Controladora Vuela Compania de Aviacion SAB de CV (VLRS) 2024 Q1 法說會逐字稿

Good morning, everyone. Thank you for standing by. Welcome to the Volaris first quarter 2024 financial results conference call. (Operator Instructions) Please note that we are recording this call. (Operator Instructions)

At this point, I would like to turn the call over to Ricardo Martinez, Investor Relations Director. Please go ahead, Ricardo.

Good morning, and thank you for joining the call. With me 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 2024 results. Afterwards we will move on to your questions. Please note that this call is for investors and analysts only.

Before we begin, please remember that this call may include forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are subject to several factors that could cause the company's results to differ materially from expectations.

As described in the company's filings with the United States SEC and the Mexico CMV, these statements speak only as of the date they are made and Volaris undertakes no obligation to update or modify any forward-looking statements. As in our earnings per release, our numbers are in USD compared to the first quarter of 2023, unless otherwise noted. And with that I will turn the call over to Enrique.

Good morning, everyone, and thank you for joining us today. I am proud to start by saying our Volaris team delivered strong first quarter results. It was certainly a challenging quarter as we ramped up the engine accelerated inspection processes that drove challenges in delivering a good schedule. But I'm proud that the team was able to execute on our plans so well.

Over the last six months, our primary focus has been directing operations to enhance our customer service, managing ongoing changes to the schedule as the fleet plan changes and continuing our emphasis on obsessive cost control.

Despite the ongoing challenges with engine and aircraft issues, we continue to execute well and remain focused on delivering shareholder value. During the first quarter, we undertook preventive accelerated inspections, resulting in the grounding of approximately 60 engines for which we received prearranged compensation from Pratt & Whitney.

We'll continue to look for ways to mitigate the impact of this engine removals, and we'll continue to work closely with Pratt to accelerate the required work on the neo engines. However, despite Pratt & Whitney's optimistic discourse on enhancing MRO capacity and availability of materials and spare parts, Volaris remains skeptical about tangible progress in this area. While engine removals to date have gone accordingly to schedule an aircraft on ground during the quarter were consistent with the plan. We are being conservative in our expectations were when engines will return to service.

Even with all this complexity, we have been able to drive strong results through nimble planning, a flexible network and our ability to make rapid strategic adjustments. We generated a strong increase in T Ryzen and ancillaries, while costs remained controlled.

As a result, we achieved net profitability in the first quarter, posting a $33 million net income. This marks a significant achievement as historically due to seasonality. Our first quarter have resulted in net losses. The last time we recorded a net profit in the first quarter was back in 2019. As we execute our strategy, we continue to prioritize profitability when allocating capacity.

On last quarter's call, we outlined three core pillars for navigating the current environment. One, protecting our fleet on capacity, two, optimizing our network and driving profitability and three, elevating the passenger experience and cultivating talent for our future growth.

Volaris continues to deliver against each of these pillars, and our strategy has proven effective and is bearing fruit. Now let's review how we closed the quarter. Total operating revenue grew 5%, with unit revenue rising 21%. Our ASMs contracted 13% due to engine accelerating inspections, which was better than our prior guidance of 16% to 18%. This improvement over guidance is mainly driven by the timing of aircraft deliveries.

EBIT and EBITDA margins were 14% and 31%, respectively, expanding by 18-percentage-points and 14-percentage-points as compared to the prior year, respectively, and ahead of our expectations.

As capacity returns to our fleet, we are committed to being prudent and rational with our growth, again, prioritizing profitability. Based on current planning for engine shop visits, we expect to fully recover 2023 capacity levels by the end of 2025.

In the first quarter, we received two new A321 Neos from Airbus ahead of schedule. Both of which have engines with full light engine disks. The timing of this additional capacity enable us to incrementally capture robust demand from Mexico's Holy Week and Easter. With the rationalization of Mexican capacity and the restoration of a category one status, we have implemented a completely new base schedule that delivers a more consistent and reliable itinerary.

