Controladora Vuela Compañía de Aviación, S.A.B. de C.V.
Q1 2020 Earnings Call Transcript

Published: 24 Apr 2020

[Operator:]

Good morning everyone, and thank you for standing by. And welcome to Volaris' First Quarter 2020 Financial Results Conference Call. All lines are in a listen-only mode. Following the company's prepared commentary, we will open the call for your questions-and-answers. Instructions on how to ask a question will be provided at that time. Please note that this event is being recorded.At this point, I would now like to turn the call over to Ms. Maria Elena Rodriguez, Volaris' Corporate Finance and Investor Relations Director. Please go ahead, ma'am.

[Maria Elena 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 Bankistein; and our Vice President and CFO, Sonia Jerez.We will be discussing the company's first quarter 2020 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. 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.

[Enrique Beltranena:]

Thank you, Maria Elena. Good morning at this challenging time and thank you for joining us today.Let me begin by sharing my thoughts and best wishes with those whom have been touched by this concerning virus. And by expressing my empathy and close support to our investors, our customers, investors, suppliers and our communities during the current and parallel global environment.We're certain that remaining responsive and united as a society we’ll be better prepared to overcome this human and economic crisis while we will grow stronger together. As a socially responsible corporation, and dry out essential services in the transportation sector, we have been guided by our three pillars since the company was founded, safety being the first and foremost. The safety and health of our ambassadors, our customers is our top priority.Thank God, so far, we can say that we have had some minor of ambassadors that have been infected, and they're all recovering and no casualties to report. During the declared state of emergency, we have been following and implementing protocols and guidelines issued by the International Aviation Transportation Agency and the Health Organizations.We have been working alongside with the Mexican Institute for Health and Social Protection means the Mexican Red Cross, the Private Sector Alliance for Disaster Resilient Societies, ARISE in Mexico, the private domestic committee for humanitarian aid in national emergencies and disasters corona and some other private organizations in order to support virus initiatives and cooperate with the health workers and with others who are in the frontlines of combat facing this virus in Mexico and Central America.We have transported health and medical equipment from Mexico City to more than 15 destinations within the country. Our goal is to keep strengthening this type of alliances with the purpose of delivering some relief to the communities we serve. We're proud of our ambassadors and of their contribution at this moment in these challenging times.Now I would like to explain how our business has evolved during an unprecedented challenge to the entire global aviation industry in the first quarter. We faced two very different scenarios. For the most of January and February, both capacity measured by available seat miles and demand measured by revenue passenger miles increased versus the same period of last year. Given the revenue for January and February also improved compared to the previous year.The positive trend was sustained until the third week of March, when the traffic patterns started to decline as a result of the COVID-19 outbreak. On March 24, the company announced a decrease in capacity measured by ASMs for the end of March and April of approximately 50% versus the originally scheduled level. On March 30, the Mexican government declared a health emergency due to force measures.The result, Volaris announced an additional capacity reduction for the month of April, which resulted in a decrease of 80% versus originally scheduled capacity. On Tuesday, April the 21, just at the beginning of this week, the Mexican government announced the beginning of Phase 3 of the spread of the COVID-19 the most serious stage and extended governmental restrictions to contain the pandemic until May 30 at least.As a result Volaris will carry out a further capacity reduction for the month of May of approximately 90% versus the originally scheduled capacity. After steady trajectory of seven quarters of continuous improvement delivering top results, the company entered the state of emergency in its strongest shape, with an ultra low cost structure, a solid balance sheet, robotic creative position, and most importantly, with cohesive team of ambassadors throughout the entire company.I feel very proud about the team that I have and the work that they're doing. And I think we all can do it better through the future. Our cost structure is amongst the lowest in the quarter. The company achieved CASM ex-fuel of US$4.13 for the first quarter of 2020. In terms of liquidity we closed the first quarter with $453 million in unrestricted cash, which is mainly denominated in U.S. dollars.Our liquidity position has become essential to the company. Under our most stress project scenario our current liquidity position should endure potential prolonged downturn. We have a solid balance sheet with only interest bearing obligations in the short-term. We have developed a diligent cash preservation program with a high level of scrutiny on payment terms and we have cancelled or postponed non-operational expenditures, non-essential topics, tooling expenses and instituted all the company-wide cost cutting measures.We have had a candid approach to our union and to all of our personnel who have been supported and have agreed to advance the regulatory and optional training, anticipate vacation days and to accept substantial or entirely lead of absences for periods of up to 90 days.Let me remind you that Volaris' labor contract includes a full flexibility schedule for crew members and a substantial amount of their pay scale is based on variable flight hours. On the administrative front, the wages have been reduced amongst the different organizational layers in a range which starts at an 80% of the C-suite level and goes down to 20% in the lower level of our organization structure.I have to say that it has been very painful for me to implement this kind of strategies, but it is in there - of the essence for the survival of the company. At the Board of Directors level, non-independent members have waged a 100% of their annual compensation, while independent members have waged 40% of their annual compensation. We have reached out to most of our suppliers in order to obtain extended payment periods and even headcounts.We have been fortunate in receiving cooperation from most of our resource airport groups, another main business partners. In this regard, we are grateful to all who have been supportive of Volaris by successfully completing these comprehensive negotiations and I will never forget their support. We have carried out a flexible and strategic operating plan to use capacity. We have cancelled and consolidated flights in order to send profitability.We have managed to rapidly adapt our digital platforms and web services in order to satisfy we're currently overwhelmed customer service channels. At Volaris, we have come together as a family with our shared culture and values, where our spirit of collaboration, connection, resilience, adaptability and empathy has become fundamental.Now, I'll touch on the company's financial and operating results for the first quarter of 2020. TRASMs increased in the first quarter year-over-year to present maybe driven by the total ancillary revenues, which had an increase of 16% year-over-year. ASMs grew by 7% in the first quarter, the main surge of growth was healthy capacity generated by better decision for shifting assets during the first two months of the quarter.The number of passengers we carried in the first quarter grew by 6% year-over-year with a healthy low factor. The first quarter of the year delivered an operating income of Ps.308 million, an operating margin of 4%, which is 3.5 percentage points higher than first quarter of 2019. Volaris finished the first quarter with positive operating cash flow generation of Ps.2.8 billion for the quarter and I also already mentioned the balance at the end of the quarter.So what our first order demonstrates the strength of success of Volaris' suite of this current business model and its organization underpinning this performance. There should be no doubt that job like for every other passenger traveling in the world, the future environment for the industry and for Volaris is very uncertain and it will most likely present a great challenge operationally and financially.Now, let me pass it over to our Airline, Executive Vice President, Holger Blankenstein to elaborate further on revenues and on the commercial strategy in the current environment.

