Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:VLRS) Q3 2022 Earnings Conference Call October 25, 2022 9:00 AM ET
Company Participants
Renato Salomone – Senior Corporate Finance & Investor Relations Director
Enrique Beltranena – President & Chief Executive Officer
Holger Blankenstein – Executive Vice President of Airline Commercial & Operations
Jaime Pous – Chief Financial Officer
Conference Call Participants
Duane Pfennigwerth – Evercore ISI
Helane Becker – Cowen
Mike Linenberg – Deutsche Bank
Stephen Trent – Citi
Rogerio Araujo – Bank of America
Alejandro Zamacona – Credit Suisse
Alberto Valerio – UBS
Operator
Good day, and welcome to the Volaris Third Quarter 2022 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. And please note that this event is being recorded.
I would now like to turn the conference over to Renato Salomone, Volaris Senior Corporate Finance and Investor Relations Director. Please, go ahead, sir.
Renato Salomone
Good morning, everyone, and thank you for joining the call. With us 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 third quarter 2022 results. Afterward, we’ll move on to your questions. Please note that this call is for investors and analysts only.
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, as described in the company’s filings with the United States’ SEC and Mexico CNBV. These statements speak only as of the date they are made, and Volaris undertakes no obligation to update or revise any forward-looking statement. As in our earnings press release, all our numbers are in US dollars and compared to the third quarter of 2021, unless otherwise noted.
And with that, I’ll turn the call over to Enrique.
Enrique Beltranena
Thank you, Renato, and thank you, everyone, for joining us today. I’m very proud of our third quarter results as they distinctly reflect the unique flexibility and resiliency of Volaris’ ultra low-cost business model, the progress of our long-term growth strategy and the discipline of our executive team.
Total operating revenue grew by 20% to $769 million in the third quarter and EBITDAR came in at $175 million, with an EBITDAR margin of 22.8% rising 7 percentage points from the second quarter of 2022 due to our remarkable utilization levels and cost advantage, coupled with a slight contraction in jet fuel prices.
Cost per available seat mile ex-fuel for the third quarter was US$4.07 in an operating environment that continues to prove to be challenging for our industry. We demonstrated continued success in spite of inflationary pressures, executing in the areas where we continue to excel, highlighting our success of having one of the lowest cost structures in the world, overcoming geopolitical impacts and stimulating demand through the surgical expansion of our network.
ASMs grew by 22% for the third quarter compared to 2021 and by 48% compared to 2019. Our strategically planned growth has been both consistent and profitable. We posted net income of $40 million for the quarter.
As evidenced by our third quarter results we released yesterday, Volaris continues to distinguish itself in the global aviation industry, delivering solid performance that translates to enduring disciplined growth. We have consistently anticipated strong demand in our visiting friends and relatives and leisure markets, which show no signs of a slowdown and where we have demonstrated our ability to fill capacity and overtake both demand at far better fares than any public competitor in the continent.
During the summer peak, we had strong on-time performance despite the congestion at the Mexico City International Airport and had positive Net Promoter Scores as well. These results are especially remarkable, given the company — the aforementioned increase in our capacity and expansion of our network.
We have no shortages of pilots, crew members or operational interruptions due to starting and we successfully anticipated this need by hiring and integrating more than 3,500 ambassadors in the past 18 months.
Well, typically, we see load factor peak in July and reductions towards the end of summer. In this year, our load factors increased every month in the third quarter from 84.7% in July, to 84.9% in August, and we reached an all-time monthly record high of 87.4% in September.
Forward bookings are solid, and we expect to maintain a strong load factor for the remainder of the year. Holger will discuss these developments more later on. We remain in a very solid financial position with leverage ratios below the industry average. We ended the quarter with $750 million in cash and equivalents.
At the end of September, our net debt-to-EBITDA ratio was 3.4 times. Commenting on Mexico’s FAA category status, we have been diligent in conveying to national authorities that we’re covering Category 1 is the foremost concern challenging the growth of Mexican carriers and domestic economic development. We acknowledge that there has been a renewed effort and that there is a diligent and expedited remediation plan in place from the civil aviation authorities going forward.
