Volaris The Leading Ultra-Low-Cost Airline Serving Mexico and the US Deutsche Bank - Global Emerging Markets One-on-One Conference September 2014
Jun 14, 2015
Volaris The Leading Ultra-Low-Cost Airline Serving Mexico
and the US
Deutsche Bank - Global Emerging Markets One-on-One Conference
September 2014
Disclaimer
2
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. 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 or 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.
Second quarter 2014 highlights and recent developments
3
Strong balance sheet: Cash of 16% of LTM revenues and net debt
negative of Ps.1.3 billion
Rational capacity management in domestic market and redeployment
to international market: Domestic and international capacity grew 12%
and 25% y-o-y, respectively, and network diversification
Cost control: CASM ex. fuel in 2Q14 decreased 2% y-o-y to Ps.70.4 cents
(US$5.4 cents), lowest in the Americas
Unit revenue improvement: Q-o-q TRASM improved 12% as a result of a
sequential monthly improvement average base fare and non-ticket revenue
per passenger growth
Non-ticket revenues growth: Non-ticket revenues excluding cargo per
passenger increased 46% y-o-y. Our unbundle strategy continued to unfold
during the quarter, as the new baggage policy has gained more acceptance
Sacramento San Francisco/Oakland
Los Angeles
San Diego
Tijuana
San Jose
Fresno
Mexicali
Las Vegas
Chicago/Midway/O’Hare
Denver
Orlando Hermosillo
Chihuahua
Monterrey
Cancún
La Paz
Los Cabos
Los Mochis
Culiacán
Mérida
Tuxtla Gutiérrez Acapulco
Puebla Toluca
Tepic
Zacatecas
Mazatlán
Guadalajara
Aguascalientes
Puerto Vallarta
Uruapan
Colima
Morelia
Oaxaca
León
Querétaro
Cd. de México/D.F.
Ciudad Juárez
Volaris – The Leading Ultra-Low-Cost Airline in Mexico
Notes:
(1) Based on CASM among the publicly-traded airlines
(2) Converted at average annual MXN/USD spot exchange rate
(3) Corresponds to the number of booked passengers
(4) Based on number of passengers
(5) Figures for international and domestic revenue calculated as of July YTD 2014.
Source: Company data, SCT-DGAC
Lowest unit cost carrier in the Americas(1)
2008 2013 CAGR
Unit cost
(CASM ex-fuel;
cents, USD)(2)
5.5 5.5 0.0%
Passenger
demand
(RPMs, bn)
3.2 9.0 +23.0%
Aircraft
(End of Period) 21 44 +15.9%
Passengers
(mm)(3) 3.5 8.9 +20.5%
Operating revenue
(mm, USD)(2) 397 1,018 +20.7%
Adj. EBITDAR
(mm. USD)(2) 67 220 +26.8%
Adj. ROIC (pre-
tax) 11.0% 15.1% +4.1pp
Volaris’ destinations
4
Phoenix
San Luis Potosí
Ciudad Obregón
Veracruz
San Antonio
Ontario
Villahermosa
Tampico
Portland
Domestic market share (4)
Intl. Op.
Revenue(5)
27%
Tapachula Huatulco
12.2% 20.7% 22.7% 23.5%
2008 2012 2013 Jul YTD 2014
Dom. Op.
Revenue(5)
73%
Volaris’ low base fares stimulate demand and drive
continuing growth
Stimulation
of
demand
More
ancillary
revenue
More capacity
Lower base
fares
Resilient ULCC business
model driving high,
profitable growth Lower cost
Since its launch, Volaris has stimulated new demand in the Mexican market through an aggressive
revenue management strategy that drives lower fares and higher load factors
5
Notes;
(1) MXN amounts were converted to USD at the avg. rate of MXN/USD 13.00 as of 2Q14
(2) Ancillary revenues exclude charter and cargo revenues
(3) Estimated information as of June 2014. Narrow body aircraft only.