[Holger Blankenstein:]

Thank you, Enrique.In the first quarter of this year, we achieved the following topline figures. In the domestic market, the load factor was 86.1%. In the international market, the load factor was 81.7%. Domestic ASM growth for the quarter was 7%, while the international ASM growth was 6%.Total ancillary revenue per passenger performed very well, reaching Ps.564 for the quarter, an increase of 9% year-over-year. Total ancillary revenues increased by 16% year-over-year, and now account for 38% of total operating revenues.Capacity allocated to Central America represented 3% of total ASMs. In terms of operational reliability, on time performance was 86.7% for the first quarter, with a schedule completion of 93.1%, which was mainly driven by the cancellations of the last two weeks of March.In the first week of March, we held Volaris' annual anniversary sales promotion, typically the biggest promotion of the year. This year, the promotion surpassed last year's record sales, favoring the company's liquidity position. The big anniversary promotion successfully completed on March 5, and 6 and the 13th. As Enrique mentioned, it was not until the third week of March when we started to see a dramatic drop in passenger traffic, first in the international traffic, followed by domestic.In the last week of March, we closed operations in Central America all together in response to the health emergency and in line with the measures established by the authorities of El Salvador, Guatemala, and Costa Rica. As of today, we have reduced capacity by 80% versus the originally planned schedule for the same time period. The international markets have had the highest reductions. We have cancelled and consolidated flights in a flexible, responsive, and measured way, focusing on flight profitability.During these past weeks, we have been monitoring the dynamics of the markets that we serve through demand forward bookings and cancellation patterns. In this difficult environment, we have found that our main target customer segments the passengers, who are visiting friends and relatives are more resilient to travelling than the business and leisure segments. This is one of the key reasons we would use operations at a later stage than some of our Mexican peers. Also remember, that Mexico is five to six weeks behind the U.S. and Europe in this pandemic.For the first quarter of the year, we also did an average of 392 daily flight segments on routes that connect 40 cities in Mexico, and 20 cities in the United States and Central America. As of today, Volaris has 131 daily operations in 40 domestic and seven international routes.We will continue to reduce the schedule in the short-term in this period of great uncertainty and given the week travel demand. Now that we are in Phase 3 of the pandemic here in Mexico, we plan to do further reductions in May of up to 90% versus the originally published schedule.All-in-all, for the second quarter, we are expecting an average capacity reduction of 80% although it is early to make predictions even for a couple of months from now. Load factors are likely to be 10% to 15% lower than our historical levels in the same time period.We expect a capacity reduction from 50% to 60% in the third quarter as well. In terms of maintenance, we have put in place a plan in order to preserve the aircraft that have been grounded. We currently have 63 aircraft in long-term preservation.During the current environment, we have also been accelerating the digital transformation initiatives. We have adapted our digital platform and web services to satisfy our currently overwhelmed call centers. Some call center operations were also affected by government authorized closings in countries and regions in which they operate. As calls saturated the call center during the pandemic, we rapidly made additional development on our website. We also launched a big communication effort to direct our customers to the web and guide them through the change process.For flight cancellations initiated by Volaris, we developed an automated platform able to reach flight cancellations in the system and without human interaction, send three options to customers to choose from. Number one, a voucher for the total amount of their purchase, plus an additional 25% credit, number two, change their flight for a future date with no change fees or three, a refund.For flight changes initiated by the customers, we have also made it easier to change reservations on volaris.com in cases where the flight remains in the schedule, but the passenger chooses to fly on a later date. For example, we are waiting change fees for flight until the end of June.Since March 15, most changes have been done by customers themselves on our digital platforms. We are also finding opportunities during this time of crisis. We have significantly advanced digitalization projects. For example, the upgrade to the latest version of New Skies the Navitaire reservation platform. We will be among the first three airlines to migrate to this version, which offers spot corrections, additional functionalities, and more flexibility.Clearly, the pandemic will have an impact on growth. Volaris is reducing its 2020 growth expectations from plus 10% year-over-year to a potentially negative growth. Mexico, Central America and the U.S. will be in a recession for 2020. And this will have an effect on demand for air travel.We are managing our fleet deliveries and re-deliveries to affected load loss. So far, we are exploring delay of eight aircraft deliveries within the next 18 months. For the second half of 2021, we expect a bounce back of growth due to our superior ultra-low-cost business model. As economic activity returns, the expectation is for ultra-low-cost carriers to recover much faster than traditional carriers.Now, I'd like to turn over the call to our Vice President and CFO, Sonia Jerez, to discuss our financial performance for the quarter.

