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Volaris corporate presentation january 2018 2
- 1. Volaris: the leading ultra-low-cost airline serving Mexico, USA and Central America January 2018
- 2. The information ("Confidential Information") contained in this presentation is confidential and is provided by Controladora Vuela Compañía de Aviación, S.A.B. de C.V., (d/b/a Volaris, the "Company") confidentially to you solely for your reference and may not be retransmitted or distributed to any other persons for any purpose whatsoever. The Confidential Information is subject to change without notice, its accuracy is not guaranteed, it has not been independently verified and it may not contain all material information concerning the Company. Neither the Company, nor any of their respective directors makes any representation or warranty (express or implied) regarding, or assumes any responsibility or liability for, the accuracy or completeness of, or any errors or omissions in, any information or opinions contained herein. None of the Company nor any of their respective directors, officers, employees, stockholders or affiliates nor any other person accepts any liability (in negligence, or otherwise) whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. No reliance may be placed for any purposes whatsoever on the information set forth in this presentation or on its completeness. This presentation does not constitute or form part of any offer or invitation for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. Recipients of this presentation are not to construe the contents of this presentation as legal, tax or investment advice and should consult their own advisers in this regard. This presentation contains statements that constitute forward-looking statements which involve risks and uncertainties. These statements include descriptions regarding the intent, belief or current expectations of the Company or its officers with respect to the consolidated results of operations and financial condition, and future events and plans of the Company. These statements can be recognized by the use of words such as "expects," "plans," "will," "estimates," "projects," or words of similar meaning. Such forward-looking statements are not guarantees of future performance and actual results may differ significantly from those in the forward-looking statements as a result of various factors and assumptions. You are cautioned not to place undue reliance on these forward looking statements, which are based on the current view of the management of the Company on future events. The Company does not undertake to revise forward-looking statements to reflect future events or circumstances. Disclaimer 2
- 3. Serving 69 destinations throughout Mexico (40), USA (25) and Central America (4) (1) Converted to USD at an average period exchange rate Volaris: snapshot at 30,000 feet 2008 2016 Sep 17 LTM CAGR (08-16) Unit cost (CASM ex- fuel; cents, USD)(1) 5.5 4.8 4.9 -1.6% Passenger demand (RPMs, bn) 3.2 14.3 15.6 20.6% Aircraft (End of period) 21 69 67 16.0% Routes (End of period) 42 162 164 18.4% Passengers (mm) 3.5 15.0 16.2 20.0% Operating revenue (bn, MXN) 4.4 23.5 24.7 23.3% Adj. EBITDAR (bn. MXN) 0.7 8.9 7.0 37.4% Adj. ROIC (pre-tax) 11% 20% 14% +9 pp. 3
- 4. Volaris’ flight path for demand stimulation and continued growth Capacity increase Cost reduction “Clean”, low base fares More customers More ancillaries (“You decide”) Resilient ULCC business model driving high, profitable growth 4
- 5. Volaris’ consistent execution of its ULCC business model well positioned for growth Diversified and resilient point-to-point network Successful price unbundling Strong penetration of Mexican air travel market Proven ancillary revenue model Bus to air substitution Upside in ancillary revenue Continue geographic diversification through international growth Attractive emerging air travel market in Mexico Flexible fleet plan and utilization; capacity management Sustained profitability with strong balance sheet Continue cost reductions Continue route frequency increase OpportunitiesAccomplishments 5
