Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VOLARA) Earnings Call Transcript & Summary

Good morning, everyone. We're excited to have you all here today. I am Liliana Juarez, Volaris Investor Relations Manager for those of you I haven't met. It's great to be back in New York City and see many of you in person. For those of you joining us on the webcast today, we hope to see you soon. On behalf of the Volaris Executive and Investor Relations team, it is my pleasure to welcome you to our 2022 Investor Day. Also, I'd like to thank our friends here at the Stock Exchange for hosting us and to the Volaris entire team that helps daily to prepare us to be here. Before we begin, please remind everyone that this meeting 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 as described in the company's filings. These statements speak only as of date they are made, and Volaris has no obligation to update or revise any forward-looking statements. Over the next few hours, we will share our path for long-term profitability and the diverse avenues for the company's growth. We will first hear from our Chairman of the Board, Brian Franke. Next, we will hear from our President and Chief Executive Officer, Enrique Beltranena, with his strategic vision for Volaris, followed by our Executive Vice President of Commercial and Airline Operations, Holger Blankenstein, who will talk about the different regional opportunities. Our Chief Operations Officer, Jose Luis Suarez, will share about our operational discipline and efficiencies. And lastly, our Chief Financial Officer, Jaime Pous, will provide the advantage of our cost leadership and financial strength. We will then turn to the Q&A session. Then to close the day, we have a special guest, Dionisio Pérez-Jácome, Reputation and Corporate Development VP at Volaris who will briefly present Mexico's macroeconomic strengths. He previously served as Secretary of Communications and Transportation. And before that, he was the Ambassador of Mexico to the OECD. We have the honor to count on the presence of most of Volaris' Board members and executives today. So I encourage everybody to meet them later at lunch. This morning, we issued our November traffic report update and a press release as well as an infographic and the presentation for today's event, which can be found on our Investor Relations web page. So with that being said, please welcome Brian Franke to the stage.

[Foreign Language] Welcome, everybody. Thank you for joining us today. In addition to my role as the chair at Volaris, I'm also a Principal at the private equity firm, Indigo Partners. And we've been investing in Volaris for many years now. The team asked me to start today by briefly explaining why we originally invested in Volaris and why our investment thesis holds true today. . For those who attended The Wings Club event this year, I'd like to start by restating a comment made by Bill Franke, Indigo's managing partner in his Wings Club speech. He said it is our view that to be successful in this industry you have to be aggressive to the market but conservative with the balance sheet. And I think you'll hear today that Volaris has been both. So let me make one key point for you today. While we at Indigo have enjoyed watching Volaris become Mexico's biggest airline in recent years, this management team is just getting started. Volaris has emerged stronger from the pandemic and we see an opportunity to continue that trajectory. For those of you keeping score, you'll have noted that our revenue and EBITDAR in U.S. dollars in the last 12 months are nearly 3x larger than they were in 2013 when we had our IPO. Our unit cost is lower than before the pandemic despite recent inflationary pressures. And today, Volaris has the most cash on its balance sheet in the history of the company, and our leverage ratios are better than pretty much any airline in North America. At the same time, Volaris was conservative with its financing. I'd note that today, Volaris reported free cash of $750 million in the third quarter against a market cap of approximately $1.2 billion. To me, that market cash -- that market cap against the cash balance is a surprising statistic especially considering the continued profitability and strong financial position of the airline. So the Indigo original investment thesis for Volaris. Let me start by saying that Mexico is a great market for ULCC airline. Mexico combines strong macro attractive demographics and favorable tailwinds. When we looked at Mexico back when we invested in Volaris, we found a country where people travel a lot. And historically, that travel has been by long-haul bus, but the transition to plan had already begun. In our time invested in Volaris, we've seen the air transportation market in Mexico double in total passengers carried per year. Total air passengers are now above $100 million per year combined for both domestic and international travel. And while that may sound like a big number, there are still over 1 billion long-haul bus passengers per year. If another 10% of long-haul bus passengers move to the airlines, the size of the aviation industry in Mexico would double once again. As to the Mexican population, we continue to see a young Mexico will continue to develop as a technologically savvy youthful consumer in a vast territory with a diverse topography. It's a perfect market for the ULCC customer. Mexico and the U.S. have also seen an increase in their economic integration since NAFTA was created, and we expect that to continue. Nearshoring is today becoming a great opportunity for the future. Mexico is already seeing an important increase in foreign direct investment that should drive further economic growth. And Volaris with a strong transborder network will continue to benefit from that expanding relationship with the U.S. From the date of its first flight to Tijuana, Volaris is focused on building important market share in its key cities. Some of these following statistics to me, for those of you who are in the industry are kind of mind bending. Volaris is dominant in Tijuana with over 70% market share. In Guadalajara, it's the largest carrier and controls 54% of the market. In Cancun, Volaris is also the largest carrier with a 45% market share. In more than half of its domestic stations, Volaris has a dominant market position. Those efforts have paid off as today, Volaris is about twice the size of Aeromexico. And as we think about the trends that have fueled and will continue to fuel Volaris' growth in Mexico, we see striking similarities in Central America. Volaris will rely on many of its existing strategies and techniques as it expands into other markets in the region. We consider Central America a natural extension of our Mexican markets. Volaris is the perfect fit in these markets. VFR, visiting friends and relatives, leisure, small-to-midsized company traffic with the ULCC model that will continue creating elasticity in demand, competing at bus prices, enhancing load factors and developing perfectly fit ancillaries made for our customers. So as an investor in the Volaris stock, how do I think about the opportunity today? In my view, Volaris remains an excellent opportunity. Those who know us know we are a patient investor, and we see a stock that trades at a discount to its peers today. For that reason, Indigo participated in the company's recent rights offering last year, and we increased our position in the stock. We see a lot of potential at Volaris and we are convinced the market will eventually recognize the value of what this team has created. As I said at the beginning of my remarks, Indigo's original investment thesis for Volaris holds true today. As we look forward, I will add 2 critical pieces to that puzzle. First, Volaris' markets are poised for growth, and the company has multiple opportunities across several markets. And that growth is underpinned by a well-priced order book for more than 140 aircraft as the airline quickly transitions from CEO aircraft to the more fuel-efficient NEO aircraft. Looking forward, the airlines operations and its underlying cost structure will be underpinned by the continuing transition to the highly efficient A321neo aircraft. And I'd be remiss if I didn't comment on the management team that will present to you today. This is a team that's been proving its excellence for more than 15 years. The core management team has been together since the airline's inception, and they have become the face of aviation in Mexico. This team has been battle tested. They've successfully navigated a myriad of challenges, bird flu, oil at $140 a barrel, global financial collapse, competitive incursions, country downgrades, country upgrades and now COVID. And through these times, they've built Volaris into the leading airline in Mexico. At Indigo, we believe any investment requires a strong management team to navigate the challenges of this industry and the Volaris management team is one of the best. So to conclude what does Indigo like about Volaris? Low-cost, growth potential, strong market opportunity, great balance sheet and a high-quality management team. I think that sums it up. By the way, it's a pretty good group to hang out with as well. So with that, I'll pass it over to Enrique, but first, we'll leave you with a short video to introduce you a little bit better to Volaris. Thank you. [Presentation]