[Sonia Jerez:]

Thank you Holger, and hello everyone.Now, I will continue with discussion of our results in accordance with the figures filed with the Securities and Exchange Commission, and Comisión Nacional Bancaria y de Valores.Total operating revenues for the first quarter reached Ps.7.8 billion, representing an increase of 8.8% versus 2019. During the first quarter, CASM ex-fuel levels remained at US$4.13 cents, total U.S. and U.S. dollar CASM was $6.24 cents, a decrease of 4.5% versus 2019.Moving on to profitability, EBITDA in the first quarter was Ps.2.1 billion and EBITDA margin of 27.2%, which is 5.7 points higher than the first quarter of 2019. We reported a net income for the first quarter of negative Ps.1.5 billion, with a negative net margin of 19%. It is worth noting that a significant contributor to this net loss is the asset depreciation at the end of the first quarter that leads to a non-cash effects net loss of Ps.1.8 billion below the operating line due to our net U.S. dollar monetary liability position.During the first quarter, the net cash flow generated by operating activities was Ps.2.8 billion. The net cash flow used in investment activities, which are negative Ps.37 million, and the net cash flow used in financing activities was negative Ps.1.9 billion.As of March 31, 2020, cash and cash equivalents were Ps.10.7 billion, Ps.2.7 billion pesos above December 2019 and representing 30% of last 12 months of operating revenues. Volaris registered a negative net debt of Ps.4.8 billion, excluding lease liabilities recognized under the IFRS adoption.Volaris net debt-to-EBITDA ratio closed the quarter at four times, reflecting a healthy and solid balance sheet. It is important to note that company's long-term debt does not bear any principal amortization for the year.For the first quarter of 2020, U.S. dollar denominated collection represented 43% of total revenues. Our fuel expense line of the quarter was slightly benefited from the recent drop in jet fuel prices, as we only hedged approximately 25% of the expected fuel consumption.Our hedging portfolio has had hedging accounting treatment and the related gain or loss has been embedded in the fuel expense lines.For the remainder of the year, we have a hedge position of around 60% of our originally projected consumption. As we are likely to review this capacity further, hedge accounting treatment may no longer be valid reporting criteria. Therefore, the related gain or loss on the unhedged portion will be allocated below the line as a finance costs. Again Enrique mentioned we have implemented cost cutting measures and the balance of the gross cash preservation program, which includes some of the following measures.For the first quarter, the fixed costs were approximately one third of the total costs out of which approximately one half are related to aircraft rentals. And what is an ongoing process, we have already managed to refer 53% of the rental payments that are due in the second quarter. We have reached agreement with 27 of 29 of our fleet, and engine lessors. We expect further improvement in these lines.Additionally, aim and deferrals and haircut programs with other main suppliers have been achieved. By our cost reductions mostly take care of themselves, because of fuel is the most obvious example. All personnel has been really supportive and 82% of the operational personnel has agreed to passionately pay leave on absences, which go from two to three months and will return flying for the rest of the year at a minimal fixed cost payment, which is about 40% below the standard number of hours were typically fly.On the administrative front and Enrique already reported the reduction on annual wages among the different organizational levels. We have reduced capital expenditures to a minimum and cut non-essential expenses sorry for the rest of the year. For the second quarter, Volaris has been able to negotiate a reduction on the fixed costs in addition to the rental deferrals. We have established a treasury war room where we diligently review each payment and have reviewed even further the non-operational expenses.In the face of the widespread industry disruption, the company is not providing guidance on earnings. We will however, intensify our already strong effort to preserve cash and to continue finding and implementing additional cost cutting measures.Now, I'll pass it back to Enrique for closing remarks.

