• Total Operating Revenue: $813 million, a 4% decrease despite a 14% reduction in capacity.
• Net Income: $37 million compared to a net loss of $39 million in Q3 2023.
• EBIT Margin: 15.5%, up 11 percentage points.
• EBITDA: $315 million, a 52% increase, highest quarterly level in company history.
• Net Debt to EBITDA Ratio: Improved to 2.7 times from 3.5 times in Q3 2023.
• Total Cash: $833 million, an improvement of $66 million from Q3 2023.
• Load Factor: Total load factor at 87.4%, a 1 percentage point increase.
• CASM Ex-Fuel: 5.39, a 10% increase.
• Average Economic Fuel Cost: $2.64 per gallon, a 17% decrease.
• Fleet Size: 137 aircraft, up from 125 a year ago.
• Net Promoter Score: Reached 37% during the quarter.
• ASM Reduction Guidance: Approximately 7% year over year for Q4 2024.
• Full Year EBITDA Margin Forecast: Raised to around 36%.

• Warning! GuruFocus has detected 6 Warning Signs with VLRS.

Release Date: October 23, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Controladora Vuela Compania de Aviacion SAB de CV (NYSE:VLRS) reported its fourth consecutive quarter of net income, showcasing the resilience of its business model.
• The company achieved total operating revenue of $3.2 billion, matching the full year operating revenues of 2023, despite challenges such as engine inspections.
• VLRS maintained a strong load factor of 87.4% and achieved a record third quarter TRASM of 9.38, a 12% increase.
• The company successfully implemented a fleet mitigation plan without increasing debt leverage, ensuring future capacity additions without jeopardizing market pricing.
• VLRS improved its net debt to EBITDA ratio from 3.5 times in Q3 2023 to 2.7 times in Q3 2024, reflecting strong financial management.

Negative Points

• The company faced a 14% reduction in capacity due to Pratt & Whitney engine inspections, impacting operations.
• VLRS experienced a 4% decrease in total operating revenues compared to the same period last year, despite strong demand.
• The depreciation of the Mexican peso against the US dollar negatively impacted margins, as approximately 60% of operating expenses are denominated in US dollars.
• The company had an average of 34 aircraft on the ground during the third quarter due to engine inspections, affecting operational efficiency.
• Increased maintenance and redelivery expenses due to the aging fleet and grounded aircraft imposed temporary cost pressures.

Q & A Highlights

Q: Can you help us think about the shape of capacity into the first quarter and in the first half of 2025? A: We are finalizing our operating plan, but we are looking at growth in the mid-teens for the first half of 2025. This is still under discussion depending on the situation at Pratt and Whitney and Airbus.

Q: With respect to the new administration, any early view on how the relationship may be changing? A: We have met with the new authorities and expect some continuity in aviation policies. We have established close communication and interactions, focusing on promoting healthy sector development and securing a level playing field among industry participants.

Q: Can you help us think about the recent FX depreciation in Mexico and the company's ability to pass it through into fares? A: We are increasing our network to the US, aiming for 50% of collections in US dollars. We also hold 90% of our cash balance in US dollars, providing a natural hedge since 60% of our operating expenses are in US dollars.

Q: Could you give us an update on the timing expectations for Pratt and Whitney engine recalls? A: We have seen good progress with turnaround times reduced from 350 days to closer to 300 days. We have a strong pipeline with engines undergoing maintenance and expect solid and reliable deliveries over the next six months.

Q: How is the profitability of international routes versus domestic, and how will you raise your revenue mix from 41% to 50% in US dollars? A: Growth will be balanced between domestic and international routes. The increase to 50% will come from maturing routes added this year and additional frequencies and destinations in the US. Ancillaries on international markets are typically higher, improving revenue performance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.