So good morning again. Thank you very much for being here. I'm glad to see a lot of faces that I had not seen like in a couple of years, okay? So thank you very much for really being here or making it for today. And thanks also for the people that are connected over our digital channel. Let me start by saying that, I mean, Brian, I think, made a very good point about the significant experience navigating volatility and driving profitable growth throughout the cycle. So on this chart, I want to set the stage on where we started in 2006 to 2020 on the left side and leave those achievements there for you to think about what we had done before the pandemic. But then in 2020 and 2021, we had the COVID crisis. And I would say that the most important thing that we did during this couple of years is to turn it into an opportunity. And opportunities in times of crisis are very important. Volaris made a lifetime move during the pandemic. Remember, Aeromexico filed a Chapter 11 restructuring process and Interjet disappeared during the pandemic. Other carriers in Central America shrank and the U.S. market carriers were absolutely focused on preserving liquidity. Volaris came out from COVID with a recovery, which was the best in the world among all listed carriers in the entire worldwide. Guys, think about it. Think about what that takes, think about what work was behind, the level of restructuring from our financial situation, the capacity to ramp up and start from scratch and accelerate to become the most important carrier in Mexico in 2 years. Now let me talk to you a little bit about what we did since 2019 and where our growth happened, okay? And it is important to say, I mean, there we were at the end of June and we had to start operating and we had to accelerate and ramp up capacity. I remember by the end of that year, in December of that year, we grew up 105% our ASMs versus the ASMs that we flew in December of 2019. In 2020, we grew -- in 2021, we grew an additional 29% versus base capacity in 2019. In 2022, we grew on top of that, on top of the 2021, another 25%. And yes, those numbers are big, but we had a once-in-a-life opportunity to cover the hole that was left by the other carriers, the chunk. So it was important to accelerate growth, and we produced at the end of 2021, an EBITDAR margin of 37%. So guys, I mean, who did produce a margin of 37% in that year. So it was an outstanding number. And in reality, what we are seeing is, we really took the opportunity and we drove a lot of capacity. But I want to say it very clear today, we are over with that process. We filled in the bucket that we had in the market. And next year, we will be growing in a single-digit number. Where we are today? In '22, we will finish the year with an ASM growth of 25% versus full year 2021. And at the same time, in our case, and this is something really important because we are seeing a lot of carriers in the rest of the world that are growing dramatically in the revenue line, but they lost control over their cost and available seat miles ex fuel, and it's way, way high, and that will end. The process of ramping up revenues will finish eventually, and cost is going to be there. And if you allow the cost to go out of proportion, then you lose control of your company. Our CASM ex fuel was under control at USD 0.42 at the end of the third quarter of 2022. And Volaris leadership in the domestic market grew from a 31% market share at the end of 2019 to a 42% market penetration as of September of this year. Volaris became the market leader displacing Aeromexico. We are now almost 2x larger than them. At the time, VivaAerobus became the second largest player and Aeromexico was left as the third participant in the Mexican domestic market. This is also relevant, not only from the prospectives I already underlined, but it is relevant because now Mexico is dominated by a 72% share by the ultra-low cost carriers. It's a market that fundamentally changed dramatically in the last years. Everything we achieved in 2020 and 2021 was without any governmental support. And that's also outstanding, if you think from the perspective that the recovery, the acceleration and the growth in terms of ASMs that we achieved. Volaris capacity during this period was mainly deployed in the Mexican metropolitan area, including the Mexico City main airport and other secondary airports and also in the core markets, especially in Tijuana and Guadalajara. We also reinforced growth to the VFR U.S. segment. Let me speak a little bit about the capacity in the metropolitan area because I think it's really important for you guys to understand that there is the future, and Holger will speak about that. The metropolitan area because of the cap of Mexico City had not been growing in terms of service, and we now have the opportunity to deploy in capacity and really service that market, which is the largest market in Mexico. At the Mexico City Airport, we are also leading a saturated airport due to governmental restrictions this year, and capacity has been reduced as a result, and we are seeing also an improvement of yields finally in Mexico City Airport. General capacity within Mexico's domestic market has become accretive. At the same time, the Mexican domestic load factors have improved in the second semester of 2022, and we did serve pricing trends to-from the U.S. to the high. We solidified our position as one of the largest foreign operators in the U.S. and became the most robust foreign operator, for example, in 2 of the most important visiting friends and relative stations, Los Angeles and Chicago, among other city peers that we have, especially in the West Coast. Market share has evolved in the U.S. transborder market from 8% pre-pandemic to 12% today in the international markets. Volaris is something different that you need to understand. And I always underline that Volaris is not only an emerging carrier, but it is also an airline that in the last years was able to triplicate itself in terms of certificates of operations. And now we have 3 certificates of operations, 3 airlines, 1 in Mexico, 1 in El Salvador and 1 in Costa Rica. This is very important when you look at it, special in light of the Category 2 situation. The categorization of Mexico is something that we really need to talk about it, and I will spend some time in a minute. But even under Category 2 limits, we need to say, first, that Volaris never stopped flying to the U.S. Sometimes, I hear people saying because of this, Volaris has not been growing or flying to the U.S. No, that's wrong. We kept our capacity in the U.S. And as a matter of fact, we grew our capacity 18% in the last 2 years, each year 18%, and it's been relevant to our profitability status. But what happened in the middle of this situation. Mexico's aviation changed dramatically. We now have an industry like the U.S. after the consolidation process at the end of the last decade. Several carriers disappeared and 3 leading operators in a rational aviation market are now leaving in Mexico. We're in an environment more conscious about the need to generate the return of investment. Changing gears and speaking about costs. We manage costs and grow operating profitability in a highly adverse environment. Inflation has really tried to hit our cost structure. But we have been able to manage and offset it. Finally, I want to say, as Bill said, it's important to manage your balance sheet. And we have a great balance sheet with a combination of competitive advantages and have the best profitability of any carriers in Mexico during the last years. Now let me give you some facts on where we are today. As I said, we are the Latin America's largest ultra-low cost carriers. We're flying approximately 100,000 daily passengers across Mexico, the United States, Central America and South America. Think about it, guys. I was talking to Kevin Wilson some minutes ago, and we were thinking about when we started and when we built the first company and when we built Volaris at the beginning. It has taken a lot of work, but now we are with those 100,000 passengers per day. We're flying in Central America. We're flying in South America. We're flying in Mexico. We're flying to the U.S. And in 2021, as this referenced quote here, we became the largest airline in terms of passenger traffic in Latin America. These are our most important numbers. One of the moats not mentioned here is that we operate with a family of employees, whom we call ambassadors because they represent our brand of more than 7,000 people now. None of them was fired. None of them was furloughed during the pandemic. And I'm proud to say that they held up. These are the building blocks in whom we will continue to invest and are our #1 competitive advantage. You cannot buy a team of this resiliency and quality group of ambassadors that are called like that because they all are following a mission, which is with the best people and the lowest cost, we make more travelers travel well. This company had no business interruption problems because -- despite the crisis. We also thoroughly planned and hired technical personnel to support the growth. It's not only that we didn't interrupt because we were starting again, but we were growing from 80 aircraft to 115 aircraft that we have today. We've wisely built our position more robust strengthening us as we continue growing. Finally, let me announce you something very important. Tomorrow, we will open the New York Stock Exchange trading session ringing the bell and celebrating our 10 million first-time flyers that switched from buses to air transportation flying in Volaris. Volaris has a seasoned and stable management team. We have an experienced team with a proven track record of navigating economic uncertainty and adapting to changing demand. The numbers on this chart represent the time in the industry and the time they have been in Volaris. One of the requests, I remember that the Board did when we founded the company, that was that we needed to be prepared for future growth and that we have to be prepared with a bench of executives in the different tiers of the company to make change happen safely. This is the case. We brought the best executives we always could with varying nationalities, if needed, to have the best experience at home. These executives have built the company's culture as a difference from any of the operators in Latin America. I can guarantee you guys that there is not one single company in the continent that has a mature, seasoned and experienced team like Volaris has, and we never improvise with executives simply for managing or achieving a short-term goal. Let me introduce you a little bit of that team, okay? Here, we have Holger Blankenstein, our Executive Vice President, Airline Commercial and operations. We also have Jaime Pous, our Chief Executive Officer -- the Chief Financial Officer; Jose Luis Suarez, the Chief Operating Officer; Alejandro De Iturbide, our Chief Legal Officer; Dionisio Pérez-Jácome, who just joined the team as a VP, Reputation and Corporate Development; Renato Salomone, our Senior Director, Corporate Finance and Investor Relations; Susana Martinez, who's our Director of Talent and Organizational Development; and we have Wei Jin, who is our Director of Network Planning. We also have the rest of the Board sitting in the back, and I thank you guys for being here and for all the support you gave us during these last 2 years -- especially these last 2 years. Volaris is a resilient ultra-low cost carrier business model, which is set for profitability. Our proven business model has remained unchanged since our foundation times and it will continue to serve a foundation for profitable growth. Everything starts with the lowest operating costs. This enables base first, which stimulate demand, more demand generates more ancillaries and enables us to add in the market, unit costs. Let me insist you guys. We have grown a lot. We have matured a lot. We have achieved a great market share, but this is not the time to change the fundamentals of this company. We will continue operating under this model going forward. Among all the essential topics that will be touched in today's presentation, we are also focused on our ESG strategy embed in our corporate strategy. We have clear short- and long-term goals on every pillar, environmental, social and corporate governance, and we materialize them into goals and KPIs that we constantly measure as part of our daily activities. We are the only airline in Latin America that is included in the Dow Jones Sustainability MILA Pacific Index, among other rankings where we participate. Now let me start talking about the future. Why Mexico? Why aviation and why Volaris? Let me start by saying why Mexico? And in reality, we strongly think that we need to focus on Mexico because that's our home. But second, because it is a healthy emerging market with a very strong ground potential contrary to the conventional wisdom. Here are some facts. We have strong macro drivers. We have attractive demographics and favorable tailwinds. And before I move on, I want to underline the fact that geographical and geopolitical positions only improved during the last years as an addition with Central America. And we foresee Mexico's commercial strength as an asset for future profitability and sustained growth. Before I continue, I want to give you an update on the FAA recategorization on the Mexican aviation authority. We will speak about this later at length when Holger presents. But noting that CAT1 is on top of everybody's mind, I wanted to share the latest with you. We -- in the recent interview from Jorge Nuño, the Secretary of Infrastructure, Communications and Transportation, provided 4 milestones on Mexico's Category 1 status. This is the latest time line. He said, in January 2023, the FAA will come to Mexico to evaluate corrective action plans. Second, February 2023, the FAA begins formal audit. In March of 2023, the Mexican aviation authority will receive audit results. And in April 23, Mexican government is targeting to return to Category 1. I have been working together with the secretary and his team. And believe me, in the last 2 months, I have seen more progress than in the last year. And something which is important to say, they are also working on the changes of the law, and they are also working on providing the funds to their [ facts ], which is very important and key for returning for the category. Having said that, I want to remind everybody in this room, which is some 4 topics which are really important. We never interrupted flying to the U.S. Actually in '21 and '22, we were able to grow capacity by 18% each year. And Volaris, despite the Secretary's statements has only planned to start ramping more capacity until the fourth quarter in 2023. Let me tell you. I'm not waiting for this to happen. I have prepared the team. If it happens earlier, we will do our ramp-up of capacity earlier. And if it doesn't happen, we have more than 300 routes where we can deploy capacity and still grow the company. It's very important for you guys to understand that the 3 certificates that we have are also available, and we can still fly to the U.S. even through Mexico with the certificates of operations from El Salvador and Costa Rica. So there is no downside for Volaris if the Category 1 doesn't happen. Having said that, I strongly believe that we will get it done, and we are working together to get it done. Why aviation? Well, Mexican aviation industry, as I said, now has consolidated into 3 player markets in its early stages of growth. Large bus potential -- I mean, large bus switching potential. Remember, I mean, when I migrated to Mexico to found Volaris, I remember I went to those stations in Mexico, and those stations in Mexico showed us, I mean, a huge possibility of switching the passengers, but also a great segmentation in the transportation market. Having said that, back then, air trips per capita were really low in Mexico, 0.22. We observed the market and found out that most of the people in Mexico were using buses to transport themselves. Actually, Mexico is one of the largest bus markets in the world. But we observed an emerging opportunity in the non-penetrated air travel market. Important that we do not depend from the GDP to switch those passengers because they are already moving themselves, they are already transporting themselves. So it only depends on the capacity of Volaris to switch those travelers from bus-to-air transportation at a similar price or cost they got today to use the buses. Volaris operates in a great, solid and resilient VFR market. And this is also a big difference. I mean when you guys think about airlines in the U.S., you think about business traffic, you think about leisure. Volaris is about VFR in most of its networks. The migration of the previous century to the U.S. generated a resilient VFR market, multiplying itself with the second and the third generations which better -- with better economic capacity. During those years, the development Mexico had as a result of NAFTA, and the northern economies developed to become the best exporters and construct an emerging middle class in the north, which -- with new travel needs. This new positive economic pose allowed migration within Mexico from the south to the northern states, which created mobility also within Mexico. Watch out, guys. We're in a new decade. And that new decade has new migration trends. Venezuelans are migrating, Nicaraguans are migrating. Salvadorians are migrating. Guatemalans are migrating. Honduras are migrating. And they're migrating within that region and to Mexico. And that's the future of migration in our region. It is important to watch out and prepare ourselves for the third tier of development and connectivity needs in that region. That's why Central America is also so important for us. We are operating in an ideally suited geography for aviation, Mexico, the U.S., Central America, huge territories with vast different topography, and also require aviation transportation to move people and essential goods within their environment effectively. Growing trips per capita toward levels in comparable market presents also a significant capacity opportunity. Think, just think what we can become, what Volaris can become if we can achieve transportation in similar economic countries by flipping bus transportation into air, transportation at today's pricing and without even excelling the economy or the GDP. Now let me get to the most important forward statements that I want to leave in the back of your minds today. And really, guys, please pay attention to these 4 statements. Why Volaris? Volaris because we have a clear path to long-term profitability growth. Volaris has significant opportunities for this profitable growth. And we do have the lowest cost. We are the leaders in low cost. We are one of the lowest cost operators in the world. The fleet plan only aims to drive further efficiencies, low costs going lower, low costs going lower. Let me repeat it, low costs going lower if we have the right fleet plan. Volaris is a market and profitable leader. We are the largest airline in Mexico by passengers, but we have been consistently the most profitable earning in Mexico, and we have a tremendous EBITDAR potential in terms of expansion. We're well -- speaking about high-growth opportunities, and Holger will really speak about this at length. We are well positioned to leverage regional shifts in population and transportation trends. As I explained, we do have a likelihood of U.S. regulatory decision to move on to CAT1, which will create additional upside. But we have tremendous diversified growth avenues plan available. And this is something which is really there to move on. From the financial strength perspective, we will have strong and flexible balance sheet and cash generation capabilities. We also will explain our conservative debt position and healthy financing conditions. So let me wrap up. We do have 4 important pillars that I need you guys to have it in the back of your minds going forward. We are the low cost leadership. We have market and profitability leadership. We have high growth opportunities and great financial strengths for going forward. Today, we all will focus on every single one and further explain and detail each of these pillars. Let me finish here thanking you guys again for being here. But really, I want to invite you to the thrilling journey that Volaris is just starting from today on. Thank you very much. Holger will continue now.