[Enrique Beltranena:]

Thank you, Sonia.Before I do my closing remarks, I want to inform you that the shareholders of the company on the general shareholders meeting held on April 22, 2020 appointed Brian H. Franke as the new Chairman of the Board of Directors. Mr. Franke has extensive experience in the airline industry. Alfonso González Migoya, our former Chairman will remain serving as an independent member of the Board and the company is very thankful for his leadership during the past six years.The shareholders also appointed two new very experienced board members, Monica Aspe Bernal Interim CEO of AT&T Mexico and Guadalupe Philips margin, CEO of ICA. With these changes, our Board of Directors has become stronger and Volaris management is looking forward to continue working very, very tied with them. But our business the airline industry have begun to experience significant adverse impacts due to the COVID.We cannot yet quantify the impact on us. And we cannot offer any assurance that this impact will not intensify to the extent that the outbreak persists and spreads out to Mexico. It is not as yet possible to determine the extent to which this pandemic will further decrease demand for aircraft. Our top priority is the safety and health of our ambassadors and our customers as I mentioned at the beginning of the meeting.We are taking rapid and appropriate actions on the administrative, operational and financial fronts. As Mexico's largest domestic partner it is our responsibility to remain united. Among data we’re focused our strength and to deliver the best version of ourselves in order to overcome this situation. We’ll remain guided by our pillars, values and our mission. And hopefully God will help us and support us through this mission.Thank you for listening, operator we're ready to open the call for questions.

[Operator:]

[Operator Instructions] We'll take our first question from Duane Pfennigwerth with Evercore ISI. Please go ahead.

[Duane Pfennigwerth:]

Just with respect to the first quarter your revenue held up a lot better than what we've seen so far in the U.S. Do you think this is just a timing issue that you've seen the COVID impacts a little bit later. And then into the second quarter appreciate the commentary about, the level of capacity reduction 80%, 90%. Do you think revenue declines would be similar to those capacity cuts or is revenue - is the trajectory of revenue different than these capacity cuts that you're outlining?

[Enrique Beltranena:]

Thanks Duane, I'll take that question. So on the first quarter, there's two effects. Number one, Mexico is about five to six weeks behind the U.S. and Europe in the pandemic. And number two, the domestic markets in Mexico has held up better than the international market and we have a lower share of international flights than some of our Mexican peers and U.S. carriers as well.And then the third point is that our customer segment, the visiting friends and relatives are holding up better than the leisure and business customer segments. So we are strong in the VFR and we've held up a little bit better in the first quarter.And for the second quarter as you point out, we have announced an 80% reduction for April. We are going to cut the schedule 90% for May. And then probably around 50% for June, as we see ramp up in the market, in the domestic markets in particular. And the revenue cuts that you can see, you can probably observe are going to be in that line as well in accordance with the capacity cuts.

[Duane Pfennigwerth:]

Okay, great. And then just for my follow-up, given all the aggressive steps that you've taken to respond to this. Would you be able to speak to kind of a monthly cash OpEx rate at this point like what are your monthly cash operating expense levels after all of these initiatives take hold? And thanks for taking the questions.

