Volaris: the leading ULCC airline serving Mexico, USA and Central America. March 2018

Transcription

1 Volaris: the leading ULCC airline serving Mexico, USA and Central America March

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) CAGR (08-17) Unit cost (CASM ex-fuel; 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 (pretax) % % 11% 12.6% +1.6 pp. (1) Converted to USD at an average period exchange rate 3

4 Volaris flight path for demand stimulation and continued growth 4

5 Volaris consistent execution of its ULCC business model well positioned for growth Accomplishments Strong penetration of Mexican air travel market Diversified and resilient point-to-point network Bus to air substitution Opportunities Attractive emerging air travel market in Mexico Continue geographic diversification through international growth and Codeshare (1) 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 (1) On January 16, 2018; Volaris and Frontier Airlines executed a Codeshare agreement, and is undergoing regulatory approvals 5

6 Accomplishments 6

7 Volaris has a best-in-class unit cost structure Long-term unit cost advantage CASM and CASM ex-fuel (4Q 2017 (1), 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 roll-out - Average age of 4.6 years - NEO Engines rollout - Lower fuel burn Productive network - Point-to-point - No connections complexity High aircraft utilization - FY 2017 average 12.6 block hours per day Latin American carriers US LCCs WW LCCs US network carriers CASM ex-fuel CASM Continued cost improvement potential (1) DCOMPS public information for 4Q 2017, except Latam and AirAsia which public information is as of 3Q 2017 (2) 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 Best-in class ULCCs, including first bag fee (FY 2017, as % of total operating revenue) (1) 28% CAGR: % 41% % 48% 429 Apply revenue management techniques - Pricing by route, season, day - Fully dynamic pricing for some products Add products Ancillaries - 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 Costa Rican AOC Non-ticket revenue per Volaris Wizz Allegiant Spirit pax (USD) $22 $26 $56 $53 (1) Converted to USD using an average exchange rate for the period Source: Airlines public information Increasing non-ticket revenue allows to reduce fare further and stimulate demand 8

9 Network enhancement: connecting the dots and diversifying further FY 2017 Volaris diversified its network by starting operations in 31 routes and 5 stations New routes Domestic International Guadalajara 3 2 Mexico City - 4 Costa Rica - 3 Tijuana - 2 Los Angeles - 4 Monterrey 3 - Other 1 9 Total 7 24 New stations DOM USA Central America Cozumel Miami San Salvador Milwaukee Managua Codeshare agreement between Volaris and Frontier New access to cities in the U.S. offering customers the ability to purchase the lowest fares across an extensive and well-served network. New International New Domestic New Volaris Costa Rica Note: Excludes routes and stations announced to start operations 9

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 11

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% Best-in class ULCCs, including first bag fee (FY 2017, as % of total operating revenue) (1) 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 0.37 vs. Chile 0.7 Domestic USA Other international Yoy growth 4.0% 8.3% 8.3% 8.3% 12.3% 10.4% 8.8% GDP growth (2) 4.0% 4.0% 1.4% 2.3% 2.6% 2.3% 2.1% GDP multiplier x GDP multiplier in recent years (1) Considers Volaris and VivaAerobus domestic market share 2017 (2) Values according to INEGI s new methodology Source: DGAC-SCT, INEGI and Banco de México 12

13 Volaris growth has surpassed market growth in both domestic and international markets Domestic passenger growth (%) 25.2% 23.0% 19.7% 24.8% 10.3% 8.6% 7.9% 7.7% 13.0% 12.8% 8.0% 8.7% Market Volaris International passenger growth (%) 33.3% 23.4% 19.6% 26.9% 6.5% 10.3% 8.1% 8.8% 11.6% 8.0% 11.0% 12.4% Source: DGAC Market Volaris 13

14 Volaris has been the engine of growth for VFR and leisure markets in Mexico Tijuana Segment passenger CAGR Volaris vs. market ( ) Volaris main growth drivers 10% 12% Hermosillo 5% 17% Los Cabos Culiacan 10% 28% 8% 23% Vallarta 11% 34% Monterrey 9% 38% Guadalajara 19% 8% 19% Mexico City 11% 61% Market growth Volaris growth Cancun 13% 27% Low costs allow Volaris to offer lower fares and make flying possible Fleet - Up-gauging: A320neo with 186 seats and A321 with 230 seats - Young and fuel efficient: average of 4.6 (1) years; new generation aircraft Productive network with high utilization - Around 20 new routes per year - Avg. 13 block hours/day in 4Q 2017 High and healthy load factors 84.4%% in % domestic passengers market share during , Volaris was the source of 26% of the growth among Mexican carriers (1) Data as of December 2017 Note: Markets not mutually exclusive, contested domestic markets 14

