Controladora Vuela (NYSE:VLRS) reported first-quarter financial results on Tuesday. The transcript from the company's first-quarter earnings call has been provided below.
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Summary
Controladora Vuela Compania de Aviacion SAB de CV reported a 14% increase in total operating revenues, reaching $770 million, with disciplined capacity deployment and strong demand supporting the performance.
The company adjusted its 2026 ASM growth expectation from 7% to 4% due to capacity adjustments and cash preservation strategies, focusing on maximizing fleet productivity.
Despite challenges with higher fuel prices, the company anticipates a TRASM increase of about 22% year-over-year in the second quarter, with strategic fare and ancillary adjustments as key drivers.
Operational flexibility is emphasized, with the company maintaining the ability to adjust capacity dynamically in response to market conditions, particularly focusing on international markets showing strong pricing absorption.
Management expressed confidence in the company's strategic positioning for long-term value creation, focusing on disciplined growth, prudent capital allocation, and an enhanced revenue mix.
Full Transcript
OPERATOR
Good morning everyone and thank you for joining Volaris first quarter 2026 financial results conference Call all lines are currently in listen only mode. After the Company's remarks, we'll open the call for questions. Please note that today's event is being recorded and webcast live on Volaris website. At this time. I'd like to turn the call over to Lilianaa Juarez, Investor Relations Manager. Please go ahead. Liliana.
Liliana Juarez (Investor Relations Manager)
Welcome to our first quarter 2026 earnings call. Joining us today are our President and CEO Enrique Veltranena, our airline Executive Vice President Holger Blankenstein and our CFO Jaime Pouls. They will be discussing the company's results followed by a Q and A session. This call is for investors and analysts only. Please note that this call may include forward looking statements under applicable securities laws. These are subject to several factors that could cause the Company's results to differ materially. As described in our filings with the US SEC and Mexico CNBV. These statements speak only as of the date they are made and Volaris undertakes no obligation to update or modify them. All figures are in US dollars and compared to the first quarter of 2025 unless otherwise noted. And with that, I'll turn the call over to Enrique.
Enrique Veltranena (President and CEO)
Good morning everyone and welcome to our first quarter 2026 earnings call. We enter 2026 with a clear set of priorities. Disciplined growth, continued enhancement of revenue quality through segmentation across pricing ancillaries and network and active fleet management through peak Geared Turbofan (GTF) engine repairs, all while preserving our low complexity low cost model against the backdrop of global geopolitical events and higher fuel prices. These priorities remain unchanged, but we are adapting our execution. We are responding with agility and discipline, aligning capacity with demand, focusing on profitable flying and preserving cash on the commercial side. We're executing targeted fare and ancillary adjustments carefully calibrated to demand conditions to maintain a balanced approach between pricing and volumes. We're actively accelerating pricing actions resulting in fair improvement of about 10% with several steps across our network alongside with about 20% increases in selected ancillary pros. We will continue to progressively optimize these actions as we assess demand elasticity across different markets during the quarter. We expect Total Revenue per Available Seat Mile (TRAvailable Seat Miles (ASM)) to increase by about 22% year over year in the second quarter. Importantly, demand remains resilient to these actions across the network and we are seeing a faster than historical ability to recapture fuel through pricing supported by a more disciplined industry environment as pricing actions are reflected in an improvement in our revenue performance and given Vollari's booking curves, we expect to recapture on average approximately 20 to 30% of incremental fuel costs in the second quarter. From a capacity management perspective, we are prioritizing cash preservation by ensuring that our network covers variable costs. We're maintaining full flexibility to adjust capacity as conditions evolve with actions primarily focused on the domestic market. As international markets continue to demonstrate stronger pricing absorption, we are adjusting schedules on an ongoing basis in response to fuel conditions and demand. More specifically, we are managing schedules dynamically through a rolling six to eight week planning horizon while maintaining a strong focus on customer experience and network integrity. At the same time, we're improving fuel efficiency through fleet mix. In line with our plan to return