Volaris: the leading ultra-low-cost airline serving Mexico, USA and Central America

Transcription

1 Volaris: the leading ultra-low-cost airline serving Mexico, USA and Central America January 2018

2 Disclaimer The information ("Confidential Information") contained in this presentation is confidential and is provided by Controladora Vuela Compañía de Aviación, S.A.B. de C.V., (d/b/a Volaris, the "Company") confidentially to you solely for your reference and may not be retransmitted or distributed to any other persons for any purpose whatsoever. The Confidential Information is subject to change without notice, its accuracy is not guaranteed, it has not been independently verified and it may not contain all material information concerning the Company. Neither the Company, nor any of their respective directors makes any representation or warranty (express or implied) regarding, or assumes any responsibility or liability for, the accuracy or completeness of, or any errors or omissions in, any information or opinions contained herein. None of the Company nor any of their respective directors, officers, employees, stockholders or affiliates nor any other person accepts any liability (in negligence, or otherwise) whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. No reliance may be placed for any purposes whatsoever on the information set forth in this presentation or on its completeness. This presentation does not constitute or form part of any offer or invitation for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. Recipients of this presentation are not to construe the contents of this presentation as legal, tax or investment advice and should consult their own advisers in this regard. This presentation contains statements that constitute forward-looking statements which involve risks and uncertainties. These statements include descriptions regarding the intent, belief or current expectations of the Company or its officers with respect to the consolidated results of operations and financial condition, and future events and plans of the Company. These statements can be recognized by the use of words such as "expects," "plans," "will," "estimates," "projects," or words of similar meaning. Such forward-looking statements are not guarantees of future performance and actual results may differ significantly from those in the forward-looking statements as a result of various factors and assumptions. You are cautioned not to place undue reliance on these forward looking statements, which are based on the current view of the management of the Company on future events. The Company does not undertake to revise forward-looking statements to reflect future events or circumstances. 2

3 Volaris: snapshot at 30,000 feet Serving 69 destinations throughout Mexico (40), USA (25) and Central America (4) Sep 17 LTM CAGR (08-16) Unit cost (CASM exfuel; cents, % USD) (1) Passenger demand (RPMs, bn) Aircraft (End of period) Routes (End of period) Passengers (mm) Operating revenue (bn, MXN) Adj. EBITDAR (bn. MXN) Adj. ROIC (pre-tax) % % % % % % 11% 20% 14% +9 pp. (1) Converted to USD at an average period exchange rate 3

4 Volaris flight path for demand stimulation and continued growth Capacity increase Cost reduction More ancillaries ( You decide ) Resilient ULCC business model driving high, profitable growth More customers Clean, low base fares 4

5 Volaris consistent execution of its ULCC business model well positioned for growth Accomplishments Opportunities Strong penetration of Mexican air travel market Diversified and resilient point-to-point network Attractive emerging air travel market in Mexico Continue geographic diversification through international growth Bus to air substitution Continue route frequency increase Successful price unbundling Upside in ancillary revenue Proven ancillary revenue model Sustained profitability with strong balance sheet Flexible fleet plan and utilization; capacity management Continue cost reductions 5

6 Accomplishments

7 Volaris has a best-in-class unit cost structure Long-term unit cost advantage CASM and CASM ex-fuel (LTM September 2017, USD cents) In line with best-in-class ULCCs Cost structure Economies of scale - Dilute fixed costs - High seat density Young and fuel efficient fleet - Sharklet rollout - Average age of 4.6 years - NEO Engines rollout - Low fuel burn Productive network - Point-to-point - No connections complexity High aircraft utilization - 3Q17 average 13 block hours per day Latin American carriers US LCCs WW LCCs US network carriers Continued cost improvement potential (1) DCOMPS = Direct Competitors: Delta, American Airlines, Alaska Airlines and United (Average CASM and CASM ex-fuel) Note: Non-USD data converted to USD using an average exchange rate for the period Source: Airlines public information 7

8 Non-ticket revenues continue to grow, with upside potential Non-ticket revenue per passenger 142 Volaris (MXN) per passenger CAGR: % YTD Sep 2017 Best-in class ULCCs, including first bag fee (Sep 2017 LTM, as % of total operating revenue) (1) 27% 43% 45% 48% Ancillaries Apply revenue management techniques - Pricing by route, season, day - Fully dynamic pricing for some products Add products - New products & services - Enhancements to existing products Improve presence - More touch-points to sell ancillaries throughout the journey - Allow customization Benefit from network diversification - More international capacity First checked bag - USA and Puerto Rico - Costa Rican AOC Volaris Wizz Allegiant Spirit Non-ticket revenue per pax (USD) $21.91 $31.44 $29.20 $52.51 Increasing non-ticket revenue allows to reduce fare further and stimulate demand (1) Converted to USD using an average exchange rate for the period Source: Airlines public information 8