Taking advantage of the disruption in the Mexican market as a result of the pandemic, well, there is this capacity outgrew the industry, increasing 48% in terms of ASMs versus 2019 filling in the void that was created by significant industry attrition. This was an extraordinary opportunity, and we added. In fact, according to serum, Volaris was the largest airline in Latin America in terms of passengers in 2021.
For 2023, we believe that profitable and prudent growth is the best strategy, and we’re planning for ASM capacity growth of up to 10% year-over-year. However, we are prepared with a flexible plan that allows us to accelerate that growth should the environment improve. We can leverage aircraft lease extensions to capture additional demand, if needed. It is important to note that, with this tactical modulation of 2023 capacity growth, we are not compromising our medium-term growth rate, all things considered.
We view our success and strategic vision, especially stones to strong growth potential for Volaris. To remind everyone, Volaris is structurally one of the best airlines in the world, and we remain focused on an ultra low-cost business model. Our disciplined approach to containing controllable costs have allowed us to sustain our CASM ex-fuel despite the strong rate of inflation in the recent past, regarding both our customers and shareholders.
We’re well positioned to perform and grow regardless of the operating environment. Our highly experienced and stable management team has overcome every magnitude of operating an external challenge, while becoming the leader in markets with huge growth potential due to lower air travel penetration. Since our founding, every time we have aimed to grow until capacity, we have achieved it always with a firm commitment towards long-term shareholder returns.
Regarding our debt and capital flexibility, it is worth noting that we received no governmental support during the panic and needed no emergency liquidity in demand crisis. As a result, our leverage accelerations and maturity profiles are far better than most of our peers. Our strong liquidity and having already secured our midterm financing needs for the pre-delivery payments provide us with the balance sheet flexibility to invest in growth opportunities.
Finally, we remain in the early innings of growth when comparing Mexico to similar economics and geographies. We believe Volaris is on track to double in size, driven by an increase in flights per capita in Mexico. Total flights for capital reached $0.25 versus $0.20 when we started flying. Meanwhile, many Central American markets share the same economic profile as Mexico, providing a premier service of growth in parallel, as we increase service in the region. Also, we remain prepared to execute our full US growth strategy once CAT 1 is restored.
Now, I will turn it over to Holger, who will present in greater detail the company’s third quarter commercial and operational dynamics. Please Holger, go ahead.
Holger Blankenstein
Thank you, and good morning. As Enrique noted, during the quarter, we saw strong demand, resulting in solid load factors in both domestic and international markets. These robust overall load factors increased consecutively each month during the quarter. Third quarter travel came in at $0.082, up 6% versus third quarter 2019 and down 2.4% year-on-year, given the excellent performance in the third quarter of last year.
Our remarkable performance last year proved to be a difficult basis for comparison, when we were the fastest recovering and best-performing publicly listed airline in the world. In 2021, the demand for travel in Mexico began to recover well ahead of the US. The out of the ordinary unit revenue premiums in the US market, we are witnessing today were achieved by Volaris last year.
In 2022, we are observing a normalization of TRASM growth in line with longer-term trends. In 2022, TRASM for the third quarter, for example, was 6% above 2019. In the meantime, our focus on maintaining the lowest possible operating cost remains unwavering. We continue to have one of the lowest unit cost of any public airline in the world, despite significant inflationary pressures. Relative to network airlines, discount carriers win the battle through superior seat mile costs, not high fares, which generate a competitive advantage through time.
During the first two quarters of the year, Volaris pushed to partially pass through the incremental fuel costs. In the third quarter, instead, we chose to modulate base care increases in certain price-sensitive domestic markets to avoid demand reductions. We partially recovered fuel price increases through volume. Overall, year-to-date pass-through was 66% versus 2019. And in the international market, we managed to completely pass through the fuel price increase versus 2019.
Capacity increased by 22% for the entire network, 21% in the domestic market and 26% in the international market. In the third quarter, we observed a very healthy load factor of 85.6% in line with a strong third quarter in 2021. This showed a very strong demand response to our capacity expansion in the third quarter. Since early in the pandemic, we have commented that Central America’s recovery has been six to nine months behind that of Mexico. We are now fully seeing the effects of this rebound, which we expect to continue. The pace and impact of the rebound have been similar to the US this year and provide confidence in our view for the region into 2023. In the overall network, we expect a similar demand trend for the fourth quarter as we move into the holiday season, and we are seeing encouraging short-term momentum driven by very strong bookings for the end of the year as well as into early next year.