Geared Turbofan (GTF) engines to service, we're seeing a higher proportion of NEO aircraft in operation and we estimate that for every 10 aircraft shifted from CEOs to NEOs, we generate roughly $2 million in monthly fuel savings at current fuel price levels for the full year 2026. We now expect Available Seat Miles (ASM) growth of approximately 4%, down from our original guidance of around 7%, reflecting the capacity adjustments made to date and our approach to cash preservation in the current environment. Importantly, this remains dynamic and we retain flexibility to adjust further as conditions evolve with actions primarily concentrated in the domestic market while international markets continue to demonstrate strong pricing absorption. Now turning to our first quarter top line results, they reflect strong execution. We deliver resilient performance supported by disciplined capacity deployment, improving yields and mix and cost control. In line with our guidance in the quarter, demand remained robust across our network with continuous sequential improvement in the cross border segment and stable trends in the domestic market. Combined with a solid ancillary performance. This drove results that reinforce the strength of our model and the relevance of our offering even in a more challenging environment marked by steeply higher fuel prices and increased global uncertainty. Beginning in late February during the quarter, we focused on recovering volumes across our segments while improving revenue quality. As a result, we delivered trasm of 8.62 cents up 11% year over year. This performance was supported by a 10% increase in base fare and continued improvement in revenue mix with ancillary reaching 57% of total operating revenues, reinforcing our ability to drive sustained revenue performance while maintaining flexibility. At the same time, we kept CAvailable Seat Miles (ASM)EX fuel in line with planned at $6.04 and closed the quarter with an EBITDA margin of 22.9%. This result came 2 percentage points below our first quarter guidance driven by a more challenging fuel environment with Gulf coast jet fuel averaging 2.56 per gallon compared to 2.20 assumed in our February guidance, an increase of around 16. Our balance sheet remains strong with a healthy cash position of 766 million representing 24% of the last 12 months revenues and only 8 million below the prior quarter. Net leveraged stood at 3.2 times, providing flexibility to navigate the current environment while continuing to execute our priorities. Our experience over the past 2.5 years navigating the Geared Turbofan (GTF) engine uncertainty has given us the capability to quickly flex capacity to align with demand and support profitability. Today, our diversified network and stronger dollarized revenue profile with over 40% exposure to higher yielding trans border markets support greater resilience. While we are focused on navigating the current environment, we are also positioning the business for medium term value creation supported by a fleet strategy anchored on three disciplined growth prudent capital allocation Clear value creation starting with growth. We are confident we have the right model in the right markets to grow sustainably and profitably in line with demand, not ahead of it. Our capacity outlook remains intentionally disciplined with growth primarily driven by improving fleet productivity rather than by adding incremental aircraft. As a result, our contractual fleet will decline from 155 aircraft in December 2025 to roughly 137 by year end of 27, while our productive revenue generating fleet increases to approximately 125 aircraft, up from 112 at the end of 2025. This transition unlocks meaningful efficiency gains including around $50 million in annual lease savings and a reduction of roughly $360 million in lease liabilities by 2027 while at the same time increasing our revenue generating capacity on capital allocation. We are prioritizing investments that deliver long term returns while maintaining flexibility around future fleet commitments. To that end, most 2027 and 2028 deliveries have been rescheduled and no incremental aircraft investment will be made until the Geared Turbofan (GTF) advantage engines enter into service. Ultimately, the most powerful value creation lever over the next several years is restoring fleet product, reducing aircraft ownership costs and improving our conversion from EBITDA to ebit, translating directly into stronger free cash flow generation and return on investment capital. In short, we are executing with discipline in the near term while positioning the business for meaningful long term value creation. We remain confident in our ability to navigate this environment and will continue to prioritize profitability over growth while today's demand trends remain solid, Our model is designed for flexibility that the current Rio political environment requires. With that, I will turn the call over to Holger to discuss our commercial and operational performance.
