Controladora Vuela Compania de Aviacion SAB de CV (VLRS) 2021 Q1 法說會逐字稿

Good morning, everyone. Thank you for standing by. Welcome to Volaris First Quarter 2021 Financial Results Conference Call. (Operator Instructions) Please note that this event is being recorded.

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

Good morning, everyone, and thank you for joining the call. With us today is our President and CEO, Enrique Beltranena; our Airline Executive Vice President, Holger Blankenstein; and our Chief Financial Officer, Jaime Pous. They will be discussing the company's first 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 the U.S. Securities and Exchange Commission and the Comisión Nacional Bancaria y de Valores. Furthermore, Volaris undertakes no obligation to publicly update or revise any forward-looking statements.

It's now my pleasure to turn the call over to Volaris' President and CEO, Mr. Enrique Beltranena.

Thank you very much, Maria Elena. Thank you very much to everybody for joining us today. There are 5 key messages I would like to emphasize this morning. The first one, in the first quarter of 2021, Volaris demonstrated its ability to adjust capacity to match demand with a focus on rebuilding total revenue per available seat mile after the second wave of the pandemic.

Throughout the first quarter, Volaris demonstrated flexibility and promptly adjusted capacity in face of a volatile demand environment. We finished the quarter operating 88% of the ASM capacity flow in the first quarter of 2020, exceeding the guidance of 80% provided in our last call and far better than any public operator in North America. For the month of January, capacity measured by available seat miles was 97% of the same period of 2020.

After the Christmas holiday season, specifically in mid-January, we observed an increase in COVID-19 cases both in Mexico and in the United States, which negatively affected the demand for air travel. Even more so, when stay-at-home city orders and travel restrictions were enacted. Soon as the restrictions were implemented, during February, we drastically reduced total capacity to 75% of ASMs versus the previous year.

Moreover, we shifted 35% of our international capacity back to the Mexican domestic market, which proved to be the right course of action. As we observed a pickup in demand, we reinstated capacity for March, operating total capacity at 93% of ASMs versus the same period of last year. This capacity increase was mainly driven by domestic market where we operated 105% of the ASMs. Our active capacity management allowed us to dramatically improve fares and provide opportunity to stimulate ancillary revenues.

At the first signs of recovery in March, our agility allowed us to capture the rebound in demand through higher capacity, healthier load factors, strong unit revenue per passenger.

To put our flexible capacity management into context, TRASM increased over 70%, 70% from early February to late March. I'm proud that as a team, in the quarter that is seasonally challenging, we were one of the very few airlines in the world that delivered 93% of capacity versus the first quarter of 2020, with only a single-digit of total revenue per available seat mile contraction year-over-year, bearing in mind that the pandemic started to affect Mexico only in the second half of March 2020.

My second message is that Volaris continues to take strict measures to prevent liquidity, closing the first quarter with $423 million in cash and cash equivalents. For the first quarter, we delivered a daily cash burn that is 23% lower than our original guidance, which Jaime will detail. It is worth highlighting the strong cash generation provided by our successful 15th anniversary promotion, which surpassed last year's sales despite the pandemic.

In the face of the traffic reduction in February, we went one step further in our cash preservation strategy. During the first quarter, we targeted an additional working capital relief of over $100 million. I want to thank you, our suppliers, for their continuing support to Volaris in all these months of the crisis.

My third message is that we remain focused on maintaining our lean cost structure with one of the lowest unit costs in the global airline industry. Despite the capacity adjustments throughout the first quarter, we kept costs under control. The company achieved cost per available seat mile ex fuel of USD 4.78 for the first quarter of 2021, which is probably one of the lowest in the world.

Talking about cost and focusing on the environmental perspective, in the first quarter, we incorporated an additional A320neo aircraft to our fleet, closing the quarter with fuel-efficient NEO aircraft, representing 36% of our total fleet.

The fourth message is that our recovery is gaining momentum. And in the first quarter, we focused on strengthening the foundation of our long-term growth. The vaccine rollout in the U.S. and in Mexico have gained momentum in our markets, and confidence in the air travel is returning finally to our system.