- 7. Volaris has a best-in-class unit cost structure Long-term unit cost advantage (1) DCOMPS = Direct Competitors: Delta, American Airlines, Alaska Airlines and United | (Average CASM and CASM ex-fuel) Note: Non-USD data converted to USD using an average exchange rate for the period Source: Airlines public information CASM and CASM ex-fuel (LTM September 2017, USD cents) Cost structure • Economies of scale - Dilute fixed costs - High seat density • Young and fuel efficient fleet - Sharklet rollout - Average age of 4.6 years - NEO Engines rollout - Low fuel burn • Productive network - Point-to-point - No connections complexity • High aircraft utilization - 3Q17 average 13 block hours per day Continued cost improvement potential 7 4.9 10.1 10.1 8.4 7.3 7.7 6.6 6.4 8.8 8.1 6.5 5.7 4.7 4.0 3.8 10.7 2.0 3.5 2.9 2.6 3.0 2.5 2.5 2.4 2.5 2.3 2.5 2.0 2.7 1.6 1.7 2.5 6.9 13.6 13.0 11.1 10.3 10.2 9.1 8.8 11.4 10.5 9.0 7.7 7.4 5.7 5.5 13.2 In line with best-in-class ULCCs Latin American carriers US LCCs US network carriers WW LCCs
- 8. 142 204 211 279 338 381 424 2011 2012 2013 2014 2015 2016 YTD Sep 2017 2011-2016 CAGR: + 21.9% Non-ticket revenues continue to grow, with upside potential 8(1) Converted to USD using an average exchange rate for the period Source: Airlines public information Non-ticket revenue per passenger Volaris (MXN) per passenger Best-in class ULCCs, including first bag fee (Sep 2017 LTM, as % of total operating revenue)(1) Ancillaries • Apply revenue management techniques - Pricing by route, season, day - Fully dynamic pricing for some products • Add products - New products & services - Enhancements to existing products • Improve presence - More touch-points to sell ancillaries throughout the journey - Allow customization • Benefit from network diversification - More international capacity • First checked bag - USA and Puerto Rico - Costa Rican AOC Increasing non-ticket revenue allows to reduce fare further and stimulate demand Non-ticket revenue per pax (USD) $21.91 $31.44 $29.20 $52.51 27% 43% 45% 48% Volaris Wizz Allegiant Spirit
- 9. Network enhancement: connecting the dots and diversifying further Note: Excludes routes and stations announced to start operations New routes Domestic International Guadalajara 3 2 Mexico City - 4 Costa Rica - 4 Tijuana 1 2 Los Angeles - 4 Monterrey 3 1 Other 1 9 Total 8 26 New stations DOM USA Central America Cozumel Miami San Salvador Milwaukee Managua LTM Dec 2017 Volaris diversified its network by starting operations in 34 routes and 5 stations Volaris’ LTM Sept 2017 new routes 9 New International New Domestic New Volaris Costa Rica
- 10. …supporting strong capacity growth Joining existing airports Additional frequencies New airports 6.8% 3.1% 1.5% Total ASM growth 2017 capacity growth contribution 12.9% Our network is well positioned for diversified growth = + + + Volaris Costa Rica 1.5%+ 10
- 12. Yoy growth 4.0% 8.3% 8.3% 8.3% 12.3% 10.4% 10.6%(3) GDP growth (2) 4.0% 4.0% 1.4% 2.3% 2.6% 2.3% 1.8% GDP multiplier 1.0 2.1 6.1 3.7 4.7 4.5 6.4 In recent years, Mexico’s volume growth has been robust despite challenging economic environment (1) Considers Volaris and VivaAerobus domestic market share LTM November 2017 (2) Values according to INEGI´s new methodology (3) Yoy growth for LTM September 2016 vs. LTM September 2017 Source: DGAC-SCT, INEGI and Banco de México Mexico passenger market volume has increased since 2011 Passenger volume (millions) 12 Main industry growth drivers • Strong demand and increasing middle class • LCC gaining market through low fares -44% LCC share(1) • High improvement potential: -Domestic air trips per capita in Mexico 0.42 vs. Colombia 0.66 3x GDP multiplier in recent years 25 28 30 33 37 42 45 19 19 21 23 26 27 29 8 9 10 11 12 13 15 52 57 61 66 75 82 90 2011 2012 2013 2014 2015 2016 2017 Domestic USA Other international 2011 - 2017 CAGR: +5%
