Controladora Vuela Compania de Aviacion SAB de CV (VLRS) 2021 Q2 法說會逐字稿

Good morning, everyone. Thank you for standing by. Welcome to the Volaris Second Quarter 2021 Financial Results Conference Call. (Operator Instructions) Please note that this event is being recorded. This event is also being broadcast live via webcast and may be accessed through the Volaris website. (Operator Instructions)

At this point, I would like to turn the call over to Ms. Maria Elena Rodriguez, Volaris' Investor Relations Director. Please go ahead, Maria Elena.

Good morning, everyone, and thank you for joining the call. With us today is our President and CEO, Enrique Beltranena; our Airline Executive Vice President, Holger Blankenstein; and our Chief Financial Officer, Jaime Pous. They will be discussing the company's second quarter 2021 results. Afterwards we will move on to your questions. Please note that this call is for investors and analysts only. Any questions from the media will be taken on an individual basis.

Before we begin, please let me remind everyone that this call may include forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are subject to several factors that could cause the company's actual results to differ materially from expectations for reasons described in the company's filings with U.S. Securities and Exchange Commission and the Comisión Nacional Bancaria y de Valores. Furthermore, Volaris undertakes no obligation to publicly update or revise any forward-looking statements.

Similar to the press release, we are comparing our results to the second quarter of 2019 instead of the second quarter of 2020. We believe this will provide a better comparison to the financial and operating performance of the company. It is now my pleasure to turn the call over to Volaris' President and CEO, Mr. Enrique Beltranena.

Thank you very much, Maria Elena. Thanks to everyone joining us today. I would like to begin by thanking all Volaris ambassadors for their efforts over the past months, efforts that have been rewarded with solid results.

With the growing recovery in travel demand, Volaris has responded to all challenges, not only by strengthening its operations, but also by increasing its capacity while maintaining its ultra-low-cost structure. This quarter, once again, we can affirm that Volaris has been leading the airline industry's recovery, and I would like to highlight the most important milestones for the second quarter.

First, Volaris delivered healthy capacity expansion, 14% higher ASMs than the second quarter of 2019. The company has led demand recovery in the Mexican airline industry and continues to take full advantage of the rebound in air travel demand. Our capacity expansion has been strategic, and the results translated to higher TRASM, lower CASM and better leverage among publicly traded peers.

Second, Volaris achieved double-digit TRASM expansion of 22% versus 2019 due to its strong operations and ability to adapt to new circumstances with higher capacity, healthy load factors and stronger unit revenue per passenger. We acknowledge that this growth has been partially fueled by unprecedented void left in the Mexican market and pent-up demand, which allowed us to deploy capacity strategically for a fast recovery, and we are budgeting TRASM levels to stabilize as market comes back to equilibrium.

Third, Volaris EBITDAR margin was 41%, which represented the highest margin for the second quarter in the history of the company, a testament to Volaris' ability to turn around and come out stronger for any crisis. EBITDAR of MXN 4.7 billion almost doubled compared to the second quarter of 2019, and such expansion was the result of a strong TRASM and tight controls.

Fourth, in the second quarter, Volaris delivered cash generation of $1.2 million per day, which is above our revised guidance due to a sequential improvement in sales throughout the quarter. EBITDAR growth and margin expansion naturally led to strong cash generation despite a material reduction in accounts payable and deferred rentals. As of June 30, Volaris have cash and cash equivalents of $532 million, which represents 128 days of operating expenses.

And last, the fifth point is Volaris outlook for growth and expansion plans. As the company has recovered operationally and financially to pre-COVID-19 levels, it has also consolidated its lowest cost position and solid balance sheet, which places the company in a very strong position for a growth cycle. We're planning to incorporate 25 new aircraft into our fleet in the next 18 months, maintaining highly productive fleet utilization. The regional aircraft are mainly planned to increase the frequency of flights in the Mexican domestic market and to strengthen our operations in Central America. In my closing remarks, I will elaborate on such growth plan.

Given our strong results, we are leading the recovery in the global aviation industry. It will be challenging to find another airline with a similar operational and financial performance anywhere in the world. Finally, I want to highlight how proud I am of our team's ability to deliver strong results, which are truly best-in-class. Thank you, again, to all Volaris ambassadors.

I would now like to turn the call over to our Airline Executive Vice President, Holger Blankenstein, to discuss our operations. Thank you very much.