Volaris' recovery is unique in the world. Our competitors scaled down to an aggregate reduction of 30-plus percent of the Mexican fleet. For years, Volaris has been preparing itself to have the lowest unit cost and a strong balance sheet in order to see such an opportunity. As a result, and looking at the demand coming back, we executed agreements to incorporate 8 additional A320neo aircraft to our fleet in 2021. This additional capacity will be deployed primarily to strengthen our leading position in the Mexican domestic market.

My fifth message is that our priority for the second and third quarters is to accelerate Volaris' recovery with profitability and ensure a solid infrastructure to support this growth. In the first quarter, our network strategy was focused on defending profitability and preserving liquidity. Our March 2021 figures and our capacity management, the flexibility that we provided to the network were a testament to the Mexican domestic market opportunity and to Volaris' potential to expand its international network as the United States and the Central American markets recover.

Furthermore, our priorities for the remainder of the year are: first, generate consistent growth for our investors with actions in line with our sustainability program; grow and consolidate our leadership in core markets while increasing presence at Mexico City airports; accelerate the return and expand our operations in Central America; ensure a solid corporate infrastructure with the highest industry standards on training and safety as well as technological tools to foster our commercial and administrative needs for sustainable growth; maintain a peaceful labor environment with productive and flexible terms and conditions; and finally, preserve our solid capital structure balancing short-term liquidity with the right long-term funding to support our growth.

Having said this, let me pass it over to our Airline Executive Vice President, Holger Blankenstein, to comment on revenues and the commercial strategy and to provide you guys a guidance on capacity for the following months. Holger, please.

Thank you, Enrique. The first quarter had 2 distinct periods, with the first half being very challenging in terms of demand, but the second half had a meaningful pickup as COVID case counts declined and vaccination rates in the U.S. accelerated. We reacted fast to the second wave by reducing capacity at the end of January and into February and reinstated capacity during March and April to take advantage of the improvement in customer confidence, driving demand.

Proportionately, we reduced more capacity in the U.S. market in January and February. The Mexican domestic market demand held up much better. The capacity and load factors represent one of the fastest recoveries of any airline worldwide while, at the same time, improving TRASM.

Total ancillary revenue per passenger reached a new record high of almost MXN 768 for the quarter, an increase of 36% year-over-year. Non-ticket revenue accounted for 49% of total operating revenues, driven by the resilience of our ancillaries and other initiatives.

In this quarter, our ancillaries matured well, especially those products we launched last year at the height of the pandemic, such as flexibility options. We're also seeing the payoff of our new website, which makes it easier to purchase ancillaries for our customers.

Finally, the artificial intelligence-based ancillary revenue management tool has performed well and allows us to maximize revenues through price and demand optimization.

Our operational performance remained strong. In terms of operational reliability, on-time performance was 91% for the quarter, schedule completion was 93% for the same period. Since the low point in February, we have seen a strong market recovery with strong last-minute demand across the board. Booking curves for the second quarter are solid despite significant additional capacity we added to our network, although booking windows remain shortened relative to those pre-COVID.

We are seeing a slow return to normal booking behavior as customers make plans for spring and summer travel, especially in our core VFR and leisure segments. Pent-up demand is evident with domestic leisure bookings recovering above 2019 levels.

Beyond our own bookings, we are seeing encouraging data points in the broader economy in Mexico and the U.S. A testament to positive demand momentum was our Volaris anniversary promotion. During the first half of March, we held Volaris' annual anniversary sales promotion, typically the biggest promotion of the year. This year, the promotion surpassed both last year's and 2019 record sales, favoring the company's liquidity position.

Whilst the case counts have declined dramatically in both the U.S. and Mexico over the last 2 months, we are vigilant in monitoring any potential rebound in cases. Volaris has already demonstrated its ability to react fast, to match capacity with fluctuating demand. And in a third wave scenario, we'll again deploy flexible approach to capacity as we did in the first quarter of this year, including redeployment from affected markets into those which are more resilient.

Now moving to avenues for growth. The majority of our growth for the remainder of the year will be focused on the domestic and U.S. markets, where we are seeing strong demand recovery. In the domestic market, we recently opened for sale 2 new previously unserved routes, connecting Mexicali and Morelia to Cancun. Volaris will continue to monitor the markets and take appropriate action to deploy capacity where we see demand.