In the US, we were able to grow ASMs on existing routes despite Mexico’s FAA CAT 2 rating by reestablishing all of Volaris pre-Covid capacity in the transborder market. We added the equivalent of two additional aircraft to existing Mexico to US routes during the quarter.
Meanwhile, given our high relative market share on VFR routes, we were able to achieve higher fares and good load factors on the US routes. We expect US demand to remain strong as we head into the fourth quarter and 2023.
Until Mexico returns to CAT 1, we will focus on both Mexican domestic growth in our core markets and US Central America growth, leveraging our two air operator certificates in the region.
We continue to consolidate our market position in Central America where we saw capacity and revenue increases of over 200% year-on-year. Demand has been particularly strong in El Salvador and Costa Rica, and we are pleased to report that in just one year after obtaining our operating certificate in El Salvador as of September, we have transported over 262,000 passengers.
We have seen strong demand and good acceptance of the ultra low-cost model, especially in our US Central America routes, demonstrating the strength of our low-cost offering in these markets and the growth potential that they represent. Central American passenger profiles are very similar to our typical Mexico VFR segment and we understand their needs very well.
We are convinced that we will be successful in replicating in that region, what we have done for more than a decade in Mexico. In addition to Central America, we also continue to diversify the network, which is demonstrated in the growth in our core domestic markets in terms of ASMs.
The market has absorbed this additional capacity very well with better unit revenues in all markets versus 2021. In terms of new routes and destinations, we inaugurated additional flights from the Felipe Ángeles International Airport. We now serve nine routes and 19 daily operations and volumes are ramping up as customers get familiarized with the new airport.
We also launched operations from Toluca International Airport with five routes. So far at this station, we have seen early successes in line with high volumes during the high season. In all, we opened 15 new routes this quarter. On the other hand, we maintain our discipline, constantly reviewing and emphasizing route profitability.
For our bus switching passengers and price-sensitive customers, we will keep fares competitive and generate high load factors. While our customers are more price sensitive, volume tends to be more resilient in downturns. In addition, we create a basis for trade down of more premium passengers from legacy carriers in downturns.
It is important to bear in mind that around 46% of our routes compete exclusively against buses. In Mexico, the air market growth opportunity remains high, and we expect the market to grow at a multiple of GDP for at least the next five years. Regarding cost efficiencies, utilization in the third quarter was around 900,000 ASMs per aircraft per day, one of the highest in our peer group. We remain focused on increasing the utilization of our fleet, which has an immediate effect on unit costs. We also continue to reduce our service cost per customer by refining our charter application, and have several additional technological advancements under development.
Average fares were $56 in the third quarter, while non-ticket revenue recovered to $39, accounting for 41% of total operating revenues. Non-fare revenues continue to improve, as we have digested and absorbed Mexico’s restrictions on charging fees for carry-on bags.
Ancillaries continue to be a strategic focus and have increased. Thanks to investment in artificial intelligence-driven pricing tools and differentiated offerings. We expect to continually grow ancillary revenues and have several new products and offerings in the pipeline.
We are in line to finish the year with a guided capacity increase of 25% for the full year of 2022. We are currently planning a 10% ASM growth for 2023. We may adjust tactically once we have better visibility on the global macroeconomic outlook and CAT 1 is resolved.
As Enrique described, the growth opportunity in the Mexican market is immense. And we will continue to emphasize bus switching traffic and exclusive routes over the next five years. We are in a strong position to seize these opportunities.
And I will now turn the call over to Jaime, to discuss our financial performance for the quarter.
Jaime Pous
Thanks, Holger. Total operating revenue for the third quarter was $769 million, a 20% increase compared to 2021, due to the expanded capacity per with increasingly healthy load factors and solid unit revenue. EBITDA margin contracted compared to the same quarter of 2021, attributable to higher fuel costs. EBITDA totaled $175 million, an improvement of 64% sequentially and a 33% year-on-year decrease.
EBITDA margin increased 7.3 percentage points sequentially to 22.8%, down 18.1 points against the third quarter of 2021. In line with our guidance, we expect to close the year with an EBITDA margin in the low 20s, which implies a mid-20s margin for the fourth quarter.