Thank you, Enrique, and good morning, ladies and gentlemen. It's great to be here. And I'd like to discuss a little bit further the market and the profitability leadership in our markets as well as the high-growth opportunities going forward in our business. So Mexico's demographics are really favorable, and Enrique already alluded to this. You might not realize how big of a country Mexico actually is, a population of 129 million people. It makes it the tenth largest country in the world. Not only that, Mexico's population is relatively young with 42% of its people under the age of 25, probably more eager to travel than their grandparents or their parents even, and more digitally savvy. That's important for us because of our direct distribution and digital marketing communication. There's also a large and growing traveling class, a middle class that is earning enough disposable income to be able to travel. 90 million people are expected to be of working age by 2050. As is characteristic in an emerging market, more people are becoming part of the middle class with aspirations to travel by air. As we always say in Volaris, people think themselves as part of the middle class once they've taken their first plane trip in their lives. That leads me to show you more about the emerging travel habits of the Mexican consumer. The consumer habits in Mexico are changing the way people are traveling. The way discretionary travel spend is allocated is fundamentally shifting from bus travel to air travel. For Volaris, this creates lasting power from a demand standpoint. Volaris is changing the way -- the people's lives and the way people travel. Think about this, there's 3 billion bus passengers in Mexico. That's more than 20 bus trips per person per year, out of which almost 800 million are in the luxury and first-class segment. And those are the segments most likely to switch from bus to air travel. If we were only able to switch another 1% of those 3 billion people, we would almost double the domestic Mexican air market. If we were only able to switch another 10% of the 800 million luxury and first-class passengers, we would almost double the entire Mexican air market, domestic and international. And since its founding in 2006, Volaris has already been successful in doing that. According to our data, we have welcomed 10 million new air travelers onboard our airplanes. And those 10 million people are taking multiple trips per year. And those are people that have never been on an airplane before. Every time we open new destinations in the U.S, I meet people with Mexican heritage who have lived in here in the U.S. for some time. Many tell us stories of their annual bus trips down to see friends and families in Mexico. Sometimes, these bus trips take more than 24 hours to get to their destinations. And we always go in there and give them away some tickets to ask them to try Volaris air service, and they're delighted when they find out that they can do their same annual trip 3 hours instead of 24-plus hours, and that is at the same price as the bus ticket. When we analyzed entering into the Denver market, we actually went to the bus station in Denver and counted the passengers that boarded buses to Chihuahua, that's another 12- to 15-hour bus trip. And we found that there were 2 daily bus rounds from Denver to Chihuahua. And that's how we ended up offering that new route service that had never been operated before by an airline. Our marketing guys are quite creative on how to get people off the buses. For example, we give away tickets in bus stations every year in several towns in Mexico. And we have a formal bus switching communication campaign. Our route planning team is also using big data to monitor and track bus customers' behavior. So let's further review why air travel in Mexico makes sense and is growing. So Mexico is a very large country, and travel by land is complicated by multiple mountain ranges and canyons. We constructed the shape of Mexico with maps of European countries. 25 European countries could fit into the land area of Mexico. And there is no passenger rail system like in Europe. Think about it, Tijuana in the north to Cancun in the South is a similar distance as New York to San Francisco. And in the north of Mexico, you have the U.S., which makes Mexico's location privileged and generates the largest cross-border market in the world, which is the Mexico to U.S. cross-border markets. And COVID has actually accelerated bus switching as air travel is considered safer and cleaner than sitting on buses for long hours without the air filter technology of a modern aircraft. And if you think about countries to the south of Mexico, in Central America, the geographies are quite similar to Mexico, and that is one of the reasons we think of Central America as a logical extension of our core business. So air travel is well developed in Mexico and Central America, right? Well, it's not. Air trips per capita are really still low, and there's ample room to grow the air market. If you compare the developments to the U.S. after the emergence of Southwest as the first low-cost carrier, air trips per capita have risen consistently and gradually to almost 3, 3 air trips per capita in the U.S. In Mexico, we are now in year 17 of Volaris, that little purple line down there. And we have doubled air traffic since our foundation, and we have reached 0.5 air trips per capita. So you can see there's still ample room to grow. And as a market leader, Volaris is well positioned to capitalize on this trend and continue to grow the domestic Mexican market. We also have the benefits of the VFR heavy traffic that might not exist to this extent in the U.S. Volaris is making air travel accessible to a broader group of people. We are also observing a virtuous cycle effect in places that we start air service to and economic development we bring to those regions, to those destinations. And that, in turn, generates more air passengers in those destinations. Just as a case in point, the maturing growth of tourism in Cancun and the Riviera Maya region would not have been possible without Volaris as the market leader in that region. New beach destinations are showing up as a possibility for weekend trips such as Loreto on the Baja California peninsula that had no air service from Mexico previously. So let's now have a look at the air market in Mexico a little bit closer. The pandemic led to an unprecedented market consolidation. The top 3 players now hold 98% of the domestic market. And as market leader, Volaris is best positioned to capture the benefits of the emerging air market that I just discussed. While we don't make any decisions on market share -- based on market share, there are advantages to being market leader. And it allows us to develop the market so that it makes sense for us, and that is precisely what we have done. For us, the COVID crisis and the resulting consolidation provided a once-in-a-lifetime opportunity to accelerate our growth in 2021 and 2022. In 2021, we added 15 aircraft. This year, we will add another 15 aircraft, and we were able to offer more frequencies and new routes in all the top markets in Mexico. This made Mexico and especially our customer segments, the VFRs, the visiting friends and relatives and the price-sensitive leisure customers, the fastest recovering markets in the world post-COVID. And it yet again illustrates how Volaris is able to take advantage of times of crisis due to our more resilient business model. Nevertheless, even in times of accelerated growth, we did not abandon our formula for success. Throughout our history, we have taken a well-structured approach to growth around our core visiting friends and relatives market. We strongly believe in the concept of profits from the core in which growth needs to be centered around a strong core business. Too much diversification or pursuing adjacent opportunities is risky. Since 2006, the year we started, we were thoughtful on how to grow our business. First to the north in the same customer segments, then to the south, again, in the same customer segments. This does, in no way, mean that growth in the core is exhausted. Rather, it is additive and we will continue to grow our core business for years to come. This organized approach to growth explains why we are different in terms of our VFR customer base and why we have not ventured further afield into other geographies and to other customer segments yet. So with that in mind, now let's look ahead to the medium-term future. How are we thinking about expanding our business? Well, there are multiple avenues of growth, and they are not mutually exclusive. All the avenues of growth have something in common. We are looking for underserved markets or unserved markets with high stimulation potential through lower airfares. Mexico domestic, our most important core market. We already discussed the attractive demographics, low air penetration and our solid market position. And that really provides the foundations for Volaris' future domestic Mexico growth. The United States transborder market. Here, we are focused on the Mexican heritage population and the Mexico northbound leisure passengers. At 37 million, 37 million people of Mexican heritage in the U.S. and growing, that Mexican heritage population in the U.S. provides increasing demand to Volaris transborder VFR markets. Central America, again, we see it as an extension of our core domestic market with similar demographics and geographies and customer segments. On top of that, there is much less ultra-low cost carrier penetration in that region. We aim to replicate Volaris successful U.S. to Mexico-Mexico to U.S. VFR business and develop a healthy intra-CAM business along the way. And finally, a little bit further afield, other geographies such as South America, U.S. southbound leisure, Canada and the Caribbean. Our aircraft have a mission range of approximately 6 hours, which puts a total population of 940 million people within reach. Markets with the highest opportunities are South America, again, we are an airline that is geographically positioned between South America and North America; the U.S. to Mexico, southbound leisure, so Americans visiting the beach destinations in Mexico, which today accounts for about half of the U.S.-Mexico transborder market; and Canada; and the Caribbean a little bit later. So let's tackle them, those growth opportunities once at a time. In the Mexican domestic market, we have developed a strong basis for growth. We have a more diversified network than our competitors. We are the leader in more than half of the airports available for A320 service in Mexico, including the large markets of Tijuana, Guadalajara and Cancun. 46% of our route network have no air competition and competes only against the buses. If you look at competitors' route network overlap with ours, they overlap more with our network than we overlap with their network, giving us a competitive advantage in the market as a whole. And all of this gives us an ideal starting position to benefit from bus conversion given our market strength. So where do we see the market evolve to? Historically, if you look back 10 years or 15, 17 years since we were founded, Volaris is responsible for 70% of the incremental passengers versus 2006, which is a staggering number. Volaris has really helped Mexico's domestic market development and stimulation. Today, 2022, there is no overcapacity in the market, in the market as a whole. And the market as a whole is just getting back to pre-pandemic levels, both in capacity and in demand. We're actually about 8% over 2019 levels. If you look at the number of aircraft flying in the market, it's about the same today as in December 2019 pre-pandemic, and that's about 350 aircraft for the market as a whole. Looking ahead, Volaris aims to continue to be the key driver of Mexican domestic market growth for the next 5 years. For the next 5 years, what we are planning to do is drive growth through additional point-to-point flights connecting the dots in Mexico, clearly continuing our bus switching campaign, and continuing with our low fare market simulation. Actually, most of our growth will actually come from additional frequencies in already operated routes. We believe that the medium-term total route potential could be up to 300 routes, and that is up from 120 today. So just to do the math, that means an additional 180 routes on top of the current 120 routes already operated by us to get to a total of 300 domestic routes in the medium term. Shifting gears towards our international core business, the VFR customer segment. Enrique already mentioned the migration trends in the continent and immigration -- migration within Volaris territory really creates an opportunity to drive our international growth. Did you realize that Washington, D.C. is the city with one of the highest Salvadorian populations in the world? Did you realize that L.A., Los Angeles is the city with one of the higher -- the largest Mexican populations in the world? I think it's the third largest Mexican city outside of Mexico. But not only the VFR traffic is important for our U.S. destinations, there's also a large immigrant diasporas throughout Volaris territory, such as, for example, 400,000 Nicaraguans living in Costa Rica. So putting it all together here, at least 44.5 million people that we know of, and this immigration phenomenon is only growing within the Volaris network reach and is bound to fuel further international growth for us. So if we look at the Mexican heritage population in the U.S. The Mexican heritage population clearly drives the opportunity in our U.S. market. It is the largest community within our geography, within our reach. And it has grown by 15 million people over the last 20 years. And that drives traffic. If you look on the right of this slide, Mexico to U.S. transborder passengers in nonleisure markets have jumped from 9 million to 16 million in only 12 years or 1 million travelers per year since 2009 to 2019. And here, we intentionally omitted 2020 due to pandemic distortions. At Volaris, we are focused on marketing and communicating to these communities here in the U.S., and we do that in a low-cost way. Let me give you a couple of examples. When we entered into the Chicago market, we did not do any traditional advertising and promotions. We did a grassroot campaign directed to the Mexican communities living in Chicago, giving away vouchers or free tickets. That created a word of mouth in those Mexican communities. In the Central Valley, California, we partnered with the Mexican consulates in the Bay Area, Fresno and L.A., which helped us communicate directly with the local Mexican communities in California. We are low-cost and grassroots while being close to our people, our passengers. We are now, as a result of these campaigns, the top 3 international -- among the top 3 international carriers, both in Chicago and L.A. In the U.S., we believe the medium-term total route potential could be up to 145. And that, again, is up from 70 today. Nevertheless, today, we are limited in growth to the U.S. as the Mexican aviation authority, AFAC, has been downgraded to Category 2. So let me spend a couple of minutes going through where we are today. So let me explain the current situation. What does Category 2 to an aviation authority mean? And why does it matter? Category 2 is defined as the freeze of certificates of operation for Mexican carriers to the U.S., driven by the lack of capacity from the Mexican aviation authority to effectively monitor operations. That affects for Mexican carriers, all Mexican carriers, aircraft in corporations, frequency increases to the U.S., additional point-to-point operations and new destinations in the U.S. And I want to emphasize that this is in no way, shape or form a judgment of the safety standards of Volaris. We have adhered to and will continue to adhere to the safety and maintenance standards of the FAA, the Mexican authority, AFAC and our Central American authorities as well. So this affects all Mexican airline certificates. They're all frozen due to the downgrade of Category 2 status of the FAA, and that happened in May 2021. And I again want to emphasize, while this has not allowed us to expand as much as we would have liked to into the U.S., this has not interrupted service into the U.S., and we were able to even expand under the current limits of Category 2 by 18% December 2022 versus December 2019. We currently operate approximately 100 daily flights into the U.S. The Mexican Aviation Authority has a diligent and expedited remediation plan in place and Enrique already highlighted some of the milestones of that plan. For us, at Volaris, we are currently planning and forecasting that we will return as a country back to Category 1 by the fourth quarter of 2023, and we have planning in place should there be an opportunity to move sooner. Please bear in mind that Volaris is the only Mexican carrier or company that has two other operating certificates in the region that are not affected by the category downgrade of Mexico. So the likelihood of returning to Category 1 creates additional growth opportunities in the U.S., as we discussed earlier in our VFR core markets, and that is for 2023. So now let's look south. We are convinced that there is an opportunity to replicate Volaris successful VFR business model in Central America and specifically from Central America to the U.S. We've done this in Mexico. We are operating many of the same stations that will operate from Central America already with our Mexican operations. And we're doing this in a region that is very close to our core with the similar customer profile, the VFR segment. If you look at Central America, Central America is about 10 years behind Mexico, both in terms of immigration to the U.S. that is the left side of the chart and in ULCC penetration both in the region itself and to the U.S. So there's a long runway for growth in Central America, and we believe that the medium-term total route potential could be up to 45 routes, and that's up from 15 today. And finally, further down the road, I wanted to leave you with the idea that through our central geographical location, Volaris can reach Canada in the North to Peru in the south and everything in between with our current NEO fleet. The A321 XLR are not currently planned and are not required. If you look at the opportunities, South America clearly comes to mind, both for the VFR core market and the price-sensitive leisure customers. Southbound U.S. to Mexico leisure traffic, which again accounts for about half of the transborder market is an attractive opportunity and eventually Canada and the Caribbean. As you can see, the runway for growth is really long, but we are focused on what is in our sights right now because there's so much left to do in our core business. So let's put it all together and have a look at our medium-term growth potential. In the medium term, Volaris expects to continue diversifying its network, focused on the core market growth and a well-structured execution of our growth plan. With more international growth, we will be able to achieve a diversification of revenue streams and more U.S. dollar-denominated revenues. We believe we can double the size of the business to about 490 to 550 routes operated by up to 200 aircraft in our fleet. And a word on 2023. For 2023, we are currently planning a base capacity growth of 10% with the optionality of ramping up that percentage if market demand remains as strong as it is today. So that's it for the geographical growth of our business. The other piece of the growth puzzle are the ancillary revenues. Ancillary revenues are a key driver for demand. Why are ancillaries a competitive advantage? Just a quick reminder for everybody, ancillary revenues are really customer-friendly because they give customers choices. Ancillary revenues stimulate demand because it allows us to reduce the base fares. It provides revenue stability. Ancillary revenues are less elastic, less volatile and less seasonal. And it allows us the ability to generate recurring revenues as we currently do with our membership programs and subscription programs. They also give us an opportunity to generate true non-air revenues out of sight of competitive responses. And last but not least, ancillaries are a great competitive tool against the buses. We've had significant success in capturing ancillary revenues in the last decade. We increased non-ticket revenue per passenger from $15 10 years ago to almost $40 today. And there is ample room to improve when we compare ourselves against our ULCC peers. So we have a robust ancillary road map in place, and we have a line of sight to achieve 50% of total operating revenues from ancillaries. Four main drivers that will get us there: #1, continuously optimized pricing through personalization and advanced pricing modeling. That is already underway, and we believe there is additional upside potential from that. #2, launching new products and services. We're working on several insurance products, refund products that we plan to sell in the near future. #3, building recurring revenue streams with our V.Club memberships, and subscription services. And 4, enhancing existing products and services. I want to remind everyone that despite this, all of this growth to 50% of total operating revenues is going to come despite in Mexico, not being able to charge for carry-on and the first check bag. We are putting special attention on generating affinity and recurring revenue streams. Recurring revenue streams provide a steadier revenue flow throughout the year, generates customer affinity and frequency and improves non-air related revenues, such as is in the case with our co-branded credit card. Today, we are excited to announce that we have been working on an affinity program in a strategic partnership with one of Latin America's biggest retailers. Our aim is to be the biggest affinity program in Latin America. Our strategic partner will operate the program for us, and we will get access to a large retail customer base in our customer segments, the emerging middle class. And we also get access to other important partners of the program. It really represents a new distribution channel for us, and we believe there is meaningful revenue upside in the medium term. We will reveal shortly the strategic partner and more details of the program. We will publish a press release once the contract is signed. Last but not least, I would like to highlight our efforts in the digital transformation of our customer interactions. We are convinced that digitalization of the customer journey increases customer satisfaction and cost savings. We have increasingly a digital native population, as I already mentioned, with 55 million Mexicans under the age of 25. And the similar trend is happening in Central America. Here's how we are training customers to interact with the digital airline. 78% of our sales go through digitally-owned channels. 92% of our customers and passengers use paperless boarding passes. 50% of our customers find self-service solutions in case of a disrupted flight and 84% of customer service inquiries through the chatbot are solved by the robot. We are leaders in this space and we have functional designs that make it easy for our customers to make digital transitions. We are putting in place the digital foundations to scale up the business in a low-cost manner. And for many of the first-time flyers out there that we have converted from the buses, this is really the only way they have experienced flying in their lives, and that creates stickiness and affinity with our brand. And by the way, it helps reduce our operating costs. So to summarize the growth potential of our business, capacity growth, double the size of the airline to a fleet of around 200 aircraft and around 500 routes. Ancillary growth, targeting 50% of total operating revenues from ancillaries. And the growth in ancillary helps us reduce base fares slightly below inflation. So the base fare growth is going to be slightly below inflation due to the growth in ancillaries. So clearly, we are really excited about what lays ahead for Volaris, bringing lower fares and more air trips to many more communities and cities. So with that, let me hand it over to José Luis Suárez, our Chief Operating Officer, to talk a little bit about the key pillars of our operations. Thank you very much for your attention.

