volaris + Conclusion: Volaris Remains Undervalued Volaris Revenues Grow As Company Manages Capacity | --- | --- | --- | --- | --- | --- | --- | |--------------------------------|-------|------------|----------------------|------------|------------------------|-------| | -10 \nTotal Operating Revenues | | TRASM | trate \nCASM ex fuel | | EBIT | | | USD $768M | | USD 9.34c | USD 5.16c | | USD $104M | | | 11 | | | | | | | | EBITDAR | | Net Income | Liquidity | 22% of LTM | Net Debt / LTM EBITDAR | | | USD $235 ...

Passengers: The total number of passengers booked on all flight segments. Media Contact Israel Álvarez / ialvarez@gcya.net MEXICO CITY, July 08, 2024 (GLOBE NEWSWIRE) -- Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE: VLRS and BMV: VOLAR) ("Volaris" or "the Company"), the ultra-low-cost carrier (ULCC) serving Mexico, the United States, Central, and South America, reports its June 2024 preliminary traffic results. The information included in this report has not been audited and does not provid ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT O ...

Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:VLRS) Q1 2024 Results Conference Call April 23, 2024 11:00 AM ET Company Participants Ricardo Martinez - Investor Relations Director Enrique Javier Beltranena Mejicano - President and Chief Executive Officer Holger Blankenstein - Executive Vice President, Airline Commercial and Operations Jaime Esteban Pous Fernandez - Chief Financial Officer Conference Call Participants Duane Pfennigwerth - Evercore ISI Stephen Trent - Citi Michael Linenberg - D ...

[Earnings Release & Q1 2024 Highlights](index=51&type=section&id=Earnings%20Release%20%26%20Q1%202024%20Highlights) Volaris achieved a net income of $33 million in Q1 2024, a significant turnaround from a $71 million loss, driven by revenue growth and improved TRASM despite capacity reductions [Q1 2024 Financial & Operating Performance](index=51&type=section&id=Q1%202024%20Financial%20%26%20Operating%20Performance) Volaris achieved a net income of **$33 million** in Q1 2024, a significant turnaround from a **$71 million** net loss, driven by a **5.1%** increase in total operating revenues to **$768 million** and a **21.3%** surge in TRASM, despite a **13.4%** capacity reduction Q1 2024 Key Financial & Operating Highlights (vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | **Total Operating Revenue** | $768 million | $731 million | +5.1% | | **Net Income (Loss)** | $33 million | ($71 million) | N/A | | **Earnings per ADS** | $0.29 | ($0.62) | N/A | | **TRASM (cents)** | 9.34 | 7.71 | +21.3% | | **ASMs (millions)** | 8,217 | 9,488 | -13.4% | | **CASM (cents)** | 8.08 | 8.03 | +0.6% | | **CASM ex-fuel (cents)** | 5.16 | 4.65 | +11.0% | | **EBITDAR** | $235 million | $123 million | +91.1% | | **EBITDAR Margin** | 30.6% | 16.8% | +13.7 pp | - Ancillary revenue per passenger increased by **35%** to **$57**, representing **51%** of total operating revenue, up from **47%** in the prior year[339](index=339&type=chunk) - The decrease in capacity (ASMs) was primarily due to aircraft groundings resulting from accelerated Pratt & Whitney engine inspections[338](index=338&type=chunk)[342](index=342&type=chunk) - Total operating expenses decreased by **12.9%** to **$664 million**, largely driven by a **25.2%** reduction in fuel expense[340](index=340&type=chunk)[367](index=367&type=chunk) [Balance Sheet and Liquidity](index=54&type=section&id=Balance%20Sheet%20and%20Liquidity) Volaris maintained a solid liquidity position with **$768 million** in cash and equivalents, representing **23%** of LTM operating revenue, while improving its net debt-to-LTM EBITDAR ratio to **3.1x** from **3.8x** Key Balance Sheet and Liquidity Metrics | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | **Total Cash & Equivalents** | $768 million | - | | **Financial Debt** | $642 million | - | | **Total Lease Liabilities** | $3,021 million | - | | **Net Debt-to-LTM EBITDAR** | 3.1x | 3.8x | - Net cash flow provided by operating activities was **$245 million** for the quarter[346](index=346&type=chunk)[372](index=372&type=chunk) [Fleet Update](index=55&type=section&id=Fleet%20Update) Volaris expanded its fleet to **134 aircraft** by Q1 2024, an increase of **14** year-over-year, with **59%** being NEO models and an average age of **5.9 years** Fleet Composition as of March 31, 2024 | Aircraft Type | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | A319 | 3 | 3 | 0 | | A320 | 42 | 40 | +2 | | A321 | 10 | 10 | 0 | | A320neo | 51 | 50 | +1 | | A321neo | 28 | 17 | +11 | | **Total Aircraft** | **134** | **120** | **+14** | - During the first quarter, Volaris added **five aircraft**: two A320ceo and three A321neo models[353](index=353&type=chunk) [2024 Guidance](index=54&type=section&id=2024%20Guidance) Volaris anticipates continued capacity constraints for Q2 and full year 2024, with full-year ASM capacity expected to decrease by **16-18%** year-over-year, while projecting a robust EBITDAR margin of **32-34%** including Pratt & Whitney compensation Q2 2024 Guidance | Metric | Q2 2024 Guidance | Q2 2023 Actual | | :--- | :--- | :--- | | **ASM Growth (YoY)** | ~ -18% | +18.1% | | **TRASM** | $9.1 to $9.2 cents | $7.92 cents | | **CASM ex fuel** | $5.5 to $5.6 cents | $4.82 cents | | **EBITDAR Margin** | 31% to 33% | 27.1% | Full Year 2024 Guidance | Metric | 2024 Guidance | 2023 Actual | | :--- | :--- | :--- | | **ASM Growth (YoY)** | -16% to -18% | +10.2% | | **EBITDAR Margin** | 32% to 34% | 25.2% | | **CAPEX** | ~$400 million | $252 million | - The guidance includes compensation Volaris expects to receive from Pratt & Whitney for grounded aircraft resulting from GTF engine removals[351](index=351&type=chunk) [Consolidated Financial Statements](index=59&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements reflect a shift to **$33 million** net income from a **$71 million** loss, with total assets of **$5.38 billion** and strong operating cash flow of **$245 million** for the quarter [Consolidated Statement of Operations](index=59&type=section&id=Consolidated%20Statement%20of%20Operations) The Consolidated Statement of Operations shows a significant improvement, moving from a **$31 million** operating loss in Q1 2023 to a **$104 million** operating income in Q1 2024, culminating in a **$33 million** net income Q1 2024 vs Q1 2023 Statement of Operations (in millions USD) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | **Total operating revenues** | **768** | **731** | | Total operating expenses | 664 | 762 | | **Operating income (loss)** | **104** | **(31)** | | Comprehensive financing result | (57) | (65) | | Income (loss) before income tax | 47 | (96) | | Income tax (expense) benefit | (14) | 25 | | **Net income (loss)** | **33** | **(71)** | [Consolidated Statement of Financial Position](index=61&type=section&id=Consolidated%20Statement%20of%20Financial%20Position) The Consolidated Statement of Financial Position shows total assets increased to **$5.381 billion** as of March 31, 2024, with total liabilities at **$5.104 billion** and total equity at **$277 million** Statement of Financial Position (in millions USD) | Category | As of Mar 31, 2024 | As of Dec 31, 2023 | | :--- | :--- | :--- | | **Total current assets** | **1,277** | **1,248** | | **Total non-current assets** | **4,104** | **3,898** | | **Total assets** | **5,381** | **5,146** | | Total short-term liabilities | 1,744 | 1,621 | | Total long-term liabilities | 3,360 | 3,282 | | **Total liabilities** | **5,104** | **4,903** | | **Total equity** | **277** | **243** | | **Total liabilities and equity** | **5,381** | **5,146** | [Consolidated Statement of Cash Flows](index=62&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) The Consolidated Statement of Cash Flows indicates net cash flow from operating activities increased to **$245 million** in Q1 2024, despite a net decrease in overall cash of **$23 million** for the quarter Q1 2024 vs Q1 2023 Cash Flow Summary (in millions USD) | Flow | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash flow from operating activities | 245 | 208 | | Net cash flow used in investing activities | (97) | (109) | | Net cash flow used in financing activities | (171) | (110) | | **Decrease in cash** | **(23)** | **(11)** | [Financial Risk Management & Derivative Instruments](index=2&type=section&id=Financial%20Risk%20Management%20%26%20Derivative%20Instruments) Volaris manages market risks from fuel prices, foreign currency, and interest rates using derivative instruments solely for hedging, while maintaining strong liquidity and low credit risk [Derivative Financial Instrument Policies](index=2&type=section&id=Derivative%20Financial%20Instrument%20Policies) Volaris employs derivative financial instruments strictly for hedging purposes to mitigate operational financial risks, prohibiting speculative use, and aims to apply hedge accounting treatment under IFRS, overseen by a dedicated Risk Management team - The company's policy is to use derivative financial instruments solely to mitigate risks and not for speculative or trading purposes[2](index=2&type=chunk) - A dedicated Risk Management team identifies, evaluates, and designs strategies to mitigate financial risks, governed by a Hedging Policy approved through Corporate Governance[3](index=3&type=chunk)[4](index=4&type=chunk) - The company's objective is to apply hedge accounting treatment to all derivative financial instruments, which are considered effective as of the report date[5](index=5&type=chunk)[10](index=10&type=chunk) [Market Risk Management](index=2&type=section&id=Market%20Risk%20Management) Volaris faces market risks from jet fuel price volatility, foreign currency fluctuations, and interest rates, with fuel accounting for **36%** of Q1 2024 operating expenses and interest rate CAPs used to manage floating-rate debt - Volaris is exposed to fuel price risk, as fuel accounted for **36%** of operating expenses in Q1 2024; as of the report date, the company did not have any fuel derivative instruments[6](index=6&type=chunk)[201](index=201&type=chunk) - The company's main foreign currency