CASM ex-fuel decreased 0.5% and totaled $0.407 [ph] as we decently managed inflationary pressures throughout our operations that were higher year-on-year. For the full year, we now expect CASM ex-fuel to increase only 1%, despite having inflation of around 9% in the companies where we operate.
During the quarter, we booked delivery cost accruals of $28.7 million, netted by sale and leaseback gains for a total amount of $1.2 million.
On a unitary basis, this represented $0.32 this quarter, compared to $0.25 in the third quarter of 2021 and $0.00 in the third quarter of 2019, the increase is explained by the ongoing transition to new engine option for new aircraft and maintenance cycle due to the current fleet age. These cyclical events will continue on an upward trend during 2023 and 2024 and then rally return to 2019 levels. For that reason, we believe it is also helpful to track adjusted CASM, which excludes fuel, redeliveries [indiscernible], which totaled $0.0378 compared to $0.0396 in the third quarter of 2021 and $0.0392 in the third quarter of 2019, decreases of 2.4% and 4.5%, respectively.
Meanwhile, high fuel costs where we saw some relief during the quarter, drove total CASM to $0.0785 for the third quarter, a 24% increase compared to the third quarter of 2021, but a sequential improvement of $0.65 versus last quarter. Our average economic fuel cost increased 72.2% year-over-year to $3.96 per gallon in the third quarter versus $4.4 per gallon in the second quarter. Given a certain inflationary pressures received, we anticipate largely maintaining the controls we have implemented in enhancing our leverage on cost and supporting margin in future periods.
For the third quarter, net income was $40 million, which translates into earnings per ADS of $0.30. The cash flow generated by operating activities in the third quarter was $88 million. Net cash flow due to investing and financing activities was $51 million and $46 million respectively. Furthermore, Volaris required $9 million of cash for the third quarter closing with $750 million in cash and cash equivalents, representing 28% of the last 12-month operating revenue. This cash use is a result of the second quarters fuel consumption, which was paid during the third quarter. However, total cash generated year-to-date rose by 9 million.
Volaris continues to have one of the most robust balance sheets among Latin American carries and our global peers. At the end of the third quarter, our net debt-to-EBITDA ratio was 3.4x compared to 2.8x in the same period of 2021 and 2.9x in the second quarter of 2022. While the increase in this ratio reflects the aforementioned macroeconomic challenges to our operating profitability, during the past 12 months, particularly rising fuel prices, net debt-to-EBITDA ratio is in line with our long-term goal.
Our debt remains very healthy with financial debt having decreased 7% year-over-year as of the third quarter end. Please note that around 93% of our total debt is made up of leasing liabilities with fixed rates. Volaris has no refinancing pressure like many of our global peers will face in the coming years. Our growing number of new aircraft remains a centerpiece in mitigating costs, allowing us to keep both expenses and first lower than peers in its fuel price volatility and preserving our bottom and top lines.
We expect NEOs to make up 54% of our fleet by year-end on our way to non-NEO fleet by 2027. The NEOs are also part of our broader progress in owning fuel efficiency and reducing CO2 emissions. We also significantly improved the utilization of our existing aircraft in the third quarter. Our balance per ASM decreased 1.5% year-over-year and 6.5% against 2019 levels. And we expect the same trend during the fourth quarter. Fuel consumed per 1,000 ASMs was 9.6 gallons, a 1.5% decrease. This consumption efficiency is among the best-in-class worldwide.
Meanwhile, we have signed contracts for sale and leaseback agreements for aircraft deliveries through 2025 and have secured more than $500 million of pre-delivery payments for all aircraft in our order book to be delivered during the next three years. Our fleet was comprised of 113 aircraft as of September 30, a solid increase from 94 aircraft a year prior as we move forward with our fleet transformation plan.
As Holger mentioned, we filled them with solid load factors and maintain high aircraft utilization. We delivered one A319neo [ph] in September and incorporated one A320 NEO. We are on track to end 2022 with 116 aircraft.
As of the end of the third quarter, Volaris’ fleet had an average of 190 seat per aircraft at an average age of 5.5 years, of which 51% were new models. The new aircraft are up to 18% more fuel efficient than their legacy counterparts and are integral to progress against our sustainability goals.