Thank you, Enrique. Volaris was effective in ramping up capacity quickly and in the right markets, following a weak first quarter due to the second wave of COVID-19 infections in Mexico and the U.S.

In the second quarter, our capacity recovery continued, and we operated 14% more ASMs than the same quarter of 2019. The U.S. market had a strong recovery as we saw the vaccination rollout contribute to more confidence for international travel. On the domestic front, capacity in Mexico also recovered well especially within leisure destinations. And ASMs were 18% higher compared to the same quarter of 2019. Central American progress was slower and reached 74% of ASMs compared to the second quarter 2019 figures. Going forward, capacity increases will focus on Mexico City and domestic routes while also solidifying our presence in the core markets of Tijuana and Guadalajara.

We plan to launch sites to Colombia in the fourth quarter, and as of June, have already started selling those itineraries. We are on track to launch Volaris El Salvador by the late third quarter to complement our presence in Costa Rica and enable us to take advantage of route rights from El Salvador, the biggest Central American VFR market, to the U.S. Growth in Central America is increasingly important to diversify the Mexican revenue base, generate more U.S. dollar-denominated revenues, maintaining our low operating costs and very importantly, take advantage of market opportunities left by weaker competitors in the region.

TRASM for the second quarter was solid at MXN 1.65, a 22% increase over the same period of 2019, mostly driven by an improved fare environment. TRASM improved while maintaining high load factors, rebuilding the network and solidifying our presence in the main Mexican and U.S. VFR markets. In addition, higher fares were accompanied by better ancillary revenue levels than in the same period of 2019.

For the third quarter of the year, we continue to forecast healthy fares and strong ancillary revenues. That said, as market capacity increases beyond 2019 levels and demand recovers, fares might experience some pressure in the most competitive markets. Volaris network and cost structure are well positioned to deal with fare pressure as 46% of our routes pays little, no air competition. And our operating costs are one of the lowest in the industry.

Ancillaries reached a new record at MXN 785 per passenger. This represents a 53% growth versus the same quarter of 2019. As base fares increased during the quarter, the percentage of ancillary revenues decreased versus the first quarter of 2021 to 42%. During the quarter, Volaris fine-tuned its ancillary bundles with the flexibility combo and a new business combo geared towards attracting more small- and medium-sized enterprises, a strategy which is supported by our stronger presence in Mexico City.

We continue to be excited about dynamic pricing of ancillary products. We have advanced the implementation of that strategy, and there is further potential throughout 2021 and 2022. We have also redesigned the manage-my-booking section of volaris.com, which will enable us to offer even more personalized products to customers after their booking.

Demand in the quarter was exceptionally strong, both in the transborder and the Mexican domestic market, where load factors recovered to 90% and 85%, respectively. In the international market, we are seeing a rebound of travel activities as the vaccination rollout continues and travelers emerge from months-long disruptions to their lives and travel habits. The Mexican heritage population in the U.S. is once again visiting friends and families in Mexico. And the Mexicans are taking advantage of medical tourism opportunities in key U.S. states.

In the domestic Mexican market, demand is focused mostly on beach destinations. We had a strong Easter season with demand continuing well into April and May. Recovery in the business-oriented routes is still behind leisure although it has recently experienced a rebound in demand. Also, remittances to Mexico have reached record levels during the second quarter, supporting our VFR traffic consumer. A further indication of normalization in the market is that no shows, flight changes and advanced purchase days are back to prepandemic levels.

Looking ahead into the third quarter, we continue to observe strong sales for the short term, which is the summer high season. Further our bookings into September and fourth quarter are still somewhat lower than in 2019. However, we have seen a positive recovery lately, helped by promotions that were launched to incentivize demand in those periods. Looking forward, we are encouraged by the current booking curve and the fare levels.

Although vaccination progress in our markets is on track, we are also closely observing new COVID-19 cases in Mexico and the region, given the new, more contagious variants. A surge of cases is a risk for demand in the second half of 2021. Volaris has the flexibility to quickly react and ramp down or shift capacity if required.

