Controladora Vuela Compañía de Aviación, S.A.B. de C.V.
Q3 2015 Earnings Call Transcript

Published: 20 Oct 2015

[Operator:]

Good morning everyone. Thank you for standing by and welcome to Volaris’ Third Quarter 2015 Financial Results Conference Call. All lines are in a listen-only mode. Following the company’s prepared remarks, we will open the call for question-and-answer. [Operator Instruction] Please note that this event is being recorded. Thank you. I’d now like to turn the call over to Mr. Andrés Pliego, Volaris’ Investor Relations Manager. Sir, please go ahead.

[Andrés Pliego:]

Thank you. Good morning everyone and thank you for joining us today. It’s now my pleasure to introduce Enrique Beltranena, CEO; Fernando Suarez, CFO; and Holger Blankenstein, CCO. They will be discussing our third quarter 2015 results published yesterday. Afterwards, they will take your questions. Please note that this call is for investors and analysts only. Before we begin, please let me remind everyone that some of the statements we will make on this call will constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are subject to a number of 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. Now for our opening remarks, I will turn it over to our CEO, Enrique Beltranena.

[Enrique Beltranena:]

Thank you Andrés and good morning everyone. Let me start with some of the highlights of our financial performance for the third quarter. Total operating revenues for the third quarter of 2015 grew 31% year-over-year. Adjusted EBITDA and net income margin continued to expand and reached 41% and 22% respectively. As a result of strong demand, our total operating revenues increased 31% year-over-year. We responded to an increase in demand, we added capacity during the summer. International ASMs and network wide ASMs grew 44% and 24% respectively compared to the same quarter last year. Load factor remain at 83%, while total revenue per available seat mile grew 5.4% and yield grew 3.4% in the quarter. An important contributor to the total revenue growth was our non-ticket revenue, which on a per passenger basis continued growing at 13.2%. It is important to understand that long-term, the Company’s focus in building total yield rather than base fare yield. The highlights of the quarter were also our unit cost, which achieved a record level of $0.43 excluding fuel. This is in line with best-in-class low cost operators of the world. Volaris is an emerging marketer like in the past 49 months. The Mexican air passenger markets have shown a strong correlation to GDP growth, moving a two to four times the GDP growth rate for the same period. This trend is coming among emerging and underpenetrated markets. We continue to see an improved macroeconomic environment with more disposable income. One example, our foreign remittances, which are a good proxy for our visiting friends and relatives market that grew, on a U.S. dollar basis, 12% and 13% year-over-year in the months of July and August respectively. Now, we have been investing for several quarters in a commercial campaign to switch passengers from buses to air transportation. As more passengers switch from bus to air travel and recognize our ultra-low-cost carrier model, our campaign is clearly paying off with a higher demand for our services requiring us to add more and more capacity in many point-to-point markets. During July and August combined, total market growth, as compared to DGAC statistics, was 14% including domestic and international. The domestic market in total grew 14%, while international market grew 31%. Volaris react positively to this very strong market demand due to its flexible fleet utilization, which went from 12.5 hours in the third quarter of last year to 13.1 hours during the third quarter of this year mainly by increasing utilization in regular flights suitable for our visiting friends and relatives customers. In parallel, passenger volume grew 27% during the quarter for the company. During the past 9 months, 21 new routes were announced, which are performing as expected and in line with our point-to-point expansion plans. We consider this as healthy capacity growth, since it is partially leading by up-gauging and higher utilization. Thanks to our ultra-low-cost model, Volaris is growing profitably and generating shareholder value. We see our positive results as a part of not only lower fuel prices, but also as a part of important performance improvements. I like to share some details about our commercial and our operational achievements. A) We’re focused on offering low fares, which is the main element that passengers consider when buying an airline ticket. In the first semester where airline fare was 47% lower than our main competitor. B) We continue producing healthy yields, 3% higher than in the third quarter of 2014 while also increasing our non-ticket revenues. C) Non-ticket revenues continue to grow. This quarter we implemented more improvements to the dynamic pricing techniques, as well as a new travel insurance product. We are also working on our new payment options such as deferred payments for fee. Going forward, the more we collect in non-ticket revenues, the lower our base fares could be. With respect to our fleet we closed the quarter with 55 aircraft including 35 A320s 18 A319s, and our first 2 A321s. We operated the fully retrofitted fleet with a higher seat density supporting our higher gauge strategy in particular for the Mexico City Airport. Volaris continues to have the most modern and youngest fleet in Mexico with an average age of 4.4 years. Now I will turn this over to Fernando, who will review in further detail the financial performance of the period. Fernando, please go ahead.