risk relates to its operations denominated in Mexican pesos; as of March 31, 2024, Volaris had a net liability position of **$129.1 million** in Mexican Pesos[6](index=6&type=chunk)[208](index=208&type=chunk) - To mitigate interest rate risk on its floating-rate debt (CEBURs), the company holds interest rate CAPs with TIIE 28 as the underlying, with a notional amount of **$174.9 million** and a fair value of **$1.4 million** as of March 31, 2024[6](index=6&type=chunk)[224](index=224&type=chunk) [Liquidity and Credit Risk](index=3&type=section&id=Liquidity%20and%20Credit%20Risk) Volaris manages liquidity risk by aligning investments with obligations and diversifying funding, with total contractual financial liabilities of approximately **$3.96 billion**, while credit risk is considered minimal due to high-rated counterparties - The company manages liquidity by distributing exposure among various counterparties and using different instruments and maturities to minimize potential margin calls[11](index=11&type=chunk) - Credit risk is considered low as receivables are primarily from major credit card companies, and derivative counterparties have high credit ratings[231](index=231&type=chunk)[233](index=233&type=chunk) Contractual Principal Payments on Financial Liabilities (March 31, 2024) | Liability Type | Within one year | One to five years | Total | | :--- | :--- | :--- | :--- | | **Interest-bearing borrowings** | $251,616 USD | $383,947 USD | $635,563 USD | | **Lease liabilities** | $375,110 USD | $2,646,115 USD | $3,021,225 USD | | **Return obligation** | $11,655 USD | $289,136 USD | $300,791 USD | | **Total** | **$638,381 USD** | **$3,319,198 USD** | **$3,957,579 USD** | [Fair Value Measurements](index=33&type=section&id=Fair%20Value%20Measurements) Volaris's derivative financial instruments, primarily interest rate caps, are the only financial assets measured at fair value on a recurring basis, categorized as Level 2 in the fair value hierarchy with a fair value of **$1.4 million** as of March 31, 2024 - All derivative financial instruments are categorized within Level 2 of the fair value hierarchy, using significant observable inputs for valuation[243](index=243&type=chunk)[244](index=244&type=chunk) Fair Value of Financial Instruments (March 31, 2024) | Instrument | Carrying Amount | Fair Value | | :--- | :--- | :--- | | **Assets** | | | | Derivative financial Instruments | $1,413 USD | $1,413 USD | | **Liabilities** | | | | Financial debt | ($635,563) USD | ($656,996) USD | [Notes to Condensed Consolidated Financial Statements](index=4&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail the basis of preparation, key accounting policies, and specific financial statement components including debt, leases, equity, commitments, related party transactions, and segment information [Basis of Preparation and Key Accounting Policies](index=4&type=section&id=Basis%20of%20Preparation%20and%20Key%20Accounting%20Policies) The unaudited condensed consolidated interim financial statements are prepared under IAS 34, using the U.S. dollar, with key policies covering passenger revenue recognition, major maintenance capitalization, and IFRS 16 lease accounting - The financial statements are prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting[14](index=14&type=chunk) - Passenger revenue is recognized when the air transportation service is provided or when a non-refundable ticket expires; sales for future flights are held as 'unearned transportation revenue'[25](index=25&type=chunk)[26](index=26&type=chunk) - Major maintenance 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[80](index=80&type=chunk) - The company applies IFRS 16 for leases, recognizing right-of-use assets and lease liabilities for nearly all lease contracts, except for short-term and low-value assets[120](index=120&type=chunk) [Financial Debt](index=35&type=section&id=Financial%20Debt) As of March 31, 2024, Volaris's total financial debt amounted to **$641.5 million**, comprising Asset Backed Trust Notes (CEBURs), pre-delivery payment facilities, and engine acquisition financing agreements Breakdown of Financial Debt (March 31, 2024) | Debt Instrument | Amount (in millions USD) | | :--- | :--- | | Asset backed trust notes (CEBURs) | 174.9 | | Pre-delivery payments facilities | 310.6 | | Engine acquisition financing | 150.1 | | Other (costs, interest) | 6.0 | | **Total Financial Debt (Gross)** | **641.5** | - The company has three tranches of Asset Backed Trust Notes (CEBURs) backed by future credit card receivables, with maturities in **2024**, **2026**, and **2028**[257](index=257&type=chunk)[259](index=259&type=chunk)[263](index=263&type=chunk) - Several financing agreements for engine acquisitions in **2023** were classified as failed sale and leaseback transactions and are therefore accounted for as financial debt[130](index=130&type=chunk)[271](index=271&type=chunk) [Leases](index=44&type=section&id=Leases) Leases are central to Volaris's business, with **$2.46 billion** in right-of-use assets and **$3.02 billion** in lease