The changes to the network were necessary given we had to reduce operations of Mexico City International Airport to 43 slots per hour, and we needed to develop a better recovery in the schedule given ongoing engine challenge.

Additionally, we reallocated significant capacity from the Mexican domestic market to US Mexico routes, while preserving our position in core domestic market. This strategy shift enables us to prioritize routes that should have stronger unit revenues while managing a network with reduced and no growth.

In addition, we're working to reactivate and grow our culture with volunteer, which will drive incremental market opportunities. But we don't expect to see any impact until late summer. Overall, we're pleased with our business performance. At these capacity levels, despite increased unit costs due to reduced ASMs. Our team will remain focused on executing our operational plans will continue to focus on managing capacity, driving unit revenues, delivering margin expansion, strict cost control, being conservative with debt and achieving results that are in line with our guidance.

For years, we have been discussing building an airline with cost discipline, the ability to execute this plan and the flexibility to adjust as needed. Today, Volaris is delivering results, and we are confident, we can continue to do so in a consistent base.

With that, I'll now turn the call over to Holger to discuss the quarter's commercial trends and operating performance.

Thank you, and good morning. In the first quarter, Volaris experienced robust demand, especially in the domestic market with March showing significant outperformance. Although we expected some traffic shift from the second quarter given that Easter occurred in the final week of March, we are also happy with last minute bookings.

Our capacity reduction was less than expected at around minus 13% instead of the guided minus 16% to minus 18%. This was because Airbus delivered two new A321 neos earlier than planned. Additionally, high aircraft utilization also boosted ASMs per departure for the quarter. This additional capacity enabled us to meet demand and dilute fixed costs.

Regarding network breakdown, ASMs were 27% lower in the domestic market, and we increased capacity by 17% in the international markets, resulting in a network-wide ASM decline of minus 13%.

Taking advantage of the restoration of FAA category one, we continue to reallocate capacity to northbound routes which are undergoing a maturity process in preparation for the peak summer season while simultaneously rightsizing our domestic core market. Therefore, the international load factor dropped 4 points to 82%.

And the domestic markets load factor was strong at 91%, up six points over the prior year period for a healthy load factor result of 87% for the overall network. During the remainder of 2024, we will be cautious and will not introduce too much capacity to any individual route. While the earlier than expected arrival of the two A321 neos provides incremental ASMs for the full year, we still expect a capacity reduction of 16% to 18% for 2024, and we are trending toward the upper end of that range. So we are closer to minus 16% change versus 2023.

Meanwhile, we continue to redeploy significant capacity into the US market and we expect it will constitute around 45% of our network this year compared to roughly 30% historically. We are currently in ramp-up phase of much of this additional capacity, but continue to see progress in attractive markets like Los Angeles, the Bay area, Chicago and Texas.

In Central America, we are reducing the number of aircraft allocated to market from nine to six due to our lack of aircraft availability. TRASM improved to $0.0934, up 21%. This result was primarily driven by a focus on serving the most profitable routes in the domestic market, reducing capacity in underperforming routes and by robust growth in ancillaries.

International TRASM remains solid despite a 17% capacity increase. As customers increasingly embrace the Volaris ultra-low-cost model, they are more frequently purchasing ancillary services. Total ancillaries per packs rose to a historically high record of $57 from the previous record of $55 for the fourth quarter of 2023.

In the first quarter, ancillary revenues represented 51% of total operating revenues, in line with our goal of having them represent half of total operating revenues. These ancillary purchasing patterns are promising as we see simultaneously strong base fare trends.

Our average base fare stood at $54, reflecting a 15% increase. On recurring revenue, our goal is to build V Club membership to compose about a third of our total sales in the medium term. Additionally, in the near term, we expect to promote greater affinity with our core customers as we refine the Polaris mobile app and other digital assets, which will catalyze higher direct sales, better product customization, booking flexibility and more options for our customers.

