Volaris: the leading ultra-low-cost airline serving Mexico, USA and Central America May 2017
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
Volaris: snapshot at 30,000 feet Serving 68 destinations throughout Mexico (40), USA (24) and Central America (4) 2008 2016 1Q17 2008-2016 CAGR Unit cost (CASM ex-fuel; 5.5 4.8 4.9-1.6% 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) 3.2 14.3 4.1 20.6% 21 69 68 16.0% 42 162 164 18.4% 3.5 15.0 4.0 20.0% 4.4 23.5 5.7 23.3% 0.7 8.9 1.1 37.4% 11% 20% 16% +9 pp. (1) Converted to USD at an average annual exchange rate Source: Company data 3
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
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
Accomplishments
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 6.9 2.0 4.9 13.2 2.7 10.5 10.7 2.5 8.2 In line with best-in-class ULCCs 9.6 2.6 7.0 9.1 2.7 2.4 8.8 8.6 2.6 6.4 6.4 6.0 5.9 1.8 4.1 11.5 2.5 9.0 9.0 2.5 6.5 7.7 2.0 5.7 13.0 2.1 10.9 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
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 13.0 13.2 7.7 8.6 8.8 9.0 9.1 9.6 10.7 11.5 6.1 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
Non-ticket revenues continue to grow, with upside potential Non-ticket revenue per passenger 142 204 211 279 338 381 391 2011 2012 2013 2014 2015 2016 LTM Mar 2017 20 Volaris(MXN) per passenger CAGR: +21.9% 30 2.7x Best-in class ULCCs, including first bag fee (1) (1Q 2017, USD per passenger) (2) 51 52 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, 2017. (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
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
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
Growth opportunities
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) 50 52 8 18 24 2010 2011 2012 2013 2014 2015 2016 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 0.6 1.0 2.1 6.1 3.7 4.7 4.5 6.9 (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% 57 61 75 82 84 13 28 43 (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 0.45 3-5x GDP multiplier in recent years 13
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% 2012 2013 2014 2015 2016 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% 2012 2013 2014 2015 2016 LTM Feb 2017 Market Volaris Source: DGAC, Company data 14
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 (2010-2016) 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. 12.4 block hours/day in 1Q 2017 High and healthy load factors - 83.2% in 1Q 2017 28% domestic passengers market share as of Mar. 2017 2016, 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
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) 50 100 40 75 30 20 10 50 25 0 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) 2.05 0.55 0.45 0.42 0.27 0.25 0.21 0.04 0.01 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
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 82 55 40 74 80 29 28 33 42 2012 2016 2012 2016 First, economy and other Executive and luxury Domestic International Source: Company data, Secretaría de Comunicaciones y Transportes (SCT), Dec. 2016 First sell Strong conversion rate ULCC model Attracting 1st time flyers 17
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 2016 - 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 18-22 aircraft 18
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
Fleet and financials
Volaris fleet plan supports its strategy to drive lower unit costs Contractual fleet obligations (number of aircraft) (1) 98 88 6 10 0 79 6 73 10 69 6 10 1 10 10 40 1 7 15 28 28 28 28 28 15 15 28 15 12 15 13 12 5 3 2 2016 2017E 2018E 2019E 2020E A319 A320 A320 w/sharklets A320 NEO w/sharklets A321 w/sharklets A321 NEO w/sharklets A321 (CEO and NEO) - 230 seats (up-gauge) - ~10% CASM dilution (2) A320 NEO - Combined fuel consumption reduction by approx. 15-16% 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, 2017 21
(MXN bn) High growth and solid financial performance Revenues Revenue CAGR 2011-2016 25 21.5% CAGR 23.5 24.0 22% 18.2 17% 16% 15 5 8.9 11.7 13.0 14.0 2011 2012 2013 2014 2015 2016 LTM Mar 2017 11% 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
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% 11.7 13.0 14.0 18.2 23.5 24.0 24% 26% 27% 31% 33% 32% 75% 50% 76% 74% 73% 69% 67% 68% 25% 0% 2012 2013 2014 2015 2016 LTM Mar 2017 Domestic International 23
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, 2017. 37% 29% 27% Net cash position of $4.8 billion pesos (US$ 255 million (1) ) as of March 31, 2017. Adjusted net debt to EBITDAR of 4.9x as of March 31, 2017. 16% 16% 12% 9% 7% Fully financed pre-delivery payments. Expected 2017 net CAPEX (US$ 120 to - 140 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 $18.81 for convenience purposes only (2) Data as of December 2016 Source: Company data, airlines public information 24
Appendix
Fuel price protection Period Total % hedged (1) Avg. price (gal/usd$) 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, 2017 26