liabilities as of March 31, 2024, covering **133 leased aircraft** and **20 spare engines**, with lease extensions due to engine inspections Lease-Related Balances (in millions USD) | Account | As of Mar 31, 2024 | As of Dec 31, 2023 | | :--- | :--- | :--- | | **Right-of-use assets** | 2,463 | 2,338 | | **Lease liabilities** | 3,021 | 2,891 | - As of Q1 2024, the fleet comprised **133 leased aircraft** and **20 spare engines**[300](index=300&type=chunk)[301](index=301&type=chunk) - In response to preventive accelerated inspections of GTF engines, the company extended lease agreements for **nine A320CEO aircraft** for up to **6 additional years**[302](index=302&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk) [Equity and Earnings Per Share (EPS)](index=47&type=section&id=Equity%20and%20Earnings%20Per%20Share%20%28EPS%29) As of March 31, 2024, Volaris's total equity was **$277 million** with **1.151 billion** shares outstanding, resulting in basic and diluted EPS of **$0.029** for Q1 2024, a significant improvement from a **($0.062)** loss per share in Q1 2023 Q1 Earnings Per Share Calculation | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | **Net earnings (loss) (millions)** | $33.2 | ($70.9) | | **Weighted avg. shares (basic, thousands)** | 1,151,451 | 1,152,524 | | **Basic EPS** | **$0.029** | **($0.062)** | | **Weighted avg. shares (diluted, thousands)** | 1,165,977 | 1,165,049 | | **Diluted EPS** | **$0.029** | **($0.061)** | - As of March 31, 2024, the company had **1,151,450,983 shares** outstanding after accounting for treasury shares[312](index=312&type=chunk) - In November 2023, all **57.5 million** outstanding Series B shares were converted into Series A shares[314](index=314&type=chunk) [Commitments and Contingencies](index=49&type=section&id=Commitments%20and%20Contingencies) Volaris has substantial future commitments, including **$6.5 billion** for aircraft purchases through **2028** and beyond, with **$1.27 billion** in estimated sale and leaseback proceeds committed, alongside **$32.3 million** in potential contingent liabilities Aircraft Purchase Commitments (in thousands USD) | Period | Commitment Expenditures | | :--- | :--- | | 2024 | $226,157 | | 2025 | $711,112 | | 2026 | $1,408,871 | | 2027 | $1,123,329 | | 2028 and thereafter | $3,065,774 | | **Total** | **$6,535,243** | - The company has commitments to execute sale and leaseback transactions with estimated proceeds of **$1.274 billion** over the next three years to finance aircraft acquisitions[323](index=323&type=chunk) - As of March 31, 2024, the company faced possible contingencies amounting to **$32.3 million** related to legal, labor, and other contribution matters[327](index=327&type=chunk) [Related Party Transactions](index=40&type=section&id=Related%20Party%20Transactions) Volaris conducts business with several related parties due to shared board members or investors, with key Q1 2024 transactions including **$2.2 million** for airport services with OMA and **$4.7 million** for aircraft maintenance with MRO Commercial Key Related Party Transactions (Q1 2024 Expenses) | Related Party | Type of Transaction | Amount (in thousands USD) | | :--- | :--- | :--- | | **MRO Commercial, S.A.** | Aircraft maintenance | $4,652 | | **Grupo Aeroportuario del Centro Norte (OMA)** | Airport services | $2,242 | | **A&P International Services (AISG)** | Aircraft maintenance | $730 | - Key related parties include Frontier Airlines, OMA, and MRO Commercial, primarily due to shared board members and common investors like Indigo Partners[279](index=279&type=chunk)[281](index=281&type=chunk)[285](index=285&type=chunk) [Segment Information](index=50&type=section&id=Segment%20Information) Volaris reports revenues across two geographic segments: Domestic (Mexico) and International, with Domestic revenue at **$484.4 million** (**63%** of total) and International at **$283.4 million** (**37%**) for Q1 2024 Operating Revenues by Geographic Segment (Q1 2024 vs Q1 2023) | Segment | Q1 2024 (USD millions) | Q1 2023 (USD millions) | | :--- | :--- | :--- | | **Domestic (Mexico)** | 484.4 | 466.6 | | **International** | 283.4 | 264.5 | | **Total operating revenues** | **767.8** | **731.1** |

Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:VLRS) Q4 2023 Earnings Conference Call February 27, 2024 9:00 AM ET Company Participants Ricardo Martinez - Investor Relations Director Enrique Javier Beltranena Mejicano - President and Chief Executive Officer Holger Blankenstein - Executive Vice President, Airline Commercial and Operations Jaime Esteban Pous Fernandez - Chief Financial Officer Conference Call Participants Duane Pfennigwerth - Evercore ISI Stephen Trent - Citi Michael Linenberg ...

4Q'23 Results February 2023 volaris VLRS LISTED NYSE VOLAR Disclaimer 2 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 about the Company. This presentation is solely for discussion purposes and highlights basic information about the Company. Because it is a summary, it does not contain all the information that you should consider before investing ...

