Volaris: the leading ultra-low-cost airline serving Mexico, USA and Central America January 2018
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 69 destinations throughout Mexico (40), USA (25) and Central America (4) 2008 2016 Sep 17 LTM CAGR (08-16) Unit cost (CASM exfuel; cents, 5.5 4.8 4.9-1.6% 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) 3.2 14.3 15.6 20.6% 21 69 67 16.0% 42 162 164 18.4% 3.5 15.0 16.2 20.0% 4.4 23.5 24.7 23.3% 0.7 8.9 7.0 37.4% 11% 20% 14% +9 pp. (1) Converted to USD at an average period exchange rate 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 (LTM September 2017, USD cents) In line with best-in-class ULCCs Cost structure Economies of scale - Dilute fixed costs - High seat density 6.9 2.0 13.6 13.0 3.5 2.9 11.1 10.3 10.2 2.6 3.0 2.5 10.1 10.1 8.4 8.8 7.3 7.7 8.1 6.6 6.4 6.5 5.7 9.1 8.8 2.5 2.4 11.4 10.5 2.5 2.3 9.0 2.5 7.7 7.4 2.0 2.7 5.7 5.5 1.6 1.7 13.2 2.5 10.7 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 4.9 4.7 4.0 3.8 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
Non-ticket revenues continue to grow, with upside potential Non-ticket revenue per passenger 142 Volaris (MXN) per passenger 2011-2016 CAGR: + 21.9% 204 211 279 338 381 424 2011 2012 2013 2014 2015 2016 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
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
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
Growth opportunities
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) 52 8 2011-2017 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 1.0 2.1 6.1 3.7 4.7 4.5 6.4 (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 61 10 66 11 19 19 21 23 25 28 30 33 37 42 45 2011 2012 2013 2014 2015 2016 2017 75 12 26 Domestic USA Other international 82 13 27 90 15 29 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 0.66 3x GDP multiplier in recent years 12
Volaris growth has surpassed market growth in both domestic and international markets Domestic passenger growth (%) International passenger growth (%) Source: DGAC 13
Volaris has been the engine of growth for VFR and leisure markets in Mexico 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 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 2017 11% 61% High and healthy load factors - 85% in LTM Sep 2017 27% domestic passengers market share as of LTM Sep. 2017 2016, 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
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) 50 100 40 30 20 10 75 50 25 0 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) 2.23 0.61 0.43 0.36 0.34 0.33 0.25 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
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 74 80 2012 2016 82 55 40 29 28 33 42 2012 2016 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
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 18-22 aircraft 17
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
Fleet and financials
Volaris fleet plan supports its strategy to drive lower unit costs Contractual fleet obligations (number of aircraft) (1) 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 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, 2018 20
(MXN bn) (MXN bn) High growth and solid financial performance Revenues Adj. EBITDAR 30 2011-2016 CAGR: +21.5% 18.2 23.5 24.7 10 2011-2016 CAGR: +48.3% 6.5 8.9 7.0 15 8.9 11.7 13.0 14.0 5 1.2 2.5 2.8 3.1 0 2011 2012 2013 2014 2015 2016 LTM Sep 2017 0 2011 2012 2013 2014 2015 2016 LTM Sep 2017 Revenue CAGR 2011-2016 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
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) 11.7 13.0 14.0 18.2 23.5 18.2 24% 26% 27% 31% 33% 28% 76% 74% 73% 69% 67% 72% 2012 2013 2014 2015 2016 YTD Sep 2017 Domestic International 22
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, 2017. 22% Net cash position of $3.0 billion pesos (US$ 164 million) as of Sep 30, 2017. 12% 10% 9% 9% Adjusted net debt to EBITDAR of 5.6x as of Sep 30, 2017. 7% 7% 6% Fully financed pre-delivery payments. Volaris Avianca Copa Latam Aeromexico Interjet Azul Gol 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 2.7x 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
