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 May 2017

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 68 destinations throughout Mexico (40), USA (24) and Central America (4) Q CAGR 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% 20% 16% +9 pp. (1) Converted to USD at an average annual exchange rate Source: Company data 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 (1Q 2017, USD cents) (1) Cost structure In line with best-in-class ULCCs Economies of scale - Dilute fixed costs - High seat density Young and fuel efficient fleet - Sharklet rollout - Average age of 4.4 years (4) - Low fuel burn Productive network - Point-to-point - No connections complexity High aircraft utilization - On average 12.4 block hours a day during 1Q 2017 Latin American carriers US LCCs US network carriers (3) Continued cost improvement potential (1) Non-USD data converted to USD at an average exchange rate (2) Data as of FY 2016 (3) DCOMPS= Direct Competitors: Average CASM and CASM ex-fuel; US network carriers include: Delta, American Airlines, Alaska Airlines and United (4) As of March 31, 2017 Source: Company data, airlines public information 7

8 TRASM Volaris cost structure enables us to lower base fares and increase ancillaries CASM CASM CASM CASM CASM CASM CASM CASM CASM CASM Volaris TRASM is below most competitors CASM (1) TRASM and CASM (1Q 2017 USD cents) (2) Volaris resilient ULCC model Overlap:. Spirit Interjet Copa Allegiant Gol Aeromexico Latam Southwest US network (3) carriers 2 5 % Avianca (3) (3) (3) (3) (1) Based on CASM and TRASM among the publicly-traded airlines (2) Non-USD data converted to USD at an average exchange rate (3) Data as of FY 2016 (4) US network carriers direct competitors include: Delta, United, Alaska Airlines and American Airlines Source: Company data, airlines public information 8

9 Non-ticket revenues continue to grow, with upside potential Non-ticket revenue per passenger LTM Mar Volaris(MXN) per passenger CAGR: +21.9% x Best-in class ULCCs, including first bag fee (1) (1Q 2017, USD per passenger) (2) 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 (3) Volaris Wizz Allegiant Spirit Increasing non-ticket revenue allows to reduce fare further and stimulate demand (1) Mexican legislation does not allow to charge for the first bag, charging of the first bag in flights to the USA and Puerto Rico started March 1 st, (2) Converted to USD using an average exchange rate for the period (3) Data as of FY 2016 Source: Company data, airlines public information 9

10 Network enhancement: connecting the dots and diversifying further LTM March 2017 Volaris diversified its network by starting operations in 18 routes and 6 stations Volaris LTM March 2017 new routes New routes Domestic International Cancun Guadalajara 6 Mexico City 4 Other 2 4 Tijuana Costa Rica 1 1 Total 3 15 New stations USA Central America Austin San Salvador Seattle San Francisco Miami Milwaukee Note: Excludes routes and stations announced to start operations New International New Domestic New Volaris Costa Rica 10

11 supporting strong capacity growth 1Q 2017 capacity growth contribution (yoy) + Additional frequencies 8.9% + Joining existing airports 3.3% + New airports 3.6% + Volaris Costa Rica 1.0% = Total ASM growth 16.8% Our network is well positioned for diversified growth Source: Company data 11

12 Growth opportunities

13 In recent years, Mexico s volume growth has been robust despite challenging economic environment Mexico passenger market volume has increased since 2010 Passenger volume (millions) LTM Feb 2017 Domestic USA Other international Yoy growth 3.3% 4.0% 8.3% 8.3% 8.3% 12.3% 10.4% 10.3% GDP growth (2) 5.1% 4.0% 4.0% 1.4% 2.3% 2.6% 2.3% 1.5% GDP multiplier (1) Considers Volaris and VivaAerobus domestic market share 1Q17 (2) Values according to INEGI s new methodology (3) Yoy growth for LTM Feb 2016 vs. LTM Feb 2017 (4) 2017 GDP expectation from Banxico s March survey Source: DGAC-SCT; INEGI; Banco de México 67 CAGR: +8.6% (3) (4) Main industry growth drivers Strong demand and increasing middle class LCC gaining market through low fares - 43% LCC share (1) High improvement potential: - Domestic air trips per capita in Mexico 0.25 vs. Brazil x GDP multiplier in recent years 13

14 Volaris growth has surpassed market growth in both domestic and international markets Domestic passenger growth (%) 25.2% 23.0% 19.7% 24.8% 22.4% 10.3% 8.6% 7.9% 7.7% 13.0% 12.8% 12.9% LTM Feb 2017 Market Volaris International passenger growth (%) 23.4% 19.6% 33.3% 26.9% 24.6% 6.5% 8.1% 10.3% 8.8% 11.6% 8.0% 7.7% LTM Feb 2017 Market Volaris Source: DGAC, Company data 14

