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 2019.

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

First Quarter 2019 Highlights

Total operating revenues were Ps.7,192 million for the first quarter, an increase of 22.9% year over year.
Total ancillary revenues were Ps.2,563 million for the first quarter, an increase of 30.5% year over year. Total ancillary revenues per passenger for the first quarter reached Ps.517, increasing 12.1% year over year. Total ancillary revenues represented 35.6% of the total operating revenues for the first quarter 2019, increasing 2 percentage points with respect to the same period of last year.
Total operating revenues per available seat mile (TRASM) totaled Ps.126.1 cents for the first quarter, an increase of 9.0% year over year.
Operating expenses per available seat mile (CASM) were Ps.125.7 cents for the first quarter, a decrease of 0.7% year over year; with an average economic fuel cost per gallon of Ps.46.0 for the first quarter, an increase of 14.8% year over year.
Operating expenses excluding fuel, per available seat mile (CASM ex fuel) reached Ps.78.6 cents for the first quarter, a decrease of 5.8% year over year.
Operating income was Ps.26 million for the first quarter, an improvement compared with the operating loss of Ps.545 million for the same period of last year. Operating margin for the first quarter was 0.4%, an improvement in margin of 9.7 percentage points year over year.
Net income was Ps.519 million (Ps.0.51 per share / US$0.26 per ADS), with a net margin of 7.2% for the first quarter.
At the close of the first quarter, the Mexican peso had appreciated 1.5% against the U.S. dollar with respect to the end of period exchange rate of the previous quarter (Ps.19.68 per US dollar). The Company booked a foreign exchange gain of Ps.1,154 million as a consequence of our U.S. dollar net monetary liability position, as result of the adoption of IFRS16.
Net cash flow provided by operating activities was Ps.3,731 million, in conjunction with cash flow used in investing activities of Ps.379 million and in financing activities of Ps. 2,063 million. The negative net foreign exchange difference was Ps.82 million, with net cash generation in the first quarter of Ps.1,208 million. As of March 31, 2019, cash and cash equivalents were Ps.7,071 million.

Resilient Macroeconomics, Domestic Consumer Demand with Peso Depreciation and Fuel Price Pressures

Resilient macroeconomics and domestic consumer demand: The macroeconomic indicators in Mexico during the first quarter were stable, with same store sales[1] increasing 2.1% year over year; remittances[2] increased 6.4% year over year during first two months of the year; and the Mexican Consumer Confidence Balance Indicator (BCC) [3] increasing in the first quarter 36% year over year.
Air traffic volume increase: The Mexican DGAC reported overall passenger volume growth for Mexican carriers of 5.6% year over year for the first two months of 2019; domestic overall passenger volume increased 5.3%, while international overall passenger volume remained at the same level.
Exchange rate volatility: The Mexican peso depreciated 2.4% year over year against the US dollar, from an average exchange rate of Ps.18.76 pesos per US dollar in the first quarter 2018 to Ps.19.22 pesos per US dollar during the first quarter 2019. At the end of the first quarter, the Mexican peso appreciated 1.5% with respect to the end of period exchange rate of the previous quarter. The Company booked a foreign exchange gain of Ps.1,154 million as a consequence of our US dollar net monetary liability position, resulting from the adoption of IFRS16.
Higher fuel prices: The average economic fuel cost per gallon increased 14.8% to Ps.46.0 per gallon (US$2.4) in the first quarter 2019, year over year.

Passenger Traffic Stimulation, Further Ancillary Revenue Expansion, and Positive TRASM Growth

