[Q3 2022 Financial & Operating Performance](index=57&type=section&id=Q3%202022%20Financial%20%26%20Operating%20Performance) Volaris reported increased revenue and operational capacity in Q3 2022, but profitability was significantly impacted by surging fuel costs [Financial Highlights](index=57&type=section&id=Financial%20Highlights) In Q3 2022, Volaris saw a 20% revenue increase to $769 million, but a 52% surge in operating expenses, mainly fuel, led to a 47% net income decline to $40 million Financial Metric Comparison | Financial Metric | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | Total Operating Revenue | $769M | $640M | +20% | | Total Operating Expenses | $734M | $484M | +52% | | Net Income | $40M | $76M | -47% | | EBITDAR | $175M | $262M | -33% | | EBITDAR Margin | 22.8% | 40.9% | -18.1 pp | | Earnings per Share (EPS) | $0.03 | $0.06 | -50% | | Cash & Equivalents | $750M | $624M | +20.2% | - The average economic fuel cost surged by **72.2% to $3.96 per gallon**, significantly impacting profitability[356](index=356&type=chunk) - Cost per Available Seat Mile (CASM) increased by **24% to $7.85 cents**, but CASM excluding fuel (CASM ex-fuel) remained stable, decreasing by **0.5% to $4.07 cents**, demonstrating disciplined cost control[356](index=356&type=chunk)[363](index=363&type=chunk) [Operating Highlights](index=57&type=section&id=Operating%20Highlights) Operational capacity, measured in Available Seat Miles (ASMs), grew by 22% year-over-year, transporting 8.1 million passengers with an 85.6% load factor, and expanding the fleet to 113 aircraft Operating Metric Comparison | Operating Metric | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | ASMs (millions) | 9,355 | 7,667 | +22.0% | | Passengers (thousands) | 8,125 | 6,650 | +22.2% | | Load Factor | 85.6% | 85.4% | +0.2 pp | | Fleet (end of period) | 113 | 94 | +19 aircraft | - Load factors showed monthly improvement throughout the quarter, culminating in a record high of **87.4% in September 2022**[355](index=355&type=chunk) - Total revenue per available seat mile (TRASM) decreased slightly by **2.4% to $8.22 cents**, while ancillary revenue per passenger was **$39**, a **2.5% decrease**[356](index=356&type=chunk)[362](index=362&type=chunk) [Financial Statements Analysis](index=64&type=section&id=Financial%20Statements%20Analysis) Q3 2022 consolidated financial statements show strong revenue growth offset by significant fuel cost pressures, with asset expansion primarily in Right of Use Assets funded by increased lease liabilities, and positive but lower cash flow from operations [Income Statement](index=64&type=section&id=Income%20Statement) For Q3 2022, total operating revenues grew 20.2% to $769 million, but a 51.7% rise in operating expenses, driven by a 108.2% increase in fuel expense, led to a 77.6% drop in operating income and a net income of $40 million Income Statement (in millions USD) | Income Statement (in millions) | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | Total Operating Revenues | $769 | $640 | +20.2% | | Fuel Expense, net | $354 | $170 | +108.2% | | Total Operating Expenses | $734 | $484 | +51.7% | | Operating Income | $35 | $156 | -77.6% | | Net Income | $40 | $76 | -47.4% | [Balance Sheet](index=67&type=section&id=Balance%20Sheet) As of September 30, 2022, total assets reached $4.42 billion, primarily due to a rise in Right of Use Assets to $2.14 billion, with total liabilities increasing to $4.17 billion, mainly from higher lease liabilities, while cash remained strong at $750 million Balance Sheet (in millions USD) | Balance Sheet (in millions) | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash, cash equivalents and restricted cash | $750 | $741 | | Right of use assets | $2,137 | $1,917 | | Total Assets | $4,415 | $3,983 | | Lease Liabilities | $2,659 | $2,412 | | Total Liabilities | $4,165 | $3,671 | | Total Equity | $250 | $312 | [Cash Flow Statement](index=68&type=section&id=Cash%20Flow%20Statement) For Q3 2022, net cash flow from operating activities was $88 million, a decrease from the prior year, with $51 million used in investing and $46 million in financing activities, resulting in a $9 million overall cash decrease Cash Flow (in millions USD) | Cash Flow (in millions) | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Net cash flow provided by operating activities | $88 | $187 | | Net cash flow used in investing activities | ($51) | ($17) | | Net cash flow used in financing activities | ($46) | ($86) | | (Decrease) increase in cash | ($9) | $84 | [Full Year 2022 Outlook](index=60&type=section&id=Full%20Year%202022%20Outlook) The company projects approximately 25% ASM growth and $2.8 billion to $3.0 billion in total operating revenue for full-year 2022, with a CASM ex-fuel increase of about 1% and a low twenties EBITDAR margin, based on specific fuel price and exchange rate assumptions 2022 Guidance | Metric | 2022 Guidance | | :--- | :--- | | ASM Growth (vs. 2021) | ~25% | | Operating Revenue | $2.8B - $3.0B | | CASM ex-fuel (vs. 2021) | ~+1% | | EBITDAR Margin | Low twenties | | CAPEX | $145M | - The company plans to end 2022 with approximately **116 aircraft**[371](index=371&type=chunk) [Risk Management and Derivative Instruments](index=2&type=section&id=Risk%20Management%20and%20Derivative%20Instruments) Volaris employs a conservative risk management program, utilizing derivative financial instruments solely for hedging market uncertainties, not for speculation [Hedging Policy and Strategy](index=2&type=section&id=Hedging%20Policy%20and%20Strategy) Volaris maintains a conservative risk management program, using derivative financial instruments strictly for hedging purposes, with all policies approved by corporate governance and subject to audits - The company does not acquire financial derivative instruments for speculative or trading purposes, using them only to mitigate risks