- 13. Domestic passenger growth (%) Source: DGAC Volaris growth has surpassed market growth in both domestic and international markets 13 International passenger growth (%)
- 14. • Low costs allow Volaris to offer lower fares and make flying possible • Fleet - Up-gauging: A320neo with 186 seats and A321 with 230 seats - Young and fuel efficient: average of 4.6(1) years; new generation aircraft • Productive network with high utilization - Around 20 new routes per year - Avg. 13 block hours/day in 3Q 2017 • High and healthy load factors - 85% in LTM Sep 2017 • 27% domestic passengers market share as of LTM Sep. 2017 Volaris has been the engine of growth for VFR and leisure markets in Mexico Market growth Volaris growth 2016, Volaris was the source of 46% of the growth among Mexican carriers (1) Data as of September 2017 Note: Markets not mutually exclusive, contested domestic markets Volaris’ main growth driversSegment passenger CAGR Volaris vs. market (2010-2016) 14 Tijuana Hermosillo Los Cabos Culiacan Vallarta Guadalajara Mexico City Cancun Monterrey 10% 12% 5% 17% 10% 28% 8% 23% 11% 34% 9% 38% 8% 19% 11% 61% 13% 27%
- 15. 2.23 0.61 0.43 0.36 0.34 0.33 0.25 United States Chile Brazil Colombia Peru Mexico Argentina Significant untapped opportunities 15 0 25 50 75 100 USA (VFR) USA (Leisure) CAM, SAM, Canada, Caribbean (1) Minimum stage length of 170 miles (2) Minimum stage length of 200 miles; CAM stands for Central America; SAM stands for South America (3) South and northbound leisure routes Domestic – growth potential of approx. 105 routes (4) International – growth potential of approx. 125 routes (4) Number of routes (1) Number of routes (2) Routes served Growth potential In terms of air trips per capita Mexico has plenty potential to grow 2016 air trips per capita (domestic)(5) 0 10 20 30 40 50 (4) Figures calculated as of January 2018 (5) Data from the World Bank Source: World bank, DGAC, DIIO MI Market Intelligence for the Aviation Industry and ALTA
- 16. 28 42 29 40 2012 2016 Domestic International 2012 2016 First, economy and other Executive and luxury Volaris contributed by stimulating demand from bus to air substitution Source: Secretaría de Comunicaciones y Transportes (SCT), 2016 Bus switching programSignificant upside for air travel Total air travel passengers in Mexico (mm) Total bus passengers in Mexico (mm) 2,758 33 16 Trial Ticket giveaway #Nomáscamión First sell Strong conversion rate ULCC model Attracting 1st time flyers Mass media campaigns “Tarifa no + camion” positioning Digital capabilities Education 2,971 2,683 2,891 74 80 55 82
- 17. Volaris Obtains Foreign Air Carrier Permit in the United States of America for its Costa Rican Operations “Through OD” flights: -LAXSAL (SJO-SAL-LAX) -GUALAX (SJO-GUA-LAX) -JFKSAL (SJO-SAL-JFK) - IADSAL (SJO-SAL-IAD) • The right market - Costa Rica is top three middle class growth of LATAM (GDP growth of 4.2% in 2016) - VFR potential in the region and to the USA, Costa Rica is the country with the most immigrants as a % of its population • The right moment - No ULCC presence in the region - Local competitors have 38% of capacity share while US carriers 46% • The right ULCC model - Growth sustainable and proved model, easily translatable to Central America - USD denominated revenue contributing to FX natural hedge Volaris’ Costa Rican AOC provides growth potential in Central America (1) Subject to authorization from the corresponding authorities Source: World Bank, ALTA, MI-DIIO, CEPAL Infare Potential markets (1)Central America key insights 17 Volaris’ Central American operation full potential of 18-22 aircraft Chicago New York Los Angeles Dallas HoustonSan Antonio Orlando Miami Guadalajara Mexico City Cancun Guatemala San José, CR Managua Medellin Bogota Cartagena Quito Guayaquil Lima La Paz San Salvador La Habana Santo Domingo Puerto Rico