9 Network enhancement: connecting the dots and diversifying further LTM Dec 2017 Volaris diversified its network by starting operations in 34 routes and 5 stations Volaris LTM Sept 2017 new routes New routes Domestic International Guadalajara 3 2 Mexico City - 4 Costa Rica - 4 Tijuana 1 2 Los Angeles - 4 Monterrey 3 1 Other 1 9 Total 8 26 New stations DOM USA Central America Cozumel Miami San Salvador Milwaukee Managua New International New Domestic New Volaris Costa Rica 9 Note: Excludes routes and stations announced to start operations

10 supporting strong capacity growth 2017 capacity growth contribution + Additional frequencies 6.8% + Joining existing airports 3.1% + New airports 1.5% + Volaris Costa Rica 1.5% = Total ASM growth 12.9% Our network is well positioned for diversified growth 10

11 Growth opportunities

12 In recent years, Mexico s volume growth has been robust despite challenging economic environment Mexico passenger market volume has increased since 2011 Passenger volume (millions) CAGR: +5% 57 9 Yoy growth 4.0% 8.3% 8.3% 8.3% 12.3% 10.4% 10.6% (3) GDP growth (2) 4.0% 4.0% 1.4% 2.3% 2.6% 2.3% 1.8% GDP multiplier (1) Considers Volaris and VivaAerobus domestic market share LTM November 2017 (2) Values according to INEGI s new methodology (3) Yoy growth for LTM September 2016 vs. LTM September 2017 Source: DGAC-SCT, INEGI and Banco de México Domestic USA Other international Main industry growth drivers Strong demand and increasing middle class LCC gaining market through low fares - 44% LCC share (1) High improvement potential: - Domestic air trips per capita in Mexico 0.42 vs. Colombia x GDP multiplier in recent years 12

13 Volaris growth has surpassed market growth in both domestic and international markets Domestic passenger growth (%) International passenger growth (%) Source: DGAC 13

14 Volaris has been the engine of growth for VFR and leisure markets in Mexico Segment passenger CAGR Volaris vs. market ( ) Volaris main growth drivers Tijuana 10% 12% Hermosillo Low costs allow Volaris to offer lower fares and make flying possible 5% 17% Market growth Volaris growth Fleet - Up-gauging: A320neo with 186 seats and A321 with 230 seats Los Cabos Culiacan Monterrey 9% 38% - Young and fuel efficient: average of 4.6 (1) years; new generation aircraft 10% 28% 8% 23% Vallarta 11% 34% Guadalajara 8% 19% Mexico City Cancun 13% 27% Productive network with high utilization - Around 20 new routes per year - Avg. 13 block hours/day in 3Q % 61% High and healthy load factors - 85% in LTM Sep % domestic passengers market share as of LTM Sep , Volaris was the source of 46% of the growth among Mexican carriers (1) Data as of September 2017 Note: Markets not mutually exclusive, contested domestic markets 14

15 Significant untapped opportunities Domestic growth potential of approx. 105 International growth potential of approx. 125 routes (4) routes (4) Number of routes (1) Number of routes (2) Routes served 0 USA (VFR) USA (Leisure) CAM, SAM, Canada, Growth potential Caribbean In terms of air trips per capita Mexico has plenty potential to grow 2016 air trips per capita (domestic) (5) United States Chile Brazil Colombia Peru Mexico Argentina (1) Minimum stage length of 170 miles (2) Minimum stage length of 200 miles; CAM stands for Central America; SAM stands for South America (3) South and northbound leisure routes (4) Figures calculated as of January 2018 (5) Data from the World Bank Source: World bank, DGAC, DIIO MI Market Intelligence for the Aviation Industry and ALTA 15

16 Volaris contributed by stimulating demand from bus to air substitution Significant upside for air travel Bus switching program Total bus passengers in Mexico (mm) Total air travel passengers in Mexico (mm) Education 2,758 2,971 Mass media campaigns Tarifa no + camion positioning Digital capabilities Trial 2,683 2,891 Ticket giveaway #Nomáscamión First sell Strong conversion rate ULCC model First, economy and other Domestic Executive and luxury International Source: Secretaría de Comunicaciones y Transportes (SCT), 2016 Attracting 1st time flyers 16