Source: Company data, data airlines public information, DGAC reports, MI DIIO
Volaris’ ULCC business model is clearly differentiated from legacies,
hybrids and other LCCs
Aeromexico Interjet VivaAerobus Volaris
2Q ‘14 2Q ‘14 2Q ‘14 2Q ‘14
CASM 2Q14
(cents, USD)(1) 14.09 13.67 - 8.96
Low ticket prices 2Q14 ≈
Average Fare (USD)(1) 165.9 106.5 - 85.1
High ancillaries revenue
Ancillaries rev. per pax (USD)(1)(2) 6.2 5.8 - 19.3
Modern fleet ≈
Average age fleet (years) 9.8 6.0 20.6 4.1
High daily utilization
Block hours per day(3) 11.8 8.7 8.5 11.9
Other (e.g. no GDS) ≈
Legacy > LCC/Hybrid > ULCC
6
5.4
9.8 9.1
8.0 8.1 6.6
5.7 6.0
9.5
3.5
5.2
4.9 5.6
4.7
4.1 4.6 3.9
4.7
LatAm AM Gol Interjet Copa Allegiant Spirit D Comps
Volaris has a best-in-class unit cost structure
Denotes fuel
cost per ASM
Lowest unit cost in the Americas(1)
CASM and CASM ex-fuel (1H 2014, USD cents)(3)
7
Latin American Carriers US Network
Carriers(2) Best-In-Class
US LCCs
Notes:
(1) Based on CASM among the publicly-traded airlines
(2) DCOMPS= Direct Competitors: Average CASM and CASM ex-fuel; US network carriers include: Delta, United, Alaska Airlines, American Airlines
(3) Non USD data converted using average exchange rates for the corresponding period
Source: Company data, Airlines public information
14.2
9.9 10.3
14.9
13.6 13.9
9.0
10.7
12.8
11.9 11.8
8.7 8.8 8.1
Aeromexico Interjet Global A320
Global A319
Young, fuel efficient fleet (3)
Interjet
Focus on fleet utilization and efficiency drives higher
revenue and lower cost
Notes:
(1) Implied passengers per aircraft is calculated as available seats per aircraft multiplied by the load factor
(2) Block hours per day calculated as ((Total block hours for the period / Monthly average number of aircraft) / Number of days for the period)
(3) Aeromexico and Interjet represent domestic competitors of Volaris
(4) Interjet load factor obtained from DGAC report, seat load factor, as of June YTD 2014
Source: Company data, airlines public information, DGAC, Airbus, miDiio
Load factor
(June YTD 2014) Implied passengers
per aircraft(1)
82%
69%
79%
143
104
126
Interjet A320
150 seats per aircraft
Aeromexico 737-800
160 seats per aircraft
High daily utilization(3)
Volaris A320
174 seats per aircraft
High density configuration(3)
Aeromexico
Block hours per day (June YTD 2014) Average age (Yrs, June YTD 2014)
8
10.3 9.1
6.0
4.2
Mexican average
Aeromexico Interjet
(4)
145
121
Bus
Bus passenger shift to air travel
Notes:
(1) Executive and luxury class
(2) Fare figures calculated with average prices for May 2014
(3) MXN amounts were converted to USD at the rate of MXN/USD 13.1010
Source: Company data, Secretaría de Comunicaciones y Transportes (SCT)
Air travel time and cost savings Significant upside for air travel
Fare (USD)(2,3) Travel time (Hrs)
Mexico City – Tijuana
(1)
Total air travel trips
(mm)
Total bus trips
(mm)
40.5
4.0
Bus Air
36.5 hours less
• Mexico is almost three times the size of the state of Texas
• The distance between Tijuana and Cancún is similar to the
distance between New York City and San Francisco
9
16.5% cost savings
30
30
60
2013
International
Domestic
2013 Executive & luxury
First, economy and other
2,781
2,706
75
• Excess
baggage
• Checked
bag limited
to 1 piece
(25kgs.)