[Fernando Suárez:]

Thank you, Enrique. Now, let me expand on our financial performance during the third quarter. As noted, passenger demand in the quarter was strong and Volaris responded by adding capacity for market demand required. Total operating revenues for the third quarter reached Ps.5.2 billion, a 31% increase compared to the same period of last year. During the third quarter, non-ticket revenues reached to Ps.1.1 billion, an increase of 43%. U.S.-dollar denominated revenues represented 35% of total operating revenues for this quarter. This growth in our dollar denominated revenues continues to construct a better national hedge against exchange rate volatility for our business. On the cost side, CASM reached 107 peso cents and 8.1% decrease during the quarter, mainly driven by an effect on total costs of 27% reduction in fuel prices helping to offset the exchange rate devaluation of 25%. We also achieved further labor productivity with 57 employees per aircraft. CASM ex fuel expressed in dollar terms was a record low of US$0.43, in line with best-in-class, low-cost carriers worldwide. We continue to dilute our fixed cost as a result of both, growing capacity and greater economies of scale, together with further fleet out-gauge, a younger fleet, sharklet-equipped aircraft and better lease terms. The efficient operation of our diversified point-to-point network reinforces our cost reduction initiatives and improves our overall performance. For the quarter, fuel costs represented 31% of total operating expenses, nine percentage points lower than in the third quarter of 2014. The total average blended economic fuel cost per gallon for the third quarter was $1.68 per gallon. We have remained active in our fuel risk management program. For the third quarter, we had 45% of our consumption through jet fuel call options, at an average price of $2.07 per gallon. Looking forward, for the fourth quarter of 2015, full 2016 and first half of 2017, we have purchased call options to hedge 50%, 60% and 22% of the expected jet fuel consumption at an average price of $2.07 per gallon, $1.90 per gallon and $1.81 per gallon respectively. Adjusted EBITDAR in the quarter was Ps.2.1 billion representing an adjusted EBITDAR margin of 41%, which is 13 percentage points, higher than last year. Operating profits reached Ps.1.1 billion. Operating margin was 21% up 12 percentage points, compared to the third quarter of 2014. Below the operating line, we recorded an FX gain of Ps.556 million, resulting from a depreciation of the Mexican Peso on our balance sheet, net monetary U.S. dollar asset positioned. Net income for the quarter, was Ps.1.1 billion, representing a debt margin of 22%. Earnings per share were 114 peso cents for Series A shares and US$0.67 per ADS. During the third quarter, we generated strong cash flow, Ps.243 million, cash flow from operating activities resulting in a net increase of Ps.380 million in total net cash. Our solid balance sheet and liquidity position has provided us a national flexibility to continue with our strong growth and a very comfortable financing profile. As of September 30 we’ve recorded Ps.4.1 billion –Ps.4.4 billion, sorry, in unrestricted cash representing 26% of the last 12 months operating revenues. We maintained a negative net debt or a net cash position of Ps.3 billion. During the third quarter, Volaris incurred third capital expenditures of Ps.262 million. Our pre-delivery payment requirements for the remainder of the year and next year are fully financed with our revolving PDP line of credit. All 2015 and 2016 aircraft deliveries are also financed by way of an executed sale-leaseback agreements. During the quarter, we have also paid PDP financing for our 2017 and 2018 new order deliveries. Now, I’d like to summarize our achievements during this quarter. About half of the quarter’s operating margin increase can be attributed for network diversification efforts, performance improvements and management execution, and not purely from tailwinds of lower fuel costs. Notwithstanding the strong passenger market demand, Volaris remained conscious of our capacity discipline. As a result, we will place capacity accordingly, while managing utilization. We anticipate that the year-end high season is going to be as strong as our previous high seasons. Our guidance for domestic full-year ASM growth is between 9% to 11% while international ASM growth, remains in the 33% to 36% range. This will resolve in a full-year ASM growth rate for the entire network of approximately 15% to 18%. Lastly, on margin guidance for the fourth quarter, we expect to achieve an adjusted EBITDA margin in line with the 11 analysts that we follow, which is currently at 33%, resulting in a full-year adjusted EBITDA margin of 33%. Now, I’ll ask Enrique to make his closing remarks before we open the line for questions.