Passenger satisfaction is crucial to our success. Volaris achieved a net promoter score of 32% in the first quarter, a positive result, despite recent engine related route reductions and cancellations. Our customer service team is working hard to communicate with passengers and reschedule bookings, while our operations team is performing well under the circumstances. On-time performance for the quarter was 82.8%, with scheduled completion of 99.3% and utilization of 5.2 segments per aircraft per day.

I want to reiterate our focus on good labor relation. We successfully agreed the 2024 union agreement, a key enabler of widening our cost advantage versus North American ULCCs and legacy US airlines maintaining strong labor relations and a stable workforce even during periods of industry disruption is essential to our operations and financial strategy and positioning our business for long-term growth.

Looking forward, we have noted, the reduced demand for April as Easter was celebrated in the first quarter. That said, we are observing healthy spring and summer booking trends. We are closely monitoring pricing and load factors to optimize yield. Our forecast indicates a further increase in second quarter bookings as we enter the peak season.

It is important to note that while we are experiencing strong demand and positive travel trends, particularly in the domestic market, we are also navigating the challenges caused by the accelerated engine inspection process while managing our capacity.

In summary, we are well positioned for a positive 2024, driven by cost discipline, improved travel through better fares and strong ancillary performance, increased loads and our robust network. This upward trajectory, which started in the fourth quarter of 2023 is already evident. Booking trends indicate continued favorable performance in the months ahead, aligning with our 2024 guidance.

I will now turn the call over to Jaime to discuss our financial performance.

Thank you, Holger. Positive pricing trends and strict cost control define our first quarter 2024 financial results. When combined with solid traffic Pratt & Whitney compensation and diligent execution, we generated net profitability in the quarter. This a notable accomplishment for the first quarter has historically first quarter is due to seasonality have resulted in net losses.

This first quarter results encourage us to revise upward our full year 2024 guidance. However, our execution plan for the year remains in line with our initial outlook. I will provide a more detailed discussion of our updated guidance shortly.

Let me start by walking through our performance in the first quarter of 2024 compared to the same period last year. Total operating revenues were $768 million, a 5% increase, notwithstanding the 13% year-over-year reduction in capacity due to the strong demand and total revenue per pax improvement.

CASM mix fuel results came in better than guidance at $5.16, an increase of 11% against the first quarter of last year. The improvement was driven by the remeasurement of previously booked redelivery accruals, which reflect nine lease extensions for aircraft for yearly due for delivery in 2025 and '26.

Nonetheless, as discussed in our previous call, there was substantial cost pressure from the energy related AOE and the effect of a larger proportion of international capacity, particularly with higher landing and navigation fees in the United States.

We will sale and leaseback gains of $9.7 million in the other operating income line and the remeasurement related to lease extensions generated a $41 million benefit in the aircraft viable lease expenses line.

Meanwhile, total CASM was relatively flat year-over-year at [$0.0808] due to lower fuel expenses in the period. Our average economic fuel cost fell by 13% to $3.01 per gallon. EBIT totaled $104 million compared to a $31 million loss in the first quarter of 2023. This reflected a stronger Trestle, the benefit from aircraft lease extensions and lower fuel costs, resulting in a margin of 14% and 18 percentage point increase.

EBITDA total $235 million, a 91% increase, while EBITDA margin was 31%, an improvement of 13 percentage points. It is important to note that both EBIT and EBITDA include price compensation as well as expense from leases of the entire fleet including aircraft on ground.

Net income rose year-over-year to $33 million, translating to earnings per ADS of $0.29. The cash flow provided by operating activities in the first quarter was $245 million. The cash outflows used in investing and financing activities were $97 million and $171 million, respectively. In the first quarter, our CapEx excluding fleet predelivery payments totaled $83 million, primarily driven by acquiring additional spare engines.

