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 second quarter 2017.

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

Second Quarter 2017 Highlights

• Total operating revenues reached Ps.5,982 million for the second quarter, an increase of 16.6% year over year.
• Non-ticket revenues were Ps.1,730 million for the second quarter, an increase of 31.4% year over year. * Non-ticket revenues per passenger were Ps.426 for the second quarter, increasing 17.7% year over year. * Non-ticket revenues now represent 29% of the total operating revenues.
• Total operating revenues per available seat mile (TRASM) were Ps.128.9 cents for the second quarter, at the same level than the same period of the previous year.
• Operating expenses per available seat mile (CASM) were Ps.128.1 cents for the second quarter, an increase of 7.5% year over year; with an average economic fuel cost per gallon of Ps.32.1, increasing 13.2% year-on-year, and an average exchange rate of Ps.18.60, a year-on-year increase of 3.0%.
• Adjusted EBITDAR was Ps.1,556 million for the second quarter, a decrease of 14.5% year over year. * Adjusted EBITDAR margin was 26.0% for the second quarter, a decrease in margin of 9.5 percentage points.
• Operating income was Ps.38.8 million for the second quarter, with an operating margin of 0.6%, equal to a year over year operating margin decrease of 6.9 percentage points.

At the end of the second quarter, the Mexican peso appreciated 6.4% against the U.S. dollar with respect to the end of period exchange rate of the previous quarter. The Company booked a foreign exchange loss of Ps.558 million as a consequence of our U.S. dollar net monetary asset position. Net loss was Ps.520 million (Ps.0.51 per share / US$0.29 per ADS) for the second quarter, with a net margin of -8.7%.

Net cash flow used in operating activities was Ps.215 million for the second quarter. As of June 30, 2017, cash and cash equivalents were Ps.5,981 million.

Volaris´ CEO Enrique Beltranena commented: “During the second quarter, we continued to face challenging international market conditions, although sequentially improving. Volaris responded by prudently managing capacity and executing its ULCC model to continue stimulating market demand based on a resilient domestic market and a slow but sustained recovery in international travel. We remain cautiously optimistic of recently improving market conditions and thus we will continue managing capacity accordingly. Going forward, we believe that the Company’s fundamentals remain strong and our solid financial position will enable us to continue executing our long-term growth plans.”

Stable Macroeconomics and Domestic Consumer Demand, Offset by Exchange Rate and Fuel Price Pressures

Stable macroeconomics and domestic consumer demand: The macroeconomic indicators in Mexico continue to be solid, with same store sales increasing 5%1 during June, remittances increasing 5%2 year over year in April and May and domestic consumer confidence recovering strength towards the end of the quarter.
Air traffic volume increase: The Mexican DGAC reported overall passenger volume growth for Mexican carriers of 16% year over year in April and May; domestic overall passenger volume increased 13%, while international overall passenger volume increased 25%.

Exchange rate volatility: The Mexican peso depreciated 3.0% year over year against the U.S. dollar, from an average exchange rate of Ps.18.05 pesos per US dollar in the second quarter 2016 to Ps.18.60 pesos per U.S. dollar during the second quarter 2017.

Higher fuel prices: The average economic fuel cost per gallon increased 13.2%, year over year, to Ps.32.1 per gallon (US$1.79) in the second quarter 2017.

Strengthened ULCC Model with Further Non-Ticket Revenue Expansion

Passenger traffic stimulation: Volaris booked 4.1 million passengers in the second quarter of 2017, up 11.6% year over year. Volaris traffic (measured in terms of revenue passenger miles, or RPMs) increased 15.9% for the same period. System load factor during the quarter decreased 0.4 percentage points year over year to 85.7%.

Weak and competitive market environment pressured yields partially offset by volume and non-ticket revenue: For the second quarter of 2017, yield decreased 3.8% year over year, load factor was stable at 86%, while TRASM remained at the same level as last year, despite the seasonality effect from the shift of Holy and Easter weeks to the second quarter of this year. During the second quarter, domestic capacity, in terms of ASMs, increased 8.5% year over year, while international capacity increased 36.1% year over year.

Non-ticket revenue growth: Non-ticket revenues and non-ticket revenues per passenger for the second quarter of 2017 increased 31.4% and 17.7% year over year, respectively. Non-ticket revenue generation continues to grow with improved revenues from excess baggage, co-branded credit card and better uptakes of ancillary combos. We also increased our commission revenues from travel related products, such as a new hotel selection step in the purchasing process. Non-ticket revenues now represent 29% of the total operating revenues.

New routes: In the second quarter 2017, Volaris began operations in six new international routes (Managua, Nicaragua – San Jose, Costa Rica; Leon, Guanajuato – Ontario, California; Guatemala City, Guatemala - Mexico City; Los Angeles, California – Queretaro; Midway, Chicago – Queretaro; and Los Angeles, California – Oaxaca).

Exchange Rate and Fuel Price Pressure

In the second quarter 2017, Volaris continued to experience pressure in U.S. dollar denominated costs, such as aircraft and engine rent expenses, international airport costs, and maintenance expenses due to the depreciation of the Mexican peso by 3.0%, year over year. CASM for the second quarter was Ps.128.1 cents, a 7.5% increase compared to second quarter 2016, mainly driven by higher fuel prices and foreign exchange rate pressures. However, at the end of the second quarter, the Mexican peso appreciated 4.8% with respect to the end of previous quarter, leading to a net exchange rate loss of Ps.558 million as result of our U.S. dollar net monetary asset position.

Youngest and Most Fuel Efficient Fleet in Mexico

During the second quarter 2017, the Company did not incorporate any additional aircraft and two aircraft were redelivered. As of June 30, 2017, Volaris fleet was composed of 66 aircraft (12 A319s, 44 A320s and 10 A321s), with an average age of 4.4 years, the youngest fleet among Mexican carriers. At the end of the second quarter 2017, Volaris’ fleet had an average of 180 seats, 63% of which were in sharklet-equipped aircraft.

Solid Balance Sheet and Good Liquidity

Net cash flow used in operating activities was Ps.215 million for the second quarter. As of June 30, 2017, cash and cash equivalents were Ps.5,981 million. Volaris registered negative net debt (or a positive net cash position) of Ps.3,916 million and total equity of Ps.8,598 million.

Active in Fuel Risk Management

Volaris remains active in its fuel risk management program. Volaris utilized call options to hedge 54% of its second quarter 2017 fuel consumption, at an average strike price of US $1.61 per gallon, which combined with the 46% unhedged consumption, resulted in a blended average economic fuel cost of US$1.79 per gallon.