We have seen recovery in the U.S. market, particularly in 3 segments: Northbound leisure, mainly to Texas and Nevada; Southbound leisure, mainly to the Mexican beach destinations; and VFR demand across-the-board, with the last 2 segments gaining momentum along with the vaccine rollout.

In Central America, we see market opportunities arising from the capacity reductions of regional key players and also an increase in the customers' confidence to travel to the U.S. However, due to different entry requirements into Central American countries, demand is still subdued. We expect a pickup shortly as countries streamline and ease entry requirements for travelers.

Also, remember that Costa Rica, in which Volaris Costa Rica is based, regained FAA Category 1 status, which gives us the opportunity to restart growth in Central America.

One other avenue of growth for this year is the opening of new markets for Volaris, such as the recent request to operate Colombian routes. To round off the itinerary that we can offer from Central America, we are adding Volaris El Salvador to our portfolio of air operator certificates. We plan to launch Volaris El Salvador by the second half of the year and expand operations to the U.S.

We continue to build demand from bus switchers. And this quarter, we have launched an in-depth market research study to better understand the bus customers. No shows on Volaris flights have returned to normal pre-COVID levels. Flight cancellations due to itinerary changes are also reducing. The outstanding balance of vouchers has diminished rapidly by the end of the quarter.

Our proficiency in managing this recovery is a reflection of the ability to transform ourselves. There is no place where the transformation is clearer than in the digital side of the business. I talked about the record-setting anniversary promotion. A big part of this success is intertwined with one of our boldest decisions during the pandemic to completely renew our most important storefront, our website, volaris.com. After totally renewing the website, we are doing the same with the Volaris app. During the pandemic, the traffic shifted to mobile devices, and the e-commerce adoption was accelerated.

This is great news to enable us to reach out to the emerging middle class and to bus switchers. Smartphones are the most popular device used to connect to the Internet in Mexico. 92% of the Mexican Internet users connect regularly through smartphones. We will continue our app refresh before the summer period, and it will include personalization, user experience enhancements, more upsell capabilities and other state-of-the-art features in a project that is being implemented with Google consultancy.

We have a continuous digital deployment methodology with an aggressive pipeline of development, which includes, for the second quarter, new v.club families to boost ancillary revenue, a launch of WhatsApp notifications to communicate changes and disruptions to customers in real-time and self bag drop modules for airports.

The integrated chatbot for digital customers continue to enhance customer experience as well as promote cost reductions. And over 78% of our digital interactions are now handled by our chatbot without human intervention. I'm happy to announce a call center zero project, which we plan to become the first airline without a traditional call center and move all customer service to more efficient digital messaging channels and social media. This will facilitate both cost reduction for the company and better service for customers.

This month, the Volaris trademark received the famous trademark brand recognition, which sums to the achievements made during our first 15 years of operations. This is an endorsement of the company's commitment to strengthening its brand in the market and creating a valuable asset for our shareholders. To celebrate with our passengers the 15 years of building one of the most valuable brand in Mexico and to celebrate the rebound of tourism in Mexico, we are launching a big Volaris promotion to thank Volaris customers for this recognition today.

As Enrique mentioned, our strategy has returned to playing offense. For the second quarter, we will continue to adapt within that demand environment. We intend to operate approximately 110% of capacity, as measured by ASMs versus the same period of 2019. This puts us back to the full potential of fleet productivity in terms of ASMs per aircraft per day, and one of the highest productivities of similar stage length carriers in the world. Volaris is now well positioned to take off and look for long-term growth opportunities.

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. Now I will continue the discussion of our results in accordance with the figures filed with the Securities and Exchange Commission and Comisión Nacional Bancaria y de Valores.

I am excited as our recovery continues, and our focus is now shifting from stabilizing the company's financials to creating value while returning to profitability, generating cash and starting to grow again.

From a seasonal standpoint, the first quarter of the year is historically Volaris' most challenging in terms of profitability, and this year it was aggravated by the pandemic's impact on demand, especially during February. Total operating revenues for the first quarter were MXN 6.4 billion, representing 89% and 82% of 2019 and 2020 total revenues reported in each period, respectively.