- 18. Drivers of continued profitable growth Uniquely positioned to capture growth in underpenetrated Mexican aviation market Reduce unit costs Fleet growth Expand network Increase total revenues • Deepen footprint in markets with high demand stimulation • Grow ancillary revenue to world class ULCC benchmarks • 40 additional aircraft to be delivered • Up-gauge fleet from A319 to A320/A321 • Higher seat density configuration • Expand network geographically • Neo incorporation - Fuel efficiency 18 • Price, product, presence
- 20. Volaris’ fleet plan supports its strategy to drive lower unit costs 20 Note: NEO stands for the Airbus new engine option; CEO stands for the Airbus current engine option (1) Net fleet after additions and returns (2) Source: Airbus (3) Figure calculated as of January 08th , 2018 • A321 (CEO and NEO) - 230 seats (up-gauge) - ~10% CASM dilution(2) • A320 NEO - Combined fuel consumption reduction by approx. 15-16% per seat(2) • A320 CEO with sharklets - Fuel consumption reduction by approx. 3%(2) • All PDP requirements fully financed for next four years Contractual fleet obligations (number of aircraft)(1) Backlog of 40 Aircraft to support growth (3)
- 21. High growth and solid financial performance 21 Source: Airlines public information Revenue CAGR 2011 - 2016 Revenues Adj. EBITDAR LTM September 2017 Adj. EBITDAR margin 22% 20% 17% 11% 10% 9% 4% 2% Volaris Azul Interjet Latam Gol Aeromexico Copa Avianca 8.9 11.7 13.0 14.0 18.2 23.5 24.7 0 15 30 2011 2012 2013 2014 2015 2016 LTM Sep 2017 (MXNbn) 2011 - 2016 CAGR: +21.5% 1.2 2.5 2.8 3.1 6.5 8.9 7.0 0 5 10 2011 2012 2013 2014 2015 2016 LTM Sep 2017 (MXNbn) 2011 - 2016 CAGR: +48.3% 30% 28% 26% 25% 22% 21% 21% 20% Azul Volaris Copa Aeromexico Latam Avianca Gol Interjet
- 22. 76% 74% 73% 69% 67% 72% 24% 26% 27% 31% 33% 28% 2012 2013 2014 2015 2016 YTD Sep 2017 Domestic International 11.7 13.0 14.0 18.2 23.5 18.2 Increasing international operation brings higher USD revenues Volaris’ international expansion has been key in constructing a better hedge for FX volatility 22 Volaris’ revenues breakdown, MXN billion (International revenues priced in USD)
- 23. 2.7x 4.8x 5.1x 5.2x 5.3x 5.6x 5.6x 7.1x Copa Azul Latam Aeromexico Gol Avianca Volaris Interjet 22% 12% 10% 9% 9% 7% 7% 6% Volaris Avianca Copa Latam Aeromexico Interjet Azul Gol Strong balance sheet and liquidity, well funded for continued growth 23 Adj. net debt / EBITDAR Liquidity-cash and equivalents as a % of LTM Op. Revenue • Unrestricted cash of $5.4 billion pesos (US$ 295 million) as of Sep 30, 2017. • Net cash position of $3.0 billion pesos (US$ 164 million) as of Sep 30, 2017. • Adjusted net debt to EBITDAR of 5.6x as of Sep 30, 2017. • Fully financed pre-delivery payments. • Expected 2017 net CAPEX (US$ 120 to - 140 million): • PDPs: from US$ 60 to 65 million, net of PDP reimbursements • Major maintenance: US$ 50 to 60 million • Other: from US$ 10 to 15 million Non-USD data converted to USD using an end of period exchange rate for the period Source: Airlines public information
- 24. Appendix
- 25. Fuel price protection 25 (1) Approximate percentage of gallons hedged as of January 3rd , 2017 Period Total % hedged(1) Avg. price (gal/USD$) Instrument 4Q17 57% $1.40 Asian Call 1Q18 60% $1.63 Asian Call 2Q18 60% $1.74 Asian Call 3Q18 56% $1.78 Asian Call 4Q18 43% $1.85 Asian Call
- 26. (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.6640 for convenience purposes only (2) 3Q 2017 figures converted to USD at September end of the period spot exchange rate $18.20 for convenience purposes only (3) Audited financial information 2014A – 2016A Consolidated statements of operations summary MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A(1) 3Q 2017 3Q 2017(2) % of total operating revenues (USD millions) (USD millions) Passenger 11,303 14,130 17,790 861 4,773 262 73 Non-ticket 2,733 4,049 5,722 277 1,809 99 27 Total operating revenues 14,037 18,180 23,512 1,138 6,582 362 100 Other operating income (22) (193) (497) (24) (8) - - Fuel 5,364 4,721 5,741 278 1,698 93 26 Aircraft and engine rent expenses 2,535 3,525 5,590 271 1,384 76 21 Landing, take off and navigation expenses 2,066 2,595 3,272 158 989 54 15 Salaries and benefits 1,577 1,903 2,420 117 695 38 11 Sales, marketing and