One of our pillars of growth is to increase market share by capturing bus travelers. Our ULCC business model provides travelers with a compelling reason to travel with Volaris instead of the buses. COVID-19 not only transformed our industry, but it also transformed our customers and the way they think about traveling. Our efforts during the pandemic to switch Mexican travelers from bus to air are clearly paying off. Customers cite hygiene protocols, travel time and low fares as their key decision drivers. During the pandemic, bookings shifted to mobile devices and e-commerce adoption was accelerated. This faster adoption enables us to reach out to the emerging middle class and the bus switchers.

As Enrique mentioned, we will continue an aggressive strategy of growth and strong operational performance. At the end of the second quarter, we had a fleet of 92 aircraft compared to 78 aircraft at the end of the same period of 2019. In addition, the company achieved high utilization with 881,000 [ASMs] per aircraft per day, which positions Volaris as one of the highest utilization airlines of similar size and aircraft type in the world. This is one of the main pillars of our ultra-low-cost model.

During the second quarter, Volaris flew over 38,000 segments to over 70 different stations in Mexico, the United States, Costa Rica, Guatemala and El Salvador. This was done with a norm time performance of 80% despite noncontrollable factors like weather and air traffic control delays.

Volaris has a permanent commitment to comply with the highest safety standards. After completing the IATA Operational Safety Audit, or IOSA, Volaris will continue working to achieve our eighth consecutive recertification for Volaris Mexico and the first recertification in the history of Volaris Costa Rica. The IOSA considers more than 900 requirements on the airlines' safety and control systems in the following areas: administration and control at the corporate level, aircraft operations, dispatch and flight control, flight operations and maintenance engineering, security, flight attendants, ground handling and cargo operations, among other activities related to quality and safety.

Now I would like to turn over the call to our Chief Financial Officer, Jaime Pous, to discuss the financial performance for the quarter.

Thank you, Holger. I am excited to discuss our second quarter financial results and highlight the strong performance throughout our financial metrics. Total operating revenues for the second quarter were MXN 11.5 billion, a 38% increase compared to the second quarter of 2019, driven by higher ancillaries and ticket revenue.

CASM ex fuel for the second quarter increased by 8% versus the same period of 2019, closing at USD 0.0422 due to higher maintenance and the delivery expenses. Total CASM for the quarter decreased by 3% and versus the second quarter of 2019, closing at USD 0.0631 primarily as a result of lower jet fuel costs. The company continues its commitment to delivering one of the lowest unit costs in the global aviation industry.

Net income was MXN 1.5 billion and net margin was 13.4%. Earnings per share totaled MXN 1.32 and earnings per ADS were USD 0.67. EBITDAR in the second quarter was MXN 4.7 billion, representing an EBITDAR margin of 40.8%, the highest margin for the second quarter in the company's history. This margin was 13.1 percentage points higher from the 28% EBITDAR margin reported in the second quarter of 2019.

For the second quarter, Volaris delivered a cash generation of $1.2 million per day, 20% higher than the revised high end of the guidance, posting a significant sequential improvement of our -- over the past 4 quarters. For the third quarter, we are budgeting cash generation in the range of $1 million to $1.3 million per day. Historically, the third quarter generally consumes cash. So cash generation of this magnitude is exciting for the company. For the third quarter, we are budgeting around $92 million in aircraft and engine rent expenses and $3.4 million in sale and leaseback gains to be accounted as other operating income.

The net cash flow generated by operating activities was MXN 5.8 billion due to the increase in total operating revenues and improved TRASM during the quarter. Cash flow used in investing and financing activities were MXN 800 million and MXN 3 billion, respectively.

As of June 30, cash and cash equivalents were MXN 10.5 billion or $532 million, representing 44% of the last 12 months operating revenue. Of the $260 million of working capital relief, receivable goods and services during 2020, the company has only $18 million outstanding. And by the end of the second quarter, our suppliers and accrued liabilities were equivalent to 62 days of OpEx back to prepandemic levels. Once again, I want to thank all of our suppliers, especially our lessors who have placed their trust in the company.

Volaris has one of the strongest balance sheets among the Latin American carriers. At the end of the second quarter, the company registered a negative net debt of MXN 5.3 billion, excluding lease liability recognized under the IFRS 16 adoption, and total equity of MXN 3.6 billion. The adjusted net debt-to-EBITDA ratio was 4.5x, a similar level as reported in the second quarter of 2019.