Overall, we are seeing robust demand throughout our network as we continue to see stable growth to and through the end of 2022 despite the macroeconomic and geopolitical challenges faced throughout the year. Our full year 2022 guidance is now ASM growth of 25% versus 2021. Operating revenue in the range of $2.8 billion to $3 billion, CASM ex-fuel to increase by around 1% compared to 2021, EBITDA margin in the low 20s and finally, CapEx of $145 million.
Our outlook assumes a full year average foreign exchange rate of MXN2.25 to MXN2.30 per dollar and an average economic fuel price of $3.85 to $3.90 per gallon and assumes no significant unexpected disruptions. We will continue executing our long-term strategy, while maintaining flexibility and discipline to manage through and profit during external volatility.
Now I will turn the call over to Enrique for closing remarks.
Enrique Beltranena
Thank you very much, Jaime. We have built and consistently implemented a resilient and effective ultra-low cost business model. CASM ex-fuel is under control. We have a strong balance sheet with healthy leverage and most importantly, we have the commitment of an experienced management team, as well as the sound advice of a world-class Board of Directors to navigate through the challenges ahead.
Finally, I want to remind everyone that we will be hosting our Investor Day at the New York Stock Exchange on December 6th. I look forward to seeing many of you there and sharing greater insights into our strategic vision for the future. Thank you very much for listening.
Operator, please open the line for questions.
Question-and-Answer Session
Operator
Thank you. We will begin the question-and-answer session. [Operator Instructions] And our first question today will come from Duane Pfennigwerth with Evercore ISI. Please go ahead.
Duane Pfennigwerth
Hey, thank you. Good morning. On Central America, can you talk about how many aircraft will be dedicated to this in 2023? How has that kind of changed from your initial expectations and if you get CAT 2 resolved next year, how would that — how would those plans shift?
Holger Blankenstein
Good morning, Duane. Well, on Central America, currently, we have five aircraft in the region, three in Costa Rica and two with our airline operating with El Salvador. And we are on track to add additional aircraft to the AOCs there next year. We are still finalizing the numbers given the recent results. And we will likely see some additions into Central America.
Bear in mind, as we have mentioned earlier, the recovery in Central America and South America has been six to 12 months behind the recovery in Mexico. So last year, we slowed down our growth in Central America. And lately, we’re seeing very good uptick in demand and a recovery in the region. So we feel quite bullish on the return of Central America traffic. Also, given the cut two situation in Mexico, it gives us an opportunity to grow to the US to our VFR markets in the US that we already service from Mexico.
Duane Pfennigwerth
Okay. Sorry, Holger. So you think the five, not to put too finer point on it, but do you think the five goes to what next year?
Holger Blankenstein
We are still working on the final numbers, but we have had at least two aircraft to the count in Central America next year.
Duane Pfennigwerth
Okay. Okay. And then just shifting gears, the guidance for the year implies a pretty healthy acceleration 3Q to 4Q in revenue growth, not only year-over-year, but also versus 2019, despite the fact that capacities doesn’t really accelerate. And so is that a function of better yields? Like what is driving the kind of implied acceleration in top line here? Thank you for taking the questions.
Holger Blankenstein
So Duane, we’re looking at the fourth quarter booking curves and they look pretty healthy. So what’s driving the expansion in TRASM is a load driven, a volume-driven expansion in the third — in the fourth quarter, mainly in the domestic market, we’re seeing quite healthy volumes as probably somewhat lower price points. And in the US market and Central America market, we’re seeing a load driven expansion and very healthy average fares as well.
Duane Pfennigwerth
Okay. Thank you.
Operator
And our next question will come from Helane Becker with Cowen. Please go ahead.
Helane Becker
Thanks very much, operator. Hi, everybody, and thanks very much for your time. So as you think about getting back to CAT 1, if we assume that occurs in the, say, by mid-2023. How should we think about opportunities for growth in the second half of next year maybe US versus Central America? And how should we think about your CapEx potentially changing in that – in that environment?
Jaime Pous
Helane. So, a couple of things here. We are currently envisioning a term to CAT 1 in Mexico during next year 2023, probably somewhere around midyear, mid to end 2023. That gives us the opportunity to continue to grow in the US, as Enrique mentioned during his prepared remarks. If that were not the case, we do have the flexibility with our three operating certificates to continue growth in the US through Central America.
Helane Becker
Okay. That’s helpful. And then –
Jaime Pous
On the CapEx, we will be – Helane, sorry.