Holger Blankenstein (Executive Vice President)
Thank you Enrique Our first quarter results reflected disciplined execution especially as we continue to prioritize higher quality demand and deploy capacity into our strongest markets while reinforcing our network position in the current industry environment. For the first quarter we grew ASMs by 2.3% reflecting disciplined capacity deployment and a continued shift towards the higher yielding transporter market. International performance was encouraging with Load Factor reaching 80.1% trending closer to historical levels despite a temporary softness at the beginning of March related to security events in the state of Jalisco. These results exceeded expectations and highlight the continued momentum in the cross border recovery in the domestic market. We delivered a Load Factor of 89% reflecting steady demand in a balanced supply environment. Our network wide Load Factor for the quarter was 85% in line with last year's result. Overall, we delivered first quarter TRASM of 8.62 cents, an 11% increase and in line with our guidance supported by a responsive approach to evolving demand trends across our network. This performance reflects our continued focus on improving yields and trasm solid underlying demand and the sustained strength of our high value ancillary revenues. Our top line resilience continues to be supported by outstanding ancillary performance. Ancillary revenue per passenger increased by 8% versus 2025 and now accounts for 57% of total revenues. Ancillary strength was driven by a finer segmentation of our customers and their product needs as well as a solid credit card revenue and a growing vacation package business. Under the Yavas platform, we continue to see a meaningful growth opportunity for ancillaries for the remainder of 2026 and 2027 as we enhance our product suite, capture a more diverse customer base and refine our pricing strategy. The key to our success remains the low cost and low complexity development of ancillaries that generate high returns on investment. Our loyalty program Altitude now has more than 1 million active members. We remain on track to integrate Altitude with our co branded credit card by the end of the current quarter, allowing all card transactions to earn loyalty points. Turning now to our approach to the current jet fuel environment. While this remains an evolving story, as Enrique highlighted, Volaris is structurally better positioned today than in prior fuel cycles. We are a more diversified and resilient business than in 2022 with a broader commercial toolkit, stronger discipline across our network and growth and solid underlying demand for our product. Against this backdrop, we are executing a set of targeted actions to mitigate higher fuel prices, combining price adjustments and targeted flight consolidations to preserve cash on capacity. We have made tactical reductions primarily through frequency optimizations in off peak period without cancelling routes allowing us to maintain customer connectivity during key travel periods. We are also reallocating capacity for Volaris strongest markets reinforcing our competitive position to date. We have reduced schedules for April and May, implementing targeted reductions of approximately 2 percentage points in April and 9 percentage points in May. We will continue to monitor the geopolitical situation and we are prepared to implement further reductions on accordingly for June and the second half. As a reminder, should we see shift in demand trends, Bolaris can adjust close in capacity more quickly than a typical US carrier as we do not face their crew rostering constraints on pricing. We have implemented double digit fare adjustments in both domestic and international markets with especially strong absorption in the transporter segment. Our international exposure continues to be a strategic asset for our business and in this environment it has demonstrated lower elasticity in the domestic market. Demand has remained resilient to incremental fare adjustments and we continue to take a measured approach to pricing while closely monitoring changes in customer demand. Ancillary products continue to be an important lever to help offset fuel pressures as they are typically less elastic than the base sphere. Looking ahead, we expect second quarter revenue performance to benefit from a combination of disciplined capacity, higher yields and strong seasonal demand. With TRASM expected to reach approximately 9.5 cents for full year 2026, we now expect ASM growth of around 4% which reflects the adjustments made to capacity to date while maintaining flexibility to adjust further and as conditions evolve based on jet fuel price developments and engine returns. Finally, as the FIFA World cup approaches, we expect a moderate increase in traffic though we continue to maintain a conservative view of the overall benefit. Fares to World cup markets have converged industry wide to levels consistent with our expectations. After a period of tighter inventory management, we are now gradually releasing June seats with fares in host city markets tracking broadly in line with historical trends, leaving potential upside for close in bookings. In summary, we are managing the current environment with discipline, leveraging the flexibility of our model and continuing to strengthen the quality of our revenue and network. Now I will turn the call over to Jaime to cover our first quarter financial results and latest 2026 guidance. Thank you Holger.
Jaime Pouls (Chief Financial Officer)
