Controladora Vuela Compañía de Aviación SAB de CV Q3 FY2024 earnings call

Volaris delivered strong operational and financial results, marking the fourth consecutive quarter of net income. The company streamlined its fleet by about a quarter due to Pratt & Whitney engine inspections and mitigated external disruptions. Reductions in RPMs were lower than ASMs, sustaining load factors and improving TRASM. Fares were unbundled, with ancillary revenues rising from 34% in 2019 to 51% over the past 12 months. Net Promoter Score reached 37%. Network redesign enabled an 11% increase in US transborder ASMs. Financial performance improved with EBIT margin 14%, EBITDA margin 34%, and net margin 6%. Net debt-to-EBITDA ratio improved to 2.7 times, and total cash stood at $833 million.

Total operating revenue for the third quarter was $813 million, a 4% decrease despite a 14% reduction in capacity. Domestic load factor was 90%, up 1.7 percentage points, and international load factor was 83.4%, up 1 percentage point year-over-year. Total load factor was 87.4%. Ancillary revenues as a percentage of total revenue remained strong at 50%. ASMs contracted 14%, in line with guidance. CASM ex-fuel was $0.052, keeping Volaris among the three lowest publicly-listed operators worldwide.

Full year EBITDAR margin is raised to around 36%, up from prior range of 32%-34%. Expect ASM reduction of approximately 13% year-over-year compared to previous guidance of 14% decline. Fourth quarter 2024 outlook: ASM reduction ~7%, TRASM ~$0.096, CASM ex-fuel ~$0.055, EBITDAR margin ~39%. Hedged 30% of projected fuel consumption for Nov 2024-Jan 2025 with Asian call options linked to Gulf Coast jet fuel at an average strike price of $2.25 per gallon.

Potential capacity concerns if engines under inspection return earlier than expected. FX fluctuations impacting unit revenue. Engine inspection-related costs and complexities, including AOGs and related cost complexities.

Q: Help us think about the shape of capacity into the first quarter and the first half of 2025?

A: We are finalizing our operating plan, but we're looking at growth in the mid-teens for the first half of 2025, approximately.

Q: Early view on how the relationship with the new administration may be changing?

A: We have recently met the new authorities and expect some continuity on aviation policies, with close communication to promote healthy sector development.

Q: Recent FX depreciation and ability to pass through into fares?

A: As we increase network to the US, we have 41% collections in US dollars, aim to increase to 50%, and 90% of cash balance is in US dollars, providing a natural hedge.

Q: Profitability of international vs domestic routes as capacity returns?

A: Growth will be rather balanced next year between domestic and international, typically not breaking down by route profitability.

Q: Hedging of fuel needs?

A: We hedged approximately 30% of our projected fuel consumption for November 2024 through January 2025 using Asian call options linked to Gulf Coast jet fuel with an average strike price of $2.25 per gallon.