Helane Becker
No.
Jaime Pous
Just on the CapEx question, this year is going to mainly be driven by maintenance and delivery expenses. Otherwise, it will remain the same as this year.
Helane Becker
Okay.
Enrique Beltranena
Yeah. I think, Helane, what we’re thinking here is shifting capacity from some markets towards other markets, okay? We’re still conservative in the numbers that we have. It’s not just a matter of Category 1, but we also have the economic downturn, which we are seeing that will mostly affect the US. So we have to be careful that we do not add more capacity, but simply shift capacity around within the network.
Helane Becker
Okay. That’s hugely helpful. Thanks, Enrique. And then just one follow-up question. Other airlines, you – Enrique, you mentioned that you are doing well with all your employees and everything. Do you have labor contracts that are coming due that we should be aware of?
Enrique Beltranena
Yes, our labor contract is due by February 13th next year. The company has to do a renewable of salary stringent and benefits this year and we are already working on it.
Helane Becker
Okay. So just a quick follow-up on that. In Mexico, does it work that on the day the contract comes due, you have a new extension, or is it like in the US where you can keep operating without the extension until you get one?
Enrique Beltranena
Well, it’s — I would say, it’s both ways. I mean it depends on the year and depends on the economic conditions, okay? I strongly think that, this year given inflation and everything we have to do so most, and we are working with the union on that.
Helane Becker
Okay. That’s very helpful. Thank you.
Enrique Beltranena
Thank you, Helane. Great to hear you.
Operator
And our next question will come from Mike Linenberg with Deutsche Bank. Please go ahead.
Mike Linenberg
Yeah. Hey. Good morning, everyone. I guess, this is to Enrique and even Holger, just the news last week that the competition authorities of Mexico have blessed the Viva, Allegiant antitrust immunized agreement. What are your thoughts on that? And does that – that would be unique in kind of the ULCC world where you’d have two ULCCs flying transborder with ATI. Is that getting you to sort of rethink your long-standing relationship with Frontier and possibly maybe expanding that on to something similar? Just your thoughts on that.
Enrique Beltranena
I think, we need to fix the category one thing before we do anything. I mean, yes, on one side, this thing for Viva was approved, but it cannot be – can not to enter an effect until we solve the Category 1. Our thoughts with Frontier is we continue thinking very high about our core share with them, and we’ll try to expand or do whatever we have to do in order to improve to the best conditions that conditions that contract. So we both excel in our markets.
Mike Linenberg
Okay. And then second question, sort of, switching gears here, and this is just to Jaime. I mean, can you just give us some detail on thoughts on what tax rate you’re planning? What we should use in our models for the fourth quarter? And then just in the third quarter, why there was such a large tax benefit. What drove that? What were the underlying drivers of that? Thanks for taking my questions.
Jaime Pous
Very welcome, Michael. Michael, basically, the tax benefit that we got this quarter is because we have provisioned the income tax for the year, assuming an income. And since we have been experiencing a loss for the first three quarters, that’s basically reversing that type of provision. The effective tax rate, it should go back to similar levels of 2021 and 2019.
Mike Linenberg
Okay. Very good. And what is the similar levels, what is that like 30%? Is that something that makes sense on that?
Jaime Pous
That’s a legal one, they’re 30%.
Mike Linenberg
Okay. Great. All right. Very good. Thanks, everyone.
Operator
And our next question will come from Stephen Trent with Citi. Please go ahead.
Stephen Trent
Good morning, everybody and thanks for taking my questions. Just first, maybe one for you, Jaime. You mentioned sale leaseback transactions through 2025. I believe you said sort of any high-level view to what extent we could see some operational gains come from those?
Jaime Pous
Yes. As we pointed out in the call, Steve. What we are trying to do, as you know, is we break down the total CASM and CASM ex-fuel and put on line with adjusted CASM ex-fuel. The idea is that you can focus on the core CASM. Going forward, 2023 and 2024 and then coming back in 2025 and 2026, we have a lot of deliveries, which basically are going to be affecting the CASM and it’s hard for you as analysts to feel about the core CASM of the company. So that’s why we break it out.
Next year, net-net we have provided some further guidance at the investor call on how the year is going to roll up. We are right now basically on budget season, the hunger gains began in Volaris, and we will have more details during the investor call.