• Carry-on
(oversized)
• Strollers
• Priority
boarding
• Check-in
Unbundled strategy: “Tú decides” – You decide
• V-Club
subscription
(82k active
suscriptions)
• Co-branded
credit cards
(76k active
cardholders)
• V-Shop
• VEmpresa
• Advertising
• Food and
beverage
• Hotel
rooms
• Car rentals
• Airport
shuttle
Pre-flight(1) Flight
planning
At the
airport
Onboard
aircraft Post-flight
• Seat
assignment
• Change /
booking fees
• Insurance
• Packages
•Additional forms
of payment
Notes:
(1) V-Club & Co-branded credit cards figures as of July 31th,2014 10
24 39
68
115
148 163
2009 2010 2011 2012 2013 LTM Jun 14
7.0 8.9 11.4
15.5 16.5 17.3
2009 2010 2011 2012 2013 LTM Jun 14
Acceleration of Volaris’ non-ticket revenues
Notes:
(1) Converted using an average annual MXN/USD exchange rate
Source: Company data, Airlines public information
Increased contribution of non-ticket revenue to the top line
Non-ticket revenue per passenger
Volaris (USD)(1)
Best-in class US LCCs
(1H14, USD)
Contribution
to Operating
Revenue
7% 7% 9% 13% 14%
2009 – 2013 CAGR: +57.6%
2009 – 2013 CAGR: +24.0%
Non-t
icket re
venue
(US
D m
m)(
1)
11
45 56
Allegiant Spirit
16%
48 48
41 40
38
13
0
5
10
15
20
25
30
35
40
45
50 99
48
32
0
10
20
30
40
50
60
70
80
90
100
USA (Leisure) USA (VFR) CAM, SAM, Canada,
Caribbean
Attractive growth opportunities in Mexico and
throughout the Americas
Domestic – growth potential of nearly 160
routes
International – growth potential of about 154
routes
(3)
Notes:
(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
Source: Company data
Number of routes(1) Number of routes(2)
Routes served Growth potential
12
Substantial growth opportunity in the US-Mexico VFR /
leisure travel market
Notes:
(1) Represents Mexican origin population figures as per population data released on May 26, 2011
(2) Mexican origin is based on self-described ancestry, lineage, heritage, nationality group or country of birth.
Source: Pew Research Hispanic Center
Denotes Volaris
presence(1)
Denotes other cities with large
Mexican origin populations(1,2)
Significant Mexican origin
population(2) of 33.7 million
in the US
Orlando
0.1mm
San
Francisco
0.7mm
San Jose
0.4mm
San
Diego
0.9mm
Denver
0.5mm Sacramento
0.3mm
Chicago
1.5mm
Fresno
0.5mm
Los Angeles
4.6mm
Las Vegas
0.4mm
San
Bernardino
1.7mm
Phoenix
1.2mm
Tucson
0.3mm
Albuquerque
0.2mm
El Paso
0.6mm
San Antonio
0.9mm
Bakersfield
0.4mm
Austin
0.4mm
Dallas
1.5mm
Houston
1.5mm
Atlanta
0.3mm
Washington
0.1mm
New York
0.5mm
Philadelphia
0.1mm
San Benito
0.3mm
Mission
0.6mm Tampa
0.1mm
13
Portland
0.2mm
Positive expansion, managing capacity and diversification of
routes
Notes:
(1) Capacity measured by ASM’s
Source: Data company, SCT-DGAC, DIIO MI
Percentage of Volaris’ 3Q14 domestic capacity competing with:
Solid expansion for Volaris
A significant portion of our capacity faces no competition
14
67%
56%
41% 23%
Aeromexico Interjet Vivaaerobus Non-competed
Volaris domestic routes Volaris international routes
39 50
78 89
Dec '11 Dec '12 Dec '13 Jul '14
17 23 26 28
Dec '11 Dec '12 Dec '13 Jul '14
More than 2x More than 1.5x
Fleet and financials
15
20 18 17 12
24 23 22
19
9 14 23
44
50 53
54 2
FY13 FY14 FY15 FY16
A319 A320 A320 w/Sharklets A320 NEO w/Sharklets
A higher density fleet generates more incremental capacity
with fewer additional aircraft
Projected fleet under current contracts (number of aircraft)(1)
Notes:
(1) Net fleet after additions and returns
(2) Figure calculated as of September 2014
Source: Company data
18% 26%
43%
% % of year-end fleet w/Sharklets
Order book of 62 Aircraft supports growth(2)
16
Seat growth (EoP) 16% 7% 8%
28%
20%
14%
10%
0%
10%
20%
30%
Copa GOL LATAM
Solid financial performance
Note:
(1) Converted using an average MXN/USD exchange rate for the corresponding period
Source: Company data, airlines public information
Operating revenues(1) Adj. EBITDAR(1)
Operating Revenues CAGR 2009 - 2013 LTM 1H 2014 Adj. EBITDAR margin
17
117 140
100
188
220
173
0
50
100
150
200
250
2009 2010 2011 2012 2013 LTM 1H14
(US
D m
m)
374
536
714
887
1,018 996
0
200
400
600
800
1,000
1,200
2009 2010 2011 2012 2013 LTM 1H14
(US
D m
m)
17.4%
28.9%
18.1% 17.7%
0.0%
10.0%
20.0%
30.0%
Copa Gol AM
Liquidity – Cash and Equivalents / LTM Op.