CASM ex fuel for the first quarter increased by 15.7% versus the same period of previous year, closing at USD 4.78. This increase is explained by the capacity reduction implemented during the quarter. All other controllable cost items are in line.

Total U.S. CASM for the quarter went up 5.6% versus the first quarter of 2020, closing at USD 6.60, also as a consequence of the decrease in capacity. Please note that decrease versus the fourth quarter of 2020 is driven by higher jet fuel prices and lower capacity. Volaris is still one of the lowest unit cost operators in the world. This lowest cost structure is the backbone of our sound business model.

Moving on to profitability numbers. EBITDA in the first quarter was MXN 1.3 billion, resulting in an EBITDA margin of 20%, which compares with 27% in the same period of 2020. It is important to note that the 2020 quarter was not significantly impacted by the pandemic.

EBIT in the first quarter was a loss of MXN 739 million, representing a negative EBIT margin of 11.5%. Net loss for the first quarter was MXN 733 million with a negative net margin of 11.4%. Volaris has the strongest balance sheet profile among the Mexican carriers. At the end of the first quarter, the company registered a negative net debt of MXN 3.2 billion, excluding lease liabilities recognized under the IFRS 16 adoption and total equity of MXN 1.2 billion.

As of March 31, 2021, cash and cash equivalents were $423 million, representing 42% of the last 12 months' operating revenues. In our last call, we guided for an average daily cash burn of $1.2 million during the quarter. But we overdelivered, keeping that figure to approximately $900,000 per day, a result of our strong sales during March.

In this quarter, Volaris repaid approximately $142 million of working capital relief, received on goods and services provided during 2020. Also during this quarter, $100 million of additional working capital relief was achieved through agreements on new payment profiles with our lessors, in line with our liquidity preservation program.

Contrary to other Mexican carriers, by the end of the first quarter, our suppliers' liabilities were equivalent to 22 days of OpEx and on a path to pre-pandemic level. As a guidance, we are budgeting up to 100 total aircraft by year-end; EBITDA margin for the second quarter, in the high 20s; an average daily cash burn for the second quarter of approximately $600,000 per day; and reaching cash flow breakeven or even positive in the fourth quarter of 2021; finally, CASM ex fuel level similar to 2019 by the end of this year. Our focus today continues to be cash preservation and return to profitability.

During the first quarter, the company incorporated 1 A320neo, ending the quarter with a fleet of 87 aircraft with an average age of 5.5 years. For the remainder of the year, we expect to receive 3 new aircraft from our purchase order with Airbus. In addition, as Enrique mentioned, we plan to incorporate 8 additional A320neos to our fleet in 2021 through straight operating leases.

Additionally, we extended for 12 months the leases of 2 A319ceos, which are currently contributing to fill the void in the market. The company is currently evaluating further market opportunities and incorporate additional healthy capacity. As a general guidance, the 8 neo aircrafts are budgeted to be neutral into TRASM and CASM levels. The plan with this aircraft is to reinforce core market, so as a result, 80% of its utilization will be in our current core network, especially reversing capacity in Mexico City.

Note that the leverage measured by adjusted net debt-to-EBITDA will have a temporary impact of around 1x, gradually returning to neutral levels over a 12-month period.

Our neo aircraft transition plan continue driving fuel efficiency towards a lower CASM and support our environmental commitment since this aircraft post an average combined fuel efficiency of 20% per seat and nearly 50% reduction in engine noise and nitrogen emissions, which are 50% below the current industry standard. We expect approximately 42% of our fleet to be fuel-efficient A320neo family by December 2021. The company is committed not only to deliver growth during the next years, but also to reduce our carbon footprint and to continue tying our business with our local communities. To better convey our ESG commitment, we will release an integrated annual report along with our 2020 Annual Report.

Now I'll pass it back to Enrique for closing remarks.

Thank you very much, Jaime.

We believe March was an inflection point in terms of passenger demand and TRASM levels. Looking ahead, assuming that the passenger demand recovery trend holds, we see a path to returning to operating profitability.

Important to recall you, that when Mexicana went bankrupt in 2010, the market quickly absorbed the capacity void, and in less than a year, the passenger levels have bounced back. Back then, Volaris took fast and efficient advantage of that market opportunity. Here we are, once again. We are quickly recovering our capacity, carefully managing the ramp-up costs. As a team, we are obsessed to finding ways to increase efficiency, drive productivity, but our important target of growing the company is here today and we will take advantage of it.

