VFR traffic recovers very, very rapidly, okay? Then, the third example is the first period of Trump, and we leave something similar in the first period of Trump, probably it's much more accentuated right now. But by then, we had a fast recovery from the VFR traffic in a very effective way. So, I think we have several examples throughout the 20 years of the company that show that the traffic recovers much faster in that segment, okay? Something which is really important also to mention is that we are preparing ourselves for that fast recovery. And the things that we're doing, like preparing the people, preparing the lines of maintenance, preparing our IT structure, preparing our systems, everything is aligned towards that, so we can have a very fast first position in the table, so we can depart in a very, very fast way.

In terms of CapEx, most of the CapEx, we provide a full year guidance of $250 million, excluding PDPs, Pablo, which are related to major maintenance events and engines and aircraft. The other is minimal is related just to IT infrastructures and things that we are working on.

Perfect. And on the working capital needs?

This year, we don't plan to do any debt. We are focusing on preserving the cash. However, we have the availability to do it in the case we need to do it. But right now, we're just focused on preserving cash, and we are not budgeting for any additional working capital.

Thank you very much.

Thank you. Our last question comes from the line of Alberto Valerio with UBS. Your line is now open.

Thank you. Hi, gentlemen. Thanks for the opportunity. A quick question on my side. We have some revisions on the airports, the MVPs. We had the ASUR three years ago. Last year, we had [GET] (ph). Wondering about this environment of declining yields, how is the negotiation with the airports? I know you have a hub in Guadalajara, but you also utilize ASUR, and this year we have OMA as well. So, just to have an idea if you have some flexibility on this negotiation, or if this is more regulatory and independent of the demand, there will be a readjustment. Thank you.

So, regarding the tour situation, we've been quite vocal with the government and the airport groups that any increase that exceeds inflation is disproportionate. And we believe that fees and charges should be aligned and consistent with the type of travel segment that is present in Mexico and the customers' ability to pay. So, we stand for reasonable and fair levels of those fees. And we believe that it is important that these fees are consistent with the goal of democratizing aviation and enabling more passengers to fly. So, we've been quite vocal on that topic.

Perfect. Very clear. And if I may, just one more about the Mexico City Airport, the increase in slots. How are the ongoing discussions with the government? Will it be possible to increase the slot back to what it was back in 2019? Or do you think that the restrictions on these slots close to 43, 44 slots per day would remain?

So, this is Enrique again. Let me be honest with you. I think there's a lot of talk around Mexico City Airport, but there's nothing concrete and nothing has been issued as a change. So, so far, we continue operating on the same path, expecting a much better allocation of slots. Having said that, Volaris has improved dramatically in its slot situation since 2019 until today.

Thank you very much, gentlemen.

Excuse me. This concludes today's question-and-answer session. I would like to invite Mr. Beltranena to proceed with his closing remarks. Please go ahead, sir.

I'm very proud of our company's resilience and of what the Volaris team has achieved. I have a positive sentiment on the future, but I want to say that through every cycle, we have been proactive in doing all the things we should be doing to serve our customers, solidify our best-in-class cost position, preserve our financial strength and maintain top ranking operational efficiency, safety and customer satisfaction standards. By staying true to our long-term vision, creating sustainable shareholder value while leading in our core markets, Volaris is well-positioned for continued success even amid a dynamic environment. As always, we are grateful to our family of ambassadors, to our Board of Directors, to you, our investors, bankers, lessors, and suppliers for their support. I look forward to speaking to you all on the next call. Thank you very much.

Thanks for your time.

This concludes the Volaris conference call for today. Thank you very much for your participation. Have a nice day.