from its primary business activities[3](index=3&type=chunk) - The Hedging Policy is conservative, only allowing positions correlated with the primary position to be hedged, in accordance with IFRS[6](index=6&type=chunk) - The company operates only in over-the-counter (OTC) markets and enters into ISDA agreements with counterparties of recognized financial capacity to minimize counterparty risk[8](index=8&type=chunk) [Key Risk Exposures](index=2&type=section&id=Key%20Risk%20Exposures) The company faces primary financial risks from fuel price fluctuations, foreign currency exchange rate volatility, and interest rate variations, actively hedging interest rate risk on its debt but not fuel or FX as of the report date [Fuel Price Risk](index=2&type=section&id=Fuel%20Price%20Risk) Fuel, representing 48% of Q3 2022 operating expenses, exposes the company to price increases, but Volaris held no fuel derivative financial instruments as of the report date despite its policy allowing for OTC derivatives - Aircraft jet fuel consumed represented **48% of the Company's operating expenses** for the three months ended September 30, 2022, up from **35% in the same period of 2021**[204](index=204&type=chunk) - As of the date of this report, Volaris does not have any fuel derivative financial instruments[7](index=7&type=chunk) [Foreign Currency Risk](index=2&type=section&id=Foreign%20Currency%20Risk) With the U.S. dollar as its functional currency, the company's main foreign currency risk is its MXN 1.6 billion net liability position in Mexican pesos, and it held no foreign exchange derivative instruments after discontinuing non-derivative hedging strategies in late 2021 - As of September 30, 2022, the company had a net liability position of **MXN 1,644 million** in foreign currencies (primarily Mexican pesos)[216](index=216&type=chunk) - As of the report date, Volaris does not have foreign exchange derivative financial instruments[7](index=7&type=chunk)[220](index=220&type=chunk) - As a result of the change in functional currency to the US dollar on Dec 31, 2021, the company discontinued its non-derivative hedging relationships, reclassifying a loss of **US$109 million** from OCI to the income statement[221](index=221&type=chunk) [Interest Rate Risk](index=2&type=section&id=Interest%20Rate%20Risk) The company mitigates interest rate risk from floating-rate debt and leases by using interest rate caps on its Asset Backed Trust Notes (CEBURs), with the fair value of these cap instruments recorded as a $1.7 million asset as of September 30, 2022 - The company holds interest rate caps with TIIE 28 as the underlying to hedge its Asset Back Trust Notes (CEBURs)[7](index=7&type=chunk)[237](index=237&type=chunk)[239](index=239&type=chunk) - As of September 30, 2022, the outstanding interest rate caps had a notional amount of **US$100 million** and a fair value of **US$1.7 million**, recorded as a financial asset[241](index=241&type=chunk) [Liquidity and Credit Risk](index=33&type=section&id=Liquidity%20and%20Credit%20Risk) The company manages liquidity by aligning investments with obligations and maintaining funding access, with over $3.1 billion in contractual principal payments due within five years, while credit risk is minimal due to major credit card company receivables and high-credit-rating derivative counterparties Contractual Principal Payments (in millions USD) | Contractual Principal Payments (in millions) | Within one year | One to five years | Total | | :--- | :--- | :--- | :--- | | Interest-bearing borrowings | $85.5 | $156.3 | $241.8 | | Lease liabilities & return obligations | $337.1 | $2,556.7 | $2,893.8 | | **Total** | **$422.6** | **$2,713.0** | **$3,135.5** | - Credit risk on accounts receivable is considered minimal due to a high turnover rate and the nature of collections from major international credit card companies[248](index=248&type=chunk) [Notes to Financial Statements](index=22&type=section&id=Notes%20to%20Financial%20Statements) This section provides detailed disclosures on Volaris's business, financial debt, leases, related party transactions, equity, and future commitments [Business Description and Corporate Events](index=22&type=section&id=Business%20Description%20and%20Corporate%20Events) Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (Volaris) is a Mexican low-cost airline with a 20-year concession extension, operating subsidiaries in Costa Rica and El Salvador, and has issued asset-backed trust notes to finance operations - The company's main concession to provide air transportation services in Mexico was extended on February 24, 2020, for a **20-year term** starting May 9, 2020[161](index=161&type=chunk) - The company has issued two tranches of asset-backed trust notes (CEBURs) totaling **MXN 3.0 billion**, backed by future credit card receivables, with the 2021 issuance linked to sustainability targets for CO2 emissions reduction[166](index=166&type=chunk)[167](index=167&type=chunk) - The company operates subsidiaries in Costa Rica (Volaris Costa Rica) and El Salvador (Volaris El Salvador), which started operations in **2016 and 2021**, respectively[165](index=165&type=chunk)[169](index=169&type=chunk) [Financial Debt](index=39&type=section&id=Financial%20Debt) As of September 30, 2022, Volaris's financial debt totaled $241.9 million, comprising revolving credit facilities, two series of asset-backed trust notes (CEBURs), and other pre-delivery financing agreements, all in compliance with financial covenants Debt Facilities (in millions USD) | Debt Facility | Sep 30, 2022 (USD M) | Maturity | Interest Rate | | :--- | :--- | :--- | :--- | | Santander/Bancomext (2018) | $13.1 | Oct 2022 | LIBOR + 2.60% | | CEBUR (VOLARCB 19) | $43.1 | Jun 2024 | TIIE + 1.75% | | CEBUR (VOLARCB 21L) | $73.9 | Oct 2026 | TIIE + 2.00% | | Santander/Bancomext (2022) | $28.4 | Jun 2027 | SOFR + 2.98% | | Other PDP