I want to express my sincere gratitude to our family of ambassadors, the Board of Directors, investors, our bankers, lessors and suppliers for their commitment and support that has gotten us to this exciting position with such a unique opportunity in our markets. We are at the beginning of the runway, and we will start growing back again.

Operator, please open the line for questions.

(Operator Instructions) We'll take our first question from Helane Becker with Cowen.

Can you hear me?

Yes.

So kind of still wondering how much ticket pricing pressure there is in the market and how you're thinking about getting yields back to 2019 levels? Or I don't know, if demand is really strong, are you thinking about it from just raising ticket prices?

Helane, so there's a couple of things happening with ticket prices. In the first quarter, clearly, demand was relatively low, and to stimulate the remainder of demand we reduced yields and ticket prices. We did make up some of that loss with ancillary revenues. As you see, our ancillary revenue percentage is now close to 50%. As we move into the second quarter and we see strong last-minute demand, we are able to improve the pricing environment for our ticket, and we're seeing higher ticket prices on that last-minute demand.

Into the summer, we are seeing relatively optimistically into the summer with strong booking curves, and we believe that we will be able to recover some of the pricing environment in the market. For TRASM in the second quarter, what we're now looking at is returning close to 2019 levels for the second quarter, which is earlier than we had expected.

We'll take our next question from Duane Pfennigwerth with Evercore ISI.

The line was a little bit difficult to hear for a period of time. It might have just been mine, so I apologize if I ask you something that you've already communicated. But it looks like 2Q, 3Q schedules are showing about up 10% in capacity year over 2. Can you just sort of update us on your latest thinking on capacity in the next couple of quarters?

Yes, Duane. So for the second quarter, we are currently seeing 110% of 2019 capacity. And this will put us back to the full potential of our fleet in terms of ASMs per aircraft per day with its respective impact on CASM. And this is one of the highest productivity of any stage length -- similar stage line carrier in the world. For the third quarter, Enrique and Jaime mentioned that we are adding 8 additional aircraft, so we should see higher growth for the second half of the year.

Got you. And then just competitively, we watched our web tracker data pretty closely. And I don't know, for a couple of months now, Mexico has been up relative to '19 on that web tracker. And it's really the only region that we see that level consistently, you and your peers. And so I guess, the question is, what are you seeing competitively in terms of discounting further out on the booking curve, maybe operating for cash generation as opposed to sort of RASM maximization?

And then you touched on it in Helane's question, it sounds like close in, you're able to sort of yield up. But if you could just comment on Q2 and to the extent that there are forward yields that are kind of below what you think they might need to be.

So on the market capacity side, Duane, just as a reminder, the market is -- still has a gap of around 50 Volaris equivalent A320 in order to backfill the capacity that was left by weaker competitors. That's on the capacity side. So yes, we are recovering fast. All the other competitors are also recovering.

Sorry, it wasn't a capacity comment. It was actually a web tracker activity comment, right? So activity, which we think is a pretty good proxy for bookings, is up year over 2. Not capacity, sorry about that.

Right. And on the demand side, at the current rate of recovery, we are optimistic that demand will completely recover this year, especially in the domestic market and with the gap quickly closing as well in the U.S. Mexican market. We are seeing some points of strength, which are the leisure destinations in Mexico, both in the domestic market as Mexicans go to the beach destinations, but also Southbound by U.S. carriers into the leisure destination.

And then we've also seen quite a strong recovery of Northbound traffic, both on the VFR side and the leisure destinations in Texas, Nevada and California. So even on the international side, in our core markets, we are seeing a relatively strong recovery.

Sorry, just to put a bow on that -- go ahead, sorry.

Duane, I don't know if you heard me that, yes, I mean, the shift in terms of TRASM from February -- from the beginning of February through the end of March was 70% up.

And that's precisely a testament to that last-minute demand that we're seeing. As you mentioned, the further out bookings are still somewhat soft, are improving as travel confidence returns, but are still softer than what we saw in 2019. That is being compensated by relative -- very strong last-minute demand, which enables us to yield up. And that's what I was mentioning to Helane. We're seeing TRASM recovery to 2019 levels with that strong last-minute demand.