In the first quarter we continued to act with agility leading to our variable cost structure to manage the impact of higher fuel prices on our flying. Elsewhere in our operation we took on higher costs related to upcoming redeliveries and the pull forward of other maintenance activities as planned to prefer for the return of GTF related Aircraft on Ground (AOG)s to our productive fleet. Turning now to our results, starting with top line strength. For the first quarter of 2026, total operating revenues were $770 million, a 14% increase versus the period last year. This was accomplished just with 2.3% capacity growth versus our guided 3% growth. This performance underscores our continued progress in driving yields and the resilience of our underlying demand on the top line also benefited from a strengthened peso which appreciated 14% and contributed to a more favorable translation of domestic revenues into dollars. Although providing an incremental cost headwind on peso denominated expenses on the cost side, CASM was 8.85 cents, an increase of 12% driven by average economic fuel costs that rose 16% during the quarter to 3.$06 per gallon. Our cost structure is particularly important during this period of uncertain and higher fuel prices, with almost 70% of our cost being variable or semi fixed. Coupled with our ability to adjust crew schedules closer into flights, we have the ability to nimbly adjust capacity and take related costs out of our operations faster than many of our peers. This flexibility in our cost structure is particularly important during this complex geopolitical environment. In the context of higher fuel prices, it is important to highlight the timing of fuel impact and fare recapture across our financials. Fuel is reflected on our Profit and Loss (P&L). On a current basis, our reported cash flows and balance benefit from about a 30 day lag. At the same time, our working curve of approximately 45 days marks a lag in the translation of fair adjustments into results. Ancillaries, by contrast, are more linear and closer in allowing for faster response. Castle mixed field was 6.04 cents aligned with our guidance. The 12% year over year increase is primarily driven by higher maintenance activity associated with return of aircraft and the pull forward of work to support accelerated engine inductions into Pratt and Whitney shops, reflected mainly in the line of the precision of right of use assets as well as professional fees associated with the merger and a higher international scheduled mix for context. Landing, takeoff and navigation expenses for US Operations are far higher than for domestic operations. Looking down our Profit and Loss (P&L), the impact of our grounded fleet and engine maintenance along with actions taken to manage the interim capacity deficit is reflected across several lines. In particular, our depreciation and amortization right of use and maintenance items continue to reflect cost of our total fleet of 155 aircraft, including 36 average grounded aircraft during the quarter. Elsewhere in our Profit and Loss (P&L), I have already addressed the increase in landing, takeoff and navigation expenses. Another line worth highlighting is salaries and benefits where the increase primarily reflects the appreciation of the Mexican peso. Given that this cost line is mostly peso denominated and reflects the higher headcount associated with the incorporation of 10 additional aircraft year over year and the annual salary adjustment in line with Mexican inflation. Meanwhile, in other operating income line we did not recognize any sale and leaseback gains as we had no aircraft delivered by Airbus during the quarter. This line also includes our aircraft grounding compensation from Pratt and Whitney. For the first quarter we generated Earnings Before Interest and Taxes (EBIT)DA of $177 million with a net margin 22.9%. This compares with our guidance of 25% with the variance solely driven by higher jet fuel prices. As they realized Gulf coast jet fuel price average $2.56 per gallon for the quarter, that is $0.36 above the $2.20 per gallon assumption embedded in our guidance. Earnings Before Interest and Taxes (EBIT) was negative $21 million with a minus 2.8% margin. As the Aircraft on Ground (AOG) trend reverses, we expect to narrow the Earnings Before Interest and Taxes (EBIT)DA to Earnings Before Interest and Taxes (EBIT) conversion to support the stronger underlying profitability. Net loss for the quarter was $71 million translated into a loss per ADS of 62 cents. Turning now to cash flow and balance sheet Data for the first quarter, cash flow generated by operating activities was $251 million. The cash outflows provided by and used in investing and financing activities were 34 and 222 million dollars respectively. Capex excluding fleet pre delivery payment was 87 million in line with our plan for this year. At the same time we are actively evaluating initiatives to optimize investment including selectively reducing noncritical capex while preserving all critical fleet related spending to preserve cash for the full year. Molaris ended the quarter with a total Liquidity position of $767 million representing 24.5% of the last 12 months Total operating revenues. This level remains broadly in line with the end of last year and reflects a solid position. Looking ahead, we remain focused on preserving cash supported by disciplined actions and a proactive approach to managing the current environment. At first quarter end our net debt to Earnings Before Interest and Taxes (EBIT)DA ratio stood at 3.2 times. We continue to have no material near term debt maturities and have already financed all pre delivery payments for aircraft scheduled for Delivery and through mid-2028 we continue to prioritize cost control, profitability and conservative cash management in all environments. Now turning to our fleet plan and engine availability, as of March 31st our fleet consisted of 155 aircraft with an average age of 6.8 years with 66% of the fleet being fuel efficient. New models during the first quarter we averaged 36 aircraft on ground due to engine related issues with continued improvement to achieve our plan for the year. During the quarter we reduced the number of Aircraft on Ground (AOG)s by nine aircraft peaking at 41 and closing at 32. This represents an important step toward restoring fleet productivity, driving structural improvements in earnings, power and long term performance. At the same time as we receive additional GTF engines and bring new aircraft back into operation, we enhance fuel efficiency relative to the CO fleet. We expect the new mix of the operating fleet to increase to an average of approximately 70% for the year compared to 52% in 