Financing | $73.3 | 2025-2026 | SOFR + spreads | | Sabadell Working Capital | $9.8 | Short-term | TIIE + 2.40% | - The company's primary credit facilities with Santander/Bancomext contain covenants that limit the ability to incur further debt, create liens, and pay dividends unless certain financial ratios are met[272](index=272&type=chunk)[275](index=275&type=chunk) [Leases and Fleet](index=49&type=section&id=Leases%20and%20Fleet) As of September 30, 2022, Volaris's fleet included 112 leased aircraft and 22 leased spare engines, with 13 new aircraft added in the first nine months of 2022, primarily through sale and leaseback transactions, resulting in $2.14 billion in right-of-use assets and $2.66 billion in lease liabilities Fleet Composition | Fleet Composition | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | A319 | 4 | 5 | | A320 | 86 | 80 | | A321 | 22 | 16 | | **Total Aircraft** | **112** | **100** | | Spare Engines | 22 | 20 | - In the first nine months of 2022, the company added **13 new leased aircraft** (eleven A320/A321 NEOs and two A320 NEOs) and **two spare engines**[321](index=321&type=chunk)[322](index=322&type=chunk) Lease Balances (in millions USD) | Lease Balances (in millions) | Sep 30, 2022 | | :--- | :--- | | Right-of-use assets | $2,137.1 | | Lease liabilities (Current) | $324.7 | | Lease liabilities (Non-current) | $2,334.3 | | **Total Lease Liabilities** | **$2,659.0** | [Related Party Transactions](index=43&type=section&id=Related%20Party%20Transactions) Volaris engages in transactions with related parties like Frontier Airlines, Grupo Aeroportuario del Centro Norte (OMA), and MRO/Aeroman due to shared board members or investors, with significant expenses for aircraft maintenance and airport services in 9M 2022 Related Party Transactions (9M 2022, in thousands USD) | Related Party Transactions (9M 2022, in thousands) | Transaction Type | Amount | | :--- | :--- | :--- | | **Revenues** | | | | Frontier Airlines | Code-share | $5 | | **Expenses** | | | | MRO Commercial, S.A. | Aircraft maintenance | $9,064 | | Grupo Aeroportuario del Centro Norte (OMA) | Airport Services | $6,541 | | Aeromantenimiento, S.A. (Aeroman) | Aircraft maintenance | $3,690 | - Relationships with Frontier, OMA, and Aeroman/MRO are due to common board members (William A. Franke, Guadalupe Phillips Margain, Marco Baldocchi) or significant investors (Indigo Partners)[293](index=293&type=chunk)[296](index=296&type=chunk)[300](index=300&type=chunk) [Equity and Earnings Per Share (EPS)](index=52&type=section&id=Equity%20and%20Earnings%20Per%20Share%20(EPS)) As of September 30, 2022, Volaris had 1.156 billion outstanding shares, reporting basic and diluted EPS of $0.034 for Q3 2022, and a basic and diluted Loss Per Share (LPS) of ($0.050) for the nine-month period, with no dividends declared Earnings Per Share | Earnings Per Share | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Net Income (for EPS) | $39.8M | $75.8M | | Weighted Avg. Shares (thousands) | 1,165,977 | 1,165,977 | | Basic & Diluted EPS | $0.034 | $0.065 | (Loss) Per Share | (Loss) Per Share | 9M 2022 | 9M 2021 | | :--- | :--- | :--- | | Net (Loss) Income | ($58.2M) | $116.5M | | Weighted Avg. Shares (thousands) | 1,165,977 | 1,165,977 | | Basic & Diluted LPS | ($0.050) | $0.100 | - As of September 30, 2022 and December 2021, the Company did not declare any dividends[337](index=337&type=chunk) [Commitments and Contingencies](index=55&type=section&id=Commitments%20and%20Contingencies) Volaris has substantial future financial commitments, primarily for aircraft purchases from Airbus totaling approximately $5.4 billion through 2026 and beyond, with plans to finance $1.67 billion through sale and leaseback transactions, while legal contingencies are minor Aircraft Purchase Commitments (in thousands USD) | Aircraft Purchase Commitments (in thousands) | Amount | | :--- | :--- | | 2022 | $43,950 | | 2023 | $224,629 | | 2024 | $275,363 | | 2025 | $711,069 | | 2026 and thereafter | $4,113,634 | | **Total** | **$5,368,645** | - In November 2021, the company amended its Airbus agreement to purchase an additional **39 A320NEO family aircraft** and convert **20 existing orders from A320NEO to A321NEO**[348](index=348&type=chunk) - As a subsequent event, on October 10, 2022, the company executed an amendment to purchase an additional **25 A321NEO aircraft** for delivery in **2030**[350](index=350&type=chunk) [Summary of Significant Accounting Policies](index=4&type=section&id=Summary%20of%20Significant%20Accounting%20Policies) This section outlines the key accounting policies governing the preparation of Volaris's financial statements, including basis of preparation, revenue recognition, and lease accounting [Basis of Preparation and Consolidation](index=4&type=section&id=Basis%20of%20Preparation%20and%20Consolidation) The unaudited condensed consolidated interim financial statements are prepared under IAS 34, with the U.S. dollar as both functional and presentation currency, consolidating all controlled subsidiaries and eliminating intercompany transactions - The financial statements have been prepared in accordance with **IAS 34 Interim Financial Reporting**[15](index=15&type=chunk) - The functional currency of the parent (Controladora) and its main subsidiary (Concesionaria) is the **US dollar**, which is also the presentation currency[17](index=17&type=chunk) [Revenue Recognition](index=6&type=section&id=Revenue%20Recognition) Passenger revenue is recognized upon service provision or ticket expiration, with future sales recorded as unearned revenue, while non-passenger revenue is recognized when services are provided, and code-share agreements recognize net retained amounts - Revenue from passenger air transportation is recognized when the service is provided or when the non-refundable ticket expires[27](index=27&type=chunk) - Ancillary revenues (e.g., baggage