distribution expenses 817 1,089 1,413 68 468 26 7 Maintenance expenses 665 875 1,344 65 324 18 5 Other operating expenses 490 698 952 46 249 14 4 Depreciation and amortization 343 457 537 26 150 8 2 Total operating expenses 13,833 15,669 20,773 1,005 5,948 327 90 6 EBIT 204 2,510 2,740 133 634 35 10 Operating margin (%) 1.5 13.8 11.7 11.7 9.6 9.6 Finance income 23 47 103 5 30 2 - Finance cost (32) (22) (35) (2) (20) (1) - Exchange gain, net 449 967 2,170 105 125 7 2 Income tax expense (39) (1,038) (1,457) (71) (39) (2) (1) Net income 605 2,464 3,519 170 731 40 11 Net margin (%) 4.3 13.6 15.0 15.0 11.1 11.1 EPS Basic and Diluted (Pesos) 0.60 2.43 3.48 0.17 0.72 0.04 EPADS Basic and Diluted (Pesos) 5.98 24.35 34.78 1.68 7.22 0.40 26
- 27. Consolidated statements of financial position summary (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.66 for convenience purposes only (2) Net debt = financial debt - cash and cash equivalents (3) Adjusted debt = (LTM aircraft rent expense x 7) + financial debt (4) Adjusted net debt = adjusted debt - cash and cash equivalents (5) Audited financial information 2014A – 2016A (6) Certain amounts related to prepaid income tax and guarantee deposits, presented in the consolidated statement of financial position have been reclassified in 2015A, in order to be comparative with the classification between current and non-current assets presented during 2016A (7) 3Q 2017 figures converted to USD at September end of the period spot exchange rate $18.20 respectively, for convenience purposes only MXN millions unless otherwise stated (5) 2014A 2015A(6) 2016A 2016A(1) 3Q 2017 3Q 2017(7) (USD millions) (USD millions) Cash and cash equivalents 2,265 5,157 7,071 342 5,373 295 Current guarantee deposits 545 873 1,167 56 1,303 72 Other current assets 879 1,193 3,313 160 4,542 178 Total current assets 3,689 7,224 11,551 559 9,915 545 Rotable spare parts, furniture and equipment, net 2,223 2,550 2,525 122 3.548 195 Non-current guarantee deposits 3,541 4,693 6,560 317 5,941 326 Other non-current assets 452 765 1,146 55 961 598 Total assets 9,905 15,232 21,782 1,054 20,365 1,119 Unearned transportation revenue 1,421 1,957 2,154 104 2,453 135 Short-term financial debt 823 1,371 1,051 51 1,491 82 Other short-term liabilities 2,524 3,745 4,683 227 4,354 239 Total short-term liabilities 4,768 7,073 7,888 382 8,298 456 Long-term financial debt 425 220 943 46 900 49 Other long-term liabilities 242 1,113 2,157 104 1,665 92 Total liabilities 5,435 8,407 10,988 532 10,863 597 Total equity 4,470 6,825 10,794 522 9,502 522 Total liabilities and equity 9,905 15,232 21,782 1,054 20,365 1,119 Net debt (2) (1,017) (3,566) (5,077) (246) (2,982) (164) Adjusted debt (3) 18,990 26,268 41,125 1,990 44,762 2,459 Adjusted net debt (4) 16,725 21,111 34,053 1,648 39,389 2,164 27
- 28. Consolidated statements of cash flows summary (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.66 for convenience purposes only (2) 3Q 2017 figures converted to USD at September end of the period spot exchange rate $18.20 for convenience purposes only (3) Audited financial information 2014A – 2016A MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A(1) 3Q 2017 3Q 2017(2) (USD millions) (USD millions) Cash flow from operating activities Income before income tax 644 3,502 4,977 241 769 42 Depreciation and amortization 343 457 537 26 150 8 Guarantee deposits (695) (1,165) (1,957) (95) (303) (17) Unearned transportation revenue 27 536 196 10 843 46 Changes in working capital and provisions 14 (261) (2,773) (134) (1,844) (100) Net cash flows provided (used in) by operating activities 334 3,070 979 47 (385) (21) Cash flow from investing activities Acquisitions of rotable spare parts, furniture, equipment and intangible assets (1,603) (1,456) (2,259) (109) (565) (31) Pre-delivery payments reimbursements 396 670 1,733 84 - - Proceeds from disposals of rotable spare parts, furniture and equipment 22 185 498 24 - - Net cash flows used in by investing activities (1,185) (601) (28) (1) (565) (31) Cash