2025, reflecting our delivery focus on maximizing fuel efficiency in the current environment. As Enrique mentioned, we estimate that every 10 aircraft shifted from CEOs to NEOS generates roughly $2 million in monthly fuel savings. At current fuel prices, restoring fleet productivity continues to be a priority. We have a strong conviction that this will drive structural improvements in the fleet efficiency, earnings, power and long term performance supporting sustained value creation. As we have highlighted as grounded aircraft return to service, we generate growth on essentially the same asset base resulting in a natural earnings tailwind without the need for incremental fleet related debt over the remainder of the decade. These liabilities are expected to decrease by around 340 million in 2027 as our contractual fleet declines unluckily roughly $50 million in annual lease savings. Turning to our outlook, given the volatility in jet fuel prices and limited visibility due to the ongoing geopolitical situation, we are suspending our full year 2026 guidance. While we remain confident in the underlying strength of the business, the demand of our CASMers network and our ability to execute our strategic initiatives, we believe it is prudent to provide an update once conditions stabilize. In this context, I would like to provide directional color on two key variables within our control ASM growth and capex on capacity. Considering the actions we have taken to date, we now expect 4% annual growth compared to our prior expectation of 7%. Importantly, this remains dynamic as conditions evolve, particularly as capacity reduction have been concentrated in the second quarter and we will make further adjustments on a rolling basis as conditions require. On CapEx, we are in the process of implementing referrals of non critical investments to preserve cash. Turning now to our guidance, for the second quarter of 2026 we expect an ASM growth in the range of 0 to 2% year over year Trasm of around 9.5 cents Kasm ex fuel of approximately 6.8 cents and an Earnings Before Interest and Taxes (EBIT)DA margin of around 13%. The increasing CAS of mixed fuel in the second quarter primarily reflects non recurring items and the capacity reduction implement. This impact represents roughly 0.7 cents in unit costs in the quarter driven by merger related cost and fleet expenses, including incremental expenses associated with aircraft returns, including major maintenance events on four aircraft and an increase in engine shop visits to 43 events in the second quarter compared to 15 last year. As we accelerate engine inductions into Pratt and Whitney shops to support our targeted reduction in Aircraft on Ground (AOG)s resulting in higher maintenance expense in the near term, coupled with the deliberate actions to align capacity with the current fuel environment, we expect the second quarter to represent the peak in gas o mixed fuel for the year. Wrapping up for our second quarter guidance, we are assuming an average foreign exchange rate of around 17.85 Mexican pesos per US dollar and an average US Gulf coast jet fuel price of approximately $40 per gallon. For April, we hedged 20% of our fuel consumption for peak travel periods including Semana Santa and spring break at a strike price of 2.05 per gallon. With a breakeven price of 2.12 per gallon, this represents approximately 7% of second quarter consumption and an estimated 11 million benefit for the quarter. In summary, while the current environment presents near term pressures, we are responding with agility and taking proactive actions across the business. We enter in this period from a position of strength and remain confident in our ability to navigate the environment supported by a flexible model, a solid liquidity position and multiple levers to drive performance as conditions evolve. Now I will turn the call back over to Enrique for closing remarks.
Enrique Veltranena (President and CEO)
Thank you Jaime. Overall, we are confident that Volaris prudent strategy planning, world leading and highly variable cost structure and nimble execution in two structurally growing markets in the Mexican and the US Market cross border sectors position us well for the long term. Before we start Q and A, I'd like to also quickly cover the latest developments in our transaction with viva. The regulatory process continues to move forward as expected and we remain in active dialogue with the relevant authorities. We have filed with Mexico's National Antitrust Commission and have already responded and closed the first round of information requests. As you may have seen in the extraordinary shareholders meeting held on March 25, we received strong support for the transaction with 94% quorum and 92% approval of total outstanding shares. Last week we received a second request of information. All teams in Mexico and Europe are working hard to provide the requested information to the relevant authorities in the different countries at this stage, we continue to expect the overall regulatory review process to take up to 12 months from the transaction announcement date. We'll continue to provide public disclosures and updates on our earning calls as we advance throughout the process and reach new milestones. I'll now turn the call over for Q and A.
OPERATOR
Thank you. The floor is now open for questions. If you have a question, please dial STAR11 on your phone at this time or anytime. If at any point your question is answered, you may remove yourself from the queue by pressing star 11 again. Questions will be taken in the order they are received. Please hold while we poll for questions. Our first question is from Michael Leningberg with Deutsche Bank. Your line is now open.
Michael Leningberg (Equity Analyst)
Yeah. Hey, good morning everyone. A couple questions here just on fare increases or fuel surcharges that have been implemented and how domestic markets may be compared to international markets. So I'm trying to get a sense of maybe how many fare increases have we seen and are you seeing a better up-take in international or domestic on your ability to recapture the higher fuel expense?