fees, seat selection) are recognized when the passenger transportation service is provided[29](index=29&type=chunk) - For its code-share agreement with Frontier Airlines, Volaris acts as an agent for segments operated by Frontier and recognizes the net amount retained as revenue[33](index=33&type=chunk)[34](index=34&type=chunk) [Leases and Maintenance](index=11&type=section&id=Leases%20and%20Maintenance) The company applies a single recognition approach for leases, recording right-of-use assets and corresponding lease liabilities, and capitalizes major maintenance costs as leasehold improvements amortized over the shorter of the period to the next event or remaining lease term - The company recognizes right-of-use assets and lease liabilities for all leases, except for short-term and low-value asset leases[118](index=118&type=chunk) - Sale and leaseback transactions are a key part of the company's fleet strategy, with the right-of-use asset arising from a leaseback measured based on the proportion of the previous carrying amount retained[126](index=126&type=chunk)[127](index=127&type=chunk) - Major maintenance is accounted for using the deferral method, where the cost is capitalized and amortized over the shorter of the period to the next event or the remaining lease term[78](index=78&type=chunk)

Financial Data and Key Metrics Changes - Total operating revenues for Q2 2022 were $691 million, a 20% increase compared to 2021, driven by higher capacity and healthy load factors [44] - CASM ex-fuel decreased by 1% year-over-year, closing at $0.042, due to disciplined cost control and higher aircraft utilization [44] - Net loss for Q2 2022 was $49 million, translating to a loss per share of $0.04 and a loss per ADS of $0.42 [47] - EBITDAR decreased by 54% to $107 million, with the EBITDAR margin diminishing by 25.3 percentage points to 15.5% [47] Business Line Data and Key Metrics Changes - The average revenue passenger was $93, which is 21% higher than 2019 and up from $81 in Q1 2022 [10] - Load factor closed at 85.6%, with TRASM at record levels for Q2 at $8.26 cents [12] - Ancillary revenues accounted for 40% of overall revenues, with $37 per passenger, aiming for 50% in the medium term [31] Market Data and Key Metrics Changes - Domestic network capacity grew by 17% year-over-year, while international capacity grew by 25% year-over-year [29] - The U.S. market saw demand higher than pre-COVID-19 levels, but growth was limited due to Mexico's category 2 rating [17] - Central America showed strong demand recovery, with new routes initiated [16] Company Strategy and Development Direction - The company plans to stimulate travel demand in the Mexico City metropolitan area by returning to Toluca Airport and inaugurating new routes at Felipe Ángeles Airport [16] - The growth plans remain flexible, with a focus on balancing growth and profitability while maintaining a strong balance sheet [20] - The company aims to return to a measured growth rate, likely moderating capacity growth to a single-digit level in 2023 [20] Management's Comments on Operating Environment and Future Outlook - Management highlighted the challenges posed by rising fuel costs and inflationary pressures, emphasizing cost control measures [8] - The company remains optimistic about demand resilience, particularly in the VFR market, despite economic pressures [27] - Future growth opportunities are not jeopardized, with over 300 potential new routes identified [106] Other Important Information - The company generated positive cash flow, finishing the quarter with $759 million in cash and cash equivalents, representing 30% of the last 12 months operating revenue [48] - The net debt-to-EBITDAR ratio was 2.9x, with no refinancing risk in the foreseeable future [49] - The fleet grew by 23% year-over-year, ending Q2 with 113 aircraft [36] Q&A Session Summary Question: What are the main issues regarding the airports not being serviced? - Management indicated that smaller airports are prioritized for later due to their current unattractiveness [62] Question: What is the pricing and capacity deployment environment among domestic competitors? - The pricing environment remains healthy, with disciplined growth focused on the Mexico City metropolitan area [64] Question: What drives the single-digit growth forecast for 2023? - The company is being conservative in growth due to capacity concerns and the CAT 2 rating, balancing growth with profitability [73][74] Question: How has operational performance trended in Q2? - The company reported stable operational performance with no significant staffing issues affecting reliability [81] Question: How will demand and load factors be maintained in a challenging environment? - Management noted that advanced booking behavior is strong, indicating continued demand despite potential fare pushback [85]

2Q 2022 Results July 22, 2022 Disclaimer This presentation was prepared by Controladora Vuela Compañía de Aviación, S.A.B. de C.V., (d/b/a Volaris, the "Company") with the purpose of providing interested parties certain financial and other information of the Company. This presentation is confidential and may not be retransmitted or distributed to any other persons for any purpose whatsoever. This presentation is for discussion purposes and highlights basic information about the Company. Because it is a summ ...

VLRS Consolidated Ticker: VLRS Quarter: 2 Year: 2022 Analyst coverage | Institution | Analyst | | --- | --- | | Banorte-Ixe | José Espitia | | Barclays | Pablo Monsivais | | Bradesco | Victor Mizusaki | | BTG Pactual | Lucas Marquiori | | Citi | Stephen Trent | | Cowen | Helane Becker | | Credit Suisse | Alejandro Zamacona | | Deutsche Bank | Michael Linenberg | | Evercore | Duane Pfennigwerth | | Goldman Sachs | Bruno Amorim | | HSBC | Cenk Orçan | | Intercam | Alejandra Marcos | | J.P.Morgan | Fernando Ab ...