Consolidated statements of operations summary MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A (1) 1Q 2017 1Q 2017 (2) % of total operating revenues (USD millions) (USD millions) Passenger 11,303 14,130 17,790 861 4,025 214 71.2 Non-ticket 2,733 4,049 5,722 277 1,631 87 28.8 Total operating revenues 14,037 18,180 23,512 1,138 5,656 301 100 Other operating income (22) (193) (497) (24) (1) - - Fuel 5,364 4,721 5,741 278 1,892 101 33.5 Aircraft and engine rent expenses 2,535 3,525 5,590 271 1,699 90 30.0 Landing, take off and navigation expenses 2,066 2,595 3,272 158 1,035 55 18.3 Salaries and benefits 1,577 1,903 2,420 117 696 37 12.3 Sales, marketing and distribution expenses 817 1,089 1,413 68 358 19 6.3 Maintenance expenses 665 875 1,344 65 351 19 6.2 Other operating expenses 490 698 952 46 269 14 4.8 Depreciation and amortization 343 457 537 26 128 7 2.3 Total operating expenses 13,833 15,669 20,773 1,005 6,428 342 113.7 6 EBIT 204 2,510 2,740 133 (772) (41) (13.7) Operating margin (%) 1.5 13.8 11.7 11.7 (13.7) (13.7) Finance income 23 47 103 5 21 1 0.4 Finance cost (32) (22) (35) (2) (21) (1) (0.4) Exchange gain (loss), net 449 967 2,170 105 (1,145) (61) (20.2) Income tax (expense) benefit (39) (1,038) (1,457) (71) 556 30 9.8 Net income (loss) 605 2,464 3,519 170 (1,361) (72) (24.1) Net margin (%) 4.3 13.6 15.0 15.0 (24.1) (24.1) Adjusted EBITDAR 3,081 6,492 8,866 429 1,055 56 18.7 Adj. EBITDAR margin (%) 22.0 35.7 37.7 37.7 18.7 18.7 EPS Basic and Diluted (Pesos) 0.60 2.43 3.48 0.17 (1.34) (0.07) EPADS Basic and Diluted (Pesos) 5.98 24.35 34.78 1.68 (13.45) (0.71) (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.6640 for convenience purposes only (2) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $18.8092 for convenience purposes only (3) Audited financial information 2014A 2016A Source: Company data 27
Consolidated statements of financial position summary MXN millions unless otherwise stated (5) 2014A 2015A (6) 2016A 2016A (1) 1Q 2017 1Q 2017 (7) (USD millions) (USD millions) Cash and cash equivalents 2,265 5,157 7,071 342 6,839 364 Current guarantee deposits 545 873 1,167 56 1,067 57 Other current assets 879 1,193 3,313 160 3,039 162 Total current assets 3,689 7,224 11,551 559 10,945 582 Rotable spare parts, furniture and equipment, net 2,223 2,550 2,525 122 2,751 146 Non-current guarantee deposits 3,541 4,693 6,560 317 5,992 319 Other non-current assets 452 765 1,146 55 1,011 54 Total assets 9,905 15,232 21,782 1,054 20,698 1,100 Unearned transportation revenue 1,421 1,957 2,154 104 2,987 159 Short-term financial debt 823 1,371 1,051 51 1,150 61 Other short-term liabilities 2,524 3,745 4,683 227 4,938 263 Total short-term liabilities 4,768 7,073 7,888 382 9,075 482 Long-term financial debt 425 220 943 46 885 47 Other long-term liabilities 242 1,113 2,157 104 1,516 81 Total liabilities 5,435 8,407 10,988 532 11,476 610 Total equity 4,470 6,825 10,794 522 9,222 490 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 $20.6640 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 $18.8092, respectively, for convenience purposes only Source: Company data 28
Consolidated statements of cash flows summary MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A (1) 1Q 2017 1Q 2017 (2) (USD millions) (USD millions) Cash flow from operating activities Income (loss) before income tax 644 3,502 4,977 241 (1,916) (102) Depreciation and amortization 343 457 537 26 128 7 Guarantee deposits (695) (1,165) (1,957) (95) 380 20 Unearned transportation revenue 27 536 196 10 834 44 Changes in working capital and provisions 14 (261) (2,773) (134) 1,043 56 Net cash flows provided by operating activities 334 3,070 979 47 469 25 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 396 670 1,733 84 - - Proceeds from disposals of rotable spare parts, furniture and equipment 22 185 498 24 101 5 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 - 23 20 1 - - 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 966 925 1,716 83 481 26 Net cash flows provided by financing activities 525 65 11 1 174 9 (Decrease) increase in cash and cash equivalents (326) 2,533 962 47 300 16 Net foreign exchange differences 141 359 952 46 (533) (28) Cash and cash equivalents at beginning of period 2,451 2,265 5,157 250 7,071 376 Cash and cash equivalents at end of period 2,265 5,157 7,071 342 6,839 364 (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.6640 for convenience purposes only (2) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $18.8092 for convenience purposes only (3) Audited financial information 2014A 2016A Source: Company data 29
Adj. EBITDA and Adj. EBITDAR reconciliation MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A (1) 1Q 2017 1Q 2017 (2) (USD millions) (USD millions) Net income (loss) 605 2,464 3,519 170 (1,361) (72) Plus (minus): Finance costs 32 22 35 2 21 1 Finance income (23) (47) (103) (5) (21) (1) (Benefit)/provision for income taxes 39 1,038 1,457 71 (556) (30) Depreciation and amortization 343 457 537 26 128 7 EBITDA 995 3,934 5,446 264 (1,789) (95) Exchange (gain) loss, net (449) (967) (2,170) (105) 1,145 61 Adjusted EBITDA 547 2,967 3,276 159 (644) (34) Aircraft and engine rent expense 2,535 3,525 5,590 271 1,699 90 Adjusted EBITDAR 3,081 6,492 8,866 429 1,055 56 (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.6640 for convenience purposes only (2) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $18.8092 for convenience purposes only (3) Audited financial information 2014A 2016A Source: Company data 30