[Enrique Beltranena:]

Thank you, Fernand. I would like to conclude by stating that we remain focused on the strong execution of our strategy in order to generate shareholder value. Summing up our financing performance of the recent quarters, we achieved to take pre-tax lease adjusted return on invested capital or ROIC for the last 12 months of 21%. Finally, within the results, we all thank god for all these benefits. I wish to thank also, all the Volaris ambassadors who contribute daily to the performance of the company. Thank you very much for taking the time to be with us today, and we’d like to now to proceed on to your questions. Operator, please open the line for questions.

[Operator:]

Thank you. At this time, we’ll open the floor for your questions. [Operator Instructions] And we have our first question coming from Michael Linenberg from Deutsche Bank.

[Michael Linenberg:]

Hey, two questions here gentlemen. I want to go back to – you mentioned that 35% of your revenues are denominated in U.S. dollars and I wanted to get a feel for the point of sale, how much of a percent of that 35% is originating in the United States versus how much is originating in Mexico? Do you have those numbers? Or that split?

[Holger Blankenstein:]

Yes. Hi, Mike, this is Holger.

[Michael Linenberg:]

Hi, Holger.

[Holger Blankenstein:]

Our split is pretty much even. We have about 50% point of sale in the U.S. and 50% here in Mexico. However, all our U.S. itineraries are priced in U.S. dollars, whether you buy them in Mexico or in the United States.

[Michael Linenberg:]

Okay, that’s great. And then may be this is a question for Fernando that number has moved up, that percentage which is great. Where is your cost though – when we look at operating costs that are denominated in U.S. dollars? Just given the currency weakness, if you think that your aircraft ownership which is priced in dollars like rentals that that has become a larger percentage that that has grown as well relative to other cost items because of the depreciation of the peso, have we seen that move up from, say, 60% to 65%, may be 70%? What’s that split, U.S. dollar denominated costs?

[Fernando Suárez:]

Yes, Mike. It’s about 50% of the operating cost base…

[Michael Linenberg:]

Okay.

[Fernando Suárez:]

…is dollar denominated or dollar linked, fuel has gone down as a percentage with a decline in fuel prices. However, you are right that rental costs are dollar denominated and they have gone up as a percentage as well. But as a whole we are in or around 60% of total cost.

[Michael Linenberg:]

Okay, great. Those are my questions. Thank you.

[Holger Blankenstein:]

Thank you.

[Fernando Suárez:]

Thank you, Michael.

[Operator:]

Our next question comes from Duane Pfennigwerth from Evercore ISI.

[Duane Pfennigwerth:]

Hey, guys thanks. I wonder if you had any initial thoughts on your 2016 capacity growth. And in that vein, what average gauge would look like next year versus this year?

[Fernando Suárez:]

Yes, Duane. We have a contractual seat growth for next year in the fleet in the teens. Although, we're still working on the details of our 2016 plan, which we’ll share with you as soon as possible.

[Duane Pfennigwerth:]

Okay, in any sense within that seat growth what the sort of average gauge, I assume you are still getting an up gauging lift in 2016 versus this year.