Our next question from Josh Milberg with Morgan Stanley.

Congratulations on the phenomenal results. Just on this -- and sorry to insist on this, but just on this TRASM performance, and that was a pretty remarkable kind of turnaround from early February to March. But I was just wondering if you could talk a little bit about how your performance varied between domestic and cross-border U.S. on the yields and the unit revenue. And then also maybe a little bit of a comment on just how the Easter high season played into that, the question of the rebound. That's my first question.

On the domestic-international split, the international was definitely weaker in the first quarter with some rebound in the late quarter -- in the late weeks of the quarter. We are now rebounding into April and March -- April and May. You've maybe seen the schedules, we've added approximately 30% more than 2019 into the U.S. market, and we're seeing a strong rebound of international more in the second quarter than in the first quarter.

The domestic has held up better in the first quarter, and it continues to be relatively strong in the second quarter with that very strong last-minute demand that I was already mentioning in previous questions. The Easter high season saw the same profile with very, very late bookings, I would say, in the second half of March, materializing into the Easter season, which was the last week of March and the first week of April this year.

That's great. I appreciate that detailed response. And then the second thing I wanted to raise with you guys was just on the big fleet addition. Obviously, that's a major sign of confidence. I imagine that it may also be driven by the interest of getting ahead of some of your competitors. And I just wanted to, one, ask you if you could -- you did mention in the release that one impetus for that move were the favorable leasing market conditions. And I was hoping you could just give some detail there, and if you could also just talk about what you're seeing from your competitors on the fleet side.

And I think that there was even a recent report suggesting that Interjet is looking at restarting its operation. I don't know if you can comment on that development. But maybe, if nothing else, you could give a little bit of a comment on what you're seeing from competitors in general on the fleet side.

So as we have explained, I mean, the process of Interjet disappearing from the market and Aeromexico restructuring, we've seen more than 33%, 34% of the fleet leaving the market, okay? We went out, and initially what we have looked at was a possibility of doing power-by-the-hour leases on traditional ceo aircrafts.

But as things start evolving, the company was able to get very good rates on A320neos, and those aircrafts are here to stay for the next 10, 12 years. We decided to take advantage of that. The idea of having power by the hours at the beginning was good because we didn't know what the market was going to be and the recovery of the market. But with the progress of the vaccination and everything, we see the market recovering faster now. And as a result of that, we decided to go ahead and hire those 8 aircraft on a permanent basis, rent them on a permanent basis, straight leases, and as I said, with very good, I would say, lease rate factors, okay?

Speaking about our competitors, I would say Aeromexico remains on its plan, shrinking down to somewhere around 82, 83 shelves through the end of this year. We have seen -- we know where VivaAerobus is. They added a total of 13 A321 from January '20 to December '21, and that was compared with 15 aircraft from Volaris. We have heard rumors that they are in the process of trying to bring 5 new shelves by the end of the year. That's still not contractual.

The rest of the market, Aeromar continues being very constrained, and we have basically no news from TAR, but we know they're financially very strong.

Question from Stephen Trent with Citi.

Two quick ones for you guys, if I may. The first is, could you remind me what percentage of your tickets pre-pandemic were refundable and whether or not that might change going forward? And that would be my first one, if I may.

Sure, Steve. I mean, when we started the pandemic, if you look for March to March, we issue around MXN 3 billion in vouchers. Remember that we provided the customer the option to get the cash refund, to get a voucher plus 25% or to change the ticket without any charge. From those MXN 3 billion that we issued, there's only remaining MXN 372 million that they haven't billed in.

Okay. That's super very helpful. And just the second thing real quickly, certainly given, your very good competitive positioning, how are you thinking about acquisitions longer term? I mean, I don't really mean other airlines, but you talked about the chatbot and boosting your app. Do you see anything acquisition-wise on the electronics side or carbon capture type programs or something like that longer term? Just would love your thoughts on that.

Look, Steve, we are focused on our own business and developing our own business and growing our own business, pushing it up to 100 total aircraft by year-end, improving our EBITDA margin for the second quarter in the high 20s, protecting our daily cash burn for the second quarter. We have a high focus on that. And Jaime has promised us a great achievement if we get back to our cash levels of 2019 in the second quarter. I would like the entire team to be absolutely focused on these 4 priorities.

