troladora Vuela pania de Aviacion(VLRS) - 2024 Q1 - Quarterly Report

Earnings Release & Q1 2024 Highlights 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 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] - The decrease in capacity (ASMs) was primarily due to aircraft groundings resulting from accelerated Pratt & Whitney engine inspections[338][342] - Total operating expenses decreased by 12.9% to $664 million, largely driven by a 25.2% reduction in fuel expense[340][367] Balance Sheet and Liquidity 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][372] Fleet Update 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] 2024 Guidance 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] Consolidated Financial Statements 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 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 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 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 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 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] - A dedicated Risk Management team identifies, evaluates, and designs strategies to mitigate financial risks, governed by a Hedging Policy approved through Corporate Governance[3][4] - 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][10] Market Risk Management 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][201] - 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][208] - 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][224] Liquidity and Credit Risk 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] - Credit risk is considered low as receivables are primarily from major credit card companies, and derivative counterparties have high credit ratings[231][233] 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 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][244] 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 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 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] - 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][26] - 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] - 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] Financial Debt 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][259][263] - 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][271] 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][301] - 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][303][304] Equity and Earnings Per Share (EPS) 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] - In November 2023, all 57.5 million outstanding Series B shares were converted into Series A shares[314] Commitments and Contingencies 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] - As of March 31, 2024, the company faced possible contingencies amounting to $32.3 million related to legal, labor, and other contribution matters[327] Related Party Transactions 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][281][285] Segment Information 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 |