[Fernando Suárez:]

Yes, Duane. That’s correct. But we expect next year to have more seats per departure. As we operate more…

[Duane Pfennigwerth:]

And then – I appreciate that. And then just with respect to your non-fuel unit cost progression as we think about that into next year given some more up gauging and some capacity growth. In a stable FX scenario, can you just remind us what the long-term goal of the company is from a non-fuel unit cost scenario and of course we are hoping for a stable FX scenario, that might be a hypothetical at this point. But how should we be thinking about the trend in your non-fuel cost from these levels assuming FX does not change?

[Fernando Suárez:]

Well, you are right, Duane. It all depends on how exchange rate behaves on the non-fuel cost. But we continue to see efficiencies across the company in terms of a fleet and so forth. That helps eventually long-term non-fuel cost – unit cost to being in control and potentially hold on.

[Duane Pfennigwerth:]

Okay, thank you very much.

[Operator:]

Thank you. Our next question comes from Stephen Trent from Citi.

[Stephen Trent:]

Good morning, gentlemen. And thanks very much for taking my questions. Just…

[Enrique Beltranena:]

Hey, Stephen, good morning.

[Stephen Trent:]

Hey, thank you very much Enrique. In terms of your – what you mentioned on the domestic market, and forgive me if I missed in your opening statements, but I also seem to write in your release that you've seen yield improvement in the domestic market and in that regard. Could you give us some color as to maybe what are the main competitive dynamics that you saw in 3Q?

[Enrique Beltranena:]

We saw three elements of revenue going very well. I mean we were able to maintain the low factor where we grew up the ASMs, but TRASM hasn’t grew up, so 5.4% and yield based on base fare, grew 3.4% in the quarter. Clearly the non-ticket revenues keep on growing on a per passenger basis at 13.2%. Nevertheless, I mentioned that it is important to understand that long-term the Company is focused in building total yield rather than base fare yield.

[StephenTrent:]

Great, great. Very helpful, Enrique. And in terms of what you're seeing in the international expansion, a very strong performance on the U.S. routes, with this relatively early stage, any color as to how happy you are on some of those Central American routes that you launched fairly recently?

[Holger Blankenstein:]

Yes, Stephen, we’re a bit continuing to expand internationally, especially in the U.S. that’s continues to be our main driver of growth as we build our U.S. dollar revenues. Central America currently represents a very small part of our capacity. And we’re talking about approximately 20 weekly flights out of a total of 1,800 weekly flights. So it is still a very small portion of our revenues and those routes are currently in ramp up. Remember, we are flying to Guatemala, San Jose, Costa Rica and Puerto Rico.

[StephenTrent:]

Got it. Thanks, Holger. And just one last question if I may. With this so-called open skies between the Mexico and the U.S., do I understand it correctly that the routes that are going to be impacted are routes that are already saturated and any view is to whether some of the Mexico, U.S. routes for Volaris has a high market share are going to be impacted?

[Enrique Beltranena:]

I think today, we do have mainly in Mexico City and some of the beach points saturated in terms of the bilateral. Once that’s open, we’re expecting higher U.S. capacity to be introduced into those seats. It is important to remind you that Volaris is much more of a point-to-point airlines and we do have a lot of capacity in the secondary series, which today are open, okay. And plenty of the old routes have two, three, four and five more carriers operating. And I think it’s important to understand that in those series, we, Volaris, despite them being open today, Volaris has basically no competition or a very few competition, okay. I think that if the bilateral is open, Volaris is confident that this agreement will burst the markets – will open. We will have a positive impact on Mexico’s tourism, coming from an overall increase of passengers visiting the country, okay. That’s [indiscernible] Volaris’s dialogue between Mexico and the U.S. authorities have been key and it’s important that they reach this agreement and this agreement is confirmed by the senate before year-end or in the first month of next year.

[Stephen Trent:]

Okay, very helpful. I appreciate the color guys and I’ll let someone else to ask a question.

[Operator:]

Thank you. Our next question comes from Renato Salomone from Itaù BBA.

[Renato Salomone:]

Hi. So we’ve seen a strong growth in remittances recently, which certainly affects the VFR traveler. Can you share with us, if you’ve seen a change in behavior either domestically or internationally or both for your customer as remittances have picked up? Thank you.