Following Volaris' stronger-than-expected performance during the first half of 2021, we will further tighten our schedule to maintain or even improve on the current ASM productivity and fleet utilization. With this, we expect the capacity increase in the third quarter to be in the range of 20% to 22% versus the same quarter in 2019. Considering the uncertainty related to the impact of demand of COVID-19 variance, the company is not providing guidance beyond the third quarter.

For the third quarter, the company's budgeting an EBITDAR margin in the range of 40% to 43% and a cash position as a percentage of last 12 months' revenues in around mid-30s. This guidance assumes no pandemic-related or other material disruptions. Now I will pass it back to Enrique for closing remarks.

Thank you very much, Jaime. The company is committed not only to deliver financial and operational results in the upcoming years, but also to pursue sustainable results based on the environmental, social and corporate governance goals. We have recently issued our first integrated annual report that reflects our commitments to achieve integrated business goals that are aligned with our shareholders and the United Nations Sustainable Development objectives. These goals are focused on our 3Ps strategy: the planet care, the people care and the profit care.

In order to reinforce our commitment to the environment, we have established ambitious objectives for 2026, such as a decrease of 23% on carbon emissions per revenue passenger kilometer and a 22% reduction on jet fuel consumption versus 2015. In addition, in June 2021, Volaris received the membership of the Standard & Poor's and Mexican Bolsa Total Mexico ESG Index for the first time. This index is comprised of the 29 Mexican public companies with the best ESG practices according to the Standard & Poor's methodology.

I would like to spend a few minutes talking about the growth plan of the company. For the last few years, Volaris has worked hard on becoming the lowest cost operator on the continent. The pandemic left a void in our markets, and demand has returned very quickly.

Let me remind you that the market recovery after Mexicana ceased operations happened in less than a year. This is exactly what we are witnessing today. Volaris is best-in-class among ultra-low-cost carriers worldwide with a solid balance sheet, reasonable leverage and opportunities to continue expanding our successful business model.

The question remains how fast can we grow by capitalizing on the opportunities discussed today without eroding TRASM. As a result, the company has been working with a detailed and well-analyzed expansion plan. We're planning to incorporate this 25 new A320neo family aircraft over the next 18 months, closing this year with 101 aircraft and finishing 2022 with 113 aircraft. This would increase the percentage of A320neo family aircraft to 54% by year-end 2022 and is aligned with the company's sustainability strategy.

We will continue to focus on building market presence in our strongest cities, continue our campaign to switch bus travelers, target capacity increases in the most attractive markets and develop additional leisure opportunities. In addition, we plan to expand our presence in Central America with Volaris Costa Rica and El Salvador certificates of operations, and we will expand our footprint to North and South America under the same ultra-low-cost carrier business model.

In preparation for this ambitious growth plan, all related operational activities are underway, including hiring and training of personnel. Volaris has hired over 850 technical ambassadors who share our cultural and ethical values. Moreover, they are going through all the required training so they can begin to perform their duties in the short term within our strict safety standards. To be successful with this plan, we're placing an enormous focus on customer service initiatives and the use of technology to reduce the required time to check in and board our planes while maintaining our biosecurity protocols.

We have demonstrated yet again that the Volaris business model is sound and can deliver superior results. Our team has taken the opportunities that presented themselves from the crisis and we have come out stronger and in a better position to succeed in the market. We are now one of the most profitable airlines worldwide, with more room to grow geographically and in terms of revenue per passenger.

Operator, thank you very much for listening. Please open the line for questions.

(Operator Instructions) Our first question is from Helane Becker with Cowen.

Holger, can you say how high you're thinking ancillary revenues can go per passenger?

Helane, thank you. We are working on continuing to build our ancillary portfolio of products. And we have -- we have now achieved about 42% of total operating revenues. We have a line of sight to the 50% mark. And we are working on getting to an absolute value of $40 and beyond in the near future.

So we are doing 3 things. Number one is building our product portfolio. We've introduced some exciting new combo products geared towards flexibility, towards the business market, small, medium-sized enterprises, for example, and some new insurance products. We're also working on dynamic pricing of those ancillaries. So we have artificial intelligence that helps us price the ancillaries to the right customers at the right time. And then the third one would be to personalize the ancillary product that we offer to certain customer groups, leisure travelers, business travelers, VFR travelers. So all in all, that should take us towards the 50% mark, Helane.

