Volaris Reports Second Quarter 2019 Results: 10.1% TRASM Increase and 4.6% Reduction of Unit Cost Excluding Fuel

MEXICO CITY, July 25, 2019 /PRNewswire/ -- Volaris* (NYSE: VLRS and BMV: VOLAR), the ultra-low-cost airline serving Mexico, the United States and Central America, today announced its financial results for the second quarter 2019.

The following financial information, unless otherwise indicated, is presented in accordance with International Financial Reporting Standards (IFRS).

Second Quarter 2019 Highlights

• Total operating revenues were Ps.8,329 million for the second quarter, an increase of 33.7% year over year.
• Total ancillary revenues were Ps.2,909 million for the second quarter, an increase of 38.9% year over year. Total ancillary revenues per passenger for the second quarter reached Ps.514, an increase of 10.3% year over year. Total ancillary revenues represented 34.9% of the total operating revenues for the second quarter 2019, increasing 1.3 percentage points with respect to the same period of last year.
• Total operating revenues per available seat mile (TRASM) were Ps.135.5 cents for the second quarter, an increase of 10.1% year over year.
• Operating expenses per available seat mile (CASM) were Ps.124.9 cents for the second quarter, a decrease of 1.2% year over year; with an average economic fuel cost per gallon of Ps.48.9 for the second quarter, an increase of 8.0% year over year.
• Operating expenses excluding fuel, per available seat mile (CASM ex-fuel) reached Ps.74.5 cents for the second quarter, a decrease of 4.6% year over year.
• Operating income was Ps.659 million for the second quarter, an improvement compared with the operating loss of Ps.163 million for the same period of last year. Operating margin for the second quarter was 7.9%, an improvement in margin of 10.5 percentage points year over year.
• Net income was Ps.119 million (Ps.0.12 per share / US$0.06 per ADS), with a net margin of 1.4% for the second quarter.
• At the close of the second quarter, the Mexican peso appreciated 1.1% against the U.S. dollar with respect to the exchange rate at the close of the previous quarter (Ps.19.38 per US dollar). The Company booked a foreign exchange gain of Ps.3 million as a consequence of our U.S. dollar net monetary liability position, as result of the adoption of IFRS16.
• Net cash flows provided by operating activities and investing activities were Ps.1,527 million and Ps.171 million, respectively. The cash flow used in financing activities was Ps.571 million, which included Ps.1,582 million of aircraft rental payments, and inflows of Ps.1,500 million, related to the issuance of asset backed trust notes (certificados bursátiles fiduciarios). The negative net foreign exchange difference was Ps.74 million, with net cash generation in the second quarter of Ps.1,053 million. As of June 30, 2019, cash and cash equivalents were Ps.8,124 million.

Resilient Macroeconomics and Domestic Consumer Demand, Peso Appreciation and Fuel Price Pressures

• Resilient macroeconomics and domestic consumer demand: The macroeconomic indicators in Mexico during the second quarter were stable, with same store sales¹ increasing 4.8% year over year; remittances² increasing 2.5% year over year during April and May 2019; and the Mexican Consumer Confidence Balance Indicator (BCC) ³ increased 22% in the second quarter year over year.
• Air traffic volume increase: The Mexican General Aviation of Civil Aviation reported an overall passenger volume growth for Mexican carriers of 11.2% year over year during April and May of 2019; domestic overall passenger volume increased 10.7%, while the international overall passenger volume increased 3.0%.
• Exchange rate volatility: The Mexican peso appreciated 1.3% year over year against the US dollar, from an average exchange rate of Ps.19.37 pesos per US dollar in the second quarter 2018 to Ps.19.12 pesos per US dollar during the second quarter 2019. At the end of the second quarter 2019, the Mexican peso appreciated 1.1% with respect to the exchange rate of the end of the previous quarter. The Company booked a foreign exchange gain of Ps.3 million as a consequence of our US dollar net monetary liability position, resulting from the adoption of IFRS16.
• Higher fuel prices: The average economic fuel cost per gallon increased 8.0% in the second quarter of 2019, year over year, reaching Ps.48.9 per gallon (US$2.6).

Passenger Traffic Stimulation, Further Ancillary Revenue Expansion, and Positive TRASM Growth

• Passenger traffic stimulation: Volaris booked 5.7 million passengers in the second quarter 2019, an increase of 25.9% year over year. Volaris traffic (measured in terms of revenue passenger miles, or RPMs) increased 23.8% year over year. System load factor during the second quarter increased 1.5 percentage points year over year, reaching 87.3%.
• Positive TRASM growth: For the second quarter 2019, TRASM increased 10.1% year over year. During the second quarter 2019, the total capacity, in terms of ASMs, increased 21.6% year over year.
• Total ancillary revenue growth: For the second quarter 2019, total ancillary revenue increased 38.9% year over year. Total ancillary revenue per passenger for the second quarter 2019 increased 10.3% year over year. The total ancillary revenue generation continues to grow with new and mature products, appealing to customers' needs, representing 34.9% of total operating revenue of the second quarter, an increase of 1.3 percentage points year over year.
• New routes: Volaris began operations in five new domestic routes from Chihuahua, Durango and Queretaro and four new international routes from Chicago, Dallas and Phoenix. 

The Cost Control Discipline and peso appreciation Offset Fuel Price Pressure

• CASM and CASM ex fuel for the second quarter 2019 reached Ps.124.9 (US$6.5 cents) and Ps.74.5 cents (US$3.9 cents), respectively. This represented decreases of 1.2% and 4.6%, respectively; mainly driven by a tighter cost control discipline and the average exchange rate appreciation of 1.3%; despite the average economic fuel cost per gallon rising 8.0%.