Holger Blankenstein (Executive Vice President)
Hi Michael, this is Holger. So on fuel recapture, the first thing I'd like to say is that demand has remained strong in both domestic and international markets despite $4 fuel per gallon and price adjustments that we've done. We've made fair adjustments step by step and ancillary price adjustments to help precisely manage the impact of higher fuel prices. And we are encouraged to see stability and a healthy demand in both markets, as I said. And we believe that our Ultra Low-Cost Carrier (ULCC) value proposition is attractive and remains attractive in the domestic and international market. But it's also important to mention that recapture improves not only from pricing actions, but especially in the international markets, also from a trade down effect that we are seeing from higher fare carriers that service the US transborder markets towards our lower fare base fare model and unmodeled model. So that's what I can tell you about how we're passing through fuel prices. It's a little bit better in the international market, as I mentioned.
Michael Leningberg (Equity Analyst)
Okay. And then just my second question on the capacity front. We've already seen Aeromexico report and they're scaling back their capacity several points, as are you. What about the rest of the competition? Whether with, you know, from. In this case it'll be mainly non Mexican carriers. What are you, what are you seeing in competitive markets? Are you seeing supply come out at what you expect or maybe it's even faster than expected? Thanks for taking my questions.
Holger Blankenstein (Executive Vice President)
So we've seen capacity prudence by all Competitors in the market. We've seen adjustments especially for the second quarter of all domestic carriers and in the international market as well for the second quarter as we move into the high season July and August, capacity cuts have not come through yet and we are still holding off as well. But we are ready to make further cuts if the fuel price environment remains where it is right now. And further our second quarter ASM guidance is now 0 to 2% which is points less than we had originally planned for the second quarter of 2026.
Michael Leningberg (Equity Analyst)
Great, thank you.
Holger Blankenstein (Executive Vice President)
Just follow on here if you'd like the breakdown between domestic and international for the single domestic market by around 3% negative and international is going to be mid to high single-digit growth because international has been more robust in 2026.
Michael Leningberg (Equity Analyst)
Great, great. Thanks Holger.
OPERATOR
Thank you. Our next question comes from the line of Rogerio Aruho with Bank of America. Your line is now open.
Rogerio Aruho (Equity Analyst)
Yeah. Hi guys. Congratulations on the capacity and yield management delivered. I have a couple here. First of all there is $0.70 of chasm ex fuel impact from the recurring and capacity reductions. Will all this go away as of the third Q26 or should we continue to see part of that impact? That's the first one. And the second is how is the company managing to keep capacity growth under mid single digit rates while flying back the grounded aircraft from Pratt and Whitney? And are these gonna generate extra redelivery costs besides the one offs expected in the second Q. Thank you.
Jaime Pouls (Chief Financial Officer)
Thank you for your question. This is Jaime starting with CASM ex-fuel. As Jaime mentioned, the second Q will be the highest peak of the year and as times continue it will normalize. As mentioned, we have an impact of around 0.70 cents just by non recurring items in the second Q. If you do add the FX effect plus the capacity cut, it's also like around 0.22 to 0.3. So CASM is aligned with the CASM X that we have last year. I think KASM for full year should will be at the level of 6.20 which is aligned with the recovery on productive fleet that we budgeted for the year which is aligned with the plan that we have been working together with Pratt. And so we are strong believers that we have a strong custom position. We have a lot of custom which is non fixed or semi variable 70% which that will continue. And we are going to get the price on the investment on the returning to normality of the fleet in the future with a lower CASM than the custom that we are going to be posting this year.
Rogerio Aruho (Equity Analyst)
Perfect, thank you. What about the how is the company managing to keep the capacity growth below mid single digit rates while you receive all these aircraft back that are currently grounded.
Enrique Veltranena (President and CEO)
Rogero, this is Enrique Veltranena. I just want to remind you and I have been very very persistent in the saying that our fleet management is a combination of four very important pieces. First, the return of Pratt and Whitney engines and the incremental fleet that that creates. Second, the redelivery of the aircraft that we have in the pipeline. Third, the arrivals of the Airbus aircraft that are new aircraft coming into the fleet. And finally we manage the whole equation in a way that it creates a balance of the ASM growth that we are presenting. I want to be very persistent on that and very clear. It's not that we're incrementing fleet in a nonsense way. The addition of all these four pieces make a total equation which controls the capacity based on demand from the customers.
Jaime Pouls (Chief Financial Officer)
On some data on the general comment made by Enrique these year actions that we have already implemented for deliveries that were targeted for Controladora Vuela Compania de Aviacion SAB de CV this year we sold those aircrafts to a lessor. In addition, we postponed seven deliveries of 2027 and three deliveries of 2028 until 2029. So that helps manage capacity but also helps the cash because we're all avoiding PDP payments towards that. And that's examples that we have structurally in our fleet strategy embedded in the business that will allow us to cut capacity in the really short term. We did it last year originally we're going to grow 15%. We ended up growing only 6 this year. We initially thought that we were going to grow 7%. Our expectation is 4% and that's embedded in the fleet flexibility that we have worked over the years.