Got you. That's very helpful. And then my follow-up question is on -- as you're thinking about growing -- and I don't know if you want to answer this or if Enrique wants to answer. As you think about growing to new markets and within Mexico, obviously, you've had a big benefit or there's been a big benefit from Interjet's bankruptcy and I guess Aeromexico. How are you thinking about competing with Aeromexico when they emerge from chapter 11 and as you grow your own footprint? I think -- I don't know how you want to answer that with respect to either fares or how you're thinking about cost versus them or capacity versus them. You can pick any one of those.

So Helane, it's a very broad question, but let me try to answer it. We were definitely positioning a lot of capacity into Mexico City Airport. I would say that's the first answer, okay? And a good number of ASMs of what we will be flying, especially in the allocation of the first year, it's going to be directly at Mexico City, and we'll be competing head-to-head with them.

Second thing, I think it's important, going forward, Volaris continues being an ultra-low-cost carrier. Our cost position allows us to price at a very, very effective way, and we'll be competing very, very drastically on prices in Mexico City.

The third point is our cost per available seat mile is back to lower levels, the levels of 2019, especially if you take away the returns of the aircraft. We are basically at the levels that we used to be, and that's really good. And that will allow us to compete in a very effective way versus the -- we think that they will come with a little bit lower cost, but there's still an important difference in terms of costs.

I would say probably the last part, which is really important, is our ancillary model is by far more effective than Aeromexico's ancillary model. And we strongly think that we can use that to improve our total revenue per available seat mile in the way we are managing our pricing strategy for competing versus them.

The next question is from Josh Milberg with Morgan Stanley.

Big congrats on the results. My first question is somewhat of a follow-up just on your growth plan on the 25 aircraft. If you could just comment on how you expect to allocate those aircraft between the markets you serve. And then just also to make sense of those additions in the broader Mexican market context. If you could just give your updated expectations on how you the entire Mexican market fleet evolving. Because I know in the past, you had highlighted that, I think, in aggregate, your competitors have cut their fleet by more than 30%, but that's obviously something that's a fluid situation.

Josh, yes, thank you. So in terms of the aircraft that we are adding to the fleet this year, we have just stated in the past that most of that capacity we're going to put into the Mexico City International Airport, where we see the biggest capacity gap versus pre-COVID levels. We're also going to use some of that capacity to fortify our position in the Pacific Northwest of Mexico, which is Tijuana; the Pacific Coast and Guadalajara and some of the secondary cities around there. And then finally, some of that capacity is also going to be used in Central America as demand grows and comes back to pre-COVID levels in Central America.

We are adding to the fleet this year. We're going to close the fleet in December at 101 aircraft. That represents an increase obviously in market capacity as well. We know that Aeromexico and Viva are also adding capacity right now. We are foreseeing in the next 24 months capacity growth in the market of around 45 aircraft as a whole. So market is coming back into an equilibrium between strong demand in the Mexican domestic market and transborder, but also capacity is coming back.

Okay. Understood. And I think this one is also for you, but I just also wanted to ask if you could comment a little further on some of the factors that contributed to your unit revenue strength in the period. And I think you did highlight the issue of vaccine tourism. Can you give us a little -- can you quantify how big that impact was in the quarter? And then I also wanted to -- just on the ancillary side, I heard your indications about where you expect it to go, but you did have this effect of, I think, products offering greater flexibility getting a boost. And I wondered if with things eventually normalizing, if demand for those type of products could weaken a little bit.

Yes. Thanks, Josh. So in the second quarter, certainly, in April and May, we did see the effect of vaccine tourism, especially to Texas. But Texas makes up only a very small percentage of our capacity around 3% of total capacity. In June and the third quarter, as we move into the third quarter, vaccinations have advanced in Mexico and vaccination tourism to the U.S. has been reduced. However, even though there was a reduction in vaccine tourism, this did not lead to a reduction in demand in the domestic market or in the transborder market and our TRASM in the network. So healthy TRASM even in June and going into the third quarter.

Unit revenues and demand saw a broad-based recovery in all markets, especially in our VFR core business and leisure markets in the domestic market and to the U.S. So we cannot attribute the TRASM increase in the second quarter solely to vaccine tourism. It was more -- much more of a broad-based recovery. So that's on the TRASM recovery in the second quarter.

And regarding ancillaries, we've seen customer uptake certainly of certain insurance products and flexibility combos. We have introduced other combos, for example, the v.business product, which bundles together certain attributes for the small- and medium-sized enterprises, and as business travel emerges again from the COVID crisis. And we have a presence in Mexico City, which has certainly more business focus. We believe that we will continue to see a strong performance of ancillary products going forward.