Thank you, Holger. Good morning, ladies and gentlemen. It is an honor for me to be here to explain to you how Volaris achieves the lowest unit cost driven by operational excellence and efficiency. There are three main pillars in our operation, the first one being safety. Being rated as 1 of the safest ultra-low-cost carriers in the world by airline ratings, and achieving 7 out of 7 stars in their classification. Volaris is regulated by multiple international authorities and operating 3 airline certificates where we have implemented strict safety, operational and maintenance programs, including IOSA, ISO 9000 and 14000 (sic) [ ISO 9001 and 14001 ], safety management systems and we are a member of the Flight Safety Foundation since 2015. Let me make a special emphasis that 50% of Volaris fleet is registered in the U.S. That means that it is operated on the direct supervision of the FAA. The magic comes through operational efficiency. We begin with a very efficient asset, the Airbus A320 family aircraft, where 50% of our fleet now is equipped with the new CEO Pratt & Whitney engines. Second, we have very highly trained personnel operating and maintaining those aircraft. Third, we configure them to the maximum number of seats, and we use them in the most efficient manner. The last pillar is customer service. We focus on sales service processes, high schedule reliability, obtaining an adequate on-time performance and a good Net Promoter Score of around 30%. Let me share with you some results on how a seamless operation helps to increase profitability for Volaris. Fuel consumption, it's around 9.7 gallons per 1,000 ASMs. This positions Volaris not only as a very friendly airline with the environment, but also very competitive among its peers. We achieved this using the most efficient engines, the best standard operating procedures and also, we are looking at some sustainable air fuel initiatives for the future. Second, looking at fleet utilization, Volaris produces 11.2 flight hours per day per aircraft, which is equivalent to 13.4 block hours per craft per day. This is one of the highest among A320 operators in the world, over 4 hours better than the average operator. We achieved this by operating red eye flights from west to east and then utilizing our aircraft during the daytime for leisure destinations. Operational reliability is not compromised by this high utilization. At 99.5%, we are at the same level other airlines that are using their assets about 50% of the time. This is done with adequate staffing, predictive maintenance tools and then excellent partnership with parts, components and engine suppliers. And of course, all the credit goes to our people, our team. We are very proud of our labor relations. Over the past 2 years, we have hired over 800 pilots and 1,500 flight attendants. This ample supply of technical personnel supports our fleet and our growth plans for the next years. We have customized training with our partners at flight schools so that Volaris can have their standard operating procedures, talk to the personnel right from school. We have also programs offering financial support for certain employees and their family members to go flight school and become the pilots of Volaris in the future. Our union was ratified in November of this year, and we have signed a 2-year agreement with compensation based on productivity and including fatigue monitoring and other tools that allow an adequate work-life balance. So talking about balance, now let me introduce Jaime Pous, our CFO, which will share with you some of our financial results. Thank you very much.