[Enrique Beltranena:]

Well, let me pick the first part and I’ll let Holger to pick the second part, okay. Renato, thanks for your question, okay. Clearly, I mean the additional growth of the remittance, especially in the month of July and August, which I mentioned it was 12% from 13% is by far higher during that seasonality, okay. And I think we need to understand Volaris web page works basically as a remittance system when it comes for tickets that’s why our – despite our ASMs are somewhere around 32%, 33% of the total capacity placed in the U.S., our revenues are 35%, 36% in U.S. dollars. So we get more revenues than ASMs in terms of dollars. So, yes, there is an impact. When it comes to demand, I will let Holger to say – to speak about that how the U.S. routes performed for visiting friends and relatives during the summer.

[Holger Blankenstein:]

So, yes, Renato, yes, we have seen some changes in travel behavior. We see more price sensitive customers travel to and from the U.S. And especially, they are also very happy to buy our ancillary products. They spend quite a lot on the extra, extras, and they don’t use the bus anymore, they prefer to fly. And I think that’s very much in line with our ultra-low-cost model. And we’ve been very successful and growing volumes between the U.S. and Mexico.

[Renato Salomone:]

Great and if I may ask a follow-up question to Steven’s point about so called open skies. We’ve seen more flights being added by Southwest and Jetblue to Mexico. Do you expect that once we have more flexibility in the bilateral agreement being implemented that U.S. carriers will focus more on the beaches or they will – there will be competition going also into Volaris typical routes as well?

[Holger Blankenstein:]

Look, as Enrique mentioned, currently we see the U.S. carriers very much focused on the [indiscernible] leisure segment. We’ve seen airlines add capacity to Cancun, Las Vegas, and Fort Lauderdale specifically. We will remain vigilant in their expansion, but, as Enrique mentioned, currently all markets are already open for competition and we have seen a very healthy competition in our markets already. So, currently, we continue to observe the competition, but they seem to be focused on more of the leisure segment.

[Fernando Suárez:]

May be it is important to add also that today we do have some [indiscernible] where we do have Mexican heritage population like Houston, for example our New York that it will be open for us and it will be available for us to be operated.

[Renato Salomone:]

Great, thank you very much.

[Operator:]

Thank you. Our next question comes from Victor Mizusaki from Bradesco BBI.

[Victor Mizusaki:]

Hi, good morning. Congratulations on your 3Q numbers. And I have to make sure…

[Enrique Beltranena:]

Thank you, Victor.

[Victor Mizusaki:]

So, I mean, why don’t we take a look on our Q3 numbers, we saw, I mean, a very good combination of high profitability and high growth. So, I’d like to understand how these, I mean, results can affect your growth plans. I mean, if you’re referring to accelerated growth and [indiscernible] medium to long-term I would say higher level of profitability, I mean, let’s talk about offering that you do sustainable in the medium to long-term? And my second question you’re now generating cash as Fernando mentioned, you’re I mean quite financing for the next deliveries, so would make sense to start to pay dividends?

[Enrique Beltranena:]

So let me have Holger to start with the first question and then I will ask Fernando to answer the second question although we don’t think it’s time to pay dividend.

[Holger Blankenstein:]

Okay, Victor, let me answer your question in two parts. For this year, I would like to reiterate the guidance that we gave in terms of capacity. For the total year, we see a capacity increase of 15% to 18%, which is higher than the previous guidance that we gave in the last call. For the fourth quarter, specifically, we expect capacity to increase 22%to 25%. Longer terms, the way we see our business model playing out is that we are increasingly successful in switching bus customers to our low fare air products. And so, we do see continued stimulation of demand and our ultra-low-cost model paying off – all our commercial efforts paying off very nicely. So, we do see double-digit seat growth for next year as per our seat plan. I’ll hand over to Fernando to answer the rest of your questions.

[Fernando Suárez:]

Victor regarding the cash generation and the payment of dividend, at this stage, we can get some better use of our cash to invest in opening new routes and bringing aircraft then – to pay dividend that’s our current position.