Stephen Trent
Okay. That’s very helpful. Thank you. And just one very quick follow-up. I think there was some news a few weeks ago that the Mexican government wanted to establish some sort of, airline and kind of struck me that maybe they’re doing something like the Colombian government does with Satena, but any high-level color on where they are with that or how it might even marginally affect your operations, or do you see it as kind of a non-issue? Thank you.
Enrique Beltranena
Thanks, Steve. Look, I think there’s been a lot of stock and few action in reality related to this. The way I see that is, Volaris has always become a better competitor with new competitors. So I just want to remind everybody that Mexico is a country with two of the most efficient airlines in terms of unit costs in the world.
In that, Volaris has more than 46% of its network without air competition and operates 54% of the traffic in the ASA airports, which were the ones not concession to the private entities, since they were considered economic service for their own towns, okay? So we don’t envision bigger competition on top of what we do, and we continue working on a normal way and just following up on what it could have.
Stephen Trent
Sounds great. Thanks, Enrique. I’ll let someone else ask a question. Appreciate that.
Operator
And our next question will come from Rogerio Araujo with Bank of America. Please go ahead.
Rogerio Araujo
Yes. Hey, good morning, all. Thanks for taking my questions. I have a couple here. The first one. If I’m not mistaken, the previous growth guidance for 2023 in terms of capacity was mid-single digit, now it’s 10%. So is this right, there has been an acceleration of capacity growth expectations? And where should this 10%, as and increase, be allocated, if you could break down the markets between domestic Mexico, Central America, maybe US, Mexico, if category one is regained. And that’s the first question.
And the second one is regarding margins. Do Volaris see the low 20s as a down cycle margin? And if so, what should be a more normalized level which level of margin do you see as a — let’s see, what you expect to be end of next year or 2024 when the category one is fully regained and capacity has been added again to US? And what should drive Volaris to deliver that, if that’s the case? That’s it. Thank you.
Enrique Beltranena
Rogerio, I’ll tackle the question on growth and then pass it over to Jaime on the margins. So we have previously mentioned in the previous earnings call, a high single-digit growth as a baseline growth for 2023. And we’re now saying 10%, which is marginally higher and we may adjust that growth tactically once we have a better visibility on the macroeconomic outlook for next year and once category one is resolved.
So we see that as a baseline growth. It’s probably somewhat lower than what you are used to for Volaris growth, but we are specifically saying that we’re not compromising the longer-term growth prospects in future years of the company.
In terms of where that growth is going to come from, until Mexico returns to CAT 1, we will focus our growth next year on both the Mexican domestic market in most of our core markets, so the Pacific Coast, Tijuana, Guadalajara and the secondary cities within Mexico.
And we’re also going to grow US Central America, with additional frequencies and new routes. As we already mentioned, leveraging our two air operator certificate in that region. And then towards the end of the year, as Category 1 returns, we will retake our growth plan for the US market into our VFR destinations in the US.
Jaime Pous
And talking about margins. Basically, as you noticed this year, the margin has been impacted mainly by the fuel price. So provided the WTI, it’s around $78 to $80, the company should be a low to mid-30s EBITDA structurally going forward.
Rogerio Araujo
Okay. Go ahead, sorry.
Jaime Pous
No, go ahead.
Enrique Beltranena
Rogerio, please go ahead.
Rogerio Araujo
Yeah. Thank you. So a follow-up, just a follow-up on Category 1. Do you see the US airline is adding capacity to Mexican market in these past several weeks, and also in upcoming weeks bookings, or do you see more stabilized capacity in US, Mexico?
Enrique Beltranena
So the US airlines did add capacity to the US, Mexico market in 2021 and early 2022, mostly in the beach destination. So US customers going to visit the Mexican beach destinations; that is a market that we currently don’t operate in. And what we’ve seen lately is that the US airlines have retracted some of that capacity additions because of the strong demand and the mix in the US domestic market where they needed that capacity over the summer.
Jaime Pous
I think, Rogerio, there’s something very important that you need to take in consideration when you look at the margins. I mean the recovery that you are seeing in the US today is exactly what you saw in Volaris in 2021. The demands were travel in Mexico begin to recall well ahead of the US. So what you are seeing today in the financials of Volaris is basically a way back to normalization in terms of yield trends and you see a perfect control of costs, which is very important going forward, because once the yield premiums disappear, it’s going to be about cost. And that’s something really important in the question going forward.