Revenue(2)
Balance sheet well positioned for growth
Note:
(1) Principal + interest debt
Source: Company data, Airlines public information
18
• IPO provided sufficient liquidity / capital
for growth over the next years
• Minimal on-balance sheet debt
• USD $58mm(1) of financial debt as
of June 2014
• Strong cash position
• USD $160mm of cash and
equivalents as of June 2014
• Fully financed PDPs through the second
quarter of 2016
16.1%
32.4%
28.7%
12.0%
8.2%
Copa Gol AM LatAm
Appendix
19
Non-IFRS Terms Glossary
• Available seat miles (ASMs): Number of seats available for passengers multiplied by the number of miles the seats are flown.
• Block hours: Number of hours during which the aircraft is in revenue service, measured from the time it leaves the gate until the
time it arrives to the gate at destination.
• Revenue passenger miles (RPMs): Means the number of miles flown by passengers.
• TRASM: Total revenue divided by ASMs.
• RASM: Passenger revenue divided by ASMs.
• CASM: Total operating expenses, net divided by ASMs.
• CASM ex fuel: Total operating expenses, net excluding fuel expense divided by ASMs.
• Load factor: RPMs divided by ASMs and expressed as a percentage.
• EBITDA: Earnings before interest, taxes, depreciation and amortization.
• EBITDAR: Earnings before interest, taxes, depreciation, amortization and aircraft rent expense.
• Adj. EBITDAR: EBITDAR adjusted by non-cash and non-recurring items.
• Adj. Debt: Financial debt plus seven times the aircraft rent expense.
• Adj. Net debt: Adj. Debt minus cash and cash equivalents.
• VFR: Passengers who are visiting friends and relatives.
20
MXN millions unless otherwise stated (2) 2010A 2011A 2012A 2013A 1H 2014A 1H 2014A
% of total
operating
revenues
(USD
millions)
Passenger 6,278 8,036 10,177 11,117 4,910 377 80.7
Non-ticket 499 842 1,510 1,885 1,173 90 19.3
Total operating revenues 6,777 8,878 11,687 13,002 6,084 467 100
Fuel 2,146 3,823 4,730 5,086 2,632 202 43.3
Aircraft and engines rent expense 1,197 1,508 1,886 2,187 1,222 94 20.1
Salaries and benefits 852 1,120 1,303 1,563 779 60 12.8
Landing, take off and navigation expenses 868 1,282 1,640 1,924 1,046 80 17.2
Sales, marketing and distribution expenses 615 750 752 704 352 27 5.8
Maintenance expenses 276 380 499 572 306 23 5.0
Other operating expense 255 285 288 347 211 16 3.5
Depreciation and amortization 57 103 211 302 118 9 1.9
Total operating expenses 6,266 9,251 11,309 12,685 6,667 512 109.6 6
EBIT 511 (373) 378 317 (583) (45) (9.6)
Operating margin (%) 7.5 (4.2) 3.2 2.4 (9.6) (9.6)
Finance income 5 6 14 25 10 1 0.2
Finance cost (56) (58) (90) (126) (14) (1) (0.2)
Exchange (loss) gain, net (56) 110 (95) 66 (4) (0) (0.1)
Income tax benefit (expense) 239 0 (3) (17) 145 11 2.4
Net income (loss) 643 (315) 203 265 (445) (34) (7.3)
Net margin (%) 9.5 (3.6) 1.7 2.0 (7.3) (7.3)
Net income (loss) excluding special items (3) 643 (315) 203 379 (445) (34) (7.3)
Adjusted EBITDAR 1,770 1,238 2,475 2,806 757 58 12.4
Adj. EBITDAR margin (%) 26.1 13.9 21.2 21.6 12.4 12.4
EPS Basic and Diluted(cents) 31.0 (44.0) (3.4)
EPADS Basic and Diluted (cents) 310.4 (439.7) (33.7)
Consolidated statements of operations summary
21
Notes:
(1) MXN amounts were converted to USD at the rate of USD/MXN 13.0323 as of June 30, 2014
(2) Audited financial information 2010A – 2013A
(3) Excludes debt prepayment of Ps.65 million, and reservation system migration costs and other non-recurring items of Ps.48 million.