[Victor Mizusaki:]

And Fernando…

[Victor Mizusaki:]

Thinking about – let’s say growth…

[Fernando Suárez:]

It is important to say that, I mean, cash goes off because of the season and the level of cash goes off, then in the third quarter, in the first couple of months, you burn some cash. So that cash levels in the first couple of months may go down to 27%, 28% of last 12 months operating revenues.

[Victor Mizusaki:]

Okay, but and then – but I mean, think about, let’s say now you’re talking about net cash and you have the opportunity to use this cash to finance your growth plan. But – in this case, would you prefer to grow organically or would you make acquisitions?

[Fernando Suárez:]

We – our plan so far is to grow organically, okay. We strongly saying that the visiting friends and relatives are still open with [indiscernible] and then we can keep on growing, especially in the U.S. and Central America and Canada, but we are – as we always said, we keep on planning based on that. If we are open, if there is a great opportunity to do something in terms of consolidation. If there is a window for opportunity, which today it doesn’t exist.

[Victor Mizusaki:]

Okay, thank you.

[Holger Blankenstein:]

It does not exist.

[Operator:]

Thank you. Our next question comes from Rogerio Araujo from UBS.

[Rogerio Araujo:]

Hey, good morning and thanks for the call and the question. I have two questions, the first one regarding yields. I want to – if you could give some color on the yields after the holiday seasons, if you could expect it continue growing on a nearly basis because we saw a huge growth in demand and together with these year-over-year expansion yields as well. If you could consider that this will be the case going forward as well and how yields reacting in October this year, and even if you could give can some color on the 4Q. Also my second question was regarding the line guarantee deposits in the assets, it has been increasing significantly in the past several quarters. If you could give some color on why this line is increasing that much and what should expect for the coming quarters that would be great. Thank you.

[Holger Blankenstein:]

Okay, thank you, Rogerio. I’m going to take the first part of your question and then pass it over to Fernando. The way we think about yields, this is not just the base fare yield as traditionally thought of, but as total yield. So, our business model, we believe it’s much more resilient in this environment. We continue to generate and stimulate demand by lowering our base yields and increasing our total yields. For the first nine months of 2015 and especially for the summer, we are not absorbing any base fare yields decline or total yield decline to the contrary we’ve been able to increase our yields both base fare and total yields. Looking forward to on the fourth quarter, October is very much in line with our trends. We see robustness in our markets in terms of base fare and total yields. And then for November and December again, the booking costs currently look relatively healthy. But it is a little bit too early to say how December and how season is going to be shaping up.

[Fernando Suárez:]

I would basically add to the comment that Holger did right now this is important to understand that with the levels of demand we are having, it’s kind of easy to maintain the yield sort of raise the base yield. Okay, going forward, it is important to say, that we want to maintain the demand and we want to maintain the elasticity on pricing the base fare should go down in at least 1% to 2%, and then the ancillaries keep on compensating the effect.

[Enrique Beltranena:]

And regarding your second question on the guaranteed deposits line, it’s related to our fleet growth, as you know as we grow the fleet we have to pay more security deposits and maintenance reserves on the fleet. And there is also an FX result there as well, as those security deposits and maintenance reserves are taller denominated but partially where you see also the increase on a peso ventures. And looking forward for the fourth quarter, we expect to have one more aircraft in terms of delivery so we should be closing the fleet at 56 aircrafts for yearend 2015.

[Rogerio Araujo:]

Okay, great. Thanks very much. Have a nice day.

[Operator:]

Thank you. Our next question comes from Josh Milberg from Morgan Stanley.

[Josh Milberg:]

Good day everyone and thanks very much for the call. I just had a quick follow-up on the yield performance issue. We’re just hoping you could give some perspective on how yields performed if international and domestic traffic is separated? What I gathered from your strategy of maintaining yields lower or in fact reducing them, I mean is it, I’m imagining that it could be the case that was maintaining yields or what’s increasing yields is growth on the international side. So is there a major divergence between international and domestic yields?

[Enrique Beltranena:]

Josh thank you for your question. At this moment we don’t split up domestic and international yield. So we wouldn’t like to comment on that.