Rogerio Aruho (Equity Analyst)
That's very clear. Thank you so much.
OPERATOR
Thank you. Our next question comes from the line of Dwayne Sinnett, works with Evercore isi. Your line is now open.
Dwayne Sinnett (Equity Analyst)
Hi. Thank you. My first one is just about your merger agreement. I'm not sure if you can talk about it, but given how dynamic the backdrop has been since this agreement was first announced, are the economics fixed in your agreement or are there adjustment mechanisms based on your relative profitability?
Enrique Veltranena (President and CEO)
So let me start saying that. I think that even before higher fuel prices delivers clear benefits across stakeholders. Okay. It creates greater connectivity and sustain lower fares for customers and a stronger and more resilient platform with enhanced long term value creation for shareholders. I think in a higher fuel environment scale becomes even more relevant. And this combination strengthens our Ability to manage controllable costs through procurement efficiencies, better asset utilization and operating leverage at the group level. Importantly, the structure allows both airlines to maintain independent operations, limiting execution risk while capturing scale benefits, positioning us to accelerate growth and deepen penetration of the ultra Low-Cost carrier model across Mexico and the trans border market. Having said that, the authorities do not take in consideration this kind of comments. So we need to accelerate and continue working very hard with authorities to get the approvals that we need as soon as possible.
Dwayne Sinnett (Equity Analyst)
Thanks for that, Enrique. Maybe just to follow up, from the perspective of Volaris equity holders, assuming that you do ultimately get regulatory approval, is the ratio fixed or are there adjustment mechanisms based on how the relative profitability plays out?
Enrique Veltranena (President and CEO)
No, there are no that kind of mechanisms in the transaction. Well, there are many conditions, precedent for the transaction to close. So I'm pretty sure the board of directors will make the right decisions for the transaction to be generating value for all of the shareholders of Bollars.
Dwayne Sinnett (Equity Analyst)
Thanks for that. And then just for my follow up, you mentioned in the prepared remarks greater flexibility to make capacity changes closer in. Can you just expand on that a little bit? What are the drivers of that flexibility from a crew perspective? Thanks for taking the questions
Holger Blankenstein (Executive Vice President)
Yeah, sorry Duane, this is Holger. We believe that we have a model that is more flexible inherently than US Legacy carriers or any US Carriers as a matter of fact. And that is driven by lower restrictions on the crew rostering side. And we're focusing on schedule capacity reductions that are focused, for example, on off peak frequencies. We can quickly adjust underperforming routes with the new fuel price environment, lower yield markets, and we're really focused on optimizing the profitability of our network while maintaining network connectivity for our customers. So we're not canceling any routes, we're nimbly adjusting frequencies as the fuel price environment evolves.
Dwayne Sinnett (Equity Analyst)
Okay, thank you.
OPERATOR
Thank you. Our next question comes from the line of Felipe Nielsen with Citi. Your line is now open.
Felipe Nielsen (Equity Analyst)
Hey. Hello everyone. Thanks for taking my question. So I just wanted to understand a little better how the booking curve is evolving for you guys in different markets. And trying to reconcile that with, okay, we now know what are you expecting for second quarter, but trying to understand how this should roll into third quarter and fourth quarter. Other carriers mentioned a little bit about the expectations on fuel cost recapture later in the year. You mentioned around 20 to 30% in second quarter. Just wanted to understand how you expect pricing, CASMX and margins to evolve as the booking curve evolves.
Holger Blankenstein (Executive Vice President)
Thank you. Thank you. This is Holger again and I'll start out with giving you a general sense of where we see the booking curves and then talk a little bit more about fuel price recapture and then pass it over to Jaime for the cost section. So in terms of booking curves and trends, we are seeing quite solid booking trends into the summer high season, both in the domestic and international market. The cross-border segment has improved steadily since basically mid-2025. After the relatively weak second quarter of 2025, the macro indicators in Mexico, including consumption and wage developments, remain stable and that translates into stable demand for our air services. In the cross-border segment, the demand trend that we've seen late in 2025 continues in the first quarter and the second quarter of 2026, with an international load factor increasing from 79% in the last quarter of last year to 80% in the first quarter and with improvements in the second quarter in terms of fuel recapture. What I can tell you is that in the first quarter a significant portion of our revenues was already booked. And that's also true for April before the fuel prices spiked. So as a result, in the second quarter we expect a fuel recapture in the range of 20 to 30% given our price adjustments to base fare and ancillary revenues that are slowly trickling through the bookings. But as we move into the back half of the year and assuming the current fuel price forward curve, we expect a more progressive improvement of the fuel recapture adjust because our pricing actions and capacity adjustments are going to be fully reflected in the revenue base. So you'll see higher fuel recapture rates towards the end of the year. Based on the current jet fuel forward curve, we see a constructive trajectory in the second half, supporting improved earnings, saying that that supporting sequential improvement in operating margin, EBITDA margin and net profit, trending back to our original expectation by the fourth quarter of the year.