Okay. And congrats again on the results.

Thank you very much, Josh.

Thanks, Josh.

The next question is from Mike Linenberg with Deutsche Bank.

Yes, great results actually. I guess I have a couple here. Jaime, now that you're guiding to north of a 40% EBITDAR margin and you're generating cash, historically, Volaris has leased all of its airplanes, at what point do you get to the point where you're generating so much cash that it just makes a lot more sense to sort of move around a middleman and buy airplanes for cash and put them on the balance sheet? Are we at that point? Or is that in the not-too-distant future?

We believe we are not in that point, neither this year, not the next one.

Okay. Okay. Okay. Fair enough. Just...

If you allow me, Michael. I mean we -- if we're still getting sale lease rate factors, especially in the 28 aircraft that we did a contract in the last 3 months, which are absolutely astonishing in terms of bidding, the possibility of purchasing -- or bidding, the possibility of financially purchasing aircraft. So I don't see any reasons for next year for doing that.

That's fantastic. We can catch up on those lease rate factors off-line. Anyway, I'm kidding. Just another question here. Just on the unit cost, it does look like, Jaime, as you pointed out, the increase despite the -- in the face of decent capacity growth, you talked about maintenance and redelivery of airplanes. As we move into the third quarter, now with capacity up targeting 20% to 22% type capacity growth, do we get some moderation on the unit cost side or the fact that it does sound like you're getting ready to ramp up pretty meaningfully into a growth phase here?

I think, Enrique, you talked about hiring 800 ambassadors. And so it does look like there's going to be some upfront cost. So how should we think about the cost trajectory, the unit cost trajectory, at least over the next several quarters where you have above-average growth, but it also looks like you have above-average upfront ramp-up costs?

In the same levels of this quarter, Michael, in around the MXN 0.042 per dollar for the remaining of the year.

Okay. Fantastic. And then just lastly, the CAT II restriction, as you think about your plans for the latter part of this year, are you still allowed to add some service to the U.S., whether it's upgauging or maybe some new city pairs that you may have filed prior to the CAT II restriction going into place? And what I'm getting at is whether or not that's going to hinder your ability to add additional seats into the U.S. market in the back half of 2021.

So the answer for that is we do have 84 aircraft registered in our [op specs] in the U.S. and playing with those 84 aircraft and use either the A321s and the A320s as needed and manage our capacity. We today do not have any limitation to operate what we have planned for the next 12 months into the U.S.

The next question is from Duane Pfennigwerth with Evercore ISI.

So I was trained in this business to never be the one on the call that says, "Hey, guys, great quarter." I literally never utter those words, but I have to make an exception this morning and echo Mike's congratulations to you.

Thank you very much, Duane.

So listen, let's talk about yields, right, because there was a lot of chatter coming into the quarter. I think one competitor actually published some notes ahead of the 2Q about kind of advanced book yields being down. I don't know if you ever saw that, but maybe you could just talk about like the progression of yields through the quarter, what the advanced book yields looked like versus how they turned out. And was this all close in? And if it was all closed in, how much of it was domestic versus international? Because boy, whoever that was that created a yield concern coming into 2Q, that was way off base.

Well, Duane, yes, certainly, we did see quite a lot of last-minute demand in the second quarter. It really started in April and May after the high season of Semana Santa. We continue to see very strong last-minute sales in this quarter. And then for the quarters going forward, what we've seen is a recovery of advanced purchase. So a lot of stimulation of demand, especially for the high season now for the third quarter.

And we are working very diligently to build that base load factor for the fourth quarter, which is still slightly behind 2019 levels. But we've been pushing a lot of promotions to build really that far-out demand, which has been there, has been coming along nicely. As we go into the third quarter and the market comes back into equilibrium, we might see some emerging fare pressure in some of the higher, more competitive markets, but we are certainly well positioned to deal with that. And the booking curves for the third quarter look quite healthy right now.

Okay. I guess just not to play back the past, but where would you say you were more surprised about closing yield strength? Was that a domestic or an international dynamic? Were you spilling traffic in June? Where could you have used more aircraft?