Our next question from Mike Linenberg with Deutsche Bank.

Jaime, I want to go back to the comment that you made about EBITDA in the high 20s. Was that June quarter? Or is that full year? Or is that year end?

The entire second quarter, Michael. June quarter, yes.

Okay, okay. That's helpful. And then let me just see here. Jaime, you said that you're budgeting for 100 aircraft. Enrique, I heard you say 100 or maybe even more. We now know that you have 98 based on the press release from 2 days ago, but that press release also indicated that you're evaluating further market opportunities to add additional aircraft. So I guess it looks like that maybe you're looking for another 2 or maybe you're looking for more.

So one, can you give us a sense of how many more airplanes? And maybe it's only 2, but then what are the additional opportunities? It looks like these 8 are the Mexican market. Are these additional for Central America, International or U.S.? Or...

So Michael, the way we work this is we went through a process of evaluating market opportunities one by one. Once we have the total ASMs, we drove back to the number of aircraft that we needed. And that's how we arrived in terms of certainty to (inaudible). We see more opportunities, but we want to be cautious and cautious in the way we see the demand recover and cautious in terms of what the third wave could be, okay?

So as a result of that, we are playing safe with these 8 aircraft. We are absolutely convinced that it's lower than what the market needs, but that doesn't mean that given the process of ramping up the demand in the next 3 months, we will probably come back and tell you guys that we are doing something else.

Absolutely, the absolute focus, as Jaime said, is going to be, to put those shelves back into the Mexican market. But we see additional opportunities both into the U.S. and the Central American markets. And I think we want to keep ourselves the flexibility based on demand, and remind you guys that the capacity gap is of about 50 shelves of Volaris' equivalent A320s to backfill the gap that was left by the weaker competitors.

And then I think the very important statement that I made at the end, in 2010, when Mexicana left the market, it took the market about a year to fulfill the bucket that Mexicana left. And we did it very well by 2010, and we want to do it very well again this year.

Okay. Very good. A question, this is back to Jaime. I had a question about the -- your monetary liability position. Last quarter, we saw the peso -- so the December quarter, I should say, we saw the peso actually appreciate nicely versus the dollar, and you took a sizable gain. We then saw a reversal in the currency, and yet you still took a gain. It was a much smaller gain. And so I just -- historically, I thought that you had a sizable dollar asset that more than offset your dollar liability. What -- has there been a change? Or...

No change there, Michael. There's no change there.

And it's just the way it's balanced out in the movement of the currency? Or...

It's because the bounce was, in the first part, much heavier than the second part, okay? But in reality, there's no changes. The position of the company in terms of dollar on the balance sheet remains pretty much the same.

That's correct.

We'll take our next question from Rogério Araújo with UBS.

Congratulations on these very strong results. I have a couple. One is can you talk a little bit about the main drivers for ancillary revenue? Last quarter, you had mentioned some of -- some new service operations to consumers, like insurance, flexibility, fare combos, COVID-19 testing. So is it the same that are driving ancillary revenue up?

And then your view on the sustainability of this level of ancillary revenue going forward, only for us to have a better view when the market normalizes. If we're going to have yield improving, but at the same time, ancillary revenue decreasing? Or if for somehow you can sustain higher ancillary revenues after market normalization? That's the first one.

So on the ancillary question, yes, we are seeing a lot of uptake on the product that we launched during the pandemic, mostly around flexibility and some of the insurance combos, absolutely. And we are seeing the full run rate of those products in this year with the uptick in ancillary revenues. Our intermediate target is to get to around $40 per pax. We're now at $37. As we grow the international schedules, where there's typically more purchase of ancillary products, that should be achievable. That's in our pipeline.

Now having said that, as the base fare increases into the high season of the summer and recovers for the remainder of the year, the percentage of ancillary revenue as a percentage of total operating revenue might go down somewhat. We're targeting right now to remain above 40%, probably around 42%, 44% for the remainder of the year. But that's mostly attributable to the rise in base fare.