Rogerio Araujo
Fair enough. Thanks so much. Have a great day, everyone.
Enrique Beltranena
Thank you.
Operator
And our next question will come from Alejandro Zamacona with Credit Suisse. Please go ahead.
Alejandro Zamacona
Thank you. Hi, Enrique, Holger, Jaime and Renato, a quick question, a follow-up on the guidance and on the only policed yield for the fourth quarter. So considering that the capacity guidance was narrowed 25% and revenues between $2.8 billion and $3 billion. If we assume a stable load factors, CASM would be — would need to increase on a sequential basis. So considering that for this quarter, we saw a slight decrease on yields, my question would be what are you expecting for TRASM for this fourth quarter? And what have you seen in the industry?
Enrique Beltranena
So, yes, you’re right. We are seeing very solid bookings for the remainder of the year, which translates into a higher TRASM for the fourth quarter than we saw in the third quarter. So you should expect a better TRASM for the next quarter, and that also represents a better TRASM versus the same quarter in 2021, which was already a pretty good quarter, so we should see a sequential improvement here. And that is, again, driven by solid loads in the domestic market and solid loads in the Central America to US and Mexico to the US, in addition to good yields in those markets as well.
Alejandro Zamacona
Thank you. And Holger from an industry-wise, I mean, do you have any high-level thoughts on the yields that the industry or the yield trend in the industry for this fourth quarter also?
Holger Blankenstein
Yes. I can tell you that the Mexican market has been quite stable and rational in terms of yields and pricing in the last 24 months after the exit of one of the players. Aeromexico has been very much focused on more premium part of the market and has restarted its long-haul operations, generating similar premiums as we’ve seen with some of the US legacy carriers.
The other competitor are low-cost competitor, Viva has been growing in the Mexican market, especially in Mexico City. And in Central America, we’ve seen a good rebound of demand and pricing as well. So overall, I would characterize the market as quite rational and stable.
Alejandro Zamacona
Okay. Thank you, Holger.
Operator
And our next question will come from Alberto Valerio with UBS. Please go ahead.
Alberto Valerio
Hi, good morning. Thanks for taking my question. Just one on my side. What we should look out for the Category 1 starts to come back? Is there any specifically safety reason that we should be looking that Mexico is doing our infrastructure projects. And is there any specific date that this comes to vote or if it’s just a random means that the Americans will take this decision?
Enrique Beltranena
So I think in general, there are things happening that are moving along much better than what I was seeing a couple of months before. We have seen changes in functionaries like the Secretary of Transportation, the undersecretary, the head of the regulator has happened in the last months. And we have seen the Secretary of Transportation himself working on building strongest end with Macau [ph] and that has been completed with support.
The functionaries of Mexico are flying to Washington on Friday of this week, speak with FAA. They are working on required changes to aviation regulations. They’re working on mechanisms for financing the expenses that they need to – to spend for getting the category back. And we’re seeing a sustained recovery of the general issues that are affecting the AFAC category.
So I am positive about it. I’m seeing also developments on some infrastructure in Tijuana, some infrastructure in Guadalajara, and some improvements in Cancun. So in general, I feel very optimistic about everything that’s happening. It has taken us a little bit more time, but I remain positive overall.
Alberto Valerio
Fantastic. But do you guys have any specific day, a month, quarter?
Jaime Pous
We are budgeting for the second half of next year, and we are closely monitoring that.
Alberto Valerio
Okay. Thank you very much.
Operator
And this will conclude our question-and-answer session. I’d like to turn the conference back over to the management for any closing remarks.
End of Q&A
Enrique Beltranena
Thank you very much, operator. I want to express my sincere gratitude to our family of ambassadors, the Board of Directors, investors, our bankers, lessors and suppliers, where the commitment and support that has driven Volaris to the strong position with such exciting opportunity ahead.
I see Volaris is an amazing company to invest and I’m looking forward to see all of you in our investors meeting in — on December 6th in the New York Stock Exchange. It will be great to see everybody face-to-face again, and I’m really thrilled about the future and everything that will be explaining there for Volaris next year and the following years. Thank you very much to everybody.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines at this time.
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