Thank you, José Luis. I will now focus on our low-cost leadership and our financial strength. Our business model DNA starts with operating with the lowest cost, which allow us to offer low base fares, to stimulate demand and attract more passengers into our planes at such a low fare that our competitors will lose money at our price levels. With the CASM ex fuel within $0.42, Volaris ranks among the best carriers in the world. Our disciplined approach to containing controllable costs has enabled Volaris to maintain our advantage against our peers. We see room to continue improving our cost leadership, as we benchmark ourselves line by line against the most efficient airlines in the world. Over the past 5 years, our CASM ex fuel has decreased at an annual compound rate of 1% compared to yearly average inflation of 5.3% in Mexico and 3.5% in the U.S. Our CASM ex fuel versus 2019 pre-pandemic level is expected to grow only 8%, while North American carriers are seeing their CASM ex fuel rising over 25% on average over the same 4-year period. A strong evidence of the disciplined approach embedded in the Volaris culture to contain all controllable costs. But it's not only about having the lowest cost, but also building the entire cost structure departing from an essential variable component. On average, more than 60% of our costs have been viable over the past 5 years, providing us with a significant competitive advantage. The variable consortium plays a fundamental role in incentivizing the productivity of Volaris ambassadors. Around 30% of the compensation on average is variable, reaching from 10% in entry-level positions to 75% at the suite level. In the down cycles, this variable cost component gives us the flexibility to scale down and not operations. Evidence of that is our performance during the pandemic when the company did not follow on employees, which allow us to be nimble and quickly adding capacity as we saw demand recovering. As I will provide further detail in the following slides, our CEO to NEO transition fleet plan aims to drive greater efficiency via fuel savings and lower lease payments for the aircraft. The low cost will widen our advantage in the midterm. To achieve the proceeding, we anticipate a short-term increase in the fleet ownership component of our unit cost in 2023 and 2024 and having a downward trend thereafter. Please note that as shown in the graph, the other components of our CASM ex fuel are expected to continue stable, notwithstanding inflationary pressures. We believe we can offset this short-term increase through PRASM improvement. And in the midterm, the fleet plan aims to drive further efficiencies, low cost going lower. While comparing Volaris with the most efficient carriers in the world, the main opportunity to drive our cost efficiency to the next level resides in the fleet ownership component. We expect to achieve it through the transition into the NEOs with the right ownership costs. This process started in 2016, and we are halfway through it. As you can see, over the next 5 years, our contractual order will take us to 100% neo fleet, allowing us to increase seats per departure by 12% while delivering 8% lower fuel burn in gallons per 1,000 ASM. When comparing our current fuel efficiency versus peers, ULCCs consume 20% more gallons per 1,000 ASMs and the gap is even wider versus the Latin America and US legacy carriers. As of today, the transition to NEOs has represented cumulative savings of 84 million gallons or $244 million. The benefits will widen as our fleet mix shifts into the 100% NEO fleet. We estimate our fleet renewal will yield fuel savings over the next 5 years of approximately 300 million gallons or $1.2 billion, assuming an average economic fuel price of $3 per gallon. This is the most effective fuel price hedge we can have. Our cost structure so far has benefited itself by lower lease rate factors. As you know, all of our fleet is financed through sale and leasebacks and straight operating leases, and we have significantly improved our financing condition as a reflection of our scale and risk profile. As part of Indigo Partners portfolio, the joint procurement benefits that we have are fundamental for our cost construction. We have a significant advantage that none of the other airlines in Mexico can emulate. You may not be aware that we haven't even started to receive the aircraft from the two group orders placed with Indigo, including the larger sorting in airbus history, totaling 430 aircraft. Next year, we will start receiving the first aircraft from the 2017 in the order, which will translate into favorable aircraft ownership costs. These benefits will trickle down CASM and widen our cost advantage for many years. Our fleet plan is conservative and flexible. We have a flexible order book comprising of 145 NEO aircraft, half for renewal and the other half of route. This order book will allow the fleet grow at a conservative annual rate of 6.6% through 2027. We additionally have the flexibility to scale up as needed through lease extensions and trade operating leases. It is relevant to mention that Volaris' order book provides a unique advantage against our peers. Smaller competitors that don't have a sizable order book and don't benefit from the own procurement with a large group will struggle to obtain aircraft in the upcoming years at similar prices, putting Volaris in an even stronger position. And as frankly mentioned, to be successful in the industry, you have to be aggressive to the market but conservative with the balance sheet. And this is exactly what Volaris has accomplished. To wrap up, I would like to detail what we mean by a strong balance sheet. We closed the third quarter with $750 million in cash. This represents a 75% increase versus our pandemic cash balance. We have a conservative position, even we haven't taken any debt during the pandemic, and 91% of our debt is composed of long-term lease liabilities at a fixed rate. Our financial debt amortization schedule is conservative, and we have no refinancing risk on the horizon. In addition, we have signed contracts for [indiscernible] agreements for aircraft deliveries through 2025. And we have secured more than $500 million of predelivery payments for all aircraft in our order book to be delivered in the same 3-year period. In other words, we do not need to go to the market for capital financing over the next 3 years. Let me pass it back to Enrique for closing remarks.