[Josh Milberg:]

Okay. Fair enough. Okay, I guess I just had one other question on more on the cost side, do you have that, on the other operating income line a gain of 82 million pesos and I just wanted to understand what was behind that.

[Enrique Beltranena:]

Yes, Josh. It's basically related to gain on sale and lease back results of aircraft most of it is an exchange rate effect and the remainder is a cash effect but it’s primarily related to aircraft sale effects for the quarter.

[Josh Milberg:]

Do you expect to have more of that income over in the fourth quarter and into 2016?

[Enrique Beltranena:]

As we get deliveries every quarter, we expect to have some effect there. And again for the fourth quarter we expect to have one delivery. So you should expect some type of effect in the fourth quarter as well related to one aircraft. In the third quarter we had two aircrafts.

[Josh Milberg:]

Okay. Thank you very much.

[Operator:]

Thank you. [Operator Instruction] Our next question comes from Helane Becker from Cowen & Company.

[Helane Becker:]

Thanks very much, operator. Hi guys, thank you for the time. I just had a few questions. One of the comments that you made had to do with a possible ancillary product of deferring payment for a fee. Would that be like you were offering your customers a credit card and taking an interest charge on that or can you just say how you are thinking about going about it or how we should think about that?

[Enrique Beltranena:]

Yes, Helane. It’s a very straightforward product. In Mexico, we have a lot of deferred payments plans that are offered by our – the credit card companies with the the banks, and we offer that on our website. The bank takes the credit risk and we offer those plans on our website for a fee.

[Helane Becker:]

Okay. So the customer will theoretically be paying the bank interest, and you are convenient to pay right? Is that how we should think about it?

[Enrique Beltranena:]

That’s exactly right.

[Helane Becker:]

Okay.

[Enrique Beltranena:]

In parallel, we also have a co-branded credit card that we’ve introduced about two years ago. And that’s another product we have but it doesn’t have anything to do with the deferred payment fee, it’s more of a convenient fee for deferred payment plans.

[Helane Becker:]

Okay. All right. I just want to understand that. And that shows up in ancillary product.

[Enrique Beltranena:]

Yes.

[Helane Becker:]

Yes, okay. And then my other question is on, I think non-ticket for passenger declined from the third quarter to the second quarter. Is that a seasonal change or should we expect that to continue?

[Enrique Beltranena:]

No, that’s mainly driven because of a huge volume that we have Helane, I mean…

[Helane Becker:]

Okay.

[Enrique Beltranena:]

You need to understand that during this high season we have so many VFRs. And in a lot of cases they do purchase exactly what they want, okay. I think it’s driven by the volume of a high seasonal nevertheless it’s still 13% higher than a year ago.

[Helane Becker:]

Of course, also what's your repeat business like, like once people try the product. I know when you are at the VClub you're commenting that, one of the things is to get people to at least tried the product, can you just talk about how repeat business is going?

[Fernando Suárez:]

What we saw in the last year, we will do this basically a year ago. Helane, we do have customers flying at least two to three times every year with us. That’s all the information we have.

[Helane Becker:]

Okay. Well, still that’s good. All right.

[Fernando Suárez:]

I mean two to three times when you have customers – when you have about 22% to 32% of customers that are basically switching from the buses; it’s a really important number.

[Helane Becker:]

Right, right, that’s what I was thinking.

[Fernando Suárez:]

I mean this holder is switching campaign has been tremendously successful. And I think that summer is basically [indiscernible] that today the campaigns from the switching that we do in the previous quarters paid off tremendously.

[Helane Becker:]

Great, awesome. Okay, well thanks for your help on my questions, I appreciate it.

[Fernando Suárez:]

Thank you, Helane for being with us every time, okay? And I wish to thank again everybody on the line, everybody of the analysts for the questions. And I don’t want to finish again saying thank you to all Volaris ambassadors who contribute daily to the performance of the company. Thank you very much to everybody, and thank you very much for taking the time to be with us today.

[Operator:]

Thank you ladies and gentlemen. This concludes today’s teleconference. You may now disconnect.