Felipe Nielsen (Equity Analyst)
Great, thank you. And just a little follow up. You're seeing this, this positive oil curve going forward. Are you planning on rolling any hedges like doing at least a little bit to protect from potential further spikes or anything in that sense. Thank you.
Jaime Pouls (Chief Financial Officer)
Continue to overlay on a constant basis. If there's a good window to do some hedging, we will do it. We have not seen in the recent last weeks.
Felipe Nielsen (Equity Analyst)
Great. Very clear. Thank you.
OPERATOR
Thank you. Our next question comes from the line of Julia Orsi with JP Morgan. Your line is now open. Julia Orsi, your line is open. Please check your mute button. Our next question comes from the line of Jens Spies with Morgan Stanley. Your line is now open.
Jens Spies (Equity Analyst)
Yes, hello. Thank you for taking my question. So just assuming that jet fuel remains at spot level and does not come down according to the like forward curve, at what level should we then expect trasm to be in the third quarter? Just to get a sense of how much more price increases you would need and could make further down the road. Thank you.
Holger Blankenstein (Executive Vice President)
So we're going to continuously evaluate the situation on the on the fare adjustments and ancillary side. We are planning to sequentially improve the fuel pass through towards the customers as we get more and more new bookings into our reservation system. We are currently showing a good trajectory in the second quarter. Double digit trasm growth in the second quarter and we plan to sustain that into the third quarter as well.
Jens Spies (Equity Analyst)
Okay, perfect. Maybe asked a different way. You mentioned 20 to 30% fuel recapture in the second quarter. So what's like the marginal treasm excluding the effect of tickets already sold, the tickets that you sold after the fuel spike, what level are they more or less? Just to get a sense. Thank you
Holger Blankenstein (Executive Vice President)
for Holger here again. So the fuel recapture, as you said, for the second quarter, we're expecting 20 to 30%. As we see the forward curve materialize, that fuel recapture should increase. And we are planning to sustain the fare adjustments and the ancillary adjustments that we've already put through the system. But I can't give you a specific number right now in the third quarter.
Jens Spies (Equity Analyst)
Okay, okay, okay, perfect. And if I may just one last question. You mentioned 2 million in fuel savings from switching to new generation aircraft. So first of all, is that at current jet fuel prices or pre the spike and also also more or less, what's the delta in the least cost of switching? Just to get a sense of the net impact. Thank you.
Jaime Pouls (Chief Financial Officer)
This is Jaime. As mentioned in the call that 2 million correspond to adding 10 aircraft switching from CO to NIO at a current fuel prices. In addition, there's no effect on rent because I'm paying for the rents for the 155 aircraft, even though I have 32 aircraft rounded today. So there's no effect on the lease payments.
Jens Spies (Equity Analyst)
Yeah, but conceptually like. So what's like the delta in the lease of a new generation aircraft versus older generation aircraft.
Jaime Pouls (Chief Financial Officer)
Obviously NEOs are more expensive than the CEOs, but I'm paying for both today. And the redeemer is that we are doing this year, which are 14 deliveries are all CEOs which is part of the strategic plan to reduce the gap between productive and non productive.
Jens Spies (Equity Analyst)
Okay, all right, perfect. Thank you.
OPERATOR
Excuse me. This concludes today's question and answer session. I would like to invite management to proceed with his closing remarks. Please go ahead, sir.
Enrique Veltranena (President and CEO)
Thank you very much. Operator, this is Enrique Veltranena again. I just want to finish the call saying that we remain confident on the actions that we are taking. And I want to thank you, our family of ambassadors as well as our board of directors, investors, bankers, lessors and suppliers. As I said in my opening comments, looking ahead, remaining confident is really important in our ability to navigate this environment. We think we have a very well prepared company, a team management that has been successful through very many of the crises that we had in the past and will continue to prioritize profitability over growth. I look forward to speaking to you on our second quarter call in July and thank you very much to everybody for being here today.
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