17 Volaris Costa Rican AOC provides growth potential in Central America Volaris Obtains Foreign Air Carrier Permit in the United States of America for its Costa Rican Operations Through OD flights: -LAXSAL (SJO-SAL-LAX) -GUALAX (SJO-GUA-LAX) -JFKSAL (SJO-SAL-JFK) The right market Central America key insights - IADSAL (SJO-SAL-IAD) - Costa Rica is top three middle class growth of LATAM (GDP growth of 4.2% in 2016) - VFR potential in the region and to the USA, Costa Rica is the country with the most immigrants as a % of its population The right moment - No ULCC presence in the region - Local competitors have 38% of capacity share while US carriers 46% The right ULCC model - Growth sustainable and proved model, easily translatable to Central America - USD denominated revenue contributing to FX natural hedge Los Angeles Guadalajara San Antonio Potential markets (1) Chicago Dallas Houston Mexico City Cancun Guatemala San Salvador Managua San José, CR Guayaquil Orlando Miami La Habana New York Medellin Bogota Quito Lima Cartagena La Paz Puerto Rico Santo Domingo (1) Subject to authorization from the corresponding authorities Source: World Bank, ALTA, MI-DIIO, CEPAL Infare Volaris Central American operation full potential of aircraft 17

18 Drivers of continued profitable growth Uniquely positioned to capture growth in underpenetrated Mexican aviation market Grow ancillary revenue to world class ULCC benchmarks Price, product, presence Increase total revenues Reduce unit costs Up-gauge fleet from A319 to A320/A321 Neo incorporation - Fuel efficiency Expand network geographically Expand network Fleet growth 40 additional aircraft to be delivered Deepen footprint in markets with high demand stimulation Higher seat density configuration 18

19 Fleet and financials

20 Volaris fleet plan supports its strategy to drive lower unit costs Contractual fleet obligations (number of aircraft) (1) A321 (CEO and NEO) seats (up-gauge) - ~10% CASM dilution (2) A320 NEO - Combined fuel consumption reduction by approx % per seat (2) A320 CEO with sharklets - Fuel consumption reduction by approx. 3% (2) All PDP requirements fully financed for next four years Backlog of 40 Aircraft to support growth (3) Note: NEO stands for the Airbus new engine option; CEO stands for the Airbus current engine option (1) Net fleet after additions and returns (2) Source: Airbus (3) Figure calculated as of January 08 th,

21 (MXN bn) (MXN bn) High growth and solid financial performance Revenues Adj. EBITDAR CAGR: +21.5% CAGR: +48.3% LTM Sep LTM Sep 2017 Revenue CAGR LTM September 2017 Adj. EBITDAR margin 22% 20% 17% 30% 28% 26% 25% 22% 21% 21% 20% 11% 10% 9% 4% 2% Volaris Azul Interjet Latam Gol Aeromexico Copa Avianca Azul Volaris Copa Aeromexico Latam Avianca Gol Interjet Source: Airlines public information 21

22 Volaris international expansion has been key in constructing a better hedge for FX volatility Increasing international operation brings higher USD revenues Volaris revenues breakdown, MXN billion (International revenues priced in USD) % 26% 27% 31% 33% 28% 76% 74% 73% 69% 67% 72% YTD Sep 2017 Domestic International 22

23 Strong balance sheet and liquidity, well funded for continued growth Liquidity-cash and equivalents as a % of LTM Op. Revenue Unrestricted cash of $5.4 billion pesos (US$ 295 million) as of Sep 30, % Net cash position of $3.0 billion pesos (US$ 164 million) as of Sep 30, % 10% 9% 9% Adjusted net debt to EBITDAR of 5.6x as of Sep 30, % 7% 6% Fully financed pre-delivery payments. Volaris Avianca Copa Latam Aeromexico Interjet Azul Gol Expected 2017 net CAPEX (US$ 120 to million): PDPs: from US$ 60 to 65 million, net of PDP reimbursements Major maintenance: US$ 50 to 60 million Other: from US$ 10 to 15 million 2.7x 4.8x Adj. net debt / EBITDAR 5.1x 5.2x 5.3x 5.6x 5.6x 7.1x Copa Azul Latam Aeromexico Gol Avianca Volaris Interjet Non-USD data converted to USD using an end of period exchange rate for the period Source: Airlines public information 23

24 Appendix

25 Fuel price protection Period Total % hedged (1) Avg. price (gal/usd$) Instrument 4Q17 57% $1.40 Asian Call 1Q18 60% $1.63 Asian Call 2Q18 60% $1.74 Asian Call 3Q18 56% $1.78 Asian Call 4Q18 43% $1.85 Asian Call (1) Approximate percentage of gallons hedged as of January 3 rd,

