MEXICO CITY-- 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 fourth quarter and full year 2017.

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

Fourth Quarter and Full Year 2017 Highlights

Total operating revenues were Ps.6,626 million and Ps.24,845 million for the fourth quarter and full year, an increase of 2.4% and 5.7% year over year, respectively.
Non-ticket revenues were Ps.1,884 million and Ps. 7,054 million for the fourth quarter and full year, an increase of 17.4% and 23.3% year over year, respectively. Non-ticket revenues per passenger for the fourth quarter and full year were Ps.446 and Ps.429, increasing 10.2% and 12.6% year over year, respectively. Non-ticket revenues represent 28.4% of the total operating revenues for the fourth quarter.
Total operating revenues per available seat mile (TRASM) were Ps.135.4 cents and Ps.131.7 for the fourth quarter and full year, a decrease of 6.0% and 6.4% year over year, respectively.
Operating expenses per available seat mile (CASM) were Ps.133.0 cents and Ps.131.6 cents for the fourth quarter and full year, a decrease of 0.4% and increase of 5.8% year over year, respectively; with an average economic fuel cost per gallon were Ps.37.0 and Ps.34.5 for the fourth quarter and full year, an increase of 6.9% and 18.1% year over year, respectively.
Operating expenses excluding fuel, per available seat mile (CASM ex fuel) were Ps.92.7 cents and Ps.93.2 cents for the fourth quarter and full year, a decrease of 1.0% and increase of 3.5% year over year, respectively.
Operating income was Ps.118 million and Ps.19 million for the fourth quarter and full year, a decrease of 75.1% and 99.3% year over year, respectively. Operating margin for the fourth quarter and full year was 1.8% and 0.1%, a decrease in margin of 5.5 percentage points and 11.6 percentage points year over year, respectively.
Net income was Ps.555 million (Ps.0.55 per share / US$0.28 per ADS) and a net loss of Ps.595 million (Ps.(0.59) per share / US$(0.30) per ADS) for the fourth quarter and full year, respectively, with a net margin of 8.4% and (2.4%) for the fourth quarter and full year, respectively.
Net increase in cash flow provided by operating activities were Ps.1,116 million and Ps.986 million for the fourth quarter and full year, respectively. Year over year the cash and cash equivalents for the fourth quarter and full year increase Ps.1,578 million and decrease Ps.120 million, respectively; despite the net foreign exchange differences represent an increase of Ps.448 million and decrease of Ps.244 million for the fourth quarter and full year, respectively. As of December 31, 2017, unrestricted cash and cash equivalents were Ps.6,951 million.
Volaris´ CEO Enrique Beltranena commented: “During 2017, Volaris faced a challenging year with factors ranging from the macroeconomic environment to softer demand environment. We continue prudently managing capacity and executing our ULCC model to stimulate market demand. We are absolutely committed to continue driving unit costs down which enables us to offer the most competitive fares in the market”.

Stable Macroeconomics and Exchange Rate Appreciation Partially Offset Fuel Price Pressures

Stable macroeconomics and domestic consumer demand: The macroeconomic indicators in Mexico during full year are stable, with same store sales1 increasing 4.5% year over year; remittances2 increasing in fourth quarter and full year 8.2% and 6.6% year over year, respectively; and the Mexican General Economic Activity Indicator3 (IGAE) increasing 0.9% and 1.7% year over year in October and November of 2017, respectively.
Air traffic volume increase: The Mexican DGAC reported overall passenger volume growth for Mexican carriers of 6.7% year over year for the fourth quarter; domestic overall passenger volume increased 4.8%, while international overall passenger volume increased 13.3%.
Exchange rate volatility: The Mexican peso appreciated 4.5% year over year against the U.S. dollar, from an average exchange rate of Ps.19.83 pesos per US dollar in the fourth quarter 2016 to Ps.18.93 pesos per U.S. dollar during the fourth quarter 2017.
Higher fuel prices: The average economic fuel cost per gallon increased 6.9% and 18.1% year over year to Ps.37.0 per gallon (US$1.9) and Ps.34.5 per gallon (US$1.7) in the fourth quarter and full year, respectively.