flow from financing activities Treasury shares purchase (7) - (17) (1) - - Proceeds from exercised stock options - 23 20 1 1 - Interest paid (23) (42) (39) (2) (23) (1) Other finance costs (11) (40) (138) (7) - - Payments of financial debt (400) (801) (1,531) (74) (207) (11) Proceeds from financial debt 966 925 1,716 83 497 27 Net cash flows provided by financing activities 525 65 11 1 268 15 (Decrease) increase in cash and cash equivalents (326) 2,533 962 47 (681) (37) Net foreign exchange differences 141 359 952 46 73 4 Cash and cash equivalents at beginning of period 2,451 2,265 5,157 250 5,981 329 Cash and cash equivalents at end of period 2,265 5,157 7,071 342 5,373 295 28
Editor's Notes
- Volaris is the lowest unit cost operator in the Americas with a CASM ex-fuel of less than 5.0 cents This chart is a great presentation card of our company! As you probably remember, Volaris was founded in 2006 Before it’s inception, Mexico´s air travel market had been through a 10 year process of: Fares increasing by 5% every year and Demand contracting at the same rate every year; at that time, the domestic market was only 22 million passengers per year This trend changed dramatically when Volaris started operations -- and in the last twelve months to June 2017, the market grew at a pace of 10.6%, to 44 million domestic passengers The Mexican economy as a whole is growing through a high to higher consuming middle class which is estimated to become a 52%, of our total population, by the end of 2022. We started operations in 2006 with a point to point model focused on Visiting- Friends and Relatives passengers and in the last 9 years Volaris’: Passenger demand expressed in RPMs expanded 20.6% Aircraft operated increased 16% every year Routes flown expanded by 18% every year to 67 destinations throughout Mexico, USA and now Central America and the Caribbean Passengers transported grew at a pace of 20% Operating Revenues by 23%, and Adj. EBITDAR grew 37.4% per year Clearly this is a story of the lowest cost operator in the Americas with an impressive history of growth – and that continuously over 9 years! Let me finish the Introduction of Volaris by saying that Adjusted ROIC in the last twelve months has been at the level of 18%
- I remember when we founded the company: We wanted a model suitable to this middle class growing population We needed an accelerator for demand: Clean, low base fares We started building business model as a virtuous cycle: based on cost reduction as a starting point We then unbundled our fares and presented them as what we call “Get out of Town Fares” The combination of these two elements created elasticity in our markets and as a result volume growth which, Then we let the customer pick and choose: They decide from a choice of products they really need and that for us becomes ancillary, Non-Ticket Revenue Higher demand requires more capacity every day In a emerging air travel market that grows 4-5 times its GDP: Volaris expands at a pace of two times the market growth in the last 9 years, because of its simple and resilient ULCC business model And this in turn drives high and profitable growth Bottom Line: we produced what we called irresistible fares for a high growing middle class with high and increasing purchasing power
- Volaris is a very disciplined organization We have consistently executed the ULCC business model and the results translated in a well positioned company for growth On the Accomplishments: We clearly depart from the fact that we have the lowest cost Strongly penetrated our markets. We grow at least 2 times faster than the market and above any of our competitors. Remember Volaris is an ULCC with a market share of already 24.4%. Spirit, to take an example from the US, has less than 2% of the domestic US market. Recently, we diversified our network more and more, intentionally creating increased route overlap with all of our domestic competitors that operate in the domestic market -- up to 80% of their networks—This has insulated us