We also continue to develop our dynamic pricing scheme for ancillaries, which has been tremendously successful, with some artificial intelligence tools to predict pricing power of certain ancillary products for certain customer segments. And we're also working very hard on personalizing ancillary offers for certain customer segments.

Okay. Pretty clear. So my second question is on the slots from Interjet in the major airports in Mexico, mostly Mexico City. Are they available already to other players? So when you say you're taking advantage to add this capacity, you are already taking those slots? Is that a fair view on that matter?

Basically, the slots are owned by the airport. They are not an asset from many other airlines. Obviously, you get the right of use. So far, whatever we have requested for the summer season has been granted to Volaris.

This is still at a space compared to the operations that were taking place during 2019. Obviously, in peak seasons like the Easter holiday, it got almost to the level. But so far, they run the slots on a season basis. We have run whatever we had requested. There's an exception of the use it or lose it rules on the AITA rules, which I believe is going to expire in the summer. The exception was mostly due to the COVID situation. But in order to be able to get the slot, you also need to be current on any [debt] that you have with the airport. So we believe that there's still some space to continue growing on the slots.

Okay. And every time you get those slots, it's -- if you continue flying them, it's guaranteed that you're going to remain with those. Is that correct?

It's not guaranteed. You need to use them and operate it on time. If you don't comply with the use of the time, you will lose them.

Okay. Great. And one last thing, if I may, on the cost of leases. So almost 10% of your fleet is going to be under these new contracts by year-end. Should we expect a reduction in the average cost of lease per aircraft?

In those 8 aircraft, yes, there's a reduction. But remember, it's sale of almost 98. We're real economic -- really good economic terms of those 8 aircrafts.

(Operator Instructions) We will move next with Pablo Monsivais with Barclays.

I have 2 quick questions. The first one is, it looks to me that you have more aggressive approach in terms of your expansion in Mexico City. What types of routes are you looking for to cover there? Are you looking for more the VFR, the leisure to strengthen the Mexico Cancun or Los Cabos? What's your games plan for your expansion in Mexico City? That will be my first one.

And my second one is a bit on the -- on your plans to expand in Colombia, Salvador. Where should we -- what should we expect from those plans in the next couple of quarters?

So on your Mexico City question, we are currently at 27% domestic seat share in Mexico City, 22% total seat share, if you add the international market, which is still relatively small compared to our overall market position in the country. We have been growing in Mexico with additional capacity, and there, it's important to note that we are not changing our network. We're not changing our business model. We are focusing on our core market, which is the price-sensitive leisure customers. So we're adding capacity to Cancun, Los Cabos, Puerto Vallarta and the VFR market. So you'll see Tijuana additions to some of the secondary cities in the center of Mexico.

On top of that, we're also backfilling capacity that was left over in the international market. You might have seen significant additions to Texas, both to Houston, San Antonio and Dallas as we look at backfilling capacity that was left over by weaker competitors. So that's on Mexico City. We do see continued opportunity to grow our business in Mexico City and our position in Mexico City.

In Colombia, we have asked for authorization to start operations to Colombia this year. We were granted that authorization last week. And we are now looking to start -- initiate operations probably to a very small extent. We've been granted authorizations for both Volaris Costa Rica and Volaris Mexico. So you might see some additions of itineraries from Mexico and from San Jose, Costa Rica.

Typically, we start operations on a very, very small basis and then start growing as we stimulate demand.

So you're basically testing the market. To be more specific in Colombia, are you planning to go to Bogotá or more like a leisure market there? Or Medellin? What's your strategy for this first phase?

So today, we did get the approval for the general operation. We will be defining the city pairs and announcing the city pairs when we have the legal approvals specifically for those.

No further questions over the phone at this time. I would like to turn the call back to Mr. Enrique Beltranena for any closing remarks.

So I want to express really my sincere gratitude to all of our investors during these very difficult times that we went through. And we are excited as our recovery continues and our focus now shifting from stabilizing the company's financials to creating value by returning to profitability, generating cash and starting to grow again.

Thank you very much for everything you did for us in this period, for your tremendous support, especially during the capitalization period. And thank you very much for speaking to us, and we welcome any other potential investors from now on.

That concludes today's conference. Thank you for your participation, and you may disconnect at any time.