So thank you very much to Holger, José Luis and Jaime. Thank you very much for setting up and detailing everything that we're planning to do in the future and where we are standing at. I want to again to strengthen the fact that we have a clear path to long-term profitable growth. I want to remind you guys, we are the lowest cost operator, okay? One of the lowest cost operators in the world, not only in Mexico, but in the world, okay? I want to remind you guys that what Jaime has stated in the last minute is that we have a great fleet plan with a great ownership structure, which aims to drive further efficiencies with lower cost going lower. Let me remind you again, the market and profitability leader like Volaris, we are the largest airline in Mexico by passengers, and we don't care about size, honestly. What we care is about that we can lead profitability levels in the Americas in the future. We want to be absolutely sure that you understand the EBITDAR expansion potential that Volaris has. Holger was absolutely clear about the high-growth opportunities that we have, how well positioned to leverage regional shifts in population and transportation trends we are. The likelihood that the U.S. regulatory decision CAT1 will give us an additional bump and upside in our U.S. transborder routes. But we also were absolutely clear that we are there with a great plan, a great diversify growth and revenue plan to continue growing the company. Finally, I think Jaime was very clear how strong and flexible our balance sheet and cash generation is. We strongly think that we'll be a cash generation airline in the next years. The conservative debt position and healthy financing conditions that we developed through the renegotiations of our financial situation and without any help from the government in the last years has poised Volaris as one of the best balance sheets in the industry in the Latin American countries. This is not enough. Two days ago, [indiscernible] was asking me, how did I feel about this whole thing? After 18 years of having founded the company, let me tell you how I feel. I think we're just starting. We're just starting and I have everything. The team, the financial conditions, the commercial opportunities and everything I need to continue making this company the greatest ultra low-cost carrier in the continent, and I am going to do it. You can count on me on that. So let me put some goals for that. We aim to double our revenue from here through 2025. We aim to double our EBITDAR from here to 2025, and we aim to double our free cash generation in the next -- from here to 2025. Do you consider these challenges high? Yes, they are high. But I think I have everything to do it and count on me because I will do it. Thank you very much. So we'll start the Q&A process, okay? I mean, if you need to move, you need to go to the bathroom and then we'll set up this thing, you have 2, 3 minutes for doing it, and we'll go to Q&A. Is that okay with everybody? Great. [Break]

Okay. Guys, please take your seats. We'll get started. So our people have some microphones there aside, they will circulate the microphones. So please raise your hand and start with your questions. Just to coordinate, we ask you to keep -- try and keep your -- to one question per round and say your institution -- your name and institution before asking the question.

It's Helane Becker from Cowen. So I just have a question about the revenue growth opportunities and how you are thinking about getting from where you are now? You said you're going to double by 2025, but next year, you're only growing 10%. So how should we handicap that in terms of growing revenue versus -- doubling it versus 10% capacity growth? Because that seems like -- it doesn't seem like it's going to work.

Thanks, Helane. So let me just clarify one point. We are committing to a revenue growth, doubling the revenue based on 2019 starting point. So that's the $1.8 billion you saw on the slide and that gives us the growth for 2020, 2021 and so on. Yes, we're going to scale down growth -- not scale down. We're going to have growth of 10% next year with the optionality of growing a little bit faster than that, if the market remains as solid as it is right now. And then we are going to go back to our normal growth rates, which are in the double digits. And if you do the math, it does add up.

