troladora Vuela pania de Aviacion(VLRS) - 2024 Q2 - Quarterly Report

Annex - Financial Derivative Instruments This annex details the company's policies, markets, valuation, liquidity, and quantitative information regarding its financial derivative instruments Management's Discussion on Derivative Policies Volaris uses derivatives solely for hedging financial risks, managed by a dedicated team under a conservative policy - Volaris uses derivatives solely for hedging financial risks (fuel price, foreign currency, interest rate), not for speculation[2][5] - A Risk Management team and Hedging Policy, approved by Corporate Governance, are in place to manage these risks[3][4] - As of the report date, Volaris does not hold fuel or foreign exchange derivative financial instruments, but maintains interest rate CAPs for Asset Backed Trust Notes[6] Trading Markets and Eligible Counterparties The company conducts OTC derivative transactions with robust counterparties, using ISDA agreements to mitigate risk - Volaris operates only in OTC markets and uses ISDA agreements with financially strong counterparties to minimize risk[7][8] ISDAs and Q2 2024 Activity | Metric | Value | | :--- | :--- | | ISDAs in place (June 30, 2024) | 8 | | Q2 2024 activity | None | Valuation Techniques Derivatives are valued at fair value using financial institution data and internal models, classified as effective hedges - Derivatives are valued at fair value using financial institution valuations and internal methodologies, with Bloomberg as a primary data source[9] - All derivative financial instruments are considered effective and classified under hedge accounting assumptions in accordance with IFRS[10] Liquidity Sources for Derivatives Volaris manages derivative liquidity by diversifying contracts with CSAs and maintaining internal resources - Derivative contracts are distributed among multiple counterparties with CSAs and varied maturities to optimize financial conditions and minimize margin calls[11] - Internal resources are available to meet derivative-related liquidity requirements if needed[11] Changes in Risk Exposure and Contingencies No significant changes in exposure to fuel price, exchange rate, or interest rate risks observed in Q2 2024 - No significant changes in exposure to fuel price, exchange rate, or interest rate risks were observed in Q2 2024[12] Quantitative Information on Derivatives All derivatives qualify for hedge accounting, fair value changes reflect only underlying asset price movements - All derivatives held qualify as hedge accounting, with fair value changes reflecting only underlying asset price movements[13] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's business, accounting policies, financial instruments, and other significant financial disclosures - Interim financial statements are prepared in accordance with IAS 34 and IFRS, using consistent accounting policies as annual statements[15][174] - The functional and presentation currency for the Company and its main subsidiary (Concesionaria) is the US dollar[17][176] Description of the Business Volaris is an ultra-low-cost carrier operating in Mexico, the US, Central, and South America, with its concession extended - Volaris is an ultra-low-cost carrier operating in Mexico, the US, Central, and South America[159][160][367] - Concesionaria's air transportation concession was extended for 20 years, effective May 9, 2020[161] - Volaris is dual-listed on NYSE (VLRS) and BMV (VOLAR) since September 2013[163] Summary of Material Accounting Policies This section details the key accounting policies for interim financial statements, adhering to IAS 34 and IFRS, with US dollar as functional currency - Interim financial statements are prepared in accordance with IAS 34 and IFRS, using consistent accounting policies as annual statements[15][174] - The functional and presentation currency for the Company and its main subsidiary (Concesionaria) is the US dollar[17][176] Basis of Preparation Interim financial statements are prepared under IAS 34 and IFRS, using US dollar as functional currency and management estimates - Interim financial statements are prepared in accordance with IAS 34 and IFRS, using consistent accounting policies as annual statements[15][174] - The functional and presentation currency for the Company and its main subsidiary (Concesionaria) is the US dollar[17][176] - Financial statements are prepared under the historical-cost convention, with derivatives measured at fair value[19][178] - Preparation requires management estimates and assumptions, which may lead to actual results differing from reported amounts[20][179] Basis of Consolidation Consolidated financial statements include 100%-owned subsidiaries, defining control by power over investee and variable returns, with intercompany eliminations - Consolidated financial statements include the Company and its 100%-owned subsidiaries in Mexico, Costa Rica, Guatemala, and El Salvador[21][22][180][181] - Control is defined by power over the investee, exposure to variable returns, and the ability to affect those returns[24][183] - Intercompany balances and transactions are fully eliminated upon consolidation[25][185] Revenue Recognition Passenger and non-passenger revenues are recognized upon service provision or ticket expiration, with net revenue for agent-based services - Passenger revenues are recognized upon service provision or ticket expiration; non-passenger revenues upon service provision[27][29][32] - For partner airline segments and certain third-party services, Volaris acts as an agent, recognizing net revenue[31][33] - Tickets are non-refundable, but cancellations attributable to the airline offer flight changes, refunds, or vouchers; revenue is recognized when vouchers are redeemed or expire[40] Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents are highly liquid investments with short maturities, while restricted cash is held for debt service reserves - Cash and cash equivalents are highly liquid investments with maturities of 90 days or less[43] - Restricted cash is specifically for debt service reserves and is not available for other uses[45][274] Short-Term Investments Short-term investments consist of fixed-term bank deposits with maturities ranging from 3 to 12 months - Short-term investments are fixed-term bank deposits maturing in 3-12 months[46] Financial Instruments Initial Recognition and Subsequent Measurement Financial assets are classified and measured per IFRS 9 at fair value, while liabilities are at amortized cost, with specific derecognition criteria - Financial assets are classified and measured per IFRS 9, based on cash flows and business model, and initially recognized at fair value[48][49] - Financial liabilities are initially recognized at fair value and subsequently measured at amortized cost for loans and payables[56][57][58] - A financial asset is derecognized when rights to cash flows expire or are transferred, and risks/rewards or control are substantially transferred[50] - Financial liabilities are derecognized when obligations are discharged, cancelled, or expire, or if terms are substantially modified[61] Other Accounts Receivable Receivables primarily from credit card processors are non-interest bearing, short-term, and valued at cost less allowances