These investments are crucial for maintaining business continuity and minimizing disruption to our core operations. As a result, we now expect capital expenditures to be $400 million for the full year 2024 versus an original CapEx forecast of $300 million.

Volaris ended the quarter with a total liquidity position of $768 million, representing 23% of the last 12 months total operating revenues. Our net debt to EBITDA ratio decreased to 3.1 times from 3.8 times at the end of the first quarter 2023 and 3.3 times at year end of 2023. We expect to further deleverage by the end of the year. Volaris has low and manageable refinancing exposures in the short to medium term. Most of our financial debt short term maturities are associated with pre-delivery payments, Boston posing a refinancing risk, given that we have already signed single leasebacks for their front that will be delivered over the next 18 months.

We continue to be conservative with our balance sheet. As of March 31, our fleet consisted of 134 aircraft, up from 129 aircraft at the end of the year. Fleet per departure were 197 and our fleet had an average age of 5.9 years. We confirm our medium-term aircraft deliveries schedule with Airbus and expect 21 additional aircraft deliveries by the end of 2025, all with PDP financing and single leaseback commitments.

Turning now to guidance, we are pleased with our first quarter results and market trends continue encouraging. However, industry conditions remain fluid. While we acknowledge macroeconomic and geopolitical uncertainties, we are cautiously optimistic about the year. For the second quarter of 2024, we expect an ASM reduction of approximately 18% year-over-year TRASM of $0.091 to $0.092 CASM-ex fuel to be in the range of $0.055 to $0.056.

Please note that primary cause of the CASM-ex fuel increase is the capacity reduction and the specific fixed cost linked to the grounded fleet which are not fully compensated by Pratt & Whitney. Finally, we expect an EBITDA margin between 31% and 33%.

For the full year 2024, our latest guidance is as follows. We continue to expect an ASM reduction of 16% to 18% year over year EBITDA margin in the range of 32% to 34% compared to our initial outlook of 31% to 33% given increased profitability in the first quarter. CapEx net of finance fleet pre-delivery payments of $400 million, driven by our purchase of spare engines.

Our second quarter and full year 2024 outlook assumes an average exchange rate of MXN17.3 to MXN17.5 per US dollar and an average US. Gulf Coast jet fuel price of $2.6 to $2.7 per gallon. We will continue to make decision appropriate to increase profitability, preserve business continuity and create shareholder value.

Now I will turn the call back to Enrique for closing remarks.

Thank you, Jaime. In phone will continue to execute and deliver on every facet of our plan. As we move through 2024. We will remain flexible adjusting for volatility and capitalizing on opportunities as necessary to drive profitability.

Before proceeding to the Q&A session, I'd like to highlight the upcoming significant political campaign in Mexico over the next few months. While we anticipate minimal changes to aviation policies, the primary uncertainty revolves around the development of aviation policies for managing metropolitan area airports. Thank you very much for listening. Operator, please open the line for questions.

Thank you. (Operator Instructions) Duane Pfennigwerth, Evercore ISI.

Hey, thank you. Good morning. I'm on GTF, I wonder have you gotten any engines back yet and how did those turn times compare with your expectations, are you seeing parts being prioritized for grounded aircraft versus new deliveries? And can you just elaborate on spare engine availability? Was this availability that came up as a function of your negotiations and hence the higher CapEx?

Yes. Duane, good morning. We continue seeing progress, and as RXT reported this morning, they are probably in the highest peak of engines in terms of maintenance because obviously the bulletin was issued in January and basically all these engines are removed now and in the process of being repaired.

The issue here is some a how fast are inducting the engines into shop A. And B, once they're in shop, are they really being inducted or they stay from patio waiting for spare parts and materials. And the reason we are skeptical, A, on the turnaround times and B, in the speed that they can process this is because we have not seen, A, the inductions at the level they have promised and B, that they really start working on the engines once they have them in the shops.