Financial Data and Key Metrics Changes - Total revenue for Q1 2022 was $567 million, an increase of 80% compared to 2021 and 53% compared to 2019 [12] - EBITDAR increased by 52% to $97 million, with a net loss of $49 million reported for the quarter [54] - Cash flow from operating activities was $196 million, with cash and cash equivalents closing at $750 million, representing 31% of the last 12-month operating revenue [55] Business Line Data and Key Metrics Changes - Domestic network ASMs grew by 41% year-over-year, while international capacity increased by 77% year-over-year [36][37] - Ancillary revenues accounted for 43% of total revenues, with an average of $35 per passenger [39] - Average fare for the quarter was $46, up from $37 a year ago, indicating successful fare increases [35] Market Data and Key Metrics Changes - The load factor for Q1 2022 was 83.5%, an increase of 5.4 percentage points year-over-year [36] - The company reported strong demand in both domestic and international markets, particularly in the Mexico to US routes [38][43] - Central America represented 3% of capacity, with a year-on-year growth of 123% driven by VFR and leisure traffic [44] Company Strategy and Development Direction - The company aims to continue its growth strategy by increasing frequencies to existing destinations and expanding into Central America [45][46] - Volaris is focused on capturing market share from the bus sector, with 46% of its routes competing exclusively against buses [24] - The company plans to maintain a flexible growth strategy, adjusting capacity based on market conditions [46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to pass through rising fuel costs to customers, achieving a 95% pass-through rate in Q1 2022 [15][109] - The company anticipates continued volatility in fuel prices and inflationary pressures but remains focused on cost efficiencies [51] - Management highlighted the strong recovery in demand and the potential for further growth in both domestic and international markets [30][104] Other Important Information - The average economic fuel cost increased by 64% to $3.15 per gallon in Q1 2022 [50] - The company has a robust balance sheet with a net debt to EBITDAR ratio of 2.3 times, significantly improved from 11.2 times in the same period of 2021 [56] - Volaris expects to end 2022 with approximately 115 aircraft, increasing the proportion of NEO models in its fleet [57] Q&A Session Summary Question: Fuel price estimates for Q2 - Management provided guidance for economic fuel prices between $3.7 to $3.8 per gallon for Q2, with current spot prices around $4.09 [69][70] Question: Potential for closer US-Mexico relations - Management noted that relationships have been tense recently but acknowledged the need for improved relations due to the new world order [72] Question: Capacity growth clarification - Management confirmed that mid-teens capacity growth includes all operating divisions, not just Mexico [76] Question: Customer loyalty after switching from bus to air - Data shows that over 90% of customers who switch from buses to air travel remain loyal to Volaris [78] Question: Acceptance of price increases in the Mexican market - Management indicated that customers accepted price increases, successfully offsetting 95% of fuel price increases while maintaining healthy load factors [108]

1 VLRS Consolidated Ticker: VLRS Quarter: 1 Year: 2022 Annex - Financial derivate instruments | VLRS | Consolidated | | --- | --- | | Ticker: VLRS | Quarter: 1 Year: 2022 | Analyst coverage | Institution | Analyst | | --- | --- | | Banorte-Ixe | José Espitia | | Barclays | Pablo Monsivais | | Bradesco | Victor Mizusaki | | BTG Pactual | Lucas Marquiori | | Citi | Stephen Trent | | Cowen | Helane Becker | | Credit Suisse | Alejandro Zamacona | | Deutsche Bank | Michael Linenberg | | Evercore | Duane Pfennigw ...

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents As filed with the Securities and Exchange Commission on April 26, 2022 UNITED STATES OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report Commission file number 001-36059 For the transition period from to Controladora Vuela Compañía de Aviación, S. ...

Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:VLRS) Q4 2021 Earnings Conference Call February 25, 2022 10:00 AM ET Company Participants Renato Salomone - Senior Corporate Finance & IR Director Enrique Beltranena - President & CEO Holger Blankenstein - Airline EVP Jaime Pous - CFO Conference Call Participants Duane Pfennigwerth - Evercore ISI Josh Milberg - Morgan Stanley Pablo Monsivais - Barclays Bank Alejandro Zamacona - Credit Suisse Hillary Cacanando - Deutsche Bank Operator Good morning ...

[Volaris Financial Results for Q4 and Full Year 2021](index=53&type=section&id=Volaris%20Reports%20Financial%20Results%20for%20the%20Fourth%20Quarter%20and%20Full%20Year%202021) [Q4 2021 Performance Highlights](index=53&type=section&id=Fourth%20Quarter%202021%20Highlights) Volaris reported strong Q4 2021 revenue and EBITDAR growth, but a net loss due to a significant non-cash charge, with adjusted net income up and net debt-to-EBITDAR at a record low Q4 2021 Key Financial Metrics (vs. Q4 2019) | Metric | Q4 2021 | Change vs Q4 2019 | | :--- | :--- | :--- | | **Total Operating Revenue** | Ps. 13,954 million | ▲ 43% | | **EBITDAR** | Ps. 5,161 million | ▲ 45% | | **EBITDAR Margin** | 37.0% | ▲ 0.5 percentage points | | **Net Loss** | (Ps. 200 million) | N/A | | **Adjusted Net Income** | Ps. 1,559 million | ▲ 21% | | **Net debt-to-LTM EBITDAR** | 2.5x | -1.0x | - The reported net loss was primarily driven by a one-off, non-cash accounting charge of **Mexican Pesos 2,251 million (US$109 million)** related to the termination of a non-derivative financial instrument[369](index=369&type=chunk) - As of December 31, 2021, the company changed its functional currency from the Mexican Peso to the US Dollar, a significant accounting policy change[369](index=369&type=chunk) [Full Year 2021 Performance Highlights](index=54&type=section&id=Full%20Year%202021%20Highlights) Volaris achieved robust full-year 2021 recovery with strong revenue and EBITDAR growth versus 2019, reporting net income despite the Q4 non-cash charge, highlighting strong operational performance Full Year 2021 Key Financial Metrics (vs. FY 2019) | Metric | FY 2021 | Change vs FY 2019 | | :--- | :--- | :--- | | **Total