Strengthened ULCC Model with Further Non-Ticket Revenue Growth

Passenger traffic stimulation: Volaris booked 4.2 million passengers in the fourth quarter 2017 and 16.4 million passengers in full year 2017, up 6.5% and 9.5% year over year. Volaris traffic (measured in terms of revenue passenger miles, or RPMs) increased 7.1% and 11.1% for the same period, respectively. System load factor during the quarter and full year decreased 1.5 percentage points and 1.4 percentage points to 82.6% and 84.4% year over year, respectively.
Non-ticket revenue growth: Non-ticket revenues for the fourth quarter and full year 2017 increased 17.4% and 23.3% year over year, respectively. Non-ticket revenues per passenger for the fourth quarter of 2017 and full year increased 10.2% and 12.6% year over year, respectively. Non-ticket revenue generation continues to grow with improved revenues from first checked bag fees for international flights, and better uptakes of ancillary combos. Non-ticket revenues represent 28.4% of the total operating revenues for the quarter.
Competitive market environment pressured yields partially offset by non-ticket revenue: For the fourth quarter and full year, yield decreased 9.0% and 10.0% year over year, respectively. For the fourth quarter and full year, TRASM decreased 6.0% and 6.4% year over year, respectively. During the fourth quarter and full year, the total capacity, in terms of ASMs, increased 9.0% and 12.9% year over year, respectively.
New routes: In the fourth quarter 2017, Volaris began operations in four new domestic routes ( Huatulco, Oaxaca to Monterrey, Nuevo Leon; Cozumel, Quintana Roo to Monterrey, Nuevo Leon; Monterrey, Nuevo Leon to Mexicali Baja California and Morelia, Michoacan to Mexicali, Baja California) and nine new international routes (Chicago O’Hare to Huatulco, Oaxaca; Chicago O’Hare to Zihuatanejo, Guerrero; Los Angeles, California to Puerto Vallarta, Jalisco; Ciudad de Guatemala, Guatemala to Tijuana, Baja California; San Salvador, El Salvador to Tijuana, Baja California; Fresno, California to Morelia Michoacan; San Jose, California to Morelia Michoacan; San Jose, California to Zacatecas, Zacatecas and Los Angeles, California to Acapulco, Guerrero).

Cost Control and Discipline, Despite Fuel Price Pressure

CASM and CASM ex fuel for the fourth quarter were Ps. 133.0 (US$6.7 cents) and Ps.92.7 cents (US$4.7 cents), respectively. These represented decreases of 0.4% and 1.0%, respectively; mainly driven by tightening cost controls and average exchange rate appreciation of 4.5%. At the end of the fourth quarter, the Mexican peso also depreciated 8.4% with respect to the end of previous quarter, leading to a net exchange rate gain of Ps.784 million as result of our U.S. dollar net monetary asset position.

Youngest and Most Fuel-efficient Fleet in Mexico

During the fourth quarter 2017, the Company incorporated four A320NEO to its fleet. As of December 31, 2017, Volaris’ fleet was composed of 71 aircraft (12 A319s, 49 A320s and 10 A321s), with an average age of 4.6 years, the youngest fleet among Mexican carriers and one of the youngest fleet in the Americas. At the end of the fourth quarter 2017, Volaris’ fleet had an average of 180 seats, 65% of which were in sharklet-equipped aircraft.

Solid Balance Sheet and Good Liquidity

As of December 31, 2017, cash and cash equivalents were Ps.6,951 million, representing 28% of last twelve months operating revenues. Volaris registered negative net debt (or a positive net cash position) of Ps.3,468 million and total equity of Ps.10,163 million.

Active in Fuel Risk Management

Volaris’ fuel risk management program provided protection from fuel prices increases, with 59% of its fourth quarter fuel consumption hedged, at an average strike price of US$1.40 per gallon, and resulting in a positive net settlement of Ps.102.9 million for the quarter. This hedged portion, combined with the 41% unhedged consumption, resulted in a blended average economic fuel cost of US$1.87 per gallon.

Codeshare Agreement with Frontier

On January 16, 2018, Volaris and Frontier Airlines (Frontier) signed the first codeshare agreement in history between two ultra-low-cost airlines. Volaris customers will gain access to new cities in the U.S. beyond our current destinations, and Frontier customers will gain first-time access to new destinations in Mexico. Volaris currently serves 24 destinations in the U.S. and 40 in Mexico, of which 21 coincide with Frontier destinations in both countries. With this codeshare, Volaris and Frontier will offer customers the ability to purchase the lowest fares across an extensive and well-served network.