15 Volaris has been the leading engine of growth for VFR and leisure markets in Mexico, becoming the largest domestic airline 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 Los Cabos 10% 28% 5% 17% Culiacan 8% 23% Vallarta 11% 34% Monterrey 9% 38% Guadalajara 8% 19% Mexico City Market growth Volaris growth Cancun 13% 27% Fleet - Up-gauging: A320neo with 186 seats and A321 with 230 seats - Young and fuel efficient: average of 4.4 (1) years; new generation aircraft Productive network with high utilization - Around 20 new routes per year 11% 61% - Avg block hours/day in 1Q 2017 High and healthy load factors % in 1Q % domestic passengers market share as of Mar , Volaris was the source of 46% of the growth among Mexican carriers (1) Data as of March 2017 Note: Markets not mutually exclusive, contested domestic markets Source. Company data, airlines public information 15

16 Significant untapped opportunities Domestic growth potential of approx. 110 International growth potential of approx. 135 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 (3) In terms of air trips per capita Mexico has plenty potential to grow 2014 domestic air trips per capita (5) USA Chile Brazil Colombia Peru Mexico Argentina Costa Rica Paraguay (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 April 2017 (5) Data from ALTA Yearbook 2014 Source: Company data, SCT-DGAC and DIIO MI Market Intelligence for the Aviation Industry; ALTA 16

17 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 2,683 2,891 Trial Ticket giveaway #Nomáscamión First, economy and other Executive and luxury Domestic International Source: Company data, Secretaría de Comunicaciones y Transportes (SCT), Dec First sell Strong conversion rate ULCC model Attracting 1st time flyers 17

18 Volaris Costa Rican AOC provides growth potential in Central America Central America key insights The right market - Costa Rica is top three middle class growth of LATAM - Costa Rica GDP growth of 4.2% accumulated in Population of ~45M in Central America - VFR potential in the region and to the USA, Costa Rica is the country with the most immigrants as a % of its population - Bus switching potential The right moment - No ULCC presence in the region - Local competitors have 38% of capacity share while US carriers 46% - High average fare and yield environment The right ULCC model - Growth sustainable and proved model, easily translatable to Central America - Ancillary revenue potential - USD denominated revenue contributing to FX natural hedge Los Angeles Guadalajara San Antonio New routes Potential markets (1) Chicago Dallas Houston Mexico City San Jose, CR - Guatemala San Jose, CR - San Salvador San Jose, CR Managua Cancun Guatemala San Salvador Managua San José, CR Date Dec/16 Feb/17 Apr/17 Guayaquil Orlando Miami La Habana New York Medellin Bogota Quito Lima Cartagena Santo Domingo La Paz Puerto Rico (1) Subject to authorization from the corresponding authorities Source: World Bank, ALTA, MI-DIIO, CEPAL, Infare Volaris Central American operation full potential of aircraft 18

19 Drivers of continued profitable growth Uniquely positioned to capture growth in underpenetrated Mexican aviation market Grow ancillary revenue to world class ULCC benchmarks Up-gauge fleet from A319 to A320/A321 Price, product, presence Increase total revenues Reduce unit costs Neo incorporation - Fuel efficiency Expand network geographically Expand network Fleet growth 45 additional aircraft to be delivered Deepen footprint in markets with high demand stimulation Higher seat density configuration 19 Source: Company data

20 Fleet and financials

21 Volaris fleet plan supports its strategy to drive lower unit costs Contractual fleet obligations (number of aircraft) (1) E 2018E 2019E 2020E A319 A320 A320 w/sharklets A320 NEO w/sharklets A321 w/sharklets A321 NEO w/sharklets 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 Backlog of 45 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 May 1,

22 (MXN bn) High growth and solid financial performance Revenues Revenue CAGR % CAGR % % 16% LTM Mar % 10% 9% 4% 2% LTM March 2017 EBIT margin LTM March 2017 Adj. EBITDAR margin 12% 32% 32% 25% 25% 7% 6% 6% 6% 5% 22% 22% 20% 19% -1% -2% (1) Data for FY 2016 Source: Company data, airlines public information 22

23 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) 100% % 26% 27% 31% 33% 32% 75% 50% 76% 74% 73% 69% 67% 68% 25% 0% LTM Mar 2017 Domestic International 23