Okay. We have not received any powder metal engine back from the shops. I mean, we have received other engines that were repaired for all the reasons they're the same turnaround time has been about 310 days, and I think that's it. That's all you asked, which was a lot.

Yes. Sorry for the multipart question there. But I guess when would you expect for the engines that went in for this specific issue? Is it basically a year from January, so early 2025 when you will begin to kind of measure that turn time? Or is it sooner?

We're talking no more or less about 350 days or a little bit more. We delivered the first nine engines before September 15. So we think it's going to be somewhere in the fourth quarter of this year.

Okay, great. And then just maybe an easier one, how should we be thinking about the Easter shift impact? I know that can be more of an elongated peak leisure demand period in Mexico. So how do you think about the Easter shift impact to the to the March quarter into the June quarter?

Yes. This is Holger, Duane. Good morning. Clearly, the Easter shift and helped the first quarter, we saw a great travel versus other quarters. In previous years. There was one week of the Easter high season that fell into the March quarter and then one into the June quarter. So we are going to see in April partially also good results on TRASM and the June quarter will have some affect them and we are currently guiding up to $0.092 on the June quarter in terms of TRASM.

Okay. Thank you very much.

Stephen Trent, Citi.

Good morning, everyone, and thanks very much for taking my question. Can you hear me okay, by the way? Hello?

Yes, we can hear you perfectly.

Great. Okay, Thank you for that. Phone is actually a little funny here. Just a question about, how very strong you guys have been on the unit revenue side. I've gotten client inbounds looking at you guys and wondering why some of your competitors are floundering in Latin America. Is it fair to say that, one, some of those competitors are more focused on speeds destinations and you're not? And too, you guys are generating a lot more revenue outside of basic economy versus some of your competitors? I just wanted to make sure I'm thinking about that fairly and sorry for my phone.

Clearly, a couple of things. This is Holger, by the way, Stephen. Good morning. A couple of things explain the travel increase in the first quarter. First and foremost, obviously, we had a significant decrease in capacity across the entire domestic market because of the Pratt & Whitney groundings.

And also you might recall that some Aeromexico had some issues with the Boeing 737 MAX in January, which led to a capacity shrinkage in the domestic market and that clearly helped. We trimmed our network up focusing on the least profitable markets and then that helped push unit revenue.

Second, I would characterize the market as a quite rational, both in capacity and pricing in domestic market and also in our international routes. And we've been working very diligently on them generating or taking advantage of this capacity reduction and generating good loads, good fares and good ancillaries.

And the shift towards on the international market and the capacity expansion we did in the international market clearly helped our ancillary revenue performance and unit revenue. And then we already discussed this, Stephen, the fourth element here is clearly on the peak holiday season on Easter week, which occurred in the first quarter, which is not typical, that is for the first quarter. I think all these factors combined have led to our strong trading performance in the first quarter.

Great. I appreciate that holder. And just a very quick follow-up. I believe you guys mentioned the $57 per passenger and ancillary revenue broadly thinking. And as we look down the line, a year or two from now. Could we conceivably see some upside on that number, assuming FX neutrality between now and then?

Yes, clearly, we are continuously executing our ancillary strategy. We believe that there's upside driven also by a shift to international markets and the high ancillary per passenger that international passengers buy. But we're also executing on other things, new products, better pricing, better personalization, more recurring revenue streams. So yes, we believe there is upside in ancillaries per passenger.

Okay, super. Thanks. Holger, thanks, guys.

Michael Linenberg, Deutsche Bank.

Hey, and good morning, everyone. Just a quick question here on Jaime, you may have said the number one, what are the number of aircraft that are now grounded due to the GTF issue? And where does that number peak out for the year?

Hi, Michael. This is segments. The average number of aircraft that we had grounded during the first quarter was 29, Michael, I've seen the peak. We are going to experience that peak in this 3Q and the beginning of the 3Q for this year.

How much will be in 3Q?

