Volaris Reports First Quarter 2018 Results: Ancillary Revenue Expansion, Unit Cost Reduction and Cas

Volaris* (NYSE: VLRS and BMV: VOLAR), the ultra-low-cost airline serving Mexico, the United States and Central America, today announced its financial results for the first quarter 2018.

The following financial information, unless otherwise indicated, is presented in accordance with International Financial Reporting Standards (IFRS).

First Quarter 2018 Highlights

• Total operating revenues reached Ps.5,850 million for the first quarter, an increase of 2.7% year over year.
• Total ancillary revenues were Ps.1,965 million for the first quarter, an increase of 17.4% year over year. The total ancillary revenues per passenger for the first quarter were Ps.461, increasing 9.1% year over year.
• Total operating revenues per available seat mile (TRASM) were Ps.115.7 cents for the first quarter, a decrease of 7.7% year over year.
• Operating expenses per available seat mile (CASM) were Ps.133.7 cents for the first quarter, a decrease of 5.4% year over year; with an average economic fuel cost per gallon of Ps. 40.1, increasing 8.0% year over year, and an average exchange rate of Ps.18.76, a year over year decrease of 8.0%. Operating expenses per available seat mile excluding fuel (CASM ex fuel) were Ps. 90.6 cents for the first quarter, a decrease of 9.1% year over year.
• Net loss was Ps.1,118 million (Ps.1.11 per share / US$0.60 per ADS) for the first quarter, with a net loss margin of 19.1%.
• Net cash flow provided by operating activities was Ps.1,093 million, in conjunction with cash flow used in investing activities of Ps.313 million, net cash flow provided by financing activities of Ps. 65 million, and a negative net foreign exchange differences of Ps.478 million, the net cash generation in the first quarter was Ps.366 million. As of March 31, 2018, cash and cash equivalents were Ps.7,317 million.

Volaris´ CEO Enrique Beltranena commented: "During the first quarter, we faced a challenging fare environment in the domestic market, influenced by a significant capacity increase in the industry. Having the lowest unit cost, is the most important competitive advantage in this environment; our ultra-low-cost model has produced lower unit cost year over year. Additionally, our ancillary revenue performance has been successful".

Resilient Macroeconomics and Exchange Rate Appreciation Partially Offset Fuel Price Pressures

• Resilient macroeconomics and domestic consumer demand: The macroeconomic indicators in Mexico during the quarter were stable, with same store sales1 increasing 4.1% year over year; remittances2 increased 7.2% year over year during first two months of the year; and the Mexican General Economic Activity Indicator (IGAE) 3 increasing 1.1% year over year in January of 2018.
• Air traffic volume increase: The Mexican DGAC reported overall passenger volume growth for Mexican carriers of 10.2% year over year in January and February; domestic overall passenger volume increased 8.1%, while international overall passenger volume increased 17.1%.
• Exchange rate volatility: The Mexican peso appreciated 8.0% year over year against the US dollar, from an average exchange rate of Ps.20.39 pesos per US dollar in the first quarter 2017 to Ps.18.76 pesos per US dollar during the first quarter 2018. At the end of the first quarter, the Mexican peso appreciated 7.1% with respect to the end of period exchange rate of the previous quarter. The Company booked a foreign exchange loss of Ps.691 million as a consequence of our US dollar net monetary asset position.
• Higher fuel prices: The average economic fuel cost per gallon increased 8.0%, year over year, to Ps.40.1 per gallon (US$2.2) in the first quarter 2018, year over year.