[Sonia Jerez:]

Yes, for sure Duane. I'm going to explain what is our cash burn in terms of fixed costs because on the variable side it's going to be dependent on the revenues and capacity. So our current cash burn monthly is about $35 million to $40 million per month.

[Operator:]

Our next question is from Helane Becker with Cowen. Please go ahead. Your line is open.

[Helane Becker:]

Just two questions, so as we think about the model and the load factors right now, you said they were down I think over 10 or 15 percentage points below where they are normally. If the load factors can't return to normal, whatever that is, say 85%, 80%. How should we think about your model in that environment?

[Holger Blankenstein:]

Well, Helane, we did - we were seeing a slight reduction in loads to 10% to 15% as we mentioned. We do have quite a lot of no shows as well, which have been around 25% to 30%. So the onboard load is actually much lower than the book loads. And we've been able to consolidate flights and increase the book load factor on many of our flights and we're managing the profitability on a flight by flight level looking at book loads.In the medium term, it's really very early to tell how things are going to evolve. We expect a return of some demand in June and into the summer season. But it's really difficult to make a prediction right now, because the booking curves are not in line with the historical booking curves. What we can say, however, is that we have the lowest cost position of any competitor in the market. And in the long-term, we have the superior business model in the market. So we should be able to return to historical load factors eventually, that's our expectations.

[Enrique Beltranena:]

Let me add to what Holger is saying Helane. I think one of the beauties of Volaris is we don't have restrictions on cruise, and we can schedule in a very flexible way. Where we're managing things is we have to cover costs when we operate any route. So Holger and the commercial teams are managing the schedule and managing the availability of flights based on where we can make money, okay, or where we can at least come out very even. So I think you will be seeing loads improving while the markets recuperates but for one thing, I can assure is, whatever will be operating is going to be at least breaking.

[Helane Becker:]

Okay. That's really helpful. Thank you. And then my other question is, can you say that what the take rates are on vouchers versus cash refunds? Like how many people were taking the voucher plus the incentive versus just asking for the third option, the refund?

[Holger Blankenstein:]

So I think Helane, the good news is that many customers are taking the voucher option and with a 25% additional electronic credit. During the first 20 days of the implementation of this service, many more customers have selected the voucher option and have emitted the vouchers in a self-service way without human interaction from our call center, which helps us on the call center cost as well.They actually choose what is suited to their needs. So I think that's really good for our cash situation as well.

[Helane Becker:]

Yes. And I just need one thing clarified. Did you - I don't know if it was Sonia or Enrique. Did you say that CapEx has been cut to zero? What did you say about CapEx?

[Enrique Beltranena:]

It is not zero Helane because, for example, Holger had said that he is developing this whole thing at Navitaire and that kind of stuff up. And those things are fundamental for the company. So you basically kind of cut CapEx to zero, I mean, it's not essential CapEx totaling expenses, that kind of stuff that we have cut down to zero.

[Helane Becker:]

Okay. Sorry about that. And then what about aircraft deferrals? Did you - what did you say about that?

[Enrique Beltranena:]

So everything is still a piece of work in work process related, but I mean, we have - like 18 aircraft arriving in the next 18 months, and we so far we have optionalities to reduce them in seven to nine aircrafts, okay?

[Helane Becker:]

Okay,

[Enrique Beltranena:]

What we have already on the table, we say, aircraft deliveries that we don’t delay. We will keep on working on it, okay?

[Helane Becker:]

Great. Yes, of course. All right. Well, thanks for the help team. Good luck.

[Enrique Beltranena:]

Thanks for you for being with us during this difficult times. Go ahead, operator, please.

[Operator:]

So we'll go next to Mike Linenberg with Deutsche Bank. Please go ahead.

[Mike Linenberg:]

Just to follow up though on CapEx, since it sounds like it's not zero. So, if we think about non-aircraft CapEx, what is the budget for 2020? And then sort of to add to that, what are the number of airplanes that are coming not over the next 18 months, but what is currently coming over the next say between now and year-end 2020, how many airplanes do you have delivering?

[Sonia Jerez:]

Hello, Michael, how are you?

[Mike Linenberg:]

Fine Sonia.

[Sonia Jerez:]

Yes. So far, we have, as Enrique mentioned, we have got all non-share projects and we're just doing the ones in relation mainly with sales. Depends on the recovery situation, we will do more or less in terms of other non-essential topics, but so far, these as a minimum.