Source: Company data
Consolidated statements of financial position summary
Nota:
(1) MXN amounts were converted to USD/MXN 13.0323 as of June 30, 2014
(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 2010A – 2013A
Source: Company data
22
MXN millions unless otherwise stated (5)
2010A 2011A 2012A 2013A 1H 2014A 1H 2014A
(USD millions)
Cash and cash equivalents 677 441 822 2,451 2,088 160
Current guarantee deposits 330 170 238 499 558 43
Other current assets 390 520 755 1,050 1,191 91
Total current assets 1,397 1,131 1,815 4,000 3,837 294
Rotable spare parts, furniture and
equipment, net 921 1,517 1,195 1,341 1,679 129
Non-current guarantee deposits 1,041 2,002 2,245 2,603 2,760 212
Other non-current assets 342 412 447 434 578 44
Total assets 3,701 5,062 5,702 8,378 8,854 679
Unearned transportation revenue 505 825 1,259 1,393 1,940 149
Short-term financial debt 251 687 527 268 131 10
Other short-term liabilities 1,171 1,667 1,936 2,211 2,403 184
Total short-term liabilities 1,927 3,179 3,722 3,872 4,473 343
Long-term financial debt 384 725 633 294 627 48
Other long-term liabilities 164 298 272 250 228 17
Total liabilities 2,475 4,202 4,627 4,416 5,328 409
Total equity 1,226 860 1,075 3,962 3,526 271
Total liabilities and equity 3,701 5,062 5,702 8,378 8,854 679
Net debt (2) (42) 971 338 (1,889) (1,330) (102)
Adjusted debt (3) 9,014 11,969 14,360 15,874 17,409 1,337
Adjusted net debt (4) 8,337 11,528 13,538 13,423 15,321 1,177
Consolidated statements of cash flows summary
MXN millions unless otherwise stated (2) 2010A 2011A 2012A 2013A 1H 2014A 1H 2014A (1)
(USD millions)
Cash flow from operating activities
Income (loss) before income tax 404 (315) 207 283 (590) (45)
Depreciation and amortization 62 103 211 302 118 9
Guarantee deposits (316) (801) (311) (620) (215) (16)
Unearned transportation revenue 207 321 433 135 546 42
Changes in working capital and provisions 182 544 (43) (61) 47 4
Net cash flows provided by (used in) operating
activities 539 (148) 497 39 (94) (7)
Cash flow from investing activities
Acquisitions of rotable spare parts, furniture, equipment
and intangible assets (321) (1,215) (856) (1,161) (720) (55)
Proceeds from disposals of rotable spare parts, furniture
and equipment - 587 1,043 849 277 21
Net cash flows (used in) provided by investing
activities (321) (628) 187 (312) (443) (34)
Cash flow from financing activities
Legal costs incurred on behalf of shareholders (76) - - - - -
Net proceeds from initial public offering - - - 2,578 - -
Transaction costs on issue of shares - - - (38) - -
Proceeds from exercised treasury shares - - - 26 - -
Interest paid (60) (55) (127) (65) (11) (1)
Payments of financial debt - (261) (694) (1,084) (271) (21)
Proceeds from financial debt 46 879 550 444 465 36
Net cash flows (used in) provided by financing
activities (90) 562 (272) 1,861 184 14
Increase (decrease) in cash and cash equivalents 128 (213) 412 1,588 (353) (27)
Net foreign exchange differences (25) (22) (31) 41 (9) (1)
Cash and cash equivalents at beginning of period 575 677 441 822 2,451 188
Cash and cash equivalents at end of period 677 441 822 2,451 2,088 160
Notes:
(1) MXN amounts were converted to USD at the rate USD/MXN 13.0323 as of June 30, 2014
(2) Audited financial information 2010A - 2013A
Source: Company data
23
Adj. EBITDA and Adj. EBITDAR reconciliation
MXN millions unless otherwise stated (2) 2010A 2011A 2012A 2013A 1H 2014A 1H 2014A (1)
(USD millions)
Net income (loss) 643 (315) 203 265 (445) (34)
Plus (minus):
Finance costs 52 58 90 126 (14) (1)
Finance income (5) (6) (14) (25) 10 1
(Benefit)/provision for income taxes (239) 0 3 17 145 11
Depreciation and amortization 57 103 211 302 118 9
Business alliance amortization 5 - - - - -
EBITDA 513 (160) 494 685 (185) (14)
Exchange (gain) loss, net 56 (110) 95 (66) (4) (0)
Other financing cost (income), net 3 - - - - -
Adjusted EBITDA 573 (270) 589 619 (189) (14)
Aircraft and engine rent expense 1,197 1,508 1,886 2,187 1,222 94
Adjusted EBITDAR 1,770 1,238 2,475 2,806 1,034 79
Notes:
(1) MXN amounts were converted to USD at the rate of MXN/USD 13.0323 as of June 30, 2014
(2) Audited financial information 2010A - 2013A
Source: Company data 24