No, certainly, it was a broad-based recovery. It was in all markets. I think that was the surprise. It was so broad-based that we saw a strong leisure demand in the domestic market, VFR demand in our strong cities in Tijuana and Guadalajara, but also traffic to the U.S. came back very, very nicely.

Yes. Okay. And then I appreciate the detail in the release, and you said in your comments as well about the limited remaining supplier deferred payments. It's basically all cleaned up at this point. Do you have any metrics on payables or deferred payments for your primary competitors in Mexico?

We will need to wait until they report the second quarter and get those to you. But I think the number and what we accomplished during the first half of this year, it's amazing play. Just having $80 million from the more than $266 million that we obtained in relief last year, I think it's an excellent achievement and considering also the level of cash that we're generating during the second quarter.

(Operator Instructions) The next question is from Pablo Monsivais with Barclays.

Congrats on the results. Just thinking about the next 2 to 3 years, do you think that the air travel demand and your ability to recover can imply that you are able to grow your capacity by, say, 15% to 20% growth per annum? And my second question would be, if that high growth pace extends beyond 2021, 2022, 2023, how do you see your margins to be? Do you think that the current level of 40-ish percent is a sustainable level or after taking -- excluding the delivery cost, we're expecting perhaps a lower margin of 35%, which is already very high?

So let me answer your first question, which is related with capacity. I think what we're doing this year and probably for the first half of next year, is basically filling the gap of the capacity that was left over by some of the competitors. So clearly, we see that the growth in terms of ASMs for this year is high, and we see it for next year being still a little bit high. And when I mean high, it's out of the logical trends, okay? Down the road, we see ourselves growing our ASMs in a much more linear weighted similar to what we did in 2018 and 2019.

When it comes to margin, I think, Holger has given a great explanation of that we are seeing orders which are high TRASM and still, the capacity is coming back from all the competitors, but we see that capacity aligning back during the fourth quarter and during the rest of the year of next year. So we are expecting those margins to be a little bit better than 2019, but not at the levels that we're seeing right now.

Perfect. And just a follow-up on that. If we fast forward this, say, to 2022 and '23, do you foresee any capacity constraints that you might have perhaps in Mexico City Airport? Or I don't know, what is the risk that we're seeing right now that perhaps will derail you to keep growing at such a high pace?

It's obviously a matter of demand, okay? But Pablo, let me put the brakes a little bit on your question, okay? We are still thinking about the third wave coming, okay? So I'd rather stop speculating on the following quarters until we really see what happens in the rest of the world, okay? We think we have the fundamentals to continue growing in a rational way, and we do have the market to continue growing in the right way. Although we think that [ASM] will inevitably be constrained and saturated down the road and the problem will be back exactly the same way it was before the pandemic, okay?

The next question is from Roberta Versiani with Citibank.

Just a quick one on my side. You mentioned the growth expectation in Central America. And I was wondering if you could elaborate a bit more on your strategy in both Central America and South America. And especially, what are you seeing on the competition front in those areas? What are the expectations right now?

Thanks, Roberta. We have a franchise in Costa Rica called Volaris Costa Rica, which currently operates 2 aircraft, intra-CAM to Mexico and to the U.S. We're planning to add one additional aircraft there in the later part of this year to come back to pre-COVID levels. In addition, we are starting Volaris El Salvador in the fourth quarter of this year. So we will have the ability or the traffic rights to connect El Salvador more directly with the U.S. without the use of fifth freedom through El Salvador, which will give us new avenues of growth in Central America. And in addition, we're looking towards building certain routes to South America, with Bogota being the first destination in South America from Volaris Mexico and eventually from Volaris Central America as well. Maybe just to add, we have publicly stated in the past that we see a potential of between 18 and 22 aircraft in Central America in the medium term.

Okay. That's great. And regarding competition, anything that you'd like to highlight to us?

Well, just to remind everyone that in Central America, there is no ultra-low-cost carrier apart from Volaris operating, and we do see the potential to stimulate demand with lower fares in the region.

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

I want to express my sincere gratitude to all of you, most especially to our family of ambassadors, the Board of Directors, our investors, our bankers, our resource and our suppliers. It's been a very difficult time that we think with the help and support of all of you and the commitment of this team, we've gotten up to this exciting position with such a unique opportunity in our markets. Thank you very much again to everybody. Thank you for all the support you gave us during these times. And now I think we are prepared for this tremendous encore.

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