26 Consolidated statements of operations summary MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A (1) 3Q Q 2017 (2) (USD (USD millions) millions) % of total operating revenues Passenger 11,303 14,130 17, , Non-ticket 2,733 4,049 5, , Total operating revenues 14,037 18,180 23,512 1,138 6, Other operating income (22) (193) (497) (24) (8) - - Fuel 5,364 4,721 5, , Aircraft and engine rent expenses 2,535 3,525 5, , Landing, take off and navigation expenses 2,066 2,595 3, Salaries and benefits 1,577 1,903 2, Sales, marketing and distribution expenses 817 1,089 1, Maintenance expenses , Other operating expenses Depreciation and amortization Total operating expenses 13,833 15,669 20,773 1,005 5, EBIT 204 2,510 2, Operating margin (%) Finance income Finance cost (32) (22) (35) (2) (20) (1) - Exchange gain, net , Income tax expense (39) (1,038) (1,457) (71) (39) (2) (1) Net income 605 2,464 3, Net margin (%) EPS Basic and Diluted (Pesos) EPADS Basic and Diluted (Pesos) (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $ for convenience purposes only (2) 3Q 2017 figures converted to USD at September end of the period spot exchange rate $18.20 for convenience purposes only (3) Audited financial information 2014A 2016A 26

27 Consolidated statements of financial position summary MXN millions unless otherwise stated (5) 2014A 2015A (6) 2016A 2016A (1) 3Q Q 2017 (7) (USD millions) (USD millions) Cash and cash equivalents 2,265 5,157 7, , Current guarantee deposits , , Other current assets 879 1,193 3, , Total current assets 3,689 7,224 11, , Rotable spare parts, furniture and equipment, net 2,223 2,550 2, Non-current guarantee deposits 3,541 4,693 6, , Other non-current assets , Total assets 9,905 15,232 21,782 1,054 20,365 1,119 Unearned transportation revenue 1,421 1,957 2, , Short-term financial debt 823 1,371 1, , Other short-term liabilities 2,524 3,745 4, , Total short-term liabilities 4,768 7,073 7, , Long-term financial debt Other long-term liabilities 242 1,113 2, , Total liabilities 5,435 8,407 10, , Total equity 4,470 6,825 10, , Total liabilities and equity 9,905 15,232 21,782 1,054 20,365 1,119 Net debt (2) (1,017) (3,566) (5,077) (246) (2,982) (164) Adjusted debt (3) 18,990 26,268 41,125 1,990 44,762 2,459 Adjusted net debt (4) 16,725 21,111 34,053 1,648 39,389 2,164 (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.66 for convenience purposes only (2) Net debt = financial debt - cash and cash equivalents (3) Adjusted debt = (LTM aircraft rent expense x 7) + financial debt (4) Adjusted net debt = adjusted debt - cash and cash equivalents (5) Audited financial information 2014A 2016A (6) Certain amounts related to prepaid income tax and guarantee deposits, presented in the consolidated statement of financial position have been reclassified in 2015A, in order to be comparative with the classification between current and non-current assets presented during 2016A (7) 3Q 2017 figures converted to USD at September end of the period spot exchange rate $18.20 respectively, for convenience purposes only 27

28 Consolidated statements of cash flows summary MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A (1) 3Q Q 2017 (2) (USD (USD millions) millions) Cash flow from operating activities Income before income tax 644 3,502 4, Depreciation and amortization Guarantee deposits (695) (1,165) (1,957) (95) (303) (17) Unearned transportation revenue Changes in working capital and provisions 14 (261) (2,773) (134) (1,844) (100) Net cash flows provided (used in) by operating activities 334 3, (385) (21) Cash flow from investing activities Acquisitions of rotable spare parts, furniture, equipment and intangible assets (1,603) (1,456) (2,259) (109) (565) (31) Pre-delivery payments reimbursements , Proceeds from disposals of rotable spare parts, furniture and equipment Net cash flows used in by investing activities (1,185) (601) (28) (1) (565) (31) Cash flow from financing activities Treasury shares purchase (7) - (17) (1) - - Proceeds from exercised stock options Interest paid (23) (42) (39) (2) (23) (1) Other finance costs (11) (40) (138) (7) - - Payments of financial debt (400) (801) (1,531) (74) (207) (11) Proceeds from financial debt , Net cash flows provided by financing activities (Decrease) increase in cash and cash equivalents (326) 2, (681) (37) Net foreign exchange differences Cash and cash equivalents at beginning of period 2,451 2,265 5, , Cash and cash equivalents at end of period 2,265 5,157 7, , (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.66 for convenience purposes only (2) 3Q 2017 figures converted to USD at September end of the period spot exchange rate $18.20 for convenience purposes only (3) Audited financial information 2014A 2016A 28