The peak is going to be on the 3Q and the 4Q. Michael, I think you will see these because our engines coming off and coming down, think about reduction in ASMs instead of by air aircraft on ground, we will be provided the average place at the end of each quarter. We consider that guidance of reducing 16% to 18% capacity, the flight forward of engines that we expect to be AOG during the year.

Okay. And then on my second question is when we look at the operating gain on that, take you the other operating expense or per credit that you took in the quarter, how many airplanes are engines are underlying that? And this is more of a modeling question. How does that number, what does that number look as we move through the year? Is that the high it seems like that, that would be the high point and that would that number would come down dramatically based on your deliveries for the year. Is that right?

Okay. I'm going to talk about two lines, Michael. First, on the other operating income line, remember what we are including in that line is in a what gains this quarter reflects three itineraries like gates of A321 neos and also flat compensation. When you move to viable lease expenses which are basically redeliveries, there's where we have a one-time effect that we've had for the redeliveries extension of the 2025 aircraft on one 2026, nine aircraft that is going to come back to the normal number of that.

We had also that benefit in the 4Q. But going forward, since we are not expecting to make decisions on extending any more interest should be stabilized to historically numbers, Michael.

Okay. That's helpful then. Thank you,

Michael, if I may, I think it's important, I mean, to give some color to this whole thing of price. I mean, the first thing is this is an order which I think is spectacular in terms of TRASM because Pratt doesn't compensate does anything on revenue sake. So I think that's really important to be considered.

The case of the performance there at the revenue line is three are okay. And very, very driven by the market, the capacity and the way we are managing our TRASM factors.

Okay. The second point, which is really important is despite we did really well on the revenue on the CASM, things are going to get more and more complicated exactly because of what you are asking. Towards the third quarter, we have the largest amount of engines in repair.

Okay. So I it is important that I don't want you guys to get bullis with the results of the first quarter because we remain skeptical on what is coming in terms of engines during the next couple of quarters.

That's very helpful, very helpful.

Rogério Araújo, Bank of America.

Yes, hey, guys. Thanks very much for the opportunity and congratulations on the strong results a couple here on my side. First, is there any way we can think about the net impact of the band in the recall? So what I mean is if we take into consideration the compensation this quarter, but also these economies of scale that Volaris is facing and the higher TRASM that the low lower flight frequencies are giving you, is this positive or negative to EBITDA and margins in our view?

Anything you can any color you can give on that would be extremely helpful. The idea here is to think how recurring these stronger margins are for upcoming years. Thank you.

Hey, Rogerio. This is Jaime. I will say that that you should think, that this quarter was really everything about TRASM. Pratt compensation doesn't compensate for revenue loss. We've got 29 aircraft on ground and we were able to fully compensate the revenue lost of those aircraft by our own and our work and network and other strategies that Enrique and Holger has been talking about since the last quarter.

It was the only thing that is helping TRASM, because basically I'm getting compensated for the rents of the fleet that are rounded, but I'm not getting fully compensated for all of the direct costs from the grounded fleet. So I think in general, the price situation is negative for the entire business. And basically we are having that plant in order to mitigate the consequences of it.

I think if I want to add some color to that I think the TRAS. and improvement will continue as much as everybody continues being careful with the capacity that they inject into the market, especially once the capacity starting to come back. We, in Volaris are absolutely careful and very, very detailed in the way we will reassume the capacity into the market and we don't want to create a problem in Aon capacity or B on price?

Yes, it is very clear and helpful. Thank you. Another very quick question here is on the extension of aircraft lease contracts. This has been supporting the variable lease expenses line in the past couple of quarters. Should we expect further positive impacts in coming quarters or that was it? Thank you.

You should not expect that regard.

Okay, perfect. Thank you very much.

Helane Becker, TD Cowen.

Guilherme Mendes, JPMorgan.