15 Significant untapped opportunities 50 Domestic growth potential of approx. 105 routes International growth potential of approx. 124 routes (3) Number of routes (1) Number of routes (2) USA (VFR) USA (Leisure) CAM, SAM, Canada, Caribbean In terms of air trips per capita Mexico has plenty potential to grow 2016 air trips per capita (domestic) (5) M potential additional passengers at Chile s level United States Chile Brazil Colombia Peru Mexico 65% growth (1) Minimum stage length of 170 miles (2) Minimum stage length of 400 miles; CAM stands for Central America; SAM stands for South America (3) Growth potentital figures calculated as of March 2017 Note: 46% of domestic market growth attributable to Volaris from Source: DGAC and World Bank 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 2,729 3,004 Mass media campaigns Tarifa no + camion positioning Digital capabilities 2,655 2,922 Trial Ticket giveaway #Nomáscamión First, economy and other Executive and luxury Domestic International First sell Strong conversion rate ULCC model Attracting 1st time flyers (1) Source: Secretaría de Comunicaciones y Transportes (SCT),

17 Volaris Costa Rican AOC provides growth potential in Central America and to the U.S. Central America key insights Potential markets (2) Volaris Obtains Foreign Air Carrier Permit in the U.S. for its Costa Rican Operations Through OD flights: -Los Angeles International Airport - El Salvador International Airport (SJO-SAL-LAX) New York -La Aurora International Airport Los Angeles International Airport (SJO-GUA-LAX) -John F. Kennedy International Airport - El Salvador International Airport (SJO-SAL-JFK) - Washington Dulles International Airport - El Salvador International Airport (SJO-SAL-IAD) The right market - Costa Rica is top three middle class growth of LATAM (GDP growth of 4.6% in 2017) - VFR potential in the region and to the USA The right moment - No ULCC presence in the region The right ULCC model - Growth sustainable and proved model, easily translatable to Central America - USD denominated revenue contributing to FX natural hedge 486K total passengers since the beginning of operations in CAM; however represents 2% of total ASMS Source: World Bank, ALTA, MI-DIIO, CEPAL Infare, Banco Central de Costa Rica. 17

18 Codeshare Agreement between two Ultra Low Cost Carriers: Frontier and Volaris First codeshare between two Ultra Low Cost Carriers Volaris and Frontier s networks Frontier business model is aligned to Volaris ULCC model Volaris operates in 20 out of 63 Frontier s airports Benefits Grow and enhance our network to offer a greater public benefit, the lowest prices between Mexico and USA Strong connectivity potential: ~20 destinations and ~80 new beyond routes *Subject to authorization from the corresponding authorities 18

19 Fleet and financials 19

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 year deliveries Backlog of 120 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) 40 commitments + 80 follow-on order aircraft; out until

21 High growth and solid financial performance Revenues Adj. EBITDAR CAGR: +18.7% CAGR: +32.3% 8.9 (MXN bn) (MXN bn) Revenue CAGR Adj. EBITDAR margin Source: Airlines public information for Full year 2017, except Latam, AirAsia; which public information is LTM as of September

22 Strong balance sheet and liquidity, well funded for continued growth Liquidity-cash and equivalents as a % of 2017 Op. Revenue Unrestricted cash of $6.9 billion pesos (US$ 352 million) as of Dec 31, Net cash position of $3.5 billion pesos (US$ 175 million) as of Dec 31, Adjusted net debt to EBITDAR of 4.8x (1) as of Dec 31, Fully financed pre-delivery payments for deliveries up to Adj. net debt / EBITDAR Expected 2018 net CAPEX (US $80 to $110 million): PDPs: from US $20 to $30 million, net of PDP reimbursements (includes 4 A/c deliveries) Major maintenance: from US $50 to $60 million Other: from US $10 to$ 20 million 1.6x 4.8x (1) 5.1x 5.2x 5.2x 5.9x 6.7x 7.3x Copa Volaris Latam Gol Aeromexico Avianca Gol Azul Interjet (1) Excluding supplemental and contingent rent for adjusted debt *Non-USD data converted to USD using an end of period exchange rate for the period Source: Airlines public information public information for 4Q 2017, except Latam and AirAsia which public information is as of 3Q