Congrats on the presentation. Just with respect to your market position going from effectively 0% to 42% and you look at ULCC is representing 72% of the market in Mexico. How does the game plan change? In other words, you continue to execute on the cost side, on the ancillary side, on the growth side. At what point does your very high share maybe require a different game plan? Or do you just keep running the same game plan until you get to 100%?

Well, Duane, I think the -- thanks for your question. I think the success of Volaris is precisely not changing the game plan. We are very much focused on what we do, our core business, stimulating demand in the VFR, the price-sensitive leisure. I think I tried to make the point that there's a lot of growth potentially in our core markets and in adjacent markets that are similar to our core. So that's why we are focusing so much on Central America and the U.S. VFR, but we are in no way shape or form planning to change our model and our recipe for success.

Just a quick follow-up. I'm going to violate the rules right out of the box here. You made a big growth investment over the last couple of years based on dislocation in the market, which you highlighted. Is it fair to think about 2023 as the harvest of those investments? Or again, is it more of the same from the last 2 years?

I think it's been tough, Duane, and I recognize it, but I think we did start doing what we had to do as a result of the hole that was left by the other players. Having said that, we are in a year where we are ramping up -- I mean the second year where we are ramping up about 29% growth last year, 25% growth this year. I think the most important thing that I would like to leave you guys is that we are absolutely committed on generating profitability in the route network now, okay? I mean, it's not that we are now committed. I mean, we always were that we were in the process of putting the seats there. And that profitability if you see the third quarter -- you see the fourth quarter of this year will start being profitable. As I said, the metropolitan city -- the metropolitan area city capacity is now starting to develop profitability. We also are seeing much better profitability in Guadalajara and in Tijuana. The routes in the U.S. are performing extraordinary well, and now Central America is back with profitability. So I think we -- yes, we probably passed through -- a period where profitability was not there. I mean, obviously, considering that fuel was very high. But we think that with the today's price of the fuel and with the exchange that we have today, the company is perfectly suited to have a 30% plus EBITDAR margin in the following years.

Two things. Number one, we get the message that this is a low price operator, et cetera, et cetera. But could you talk in a little more sophisticated way about your potential for pricing increases in the various markets to get us to that EBITDA margin you were just discussing? And then also on the regulatory upgrade in the United States, is this hostage to other political situations between Mexico and the United States? Or is it really a technocratic decision by the FAA? And I'm Andrew Wallach at SpringOwl.

Thanks, Andrew. I'll tackle the first part of your question. Regarding the ability for us to increase -- I would call it increased TRASM rather than increased prices. And it's a tale of three regions really. If you look at the domestic market, we are building solid volumes, and we believe that we can continue to build those and increase load factors by 1 or 2 percentage points over the next years. That's obviously driven by our ancillary revenue increase and our continued low base fares to drive that stimulation. So that's the domestic market where we're really building volumes and ancillaries being very competitive against the players in the market there. Then we have Central America, which is recovering very nicely where we have intra-Central America and the business to the U.S., which was 6 to 12 months behind the recovery in Mexico and has really, really come back strong, and we're seeing actually the highest TRASMs in the system in our route network altogether driven both by quite solid volumes, but also by fair robustness that we're seeing in the U.S. market, anything that touches the U.S. really. And then the third piece of the equation is the U.S. to Mexico VFR routes that we operate. And there, we're also seeing the ability to pass along some of the fuel price increases with really very healthy fare increases while not sacrificing volume. So I'd like to make you aware of that very differentiated picture that we're seeing in our markets.

I think on the category thing, no. It's not subject to anything else. Mexico didn't do well. I mean, we need to recognize that technically our authorities were not at the level that were supposed to be and that they are doing a humongous effort hiring people, training people, developing procedures, developing legal stuff and getting the budgets for doing that on a sustainable basis. So I absolutely think it's a technical thing. It has nothing to do with any other bilateral kind of stuff.

Congrats on a great presentation, Mike Linenberg with Deutsche Bank. And maybe this is a question for the Board. But when you look at where your cash is relative to your market cap, I know Brian brought that up on his introductory comments and you look at your free cash flow 2019 versus 2025, we're looking at $800 million. Are you at a point -- and things have been stabilized and you've sort of fill in that hole. Are you at a point where you can seriously consider potentially paying a dividend? I mean I'm going to move share repos aside. Is that something that we see within the next couple of years? And I'm bringing it up because you have a few other profitable Latin carriers that do pay a dividend. And you have so many companies within your part of the world where it's in their charter. And that's usually -- that's what attracts investors. And that's what I feel like at this point in the game, you don't have enough investors that really appreciate the Volaris story and it may be a dividend is what pushes them to take another look.

Michael, as you know, we have a legal restriction right now to do the buybacks or dividends, but we will consider that if we have excess cash. There's always -- we need to refer to the investors too. Right now, we cannot do it.

What takes that -- what lifts that restructuring?

It's basically your accumulated -- you have to have -- your amount of your buyback or dividend is capped to your accumulated earnings. And right now, we have an accumulated loss.

I think the quick addition I'd give to their answer is -- the right answer. Legally, we can't do anything. However, we recognize we now have a weapon that we didn't have before. We have a new tool -- the toolkit we didn't have before, which is excess cash. We're growing that cash and we'll apply it as effectively as we can to grow the business and to support the shareholder.

Steve Trent from Citi. I just had a quick question about the operations in Santa Lucia, any high-level view on how it's working out so far or how happy you are with the operations? And any sort of benchmark? What percentage of your Mexico City metro area of flights could come out of that installation by 2025?

So Steve, let me set three points first, which are really important. The first thing is, the airport is a well constructed, well technical supply airport. And I think that's something I want to take that question out of everybody's table first and all, okay? The second thing is the airport is relatively away from the Mexico City versus where we have the airport today. But if you compare it versus how much it takes you from Washington, D.C. to the airport from Paris to [indiscernible] from whatever to Heathrow, et cetera, it's a distance which goes from 55 minutes to 1 hour or 5 minutes, depending on the traffic and how you do it. The third thing, which I think is really important is that you need to remember that -- I mean, when we see the amount of operations that we have in Guadalajara, or the amount of operations that we have in Tijuana, where we have more than 100 operations or 100 operations per day. For populations of what, 5 million, 6 million inhabitants in Guadalajara, 4 million, 5 million inhabitants around the Tijuana area, you were talking about we have 200 operations in Mexico City with a population of 32 million inhabitants around that pool. So I strongly think that the limitation that we have in slots in the Mexico City airport was a cap for the development of the metropolitan air traffic within Mexico. Having said those three points, we have today 9 flights a day -- 9 departures a day, we are operating at 84%, 85% low factor, and still fares are low because we are ramping up the routes. But that's where we are and how we are performing.

It's Santiago from Emerging Variant. I just wanted to understand how to reconcile two facts. On one hand, you highlighted a very large opportunity to grow outside the U.S. through your certificate of operations in different countries in Central America as well as the bus and other opportunities domestically in Mexico. But on the other hand, you're telling us you're going to grow single digits next year. So how do I reconcile your ultra low-cost status, your leading cost status and the fact that you're only going to grow high single digits next year, given the addressable market opportunities you highlighted?

So Santiago, clearly, we have a fantastic opportunity in the medium to long term for growing our business, as I mentioned 200 aircraft in the medium term, 500 routes. So there is a sizable opportunity in all of our core markets and beyond. Having said that, we do recognize that the fuel price is very high and that there is talk about possibility of economic downturn and lower demand. So we've been conservative. We have a base growth in place of 10%. That does not mean that, that's the final growth for 2023. We have the optionality of ramping up that growth if we see demand at the levels we see it right now. And that's basically the rationale. It shows the flexibility of our business model to quickly ramp up or ramp down growth if economic conditions change.

I would add Santiago that I have one priority, which has been profitable, okay? And I have to rather solve that problem at first, okay, and then solve the growth problem. We will -- we are working on that. I mean -- and I think the second semester will show that clearly. That's the first thing. The second thing is, and you will hear it from the Dionisio when she presents over launch, the Mexico's view, okay? But I think it is important to say that we're seeing a possible crisis in the U.S. and the economy in the U.S. that might affect Mexico's performance. Having said that, we are -- we feel very strong about where Mexico is in the way they have been handling inflation, where Mexico is in its public expenditure; third, where Mexico is playing a role and a very important role in terms of near shoring, okay? And I think it's important to say that in general, the economics and the macroeconomics look very strong for Mexico. It's very difficult to try to reconcile those macroeconomic trends with a problem that could come from the U.S. and how big the impact is going to be. We think it's going to be lower than the impact that could have the U.S. economy. But having said that, we have to be conservative, we have to be rational. And as I said, our first priority is profit.