Annex - Financial Derivative Instruments [Derivative Financial Instrument Policies](index=2&type=section&id=Management's%20discussion%20about%20derivative%20financial%20instrument%20policies) Volaris uses derivative financial instruments exclusively for hedging financial risks, guided by a conservative Hedging Policy and aiming for hedge accounting treatment - The company's policy is to use derivative financial instruments exclusively for hedging against financial risks and not for speculative or trading purposes[2](index=2&type=chunk) - A dedicated Risk Management team identifies, evaluates, and designs strategies to mitigate financial risks, governed by a formal Hedging Policy approved by corporate governance[3](index=3&type=chunk)[4](index=4&type=chunk) - The company's main financial risks hedged through derivatives are fuel price fluctuations, foreign currency risk, and interest rate variations[6](index=6&type=chunk) - As of the report date, Volaris holds interest rate CAPs for its Asset Backed Trust Notes but does not have any fuel or foreign exchange derivative instruments[6](index=6&type=chunk) [Trading Markets and Valuation Techniques](index=3&type=section&id=Trading%20markets%20and%20valuation%20techniques) The company operates in OTC markets, uses ISDA agreements to manage counterparty risk, and values derivatives based on counterparty figures cross-verified with internal models - Volaris operates only in OTC markets and has **8** ISDA agreements in place with various financial institutions to minimize counterparty risk[7](index=7&type=chunk) - The company uses valuations provided by financial counterparties and compares them with internally developed models based on market data from Bloomberg[9](index=9&type=chunk) - All derivative financial instruments held by the company are classified for hedge accounting, with changes in fair value resulting from underlying asset price changes[10](index=10&type=chunk)[13](index=13&type=chunk) [Liquidity and Risk Exposure](index=3&type=section&id=Liquidity%20and%20Risk%20Exposure) Volaris manages derivative liquidity by diversifying contracts and has internal resources to meet obligations, with no significant changes in key financial risk exposure during Q4 2023 - The company manages liquidity by diversifying derivative contracts across multiple counterparties and has internal resources to meet margin call requirements[11](index=11&type=chunk) - In Q4 2023, there were no significant changes to the company's exposure to key financial risks, including fuel price, exchange rates, and interest rates[12](index=12&type=chunk) Summary of Significant Accounting Policies [Basis of Preparation](index=4&type=section&id=Basis%20of%20preparation) Interim financial statements are prepared under IAS 34, using the U.S. dollar as functional currency, primarily under historical cost, and include all controlled subsidiaries - Financial statements are prepared in accordance with International Accounting Standard (IAS) 34 for interim reporting[14](index=14&type=chunk) - The functional and presentation currency for the company and its main subsidiary is the U.S. dollar[16](index=16&type=chunk) Consolidated Entities | Name | Principal Activities | Country | % Equity Interest (2023) | | :--- | :--- | :--- | :--- | | Concesionaria Vuela Compañía de Aviación | Air transportation services | Mexico | 100% | | Vuela Aviación, S.A. | Air transportation services | Costa Rica | 100% | | Vuela, S.A. | Air transportation services | Guatemala | 100% | | Vuela El Salvador, S.A. de C.V. | Air transportation services | El Salvador | 100% | | Comercializadora Volaris, S.A. de C.V. | Merchandising of services | Mexico | 100% | [Revenue Recognition](index=7&type=section&id=Revenue%20recognition) Passenger revenue is recognized upon service provision or ticket expiration, while non-passenger revenues are recognized when services like commissions or cargo are provided - Passenger revenue is recognized when the flight occurs or the ticket expires. Unflown, non-refundable tickets are initially booked as a liability under 'unearned transportation revenue'[26](index=26&type=chunk)[27](index=27&type=chunk) - Other passenger revenues include fees for baggage, seat selection, and itinerary changes, recognized when the transportation is provided[28](index=28&type=chunk) - Non-passenger revenues include commissions from third-party sales (e.g., trip insurance, rental cars) and cargo services, recognized upon service provision[31](index=31&type=chunk) - Under the code-share agreement with Frontier Airlines, the airline that operates the flight segment is the one that recognizes the revenue for that segment[33](index=33&type=chunk)[35](index=35&type=chunk) [Financial Instruments](index=9&type=section&id=Financial%20instruments) Financial assets and liabilities are classified and measured at amortized cost or FVTPL, with a simplified approach for calculating ECLs on trade receivables - Financial assets are classified based on the business model and cash flow characteristics, primarily measured at amortized cost or fair value through profit and loss (FVTPL)[45](index=45&type=chunk) - The company assesses financial assets for credit impairment at each reporting date and applies a simplified approach to calculate Expected Credit Losses (ECLs) for trade receivables[49](index=49&type=chunk)[51](index=51&type=chunk) - Financial liabilities, including loans and payables, are initially recognized at fair value and subsequently measured at amortized cost using the Effective Interest Rate (EIR) method[53](index=53&type=chunk)[55](index=55&type=chunk) [Aircraft and Engine Maintenance](index=13&type=section&id=Aircraft%20and%20engine%20maintenance) Routine maintenance costs are expensed, while major