23 Appendix 23

24 Fuel price protection Period Total % hedged (1) Avg. price (gal/usd$) Instrument 1Q18 60% $1.63 Asian Call 2Q18 60% $1.74 Asian Call 3Q18 55% $1.78 Asian Call 4Q18 45% $1.85 Asian Call (1) Approximate percentage of gallons hedged 24

25 Consolidated statements of operations summary MXN millions unless otherwise stated (3) 2016A (1) (2) 4Q Q Q 2017 (USD millions) (USD millions) (USD millions) (USD millions) % of total operating revenues Passenger , , Non-ticket 277 7, , Total operating revenues 1,138 24,845 1, , Other operating income (24) (97) (5) (6) (78) (4) (1.2) Fuel 278 7, , Aircraft and engine rent expenses 271 6, , Landing, take off and navigation expenses 158 4, Salaries and benefits 117 2, Sales, marketing and distribution expenses 68 1, Maintenance expenses 65 1, Other operating expenses 46 1, Depreciation and amortization Total operating expenses 1,005 24,827 1, , EBIT Operating margin (%) Finance income Finance cost (2) (86) (4) (1) (24) (1) (0.4) Exchange gain/ (loss), net 105 (794) (40) Income tax expense (71) (18) (356) (18) (5.4) Net income 170 (595) (30) Net margin (%) 15.0 (2.4) (2.4) EPS Basic and Diluted (Pesos) 0.17 (0.59) (0.030) EPADS Basic and Diluted (Pesos) 1.68 (5.88) (0.30) (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.66 for convenience purposes only (2) 2017 figures converted to USD at December end of the period spot exchange rate $19.74 for convenience purposes only (3) Audited financial information 2014A 2016A 25

26 Consolidated statements of financial position summary MXN millions unless otherwise stated (5) 2014A 2015A (6) 2016A 2016A (1) (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 22,666 1,149 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 22,666 1,149 Net debt (2) (1,017) (3,566) (5,077) (246) (3,468) (175) Adjusted debt (3) 18,990 26,268 41,125 1,994 45,994 2,074 Adjusted net debt (4) 16,725 21,111 34,053 1,652 39,043 1,722 (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 26 (7) 2017 figures converted to USD at December end of the period spot exchange rate $19.74 respectively, for convenience purposes only

27 Consolidated statements of cash flows summary MXN millions unless otherwise stated (3) 2016A (1) (2) 4Q Q Q 2017 (2) (USD (USD (USD (USD millions) millions) millions) millions) Cash flow from operating activities Income before income tax 241 (756) (38) Depreciation and amortization Guarantee deposits (95) 57 3 (47) (230) (12) Unearned transportation revenue (11) (292) (15) Changes in working capital and provisions (134) 1, (39) Net cash flows provided (used in) by operating activities (25) 1, Cash flow from investing activities Acquisitions of rotable spare parts, furniture, equipment and intangible assets (109) (2,653) (134) (72) (1,143) (58) Pre-delivery payments reimbursements Proceeds from disposals of rotable spare parts, furniture and equipment Net cash flows used in by investing activities (1) (2,260) (115) (25) (852) (43) Cash flow from financing activities Treasury shares purchase (1) (10) (1) - (10) (1) Proceeds from exercised stock options Interest paid (2) (105) (5) - (39) (2) Other finance costs (7) - - (7) - - Payments of financial debt (74) (925) (47) (20) (225) (11) Proceeds from financial debt 83 2, , Net cash flows provided by financing activities 1 1, (Decrease) increase in cash and cash equivalents (13) 1, Net foreign exchange differences 46 (244) (12) Cash and cash equivalents at beginning of period 250 7, , Cash and cash equivalents at end of period 342 6, , (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.66 for convenience purposes only (2) 2017 figures converted to USD at December end of the period spot exchange rate $19.74 for convenience purposes only (3) Audited financial information 2014A 2016A 27