Operating Revenue** | Ps. 44,662 million | ▲ 29% | | **EBITDAR** | Ps. 16,375 million | ▲ 53% | | **EBITDAR Margin** | 36.7% | ▲ 5.9 percentage points | | **Net Income** | Ps. 2,121 million | ▼ (20%) | | **Adjusted Net Income** | Ps. 3,879 million | ▲ 47% | - Management attributes the strong performance to the team's ability to adapt to changing market dynamics and the resilience of its ultra-low-cost business model[371](index=371&type=chunk) [Financial and Operational Analysis](index=55&type=section&id=Fourth%20Quarter%20and%20Full%20Year%202021%20Financial%20and%20Operations%20Highlights) Strong demand drove Q4 revenue growth, fueled by increased passengers and ancillary revenue, while operating expenses rose due to capacity and fuel costs, with a significant non-cash charge impacting the financing result and leading to a net loss [Revenue and Capacity](index=55&type=section&id=Revenue%20and%20Capacity) Q4 2021 total operating revenue grew significantly, driven by increased passengers and TRASM, with ancillary revenue per passenger rising substantially and contributing a large portion of total revenue Q4 2021 Operating Metrics (vs Q4 2019) | Metric | Q4 2021 | Change vs Q4 2019 | | :--- | :--- | :--- | | **Passengers** | 7.3 million | ▲ 27% | | **ASMs (millions)** | 8,022 | ▲ 27% | | **Load Factor** | 86.9% | ▼ 0.8 percentage points | | **TRASM (Mexican Pesos cents)** | 176 | ▲ 13% | - Ancillary revenue per passenger increased by **45%** to **Mexican Pesos 810**, representing **42%** of total operating revenue in Q4 2021[375](index=375&type=chunk) [Operating Expenses](index=56&type=section&id=Operating%20Expenses) Q4 operating expenses rose due to capacity growth and higher fuel costs, while CASM and CASM ex-fuel saw modest increases, indicating effective cost management despite inflationary pressures Q4 2021 Cost Metrics (vs Q4 2019) | Metric | Q4 2021 | Change vs Q4 2019 | | :--- | :--- | :--- | | **Total Operating Expenses** | Ps. 10,992 million | ▲ 41% | | **CASM (US$ cents)** | 6.60 | ▲ 3% | | **CASM ex-fuel (US$ cents)** | 4.08 | ▲ 3% | | **Avg. Fuel Cost per Gallon** | US$2.58 | ▲ 16% | [Profitability and Financing Result](index=56&type=section&id=Profitability%20and%20Financing%20Result) Volaris reported a Q4 net loss, heavily impacted by a significant non-cash foreign exchange loss from a functional currency change, though adjusted net income was positive and EBITDAR grew with a strong margin - The comprehensive financing result included a one-off, non-cash foreign exchange loss of **Mexican Pesos 2,251 million (US$109 million)** from the termination of non-derivative financial instruments, required by the change in functional currency to the US Dollar[379](index=379&type=chunk) Q4 2021 Profitability (vs Q4 2019) | Metric | Q4 2021 | Change vs Q4 2019 | | :--- | :--- | :--- | | **Net Loss** | (Ps. 200 million) | N/A | | **Adjusted Net Income** | Ps. 1,559 million | ▲ 21% | | **EBITDAR** | Ps. 5,161 million | ▲ 45% | [Balance Sheet and Liquidity](index=57&type=section&id=Balance%20Sheet%2C%20Liquidity%20and%20Capital%20Allocation) Volaris maintained strong liquidity in 2021 with substantial cash, improving its net debt-to-EBITDAR ratio to a record low, and strategically changed its functional currency to the US Dollar to better reflect operations and reduce FX volatility Key Balance Sheet & Liquidity Metrics (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | **Cash and Cash Equivalents** | Ps. 15,255 million (US$741 million) | | **Cash as % of LTM Revenue** | 34% | | **Net Debt-to-LTM EBITDAR** | 2.5x | - The company changed its functional currency to the US Dollar because its operations, cost structure, and fare determination are increasingly dollar-based. This is expected to mitigate the impact of Mexican Peso volatility on financial results[389](index=389&type=chunk)[390](index=390&type=chunk) - In Q4, Volaris successfully issued its first sustainability-linked asset-backed trust notes (VOLARCB 21L) for **Mexican Pesos 1,500 million**[386](index=386&type=chunk) [2022 Outlook and Fleet](index=58&type=section&id=2022%20Outlook) Volaris anticipates continued disciplined growth in 2022, with mid-twenties ASM increase and projected revenue of US$2.6-US$2.7 billion, planning fleet expansion to 113 aircraft and securing long-term growth with new A321neo orders 2022 Full Year Guidance | Metric | Guidance | | :--- | :--- | | **ASM Growth (vs 2021)** | Mid-twenties % | | **Total Operating Revenue** | US$2.6 - US$2.7 billion | | **Capex** | US$140 - US$145 million | | **Assumed FX (USD/MXN)** | Ps. 20.80 - Ps. 21.10 | - The fleet is planned to grow from **101** aircraft at YE 2021 to **113** by YE 2022[392](index=392&type=chunk) - In November 2021, Volaris ordered **39** new A321neo aircraft and converted **20** existing A320neo orders to A321neos to support future growth[393](index=393&type=chunk) [Annex - Financial Derivative Instruments](index=2&type=section&id=Annex%20-%20Financial%20derivate%20instruments) [Derivative Policies and Risk Management](index=2&type=section&id=1)%20Management%27s%20discussion%20about%20derivative%20financial%20instrument%20policies) The company uses derivative financial instruments solely for hedging fuel price, foreign currency, and interest rate risks, strictly avoiding speculative activities, with a dedicated Risk Management team ensuring compliance with a formal Hedging Policy - Volaris explicitly states that it does not acquire financial derivative instruments for speculative or trading purposes; they are used solely to mitigate financial risks[3](index=3&type=chunk) - The primary risks hedged are fuel price fluctuations, foreign currency risk (mainly USD exposure), and interest rate variation risk on debt and leases[7](index=7&type=chunk)[12](index=12&type=chunk) - As of the report date, the company did not have any fuel or foreign exchange derivative instruments but held interest rate CAPs to hedge its Asset Backed Trust Notes[7](index=7&type=chunk)[12](index=12&type=chunk) [Valuation, Counterparties, and Liquidity](index=3&type=section&id=2)%20Generic%20description%20of%20the%20valuation%20techniques) Volaris values derivatives at fair value using counterparty valuations and internal models, operates in OTC markets, mitigates counterparty risk with ISDA agreements, and manages liquidity for margin calls through diversification and internal resources - Derivatives are valued at fair value using valuations from financial institutions, which are then compared with internal models based on market data[11](index=11&type=chunk) - To minimize counterparty risk, the company only operates in OTC markets and enters into ISDA agreements with counterparties of recognized financial capacity. As of Dec 31, 2021, it had **8** ISDAs in place[9](index=9&type=chunk)[10](index=10&type=chunk) - The company has internal resources to meet liquidity requirements related to derivative financial instruments, such as margin calls, if other mitigation strategies are insufficient[13](index=13&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=5&type=section&id=Notes%20-%20List%20of%20notes) [Note 1 - Business Description and Relevant Events](index=5&type=section&id=1.