24 Strong balance sheet and liquidity, well funded for continued growth Liquidity-cash and equivalents as a % of LTM Op. Revenue Unrestricted cash of $6.8 billion pesos (US$ 364 million (1) ) as of March 31, % 29% 27% Net cash position of $4.8 billion pesos (US$ 255 million (1) ) as of March 31, Adjusted net debt to EBITDAR of 4.9x as of March 31, % 16% 12% 9% 7% Fully financed pre-delivery payments. 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 2.2x Adj. net debt/ebitdar 4.9x 5.3x 5.3x 5.7x 6.0x 7.2x 9.4x (1) Figures converted to USD at March 2016 end of the period spot exchange rate $18.81 for convenience purposes only (2) Data as of December 2016 Source: Company data, airlines public information 24

25 Appendix

26 Fuel price protection Period Total % hedged (1) Avg. price (gal/usd$) Instrument 2Q17 55% $1.61 Call 3Q17 55% $1.44 Call 4Q17 55% $1.40 Call 1Q18 50% $1.63 Call 2Q18 50% $1.74 Call 3Q18 35% $1.79 Call 4Q18 25% $1.89 Call (1) Approximate percentage of gallons hedged as of May 1,

27 Consolidated statements of operations summary MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A (1) 1Q Q 2017 (2) % of total operating revenues (USD millions) (USD millions) Passenger 11,303 14,130 17, , Non-ticket 2,733 4,049 5, , Total operating revenues 14,037 18,180 23,512 1,138 5, Other operating income (22) (193) (497) (24) (1) - - 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 6, EBIT 204 2,510 2, (772) (41) (13.7) Operating margin (%) (13.7) (13.7) Finance income Finance cost (32) (22) (35) (2) (21) (1) (0.4) Exchange gain (loss), net , (1,145) (61) (20.2) Income tax (expense) benefit (39) (1,038) (1,457) (71) Net income (loss) 605 2,464 3, (1,361) (72) (24.1) Net margin (%) (24.1) (24.1) Adjusted EBITDAR 3,081 6,492 8, , Adj. EBITDAR margin (%) EPS Basic and Diluted (Pesos) (1.34) (0.07) EPADS Basic and Diluted (Pesos) (13.45) (0.71) (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $ for convenience purposes only (2) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $ for convenience purposes only (3) Audited financial information 2014A 2016A Source: Company data 27

28 Consolidated statements of financial position summary MXN millions unless otherwise stated (5) 2014A 2015A (6) 2016A 2016A (1) 1Q 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 20,698 1,100 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 20,698 1,100 Net debt (2) (1,017) (3,566) (5,077) (246) (4,804) (255) Adjusted debt (3) 18,990 26,268 41,125 1,990 44,523 2,367 Adjusted net debt (4) 16,725 21,111 34,053 1,648 37,685 2,004 (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $ 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) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $ , respectively, for convenience purposes only Source: Company data 28

29 Consolidated statements of cash flows summary MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A (1) 1Q Q 2017 (2) (USD millions) (USD millions) Cash flow from operating activities Income (loss) before income tax 644 3,502 4, (1,916) (102) Depreciation and amortization Guarantee deposits (695) (1,165) (1,957) (95) Unearned transportation revenue Changes in working capital and provisions 14 (261) (2,773) (134) 1, Net cash flows provided by operating activities 334 3, Cash flow from investing activities Acquisitions of rotable spare parts, furniture, equipment and intangible assets (1,603) (1,456) (2,259) (109) (444) (24) Pre-delivery payments reimbursements , Proceeds from disposals of rotable spare parts, furniture and equipment Net cash flows used in investing activities (1,185) (601) (28) (1) (342) (18) Cash flow from financing activities Treasury shares purchase (7) - (17) (1) - - Proceeds from exercised stock options Interest paid (23) (42) (39) (2) (20) (1) Other finance costs (11) (40) (138) (7) - - Payments of financial debt (400) (801) (1,531) (74) (287) (15) Proceeds from financial debt , Net cash flows provided by financing activities (Decrease) increase in cash and cash equivalents (326) 2, Net foreign exchange differences (533) (28) 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 $ for convenience purposes only (2) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $ for convenience purposes only (3) Audited financial information 2014A 2016A Source: Company data 29

30 Adj. EBITDA and Adj. EBITDAR reconciliation MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A (1) 1Q Q 2017 (2) (USD millions) (USD millions) Net income (loss) 605 2,464 3, (1,361) (72) Plus (minus): Finance costs Finance income (23) (47) (103) (5) (21) (1) (Benefit)/provision for income taxes 39 1,038 1, (556) (30) Depreciation and amortization EBITDA 995 3,934 5, (1,789) (95) Exchange (gain) loss, net (449) (967) (2,170) (105) 1, Adjusted EBITDA 547 2,967 3, (644) (34) Aircraft and engine rent expense 2,535 3,525 5, , Adjusted EBITDAR 3,081 6,492 8, , (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $ for convenience purposes only (2) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $ for convenience purposes only (3) Audited financial information 2014A 2016A Source: Company data 30