Strengthened ULCC Model with Further Ancillary Revenue Expansion

• Passenger traffic stimulation: Volaris booked 4.3 million passengers in the first quarter of 2018, up 7.5% year over year. Volaris traffic (measured in terms of fare revenue miles, or RPMs) increased 9.8% for the same period. System load factor during the quarter decreased 1.0 percentage points year over year to 82.2%.
• Challenged fare environment: For the first quarter of 2018, yield decreased 12.1% with TRASM decreasing 7.7%, year over year. During the first quarter, in terms of ASMs, domestic capacity grew 11.9%, while international capacity increased 9.7%.
• Total ancillary revenue growth: Total ancillary revenues and total ancillary revenues per passenger increased 17.4% and 9.1% year over year for the first quarter of 2018, respectively. The total ancillary revenues generation continues to grow with new and matured products, appealing to customers' needs, representing now 34% of the total operating revenues.
• New routes: In the first quarter 2018, Volaris began operations in three new international routes between: 1) Guatemala City, Guatemala and Los Angeles, California; 2) San Salvador, El Salvador and Los Angeles, California; and 3) San Salvador, El Salvador and Cancun, Quintana Roo.

Cost Control and Discipline, Despite Fuel Price Pressure

• CASM and CASM ex fuel for first quarter 2018 were Ps. 133.7 (US$7.1 cents) and Ps.90.6 cents (US$4.8 cents), respectively. These represented decreases of 5.4% and 9.1%, respectively; mainly driven by tightening cost controls and average exchange rate appreciation of 8.0%. At the end of the first quarter, the Mexican peso also appreciated 7.1% with respect to the end of previous quarter, leading to a net exchange rate loss of Ps.691 million as result of our U.S. dollar net monetary asset position.

Young and Fuel-efficient Fleet

• During the first quarter 2018, the Company did not incorporate any additional aircraft and one aircraft was redelivered in February. As of March 31, 2018, Volaris fleet was composed of 70 aircraft (11 A319s, 49 A320s and 10 A321s), with an average age of 4.8 years. At the end of the first quarter 2018, Volaris' fleet had an average of 181 seats, 67% of which were in sharklet-equipped aircraft.
• On April 17th, we received our first A321 neo, this aircraft with 230 seats will continue to enhance our network in Mexico City and will further reduce unit costs.

Solid Balance Sheet, Good Liquidity and Cash Flow Generation

• Net cash flow provided by operating activities was Ps.1,093 million, in conjunction with cash flow used in investing activities of Ps.313 million, net cash flow provided by financing activities of Ps. 65 million, and a negative net foreign exchange differences of Ps.478 million, the net cash generation in the first quarter was Ps.366 million. As of March 31, 2018, cash and cash equivalents were Ps.7,317 million, representing now 29% of last twelve months operating revenues. As of December 31, 2017, unrestricted cash and cash equivalents were Ps.6,951 million. Volaris registered negative net debt (or a positive net cash position) of Ps.3,894 million and total equity of Ps.8,950 million.

Active in Risk Management

• Volaris remains active in its fuel risk management program. Volaris utilized call options to hedge 63% of its first quarter 2018 fuel consumption, at an average strike price of US $1.63 per gallon, which combined with the 37% unhedged consumption, resulted in a blended average economic fuel cost of US$2.2 per gallon.

IFRS 15: Revenue from Contracts with Customers

• During 1Q 2018, we adopted IFRS 15 "Revenue from Contracts with Customers" which replaces existing revenue recognition guidance, including IAS 18 "Revenue". IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.
• The adoption of the IFRS 15 impacted the classification and timing of recognition of certain ancillary items such as bags, advanced seat selection, itinerary changes and other air travel-related fees, since they are deemed part of the single performance obligation of providing passenger transportation. These ancillary items are now recognized in passenger revenue (disclosed in the consolidated statement of operations including in this quarterly earnings release as "other passenger revenue").
• Non-passenger revenue primarily consists of revenue from the sale of other items such as rental cars, insurance, hotels and cargo. This change did not have a material impact on our income statement or balance sheet in any period presented.
• This quarterly earnings release includes supplemental information for comparable basis, with recast amounts with the IFRS 15 adoption effects, and were derived from unaudited financial statements included in the quarterly reports on Form 6-K during the year ended December 31, 2017.

Investors are urged to carefully read the Company's periodic reports filed with or furnished to the Securities and Exchange Commission, for additional information regarding the Company.

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