maintenance costs are capitalized and amortized, and the company uses power-by-the-hour agreements for component and engine services - Routine line maintenance costs are expensed as they are incurred[77](index=77&type=chunk)[78](index=78&type=chunk) - Major maintenance costs are capitalized and amortized over the period until the next scheduled major maintenance event or the remaining lease term, whichever is shorter[80](index=80&type=chunk) - The company uses a power-by-the-hour agreement for component services and an engine flight hour agreement for engine shop visits, with associated costs recognized as incurred[83](index=83&type=chunk)[84](index=84&type=chunk) [Leases](index=18&type=section&id=Leases) The company recognizes right-of-use assets and lease liabilities for most leases, with specific accounting for sale and leaseback transactions - The company applies a single recognition model for all leases, recording a right-of-use asset and a lease liability at the lease commencement date[118](index=118&type=chunk) - Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term or the asset's useful life[119](index=119&type=chunk) - Lease liabilities are measured at the present value of lease payments, using the company's incremental borrowing rate if the implicit rate is not determinable[122](index=122&type=chunk) - For sale and leaseback transactions, gain or loss is recognized only on the rights transferred to the buyer-lessor, with the retained right-of-use asset measured based on the previous carrying amount[125](index=125&type=chunk)[126](index=126&type=chunk) [Derivative Instruments and Hedge Accounting](index=21&type=section&id=Derivative%20and%20non-derivative%20financial%20instruments%20and%20hedge%20accounting) Volaris uses financial instruments to hedge fuel, interest rate, and exchange rate risks, applying cash flow hedge accounting with no ineffective portion recognized in 2023 or 2022 - The company uses financial instruments to hedge risks related to jet fuel prices, interest rates, and foreign exchange rates[143](index=143&type=chunk) - Under the cash flow hedge (CFH) model, the effective portion of fair value changes is recognized in OCI, while the ineffective portion is recognized in earnings[146](index=146&type=chunk) - For the years ended December 31, 2023, and 2022, the company did not recognize any ineffective portion related to its derivative financial instruments[146](index=146&type=chunk) Notes to Condensed Consolidated Financial Statements [Business Description and Recent Events](index=23&type=section&id=Description%20of%20the%20business%20and%20summary%20of%20material%20accounting%20policy%20information) Volaris, a Mexican low-cost airline operating under a renewed government concession, recently converted all **57.5 million** Series B shares to Series A shares - Volaris is a low-cost airline providing air transportation services in Mexico and abroad, operating under a concession granted by the Mexican government, which was extended for a **20-year** term starting May 9, 2020[156](index=156&type=chunk)[157](index=157&type=chunk) - The company has issued Asset Backed Trust Notes (Certificados Bursátiles Fiduciarios) backed by future credit card receivables, including a sustainability-linked bond (VOLARCB 21L) tied to CO2 emissions reduction targets[163](index=163&type=chunk)[164](index=164&type=chunk) - On November 22, 2023, all **57,513,873** outstanding Series B shares were converted into Series A shares[167](index=167&type=chunk) [Financial Instruments and Risk Management](index=29&type=section&id=Financial%20instruments%20and%20risk%20management) Volaris manages market, credit, and liquidity risks using derivatives like interest rate caps, reporting a net foreign currency liability of **$218.9 million** in Mexican Pesos as of December 31, 2023 - The company's primary market risks are jet fuel price fluctuations, foreign currency exposure (mainly Mexican Pesos), and interest rate changes on debt and leases[197](index=197&type=chunk)[201](index=201&type=chunk)[206](index=206&type=chunk)[213](index=213&type=chunk) Net Foreign Currency Position (Dec 31, 2023) | Currency | Net Position (in thousands of U.S. dollars) | | :--- | :--- | | Mexican Pesos | US$ (218,926) | | Others* | US$ 43,166 | *Includes Colones, Quetzales and Colombian Pesos. - The company holds interest rate caps with a notional amount of **US$187.4 million** as of Dec 31, 2023, to hedge against interest rate increases on its Asset Backed Trust Notes (CEBURs)[218](index=218&type=chunk)[220](index=220&type=chunk)[224](index=224&type=chunk) Contractual Principal Payments on Financial Liabilities (Dec 31, 2023) | Liability Type | Within one year | One to five years | Total | | :--- | :--- | :--- | :--- | | Interest-bearing borrowings | US$ 213,871 | US$ 435,282 | US$ 649,153 | | Lease liabilities | US$ 372,697 | US$ 2,532,891 | US$ 2,905,588 | | Aircraft and engine lease return obligation | US$ 803 | US$ 286,405 | US$ 287,208 | | **Total** | **US$ 587,371** | **US$ 3,254,578** | **US$ 3,841,949** | [Financial Assets and Liabilities](index=37&type=section&id=Financial%20assets%20and%20liabilities) As of December 31, 2023, financial assets included **$1.7 million** in derivative instruments, while total financial debt significantly increased to **$653.1 million**, comprising various financing instruments Financial Debt Summary | Category | Dec 31, 2023 (USD thousands) | Dec 31, 2022 (USD thousands) | | :--- | :--- | :--- | | Short-term financial debt | 220,289 | 112,148 | | Long-term financial debt | 432,776 | 160,887 | | **Total Financial Debt** | **653,065** | **273,035** | - The company has issued three tranches of Asset Backed Trust Notes (CEBURs) in the Mexican market, totaling **Ps. 4.5 