%20Description%20of%20the%20business%20and%20summary%20of%20significant%20accounting%20policies) This note outlines Volaris's corporate structure and key 2021 events, including changing functional currency to US Dollar, ordering new aircraft, launching Volaris El Salvador, issuing sustainability-linked notes, and a significant capacity recovery from the pandemic [Corporate Structure and Operations](index=5&type=section&id=Description%20of%20the%20business) Volaris, a Mexican low-cost airline incorporated in 2005 and dual-listed on NYSE and BMV, operates passenger, cargo, and mail services through subsidiaries in Mexico, Costa Rica, and El Salvador - Volaris is a Mexican low-cost airline that started commercial flights on March 13, 2006, and completed its dual listing IPO on the NYSE and BMV in September 2013[19](index=19&type=chunk)[20](index=20&type=chunk) - The company has expanded its operations internationally through subsidiaries, including Volaris Costa Rica (started 2016) and Volaris El Salvador (started 2021)[22](index=22&type=chunk)[24](index=24&type=chunk) [Key Events in 2021](index=6&type=section&id=a)%20Relevant%20events) Volaris implemented significant strategic and financial changes in 2021, including changing its functional currency to US Dollar, ordering new A321NEO aircraft, launching its El Salvador subsidiary, issuing sustainability-linked notes, and achieving a strong capacity recovery - Effective December 31, 2021, the company and its main Mexican subsidiary prospectively changed their functional currency from the Mexican Peso to the US Dollar due to an increase in international transactions and US dollar-denominated costs[26](index=26&type=chunk)[27](index=27&type=chunk)[29](index=29&type=chunk) - On November 15, 2021, Volaris signed a purchase order with Airbus for **39** new A321NEO aircraft and converted **20** existing A320NEO orders to A321NEOs[30](index=30&type=chunk) - In October 2021, the company completed a second issuance of **Mexican Pesos 1,500 million** in asset-backed trust notes, which are linked to sustainability goals to reduce CO2 emissions per revenue passenger/kilometer[42](index=42&type=chunk)[45](index=45&type=chunk) - The company's capacity, measured in available seat miles (ASMs), increased by **53.7%** in 2021 compared to the previous year, indicating a strong recovery from the pandemic[37](index=37&type=chunk) [Note 6 - Financial Instruments and Risk Management](index=13&type=section&id=6.%20Financial%20instruments%20and%20risk%20management) Volaris manages market, liquidity, and credit risks using financial instruments for hedging, with a key 2021 event being the functional currency change to US Dollar, which led to terminating FX hedges and recognizing a significant loss in the income statement [Market Risk Management](index=13&type=section&id=Market%20risk) Volaris manages jet fuel price risk with derivatives, foreign currency risk (previously with non-derivatives, now terminated due to functional currency change resulting in a significant loss), and interest rate risk on floating-rate debt with CAPs - As of December 31, 2021, the company had no outstanding fuel derivative positions, whereas in 2020 it had hedges covering a portion of its projected consumption[85](index=85&type=chunk)[93](index=93&type=chunk) - Due to the change in functional currency to the US Dollar, the company terminated its non-derivative FX hedging strategies, resulting in a loss of **Mexican Pesos 2,251 million** being recognized in the foreign exchange loss line item[113](index=113&type=chunk) - The company uses interest rate CAPs to mitigate the risk of rising interest rates on its TIIE 28-based Asset Backed Trust Notes (CEBURs)[119](index=119&type=chunk)[121](index=121&type=chunk) [Liquidity and Credit Risk Management](index=18&type=section&id=d)%20Liquidity%20risk) Volaris manages liquidity by matching investments to obligations and accessing diverse funding, with total financial liabilities at Mexican Pesos 59.8 billion, primarily from leases, while credit risk is minimal due to concentration with major credit card companies and high-rated financial institutions Contractual Principal Payments on Financial Liabilities (Dec 31, 2021) | Liability Type | Within one year (Mexican Pesos) | One to five years (Mexican Pesos) | Total (Mexican Pesos) | | :--- | :--- | :--- | :--- | | **Pre-delivery payments facilities** | 3,535,649 | - | 3,535,649 | | **Asset backed trust note ("CEBUR")** | 500,000 | 2,250,000 | 2,750,000 | | **Lease liabilities** | 5,842,492 | 43,807,747 | 49,650,239 | | **Aircraft and engine lease return obligation** | 451,788 | 3,436,001 | 3,887,789 | | **Total** | **10,329,929** | **49,493,748** | **59,823,677** | - Credit risk on accounts receivable is considered minimal due to high turnover and concentration with major international credit card companies[130](index=130&type=chunk) [Note 8 - Financial Debt](index=22&type=section&id=8.%20Financial%20assets%20and%20liabilities) As of December 31, 2021, Volaris's total financial debt was Mexican Pesos 6,277 million, primarily comprising a revolving credit line for pre-delivery payments and two tranches of asset-backed trust notes secured by credit card receivables, with the company in compliance with all debt covenants Financial Debt Composition (as of Dec 31, 2021) | Debt Instrument | Amount (Mexican Pesos million) | | :--- | :--- | | **Santander/Bancomext Pre-delivery Facility** | 3,535.6 | | **CEBUR (VOLARCB 19)** | 1,250.0 | | **CEBUR (VOLARCB 21L)** | 1,500.0 | | **Total (before costs/accruals)** | **6,285.6** | - The Santander/Bancomext loan agreement includes covenants that limit the ability to incur further debt, create liens, merge, dispose of assets, or pay dividends unless certain financial ratios are met[154](index=154&type=chunk)[155](index=155&type=chunk) - The company has issued two tranches of Asset Backed Trust Notes (CEBURs) totaling **Mexican Pesos 3.0 billion**, which are backed by future receivables from VISA and Mastercard credit card sales[159](index=159&type=chunk)[161](index=161&type=chunk) [Note 10 - Related Party Transactions](index=26&type=section&id=10.