[Enrique Beltranena:]

So what's the strange fact, Michael, that we are focusing ourselves on preserving cash, okay. The company will preserve cash as much as we can, obviously, and then something that generates revenues is something that we cannot stop, so that's what we were doing. And I don't think we are there with something, which is not finished. It's very clear the CapEx is cut, unless it's very necessary, okay, or generative revenue, and I want to be absolutely clear about that.The second thing is deliveries, we will take whatever the deliveries we have to take, legally, okay, but the company is doing whatever it takes to delay everything. And I want to leave that also very clear. So it's not that it's not finished. It's that we do have contractual things that we need to deal with. We are dealing with contractor terms.

[Mike Linenberg:]

Okay. And then just maybe to Holger, if we had to split to do a composition of what percentage of your traffic do you believe is VFR maybe what percentage is leisure? And presumably maybe 5% or 10% of your traffic maybe more actually, since you have such a good service pattern is business or you know, what I would refer to as price sensitive business. Do you have sort of rough numbers on how those three buckets split out?

[Holger Blankenstein:]

Yes, it very much depends on the route obviously, but what we can say is about 50% of our customers are VFR customers, that's about 30% to 40% would be leisure.

[Mike Linenberg:]

Okay.

[Holger Blankenstein:]

Small and medium sized enterprises [$0.05] to travel. So we don’t have corporate and government traffic.

[Mike Linenberg:]

Yes. No, it's actually - you really don't have much government traffic?

[Holger Blankenstein:]

Yes.

[Mike Linenberg:]

Okay. And then just my last question, and this is to the team, you know, maybe more direct at Enrique, anything carrying out of the government, I think get Aeromexico. You know, they mentioned that maybe they were going to get some relief with respect to air traffic control, navigation charges, maybe they would get some sort of benefit through being able to not necessarily be compelled to use the government provider of fuel services. I mean, they were very small things, but anything that you're hearing or seeing or maybe you could add to that any sort of government assistance? Thank you.

[Enrique Beltranena:]

So Volaris is expecting from the government support on extending credit terms of public services, any possible and we've been talking to Banco Mex, to a potential credit line, mainly to support the employment continuity, but I want to make it very clear that I'm not expecting the state to rescue this company. I think it's going to be a minimal support that it's going to be much more through credit and credit terms.

[Operator:]

We'll go next to Matthew Wisniewski with Barclays. Please go ahead.

[Matthew Wisniewski:]

Just wanted to kind of circle back on couple of other questions that were answered. It sounds like a lot of passengers are taking the voucher. But I was wondering if you could say whether you're still receiving positive bookings and so are bookings exceeding what [indiscernible] passengers potentially?

[Holger Blankenstein:]

Well giving a reduction of 80% and 90% in April and May respectively clearly, for those months we don't see net positive bookings. We'll see more changes in cancellations then new bookings. For future months, we do still see positive net booking especially for the fourth quarter and late third quarter.

[Matthew Wisniewski:]

Okay, great. And then, just on the assumptions right now for the return of capacity I think it's 50% in June. What are the assumptions on kind of circling back on what Matt, Mike was asking about this passenger segments. What's the assumption on leisure returning VFR and then maybe potentially business. How is the team thinking about returning demand in that respect?

[Enrique Beltranena:]

So we're expecting a certain ramp up for the month of June. And then obviously the high season in Mexico is July and August, where we also estimate some return of traffic. And therefore, in June typically what we see in our traffic patterns is a surge of the VFR market. And that's what we would expect this year as well.Obviously at a much lower scale than in previous years, and then July and August, we estimate some return of the leisure passengers the price sensitive leisure passengers.

[Operator:]

Speakers, it appears we have no further questions. I'll return the floor to you for any closing remarks.

[Enrique Beltranena:]

Thank you very much. I want to finish by thanking our Board of Directors for their exceptional support in these times. Obviously, our ambassadors as I said, I mean I would say that broadly in my entire life, I had never, thanks God, get the opportunity to look at what we have done and I think they have responded with their full commitment. And I'm very thankful to the way they're reacting to the crisis.I want also to say thank you to our business partners for the responsiveness and our investors for the understanding in this unprecedented global human and unimaginable economic scenario. Thank you all for reinforcing our values together. We'll lead our company to become stronger. And I wish you good health to you, your loved ones, and again, thank you very much for being here despite the conditions that we are in.Thank you very much, ladies and gentlemen. This conference is now concluded.

[Operator:]

And this does conclude today's program. Thanks for your participation. You may now disconnect. Have a great weekend.