Appendix
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, 2017 25
Consolidated statements of operations summary MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A (1) 3Q 2017 3Q 2017 (2) (USD (USD millions) millions) % of total operating revenues Passenger 11,303 14,130 17,790 861 4,773 262 73 Non-ticket 2,733 4,049 5,722 277 1,809 99 27 Total operating revenues 14,037 18,180 23,512 1,138 6,582 362 100 Other operating income (22) (193) (497) (24) (8) - - Fuel 5,364 4,721 5,741 278 1,698 93 26 Aircraft and engine rent expenses 2,535 3,525 5,590 271 1,384 76 21 Landing, take off and navigation expenses 2,066 2,595 3,272 158 989 54 15 Salaries and benefits 1,577 1,903 2,420 117 695 38 11 Sales, marketing and distribution expenses 817 1,089 1,413 68 468 26 7 Maintenance expenses 665 875 1,344 65 324 18 5 Other operating expenses 490 698 952 46 249 14 4 Depreciation and amortization 343 457 537 26 150 8 2 Total operating expenses 13,833 15,669 20,773 1,005 5,948 327 90 6 EBIT 204 2,510 2,740 133 634 35 10 Operating margin (%) 1.5 13.8 11.7 11.7 9.6 9.6 Finance income 23 47 103 5 30 2 - Finance cost (32) (22) (35) (2) (20) (1) - Exchange gain, net 449 967 2,170 105 125 7 2 Income tax expense (39) (1,038) (1,457) (71) (39) (2) (1) Net income 605 2,464 3,519 170 731 40 11 Net margin (%) 4.3 13.6 15.0 15.0 11.1 11.1 EPS Basic and Diluted (Pesos) 0.60 2.43 3.48 0.17 0.72 0.04 EPADS Basic and Diluted (Pesos) 5.98 24.35 34.78 1.68 7.22 0.40 (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.6640 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
Consolidated statements of financial position summary MXN millions unless otherwise stated (5) 2014A 2015A (6) 2016A 2016A (1) 3Q 2017 3Q 2017 (7) (USD millions) (USD millions) Cash and cash equivalents 2,265 5,157 7,071 342 5,373 295 Current guarantee deposits 545 873 1,167 56 1,303 72 Other current assets 879 1,193 3,313 160 4,542 178 Total current assets 3,689 7,224 11,551 559 9,915 545 Rotable spare parts, furniture and equipment, net 2,223 2,550 2,525 122 3.548 195 Non-current guarantee deposits 3,541 4,693 6,560 317 5,941 326 Other non-current assets 452 765 1,146 55 961 598 Total assets 9,905 15,232 21,782 1,054 20,365 1,119 Unearned transportation revenue 1,421 1,957 2,154 104 2,453 135 Short-term financial debt 823 1,371 1,051 51 1,491 82 Other short-term liabilities 2,524 3,745 4,683 227 4,354 239 Total short-term liabilities 4,768 7,073 7,888 382 8,298 456 Long-term financial debt 425 220 943 46 900 49 Other long-term liabilities 242 1,113 2,157 104 1,665 92 Total liabilities 5,435 8,407 10,988 532 10,863 597 Total equity 4,470 6,825 10,794 522 9,502 522 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
Consolidated statements of cash flows summary MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A (1) 3Q 2017 3Q 2017 (2) (USD (USD millions) millions) Cash flow from operating activities Income before income tax 644 3,502 4,977 241 769 42 Depreciation and amortization 343 457 537 26 150 8 Guarantee deposits (695) (1,165) (1,957) (95) (303) (17) Unearned transportation revenue 27 536 196 10 843 46 Changes in working capital and provisions 14 (261) (2,773) (134) (1,844) (100) Net cash flows provided (used in) by operating activities 334 3,070 979 47 (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 396 670 1,733 84 - - Proceeds from disposals of rotable spare parts, furniture and equipment 22 185 498 24 - - 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 - 23 20 1 1 - 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 966 925 1,716 83 497 27 Net cash flows provided by financing activities 525 65 11 1 268 15 (Decrease) increase in cash and cash equivalents (326) 2,533 962 47 (681) (37) Net foreign exchange differences 141 359 952 46 73 4 Cash and cash equivalents at beginning of period 2,451 2,265 5,157 250 5,981 329 Cash and cash equivalents at end of period 2,265 5,157 7,071 342 5,373 295 (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