Young and Fuel-efficient Fleet

• During the second quarter 2019, the Company incorporated two aircraft (A320 neo) to its fleet; also during this quarter two redeliveries were registered (A320 ceo). As of June 30, 2019, Volaris' fleet was composed of 78 aircraft (8 A319s, 55 A320s and 15 A321s), with an average age of 4.8 years. At the end of the second quarter 2019, Volaris' fleet had an average of 186 seats, 76% of which were in sharklet-equipped aircraft, and 24% were NEO.

Solid Balance Sheet and Good Liquidity

• Net cash flows provided by operating activities and investing activities were Ps.1,527 million and Ps.171 million, respectively. The cash flow used in financing activities was Ps.571 million, which included Ps.1,582 million of aircraft rental payments, and inflows of Ps.1,500 million, related to the issuance of asset backed trust notes (certificados bursátiles fiduciarios).The negative net foreign exchange difference was Ps.74 million, while the net cash generation in the second quarter was Ps.1,053 million. As of June 30, 2019, cash and cash equivalents were Ps.8,124 million, representing 29.8% of last twelve months of the operating revenue. Volaris registered a negative net debt (or a positive net cash position) of Ps.4,050 million (excluding lease liability recognized under the IFRS16 adoption) and total equity of Ps.4,095 million.

Transition to IFRS 16

• The Company adopted IFRS 16 as of January 1st, 2019, using the full retrospective method. The cumulative effect of adopting IFRS 16 has been recognized as an adjustment to the opening balance as of January 1st, 2017 as an increase in assets and liabilities and an adjustment in the retained earnings. The full disclosure and the estimated unaudited figures of this initial adoption are included in the Company´s 2018 annual report.
• This quarterly earnings release includes supplemental information for comparable purposes, with recast, estimated unaudited 2018 figures with the IFRS 16 adoption effects. These figures were derived from unaudited financial statements included in the quarterly reports on Form 6-K reported during the year ended as of December 31, 2018.
• Starting on March 25, 2019, the Company established a hedge on its USD denominated revenues, through a non-derivative financial instrument, using the lease liabilities denominated in USD as a hedge instrument. This hedging relationship is designated as a cash flow hedge of forecasted revenues to mitigate the volatility of the foreign exchange variation arising from the revaluation of its lease liabilities. The non-material impact of this hedge resulting from the second quarter 2019, has been presented as part of the total operating revenue.
• Additionally, on the same date, the Company established a hedge on a portion of its forecasted fuel expense, through a non-derivative financial instrument, using as hedge instrument a portion of its USD denominated monetary assets. This hedging relationship is designated as a cash flow hedge of forecasted fuel expense to mitigate the volatility of the foreign exchange variation arising from the revaluation of this portion of USD denominated monetary asset. The non-material impact of this hedge, resulting from the second quarter 2019, has been presented as part of the total fuel expense. 

Investors are urged to carefully read the Company's periodic reports filed with or furnished to the Securities and Exchange Commission, for additional information regarding the Company.

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About Volaris:
*Controladora Vuela Compañía de Aviación, S.A.B. de C.V. ("Volaris" or the "Company") (NYSE: VLRS and BMV: VOLAR), is an ultra-low-cost carrier, with point-to-point operations, serving Mexico, the United States and Central America. Volaris offers low base fares to build its market, providing quality service and extensive customer choice. Since beginning operations in March 2006, Volaris has increased its routes from five to more than 194 and its fleet from four to 78 aircraft. Volaris offers more than 403 daily flight segments on routes that connect 40 cities in Mexico and 25 cities in the United States and Central America with the youngest fleet in Mexico. Volaris targets passengers who are visiting friends and relatives, cost-conscious business people and leisure travelers in Mexico and to select destinations in the United States and Central America. Volaris has received the ESR Award for Social Corporate Responsibility for ten consecutive years. For more information, please visit: www.volaris.com

Forward-looking Statements:
Statements in this release contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations, beliefs or projections concerning future events and financial trends affecting the financial condition of our business. When used in this release, the words "expects," "intends," "estimates," "predicts," "plans," "anticipates," "indicates," "believes," "forecast," "guidance," "potential," "outlook," "may," "continue," "will," "should," "seeks," "targets" and similar expressions are intended to identify forward-looking statements. Similarly, statements that describe the Company's objectives, plans or goals, or actions the Company may take in the future, are forward-looking statements. Forward-looking statements include, without limitation, statements regarding the Company's intentions and expectations regarding the delivery schedule of aircraft on order, announced new service routes and customer savings programs. Forward-looking statements should not be read as a guarantee or assurance of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved.  Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Forward-looking statements are subject to a number of factors that could cause the Company's actual results to differ materially from the Company's expectations, including the competitive environment in the airline industry; the Company's ability to keep costs low; changes in fuel costs; the impact of worldwide economic conditions on customer travel behavior; the Company's ability to generate non-ticket revenues; and government regulation. Additional information concerning these, and other factors is contained in the Company's Securities and Exchange Commission filings. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above.  Forward-looking statements speak only as of the date of this release.  You should not put undue reliance on any forward-looking statements.  We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable law.  If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Investor Relations Contact:
Maria Elena Rodríguez & Andrea González / Investor Relations / ir@volaris.com / +52 55 5261 6444

Media Contact:
Gabriela Fernández / volaris@gcya.net / +52 55 5246 0100