Chris Fox, Iron Fox Capital. My question has to do with the relationship between pricing on base fares and the price of your fuel. You saw, obviously, a big boost in the price of jet fuel in Q2, Q3. You were not obviously able to fully offset it. My question has to do with whether that is mainly kind of a timing issue or whether because you're operating in a country like Mexico, if the price of fuel stayed where it was, you would never be able to fully offset it without losing your load factors. So if you could just give us a sense of what the dynamics there are.

Absolutely. I think it's very important to mention that we have two components of total revenue per passenger, and that's really, really important for our model. It's the base fare and the ancillary. So we like to think about total revenue per passenger and how we are able to offset fuel prices in the total revenue. So again, I come back to the three points. In the domestic market, we pushed for fare increases, total fare increases in the mid-section of the year, June, July and we found that increases in revenue per passenger had a limit and that volumes were affected. So we decided to drive volumes in the domestic market and then really focus on high load factors. You might have seen the traffic report this morning. We're seeing tremendous load factors in the domestic market, and that's really paying off. And then in the international market, the ability to pass on fuel price increases is better. It's easier in the Central American market. And in the U.S.-Mexico market, they are U.S. dollar-denominated markets and fares. So it's somewhat easier. Now having said that, we do believe that consistent or sustained fuel -- higher fuel prices will eventually lead to higher fares in all of our markets as people adapt to the new reality. And that's what we're seeing in Europe and the U.S. as well. So I think it's a matter of time when even in Mexico, we're going to see increases in revenue per passenger without affecting volumes.

I think, Chris, is something which is really important is that you depart from the right comparison, okay? I mean, yes, the U.S. carriers have done a tremendous progress in terms of raising fares. But if you look at the domestic market in the U.S., the TRASM improvement has been within 4% to 7%. We have done an improvement of more than 5% in TRASM during this year.

[indiscernible] from Raymond James. You've done a really successful job of having -- as a ULCC having a pretty large share in the markets you operate. And I wonder, is there something different about your markets versus some of the South American markets where ULCCs haven't had as much success? And because if I look at your next targets, you talk about Canada, Caribbean. I'm kind of curious why maybe not going to move to near South America locations as kind of the next target?

Well, I think it has to do with both the characteristics of the Mexican market, which is a huge travel market. We have so many bus trips and we have that bus switching potential, in which we've exploited very well. But it's also about how we attack the market and how we went about our growth. It's been a very structured, focused exercise over the last 17 years where we focused on profits from our core business, the VFR and price-sensitive leisure. And we've developed every individual market at a time. So we focused on the Pacific coasts, the northwest of the country with Tijuana, then Guadalajara, then we obtained leadership positions in the most important secondary markets. And we believe that relative market share, while we don't manage our business for market share does give us an opportunity to really be the leader in the region and be the airline of choice in those markets, and that has really stimulated demand and drove more people to our airline.

So is there something in the kind of the South American markets versus like Caribbean and Canada being the next opportunity? Is that just kind of proximity? Is that where your kind of VFR traffic is concentrated?

Renato is probably best to comment about the Brazilian market. But I can tell you that we believe that Central America is an extension of the Mexican market with very similar characteristics. And that eventually, we're going to look for opportunities in the VFR segments in the northern part of South America. We launched Peru and Colombia this year. And we are finding similar customer segments. Peruvians, Colombians living in the U.S., living in Mexico, and that's really our core business. And then eventually, we look further to new customer segments and the southbound leisure market from the U.S. to Mexico comes to mind.

Historically, the industry has been characterized by some overcapacity as been talked about before, but then irrationality among the players in the market. So we had Interjet, at one point, be very rational with pricing. We also saw that from Viva. Could you just comment for a little bit now on the competitive dynamics that are taking place? Is it a rational group of competitors you're seeing there? And should we expect to see that? What should we expect to see going forward?

So Kevin, I think, as I said, I mean, we're living for the first time since I arrived almost 20 years ago to Mexico, a real consolidation of the market, and we are basically talking about three players, okay? And that's -- the first time I see it in 20 years, okay? I mean when I arrived to Mexico, we had another 11, 12 certificates of operations that were flying, really flying, okay? So that's the first thing that we need to consider. The second thing is I think that Mexico is coming out from a process of restructuring, and it is really important for them to produce results going forward, and good results. So I think -- I mean, it would be natural to think that they will be acting in a rational way. Viva is a phenomenal competitor, and I'm glad we are competing with them because they only make us better every day, okay? And I think from what I have seen in the last 16 years from Viva is that they behave rational within their parameters, okay? I would say a third thing, which is really important. When you grow, you need capital. And I don't think that capital is there for the two players. So I think it is really important to think that if there is going to be an outrageous equation of growth, it has to be a company by a capital growth in some way in the two players.

Again, Andrew Wallach. Could you talk a little bit -- your release this morning talked about very robust forward demand, could you just talk about how it looks in the various segments and how far out you're able to see?

Yes. So we publish our schedules 18 months -- 12 to 18 months in advance. So we have a good insight into booking curves, especially for the remainder of this year and the first quarter of next year. And we see good volumes come through the pipeline. We're seeing a healthy domestic market in terms of volumes. We're seeing good demand from Central America to the U.S. and also transborder market from Mexico to U.S. with a good fair level as well.

So since no one is asking it, I'm going to do it. Because I guess some -- you all know about it, and you're afraid about asking it. Yes, the person has been talking about, I mean, [indiscernible] has been talking about creating a governmental airline, has been talking about a lot of things recently. And since no one is asking me, I want to say that I'm very pleased about all this situation. And it might be a sound contradictory. But I mean, Volaris is one of the lowest cost operators in the world, okay? And when I sit down with the government, I just remind them that, okay? And that's the first fact. The second fact which is really important is that Volaris flies 46% of its route without airline competition, okay? 46% of our routes are competing versus [indiscernible], they don't compete against any airline, okay, which means we are providing the service to the communities that they could be thinking that they are not well served, okay? Third, we are the lowest price operator, base price operator in -- from Mexico to Argentina, okay? And third, which is really important, and I think it's -- there is -- we are there to continue growing and moving ahead as the high-growth opportunities we have planned. So I mean from my perspective, the only thing left is eight freedom, which is cabotage. And the way I think about that is a phenomenal opportunity for our shelves in Costa Rica and El Salvador because it allows us to fly from Costa Rica and from El Salvador into Mexico to the U.S. So I strongly think that; a, we do have the structural advantage and the cost competition level to compete perfectly against any of those structures, and b, the other thing, it could be a phenomenal opportunity for the only airline that has three airlines, 1 in Mexico, 1 in El Salvador and 1 in Costa Rica. Yes, Steve.

Forgive me if I missed it, if you mentioned earlier. Talking about your long-term fleet plan, and I know you're moving towards need of available seat mile per gallon. I seem to recall your something around 103 ASMs per gallon now. I think the U.S. Big 3 get around 70.

So as a reference, last year, we're at 103 ASMs per gallon. By 2025, we expect to be at 109 and by 2027, around 114.

Mike Linenberg again. On the, I guess, eight freedom cabotage, more specifically actually on fifth freedoms. I mean, Holger, you had mentioned earlier that you do have the right to fly from whether it's Costa Rica or El Salvador within Central America to Mexico and onto the U.S. to get around the CAT2 situation. To hit the 18%, both this year and last year, did you, in fact, take advantage of that loophole? And so you're shaking your head, no. It sounds like that you do have the availability, although those airplanes may already be accounted for on those.

Yes, exactly right. And it gets a little bit technical about what we basically did is the FAA defined a high watermark of the capacity that was installed between the Mexico and the U.S. pre-COVID. And as we recovered through COVID, we were able to grow the capacity with our Mexican certificate to the U.S. getting to that high watermark before COVID. On top of that, obviously, we have the opportunity that you just mentioned, taking advantage of fifth freedoms through Mexico to the U.S.

So you flew your Christmas schedule in February?

Exactly.

Okay, guys. If there are any other questions -- thank you very much again for being here. It was a great pleasure to see you personally here. Looking forward to see you -- some of you in the next couple of days on a personnel basis. Thank you very much for supporting us through this crisis and being with us through this crisis. And thank you very much for my team. Thank you very much for the Board. Thank you very much for all the Volaris ambassadors that have made an amazing work during these times. We're committed to continue doing it. And as I said, we are just starting. Thank you very much.

We'll finish the webcast. We'll serve lunch for those who are here, and then we'll have the presentation by Dionisio. Thank you very much.