Passenger traffic stimulation: Volaris booked 5.0 million passengers in the first quarter 2019, up 16.4% year over year. Volaris traffic (measured in terms of revenue passenger miles, or RPMs) increased 14.2% year over year. System load factor during the first quarter increased 1.0 percentage point to 83.2% year over year.
Positive TRASM growth: For the first quarter 2019, TRASM increased 9.0% year over year. During the first quarter 2019, the total capacity, in terms of ASMs, increased 12.8% year over year.
Total ancillary revenue growth: For the first quarter 2019, total ancillary revenues increased 30.5% year over year. Total ancillary revenues per passenger for the first quarter of 2019 increased 12.1% year over year. The total ancillary revenue generation continues to grow with new and matured products, appealing to customers' needs, representing 35.6% of total operating revenues for the first quarter, up 2 percentage points year over year.
New routes: Volaris began operations in 16 new domestic routes from or to its focus cities Mexico City, Guadalajara, Tijuana and others. Additionally, Volaris launched 17 routes, 10 domestic (Mexico to Ciudad Juarez, Puerto Escondido and Durango; Queretaro to Chihuahua and Puerto Vallarta; Guadalajara to Durango and Queretaro; Monterrey to Oaxaca and Los Cabos; Ciudad Juarez to Chihuahua) and 7 international (Mexico and Guadalajara to El Salvador; Durango to Dallas; Puerto Vallarta to Phoenix; Queretaro to Chicago; Aguascalientes to Chicago (Midway); and Chihuahua to Albuquerque.

The Cost Control Discipline Offset Fuel Price Pressure and Peso Depreciation

CASM and CASM ex fuel for the first quarter 2019 reached Ps.125.7 (US$6.5 cents) and Ps.78.6 cents (US$4.1 cents), respectively. This represented a decrease of 0.7% and 5.8%, respectively; mainly driven by tightening cost control discipline, despite the higher average economic fuel cost per gallon of 14.8% and an average exchange rate depreciation of 2.4%.

Young and Fuel-efficient Fleet

During first quarter 2019, the Company incorporated one aircraft (A321 neo) to its fleet; during this quarter no redeliveries were registered. As of March 31, 2019, Volaris' fleet was composed of 78 aircraft (8 A319s, 55 A320s and 15 A321s), with an average age of 4.8 years. At the end of the first quarter 2019, Volaris' fleet had an average of 186 seats, 74% of which were in sharklet-equipped aircraft, and 22% were NEO.

Solid Balance Sheet and Good Liquidity

Net cash flow provided by operating activities was Ps.3,731 million, in conjunction with cash flow used in investing activities of Ps.379 million and in financing activities of Ps. 2,063 million; negative net foreign exchange difference was Ps.82 million, while the net cash generation in the first quarter was Ps.1,208 million. As of March 31, 2019, cash and cash equivalents were Ps.7,071 million, representing 24.7% of last twelve months operating revenues. Volaris registered negative net debt (or a positive net cash position) of Ps.4,018 million (excluding lease liability recognized under IFRS16 adoption) and total equity of Ps.3,624 million.

Transition to IFRS 16

The Company adopted IFRS 16 as of January 1st, 2019, using the full retrospective method. The cumulative effect of adopting IFRS 16 has been recognized as an adjustment to the opening balance as of January 1st, 2017 as an increase in assets and liabilities and an adjustment in the retained earnings. The full disclosure of this initial adoption is included in the Company´s 2018 annual report.

This quarterly earnings release includes supplemental information for comparable purposes, with recast 2018 figures with the IFRS 16 adoption effects and were derived from unaudited financial statements included in the quarterly reports on Form 6-K during the year ended as of December 31, 2018.
Since all the aircraft and engine lease contracts are denominated in USDs, starting on March 25, 2019, the Company established a hedge on its USD denominated revenues using the lease liabilities denominated in USD as a hedge instrument. This hedging relationship is designated as a cash flow hedge of forecasted revenues to mitigate the volatility of the foreign exchange variation arising from the revaluation of its lease liabilities. The impact of this hedge will be presented as part of the total operating revenues; however, it was not material for the results of this first quarter.

Additionally, on the same date, the Company established a hedge on a portion of its forecasted fuel expense using as hedge instrument a portion of its USD denominated monetary assets. This hedging relationship is designated as a cash flow hedge of forecasted fuel expense to mitigate the volatility of the foreign exchange variation arising from the revaluation of this portion of USD denominated monetary asset. The impact of this hedge will be presented as part of the total fuel expense; however, it was not material for the results of this first quarter.

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.