Good morning. Good afternoon, everyone, and thank you, Holger, Jaime, Ricardo, thanks for taking my question. I have a follow-up question on the competitive --

Can you speak up? We barely hear you.

Fair now. Hello?

Yes, go ahead.

Sorry, [Kevin].

Yes.

Sorry about that. My question is on the Higgins point about competitors adding capacity in a conservative way overall, have you been seeing the competitive environment in Mexico and assuming that Viva was more capacity more towards the second half of the year, some kind of pressure at some point in time or the base case is for all the competitors to continue to be rational? Thank you.

Yes, as I mentioned earlier, and this is Hogler on the morning, we are currently seeing a pretty rational environment in the domestic market with some rational capacity allocation into the key markets, a reduction of capacity in Mexico City International Airport due to the slot situation and a good pricing environment.

And we are also adding more capacity and shifting capacity from the domestic market to the international market capacity ramp up, which should ramp up fully towards the high season of June, July and we are cautiously optimistic about that capacity and getting to its full potential of this year. As you might recall, we have shifted 17% of the capacity to the US market in the first quarter. (technical difficulty)

(Operator Instructions) Helane Becker, TD Cowen

Hey. Thanks very much, operator. Can you hear me now?

Yes, we can. Helane. Good morning.

Good morning. Sorry, I don't know what happened there and thanks for the time so curious my question in terms of looking ahead to the second half of the year. As you think about on aircraft on the ground, how are you thinking about capacity and new aircraft coming in, I mean, a new fleet I took two in the quarter that just ended, but have you been have they talked has Airbus talked to you about when the next center there we'll come in?

Hey, Helane. This is Jaime. We have still from the Airbus purchase order a total of 10 additional aircraft to be delivered during 2024. So far, we expect that there are going to be delivered within well a month in advance or a mounting delay with the weather it was is telling us and that's included in the ASM guidance for the year that we have.

It includes what we expect it to be coming now because of the earnings and a newer truck mitigation plan extensions those all baking in the ASM capacity guidance of 16% to 18% reduction during the year, Helane.

That's very helpful. Thank you. Just on the cash balances is, I think, 23% of LTM revenue, I want to say, I thought I read somewhere. What's your goal for that? I think in the past, it was as high as 30%-plus. Where is your sweet spot for that?

Our goal, Helane, is to maintain within 25% and 30%. Right now, because of what happened in particular in the 3Q last year and AOGs, we had some impact on last year. But ideally, our goal and our budget is to maintain in between 25% and 30%.

Fernando Garcia, BTG.

Hey, Thank you for taking my question and congrats on the results. Two questions on our end. The first is, we've heard some rumors about a possible category one downgrade from FAA. Just wanted to hear your most updated view on this matter.

Second, given the volatility in oil and effect that we are seeing, just wondering how we should think about your head strategy on both things going forward. Thank you.

Hi, Fernanda. This is Jaime. We have not heard a rumor and we don't have any indication that our new downgrade will take place for Mexico. So you can take that away from your mind and considering in particular with hedging, we don't have any hedging for fuel or FX. We don't plan to do it for the first of the year.

Very important on terms of FX to consider that we have a natural hedge and we have an important portion of our revenue coming in US dollar across all of our cash is 90% invested in dollar.

Perfect. Thank you very much. Have a nice day.

And excuse me, this concludes today's question and answer session. I would now like to invite Mr. Beltranena to proceed with his closing remarks. Please go ahead.

Hey, I just wanted to thank you, everybody, for being in the call and for your very interesting questions. I think there again was a quarter which was driven by execution. And I think, again, I want to remind everybody, therefore, we did at the revenue line.

As always, I would like to thank you, our family of ambassadors, the Board of Directors, you investors, bankers, resource and suppliers for their commitment and support. I look forward to addressing you all again on the next call, and I will be visiting New York, Boston, and Chicago in the next quarter, so I might see everybody there.

And this concludes the Volaris conference call for today. Thank you very much for your participation and have a nice.