billion**, backed by future credit card receivables[258](index=258&type=chunk)[260](index=260&type=chunk)[264](index=264&type=chunk) - In 2023, the company entered into several new financing agreements for the acquisition of engines with entities including Tarquin Limited, NBB Lease Partnerships, and Wilmington Trust SP Services[271](index=271&type=chunk)[272](index=272&type=chunk) [Related Party Transactions](index=42&type=section&id=Related%20parties) Volaris conducts related party transactions for services like airport operations and maintenance, with significant expenses to MRO Commercial (**$15.7 million**) and OMA (**$12.3 million**) in FY 2023 Key Related Party Expenses (FY 2023) | Related Party | Service | Expense (USD thousands) | | :--- | :--- | :--- | | MRO Commercial, S.A. | Aircraft maintenance | 15,674 | | Grupo Aeroportuario del Centro Norte (OMA) | Airport services | 12,263 | | A&P International Services (AISG) | Aircraft and engine maintenance | 2,895 | | Chevez, Ruiz, Zamarripa y Cía, S.C. | Professional fees | 1,175 | - Frontier Airlines is a related party due to common board members and investment from Indigo Partners. As of Dec 31, 2023, the payable to Frontier was **$1.9 million**[276](index=276&type=chunk)[277](index=277&type=chunk) - On May 23, 2023, the Company purchased **139,738** common stock shares of Clean Joule, Inc., a Sustainable Aviation Fuel producer, for **$1.7 million**. Clean Joule is a related party due to common board members[290](index=290&type=chunk) [Leases](index=48&type=section&id=Leases) As of December 31, 2023, Volaris leased **129** aircraft and **20** spare engines, with right-of-use assets totaling **$2.35 billion** and lease liabilities of **$2.91 billion** Aircraft Fleet Composition (Leased) | Aircraft Model | At Dec 31, 2023 | At Dec 31, 2022 | | :--- | :--- | :--- | | A319 | 3 | 3 | | A320 | 40 | 40 | | A320neo | 51 | 48 | | A321 | 10 | 10 | | A321neo | 25 | 15 | | **Total** | **129** | **116** | - In response to Pratt & Whitney's preventive accelerated inspections for GTF engines, the company has extended lease agreements and added new aircraft to its fleet[303](index=303&type=chunk)[304](index=304&type=chunk) Lease-Related Balances (Dec 31, 2023) | Account | Amount (USD thousands) | | :--- | :--- | | Right-of-use assets | 2,352,528 | | Lease liabilities | 2,905,588 | Lease Expenses Recognized in Profit or Loss (FY 2023 vs FY 2022) | Expense Category | FY 2023 (USD thousands) | FY 2022 (USD thousands) | | :--- | :--- | :--- | | Depreciation of right-of-use assets | 362,015 | 320,443 | | Interest expense on lease liabilities | 191,967 | 174,769 | | Aircraft and engine variable lease expenses | 103,845 | 124,532 | | **Total** | **657,827** | **619,744** | [Equity and Earnings Per Share](index=52&type=section&id=Equity) As of December 31, 2023, the company had **1.15 billion** Series A shares outstanding, with basic EPS improving to **$0.007** for FY 2023 from a **($0.069)** loss in 2022 - As of December 31, 2023, all outstanding shares are Series A, following the conversion of all Series B shares during the year. Total shares outstanding were **1,151,450,983**[317](index=317&type=chunk) Earnings Per Share (EPS) | Period | Basic EPS (USD) | Diluted EPS (USD) | | :--- | :--- | :--- | | **Q4 2023** | 0.097 | 0.096 | | **Q4 2022** | (0.019) | (0.019) | | **FY 2023** | 0.007 | 0.007 | | **FY 2022** | (0.069) | (0.069) | - No dividends were declared or paid during 2023 and 2022[320](index=320&type=chunk) [Commitments and Contingencies](index=54&type=section&id=Commitments%20and%20contingencies) Volaris has **$6.6 billion** in aircraft purchase commitments with Airbus and **$1.45 billion** in estimated sale and leaseback proceeds, alongside **$29.4 million** in legal contingencies Aircraft Purchase Commitments (Airbus) | Period | Commitment (USD thousands) | | :--- | :--- | | 2024 | 280,818 | | 2025 | 711,112 | | 2026 | 1,408,871 | | 2027 | 1,123,329 | | 2028 and thereafter | 3,065,774 | | **Total** | **6,589,904** | - The company has commitments to execute sale and leaseback transactions for aircraft deliveries in 2024 and 2025, with estimated proceeds of **$626.5 million** and **$821.0 million**, respectively[328](index=328&type=chunk) - Possible contingencies from legal proceedings arising in the ordinary course of business amounted to **US$29.4 million** as of December 31, 2023[333](index=333&type=chunk) [Operating Segments](index=55&type=section&id=Operating%20segments) Volaris operates as a single segment, reporting **$2.07 billion** in domestic revenue and **$1.19 billion** in international revenue for FY 2023, based on flight origin Operating Revenues by Geographic Segment (FY 2023 vs FY 2022) | Segment | FY 2023 (USD thousands) | FY 2022 (USD thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Domestic (Mexico) | 2,070,569 | 1,909,744 | +8.4% | | United States of America | 921,999 | 758,609 | +21.5% | | Central America and South America | 266,405 | 178,837 | +48.9% | | **Total** | **3,258,973** | **2,847,190** | **+14.5%** | Fourth Quarter and Full Year 2023 Earnings Release [Financial and Operations Highlights](index=56&type=section&id=Financial%20and%20Operations%20Highlights) Volaris achieved a **$112 million** net income in Q4 2023 and **$8 million** for the full year, driven by revenue growth and reduced fuel costs despite operational challenges Q4 2023 Financial Highlights (vs Q4 2022) | Metric | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Total Operating Revenues | $899M | $820M | +9.6% | | TRASM | $9.56 cents | $8.63 cents | +10.7% | | CASM | $7.81 cents | $8.00 cents | -2.3% | | CASM ex fuel | $4.86 cents | $4.39 cents | +10.7% | | EBITDAR | $281M | $208M | +35.1% | | EBITDAR Margin | 31.3% | 25.3% | +6.0 pp | | Net Income (Loss) | $112M | ($22M) | N/A | Full Year 2023 Financial Highlights (vs FY 2022) | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Total Operating Revenues | $3,259M | $2,847M | +14.5% | | TRASM | $8.38 cents | $8.07 cents | +3.8% | | CASM | $7.81 cents | $7.95 cents | -1.7% | | CASM ex fuel | $4.81 cents | $4.26 cents | +12.8% | | EBITDAR | $823M | $586M | +40.4% | | EBITDAR Margin | 25.2% | 20.6% | +4.7 pp | | Net Income (Loss) | $8M | ($80M) | N/A | - The company demonstrated resilience in the face of challenges including the FAA downgrade of Mexico to CAT 2, Pratt & Whitney's engine inspections, and slot reductions at Mexico City International Airport[337](index=337&type=chunk) [Management Discussion of Financial Results](index=59&type=section&id=Management%20Discussion) Q4 2023 operating revenues grew **10%** to **$899 million**, with ancillary revenue per passenger up **32%** to **$55**, contributing **50%** of total revenue - Ancillary revenue was a key growth driver, with ancillary revenue per passenger increasing **32%** to **$55** in Q4 2023, representing **50%** of total operating revenue[345](index=345&type=chunk) - CASM ex fuel for Q4 2023 increased **11%** to **$4.86 cents**, driven by higher fleet depreciation, reduced capacity, and a stronger Mexican peso, but was partially offset by compensation from Pratt & Whitney[347](index=347&type=chunk) - For the full year 2023, Volaris transported **33.5 million** passengers, a **7.9%** increase from 2022, with total capacity (ASMs) growing by **10%**[351](index=351&type=chunk) [Balance Sheet and Liquidity](index=61&type=section&id=Balance%20Sheet%2C%20Liquidity%20and%20Capital%20Allocation) As of December 31, 2023, Volaris held **$789 million** in liquidity, representing **24%** of LTM revenue, and improved its net debt-to-LTM EBITDAR ratio to **3.4x** - Total cash, cash equivalents, restricted cash, and short-term investments stood at **$789 million**, representing **24%** of last twelve months' total operating revenue[355](index=355&type=chunk) - Net debt-to-LTM EBITDAR ratio improved to **3.4x**, down from **3.9x** in 2022 and **3.5x** in Q3 2023[357](index=357&type=chunk) Debt and Lease Liabilities (Dec 31, 2023) | Liability | Amount (USD millions) | | :--- | :--- | | Financial debt | 653 | | Total lease liabilities | 2,906 | | **Net debt** | **2,770** | [2024 Guidance](index=62&type=section&id=2024%20Guidance) Volaris projects 2024 ASM growth between **-16%** and **-18%** YoY due to GTF engine removals, with Q1 EBITDAR margin of **25-27%** and full-year margin of **31-33%**, including Pratt & Whitney compensation Q1 2024 Guidance | Metric | 1Q'24 Guidance | 1Q'23 Actual | | :--- | :--- | :--- | | ASM growth (YoY) | -16% to -18% | +17.7% | | TRASM | $8.5 to $8.7 cents | $7.71 cents | | CASM ex fuel | $5.5 to $5.7 cents | $4.65 cents | | EBITDAR margin | 25% to 27% | 16.8% | Full Year 2024 Guidance | Metric | 2024 Guidance | 2023 Actual | | :--- | :--- | :--- | | ASM growth (YoY) | -16% to -18% | +10.2% | | EBITDAR margin | 31% to 33% | 25.2% | | CAPEX | ~$300 million | $252 million | - The 2024 outlook incorporates expected compensation from Pratt & Whitney for grounded aircraft resulting from GTF engine removals[361](index=361&type=chunk) [Fleet](index=63&type=section&id=Fleet) Volaris concluded 2023 with a fleet of **129** aircraft, averaging **5.7** years old and **196** seats, with NEO models comprising **59%** of the total Fleet Composition at Year-End | Aircraft Type | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | A319 CEO | 3 | 4 | (1) | | A320 CEO | 40 | 40 | 0 | | A321 CEO | 10 | 10 | 0 | | A320 NEO | 51 | 48 | +3 | | A321 NEO | 25 | 15 | +10 | | **Total** | **129** | **117** | **+12** | - The average age of the fleet is **5.7 years**, with an average of **196** seats per aircraft[363](index=363&type=chunk) - **59%** of the total fleet consists of New Engine Option (NEO) aircraft[363](index=363&type=chunk) [Consolidated Financial Statements](index=68&type=section&id=Consolidated%20Financial%20Statements) Q4 2023 saw **$899 million** in operating revenues and **$112 million** net income, while FY 2023 reported **$3.26 billion** revenues and **$8 million** net income, with **$730 million** cash from operations Consolidated Statement of Operations Summary (Q4 2023) | Item | Amount (USD millions) | | :--- | :--- | | Total operating revenues | 899 | | Operating expenses | 735 | | **Operating income** | **164** | | Income before income tax | 129 | | **Net income** | **112** | Consolidated Statement of Financial Position Summary (Dec 31, 2023) | Item | Amount (USD millions) | | :--- | :--- | | Total current assets | 1,248 | | Total non-current assets | 3,913 | | **Total assets** | **5,161** | | Total short-term liabilities | 1,621 | | Total long-term liabilities | 3,297 | | **Total liabilities** | **4,918** | | **Total equity** | **243** | Consolidated Statement of Cash Flows Summary (FY 2023) | Item | Amount (USD millions) | | :--- | :--- | | Net cash flow provided by operating activities | 730 | | Net cash flow used in investing activities | (462) | | Net cash flow used in financing activities | (214) | | **Increase in cash** | **54** |

Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:VLRS) Q3 2023 Earnings Conference Call October 25, 2023 11:00 AM ET Company Participants Ricardo Martinez - IR Director Enrique Beltranena - President and CEO Holger Blankenstein - Airline EVP Jaime Pous - CFO Conference Call Participants Duane Pfennigwerth - Evercore ISI Stephen Trent - Citi Helane Becker - TD Cowen Michael Linenberg - Deutsche Bank Rogerio Araujo - Bank of America Guilherme Mendes - JPMorgan Bruno Amorim - Goldman Sachs Pablo M ...

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