%20Related%20parties) Volaris conducts transactions with related parties due to shared ownership, with key 2021 activities including code-share revenue with Frontier Airlines, aircraft maintenance expenses with Aeroman, and airport services from Grupo Aeroportuario del Centro Norte (OMA) Key Related Party Transactions (Full Year 2021) | Related Party | Type of Transaction | Amount (Mexican Pesos million) | | :--- | :--- | :--- | | **Frontier Airlines Inc.** | Code-share Revenue | 71.2 | | **Aeromantenimiento, S.A. (Aeroman)** | Aircraft Maintenance Expense | 160.6 | | **Grupo Aeroportuario del Centro Norte (OMA)** | Airport Services Expense | 133.3 | [Note 14 - Leases](index=30&type=section&id=14.%20Leases) Leases are central to Volaris's operations, with its fleet comprising 100 leased aircraft and 20 spare engines as of December 31, 2021, and the balance sheet reflecting significant right-of-use assets and corresponding lease liabilities Fleet Composition (as of Dec 31, 2021) | Aircraft Model | Count | | :--- | :--- | | A319 | 5 | | A320 | 40 | | A320NEO | 39 | | A321 | 10 | | A321NEO | 6 | | **Total** | **100** | Lease-Related Balances (as of Dec 31, 2021) | Account | Amount (Mexican Pesos million) | | :--- | :--- | | **Right-of-use assets** | 39,463 | | **Lease liabilities** | 49,650 | - In 2021, the company added **15** new leased aircraft to its fleet and extended the lease terms for **13** A320CEO and **2** A319CEO aircraft[199](index=199&type=chunk) [Note 15 - Equity and Earnings Per Share](index=32&type=section&id=15.%20Equity) As of December 31, 2021, Volaris had 1,166 million authorized shares, with equity impacted by a December 2020 follow-on offering that raised US$164.4 million, and full-year 2021 basic EPS showing a significant turnaround from the prior year's loss - In December 2020, the company closed a primary follow-on equity offering, raising net proceeds of approximately **US$164.4 million** for general corporate purposes[210](index=210&type=chunk) Earnings (Loss) Per Share Calculation | Metric | Year ended Dec 31, 2021 | Year ended Dec 31, 2020 | | :--- | :--- | :--- | | **Net Income (Loss) (Mexican Pesos)** | 2,120,551 | (4,293,791) | | **Weighted Avg. Shares (thousands)** | 1,165,977 | 1,021,561 | | **Basic EPS (LPS) (Mexican Pesos)** | 1.819 | (4.203) | [Note 17 - Commitments and Contingencies](index=35&type=section&id=17.%20Commitments%20and%20contingencies) Volaris has substantial future commitments for aircraft purchases with Airbus, totaling US$6.68 billion, primarily due from 2024, and also commitments for sale and leaseback transactions on future deliveries, with estimated proceeds of US$813.5 million for 2022-2023 Committed Aircraft Purchase Expenditures | Period | Commitment (USD$ thousands) | | :--- | :--- | | 2022 | 114,563 | | 2023 | 314,660 | | 2024 | 903,776 | | 2025 | 981,657 | | 2026 and thereafter | 4,362,996 | | **Total** | **6,677,652** | - The company has commitments to execute sale and leaseback transactions for aircraft delivering in the next three years, with estimated proceeds of **US$705.5 million** in 2022 and **US$108.0 million** in 2023[222](index=222&type=chunk) [Note 18 - Operating Segments](index=36&type=section&id=18.%20Operating%20segments) Volaris operates as a single air transportation segment, with 2021 revenues geographically allocated, showing strong growth in both domestic (Mexico) and international (USA, Central/South America) segments compared to 2020 Operating Revenues by Geographic Segment (Full Year) | Segment | 2021 (Mexican Pesos million) | 2020 (Mexican Pesos million) | | :--- | :--- | :--- | | **Domestic (Mexico)** | 33,754 | 16,572 | | **International** | 11,342 | 5,999 | | **Non-derivative financial instruments** | (435) | (411) | | **Total** | **44,662** | **22,160** | [Summary of Significant Accounting Policies](index=37&type=section&id=List%20of%20accounting%20policies) [Key Accounting Policies](index=37&type=section&id=Key%20Accounting%20Policies) Volaris's financial statements adhere to IFRS, with key policies covering passenger revenue recognition, fair value measurement of derivatives, hedge accounting, right-of-use assets for leases, and capitalization of major maintenance costs, alongside the significant 2021 change to US Dollar functional currency - Passenger revenue is recognized when the transportation service is provided or when a non-refundable ticket expires. Ticket sales for future flights are initially recorded as 'unearned transportation revenue'[245](index=245&type=chunk)[246](index=246&type=chunk) - The company applies IFRS 16 for leases, recognizing right-of-use assets and lease liabilities for all leases except for short-term and low-value assets[334](index=334&type=chunk)[335](index=335&type=chunk) - Major maintenance costs are accounted for using the deferral method, where costs are capitalized as leasehold improvements and amortized over the shorter of the period to the next major maintenance event or the remaining lease term[300](index=300&type=chunk) - Derivative and non-derivative financial instruments used for hedging are recognized at fair value. For effective cash flow hedges, value changes are recorded in Other Comprehensive Income (OCI) until the hedged transaction affects earnings[356](index=356&type=chunk)[357](index=357&type=chunk)[359](index=359&type=chunk)

Controladora Vuela Compania de Aviacion SAB de CV (NYSE:VLRS) Q3 2021 Earnings Conference Call October 21, 2021 10:00 AM ET Company Participants Maria Elena Rodriguez - IR Director Enrique Beltranena - President, CEO & Director Holger Blankenstein - EVP, Airline Commercial & Operations Jaime Pous - SVP, CFO & Secretary Conference Call Participants Stephen Trent - Citigroup Michael Linenberg - Deutsche Bank Pablo Monsivais - Barclays Bank Duane Pfennigwerth - Evercore ISI Helane Becker - Cowen and Company Op ...