from pricing attacks on Volaris in our main markets. We have an active Bus switching program with education programs, trials that incentive first time flyers We successfully unbundled our prices We launched, executed and grew an ancillary revenue model which will always compensate our intentional base fare yield reductions All in all: we created a sustainable profitable company with a strong balance sheet that allows us the capacity to continue growing On the Opportunities we can say that we are just scratching the surface We operate in an attractive emerging market environment We have enough new route expansion potential where can continue with our geographic diversification Through international growth And in the domestic market linking the dots and increasing frequencies We clearly see upside for our ancillary revenue strategy We have enough aircraft on order to grow in the following years and our flexible capacity management has proven we can: in a short period of time, either expand or contract utilization And we see room for improvement in cost reductions, which insulates us In a nut shell: A company in a great position With high and growing capacity, Capacity to significantly improve its total revenue and our margin profile and With low to lower costs… That can not only insulate us, Produce further good return for our investors, Now let me pass it over to Holger Blankenstein, our Chief Commercial Officer
- The most important metric for us, as an Ultra Low Cost Carrier is the unit operating cost Volaris has a best-in class unit cost structure, among the best in the world We have a Cost per available seat mile of 6.9c, and excluding fuel of 4.7c. Among our peer group in Latin America, US LCCs and US network carriers, we have the lowest cost We have achieved this low cost position by Achieving economies of scale through our high growth A young and and fuel efficient fleet A focus making our network more productive High aircraft utilization As we continue to grow, we see additional cost improvement potential to make us the world’s best airline - which we will elaborate on later in the presentation
- One of the main elements of our commercial strategy has been the emphasis on non-ticket revenue growth. Non-ticket revenues continue to grow and there is a lot of upside potential: Non-ticket revenues per passenger have grown from continually during the last 9 years, reaching 24 USD in the quarter ended in June 2017. Actually, if we were able to charge for the first bag in our domestic market (which is not allowed by law in Mexico) we would be around Wizz’ levels. However, there is additional upside potential if we compare ourselves with the best-in-class airlines for ancillaries: Allegiant and Spirit In the next years we plan to further grow ancillaries by applying proven revenue management techiques to some of our main ancillary products Adding new products & services Improving the presence of products and services throughout the passengers’ journey with Volaris We will also benefit from network diversification as international customers are more prone to buying ancillary services These 4 initiatives will allw us to further reduce fares and stimulate demand
- Our other focus has been enhancing our network – our network is now much more diversified and resiliant than some years ago: 1) We have connected many dots in our route map and thereby servicing routes with no competition 2) We have added capacity that compete with high cost competitors such as Aeromexico and the US legacy carriers Our network expansion has been heavily focused on the US market, with 7 new cities we service We also opened 4 new destinations in Mexico and 4 new countries: Guatemala, Costa Rica, El Salvador and Nicaragua
- This network enhancement has supported strong capacity growth – a growth available seat miles of 18.8% through deepening our footprint, joining the dots, adding new airports or destination and adding 2 new countries: Costa Rica and Guatemala This positions us extremely well for further diversified growth Let me now give you more details on these growth opportunities:
- The Mexican air markets has the profile of a high growth, emerging market – in recent years, volume growth has been robust The compounded annual growth rate of the market was 9.5% over the last 5 years – this implies a GDP multiplier (air traffic growth to GDP growth) well above 2.0 a typical emerging market multiplier
- In the last 5 years, supply of capacity in terms of “available seats miles” has grown 7% per year while demand has actually grown 10% annually with an average GDP mulitlier of 2.2 Clearly Mexico’s market profile is very different from mature markets like in the US or in Europe
- Volaris contributed significantly to this market growth through stimulating demand from bus to air substitution. Volaris is not affiliated with any bus company, so we have more flexibility in attacking the bus market. In Mexico, there are 2.8 bus trips per year, out of which 77 M are in “executive and luxury” services – whereas there are only 67 M air trips per year. We have embarked on a formal and large effort of “bus switching” We are doing an education program of the bus customer about Volaris in mass and social media As part of our trial program, we are giving away Volaris tickets to bus customers in bus stations and in shopping malls We are developing new, non-traditional distribution channels for bus customer being able to buy our tickets, such as in convenience stores and super markets Thus, we are attracting many 1st time flyers – actually as many as 30% of our customers claim that they also considered taking the bus when surveyed onboard So: It is important to underline that Volaris not only operates in a high growth emerging market, but we also have the ability to grow faster than the market as a whole, due to this bus switching program We are convinced that there continues to be a sizeable opportunity to grow through switching passengers from bus to air
- To summarize our growth opportunities: There are 4 drivers of profitability growth Further reducing unit costs through upgauging our fleet to a full A320 and A321 fleet and the incorporation of the A320NEO aircraft with 16% less fuel burn We are receiving an additional 44 aircraft, all with a high seat configuration These new assets will allow us to further expand our network geographically and deepen the footprint in markets with high demand stimulation from bus switching This will allow us to increase total revenues: Growth here will come from growing mainly ancillary revenues to world class ULCC benchmarks – through improved pricing, more products and better presence of these products Let me now hand it over to Fernando to talk about our fleet and financials
- Going forward, the mix of our fleet is reducing the number of A319s so that we only keep those that we need for specific and ramp up markets. Most of our 320s are configured with sharklets, which provide a 2 to 3% fuel savings. In addition, since 2016 we are receiving the A320s NEOs with sharklets which promise combined fuel savings of over 17%. We also continue increasing the number of A321s as marked by our up gaging strategy and contributing to a better CASM.
- We have observed high growth and a solid financial performance Beginning with the top line Revenue… Revenue CAGR Achieving an EBITDAR margin of 30% in the last twelve months ended June 2017. In line with best-in-class ULCCs
- We also count with a strong balance sheet and good liquidity We have had strong positive cash flow generation in the past four quarters We are fully financed for our pre-delivery payments through 2018 and have been executing sale and leaseback in all our deliveries. On the balance sheet we have unrestricted cash for $6.0 billion pesos, of $309 million dollars Which results in a net cash position of $3.9 billion pesos or $219 million dollars And in terms of liquidity we have an adjusted long term debt to EBITDAR ratio of 5.2 times Let’s go back to Enrique who will make the closing remarks