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 third quarter 2017.

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

Third Quarter 2017 Highlights

• Total operating revenues were Ps.6,582 million for the third quarter, a decrease of 2.2% year over year, notwithstanding the negative impact of the natural disasters and a soft fare environment during the quarter.
• Non-ticket revenues now represent 27% of the total operating revenues, increasing 5 percentage points year over year, partially compensating the average fare decline. - Non-ticket revenues were Ps.1,809 million for the third quarter, an increase of 18.6% year over year. Non-ticket revenues per passenger were Ps.434 for the third quarter, increasing 12.8% year over year.
• Total operating revenues per available seat mile (TRASM), had a sequential improvement of 6.8% quarter over quarter, reaching Ps.137.7 cents for the third quarter, and a decrease of 11.2% year over year.
• Operating expenses per available seat mile (CASM) decreased 5.0% year over year, to Ps.124.4 cents for the third quarter; with an average exchange rate of Ps.17.82, a year over year decrease of 4.8%, and despite an average economic fuel cost per gallon of Ps.31.8, representing an increase of 3.0% year over year.
• Operating expenses excluding fuel, per available seat mile (CASM ex fuel) decreased 6.2% year over year, to Ps.88.9 cents for the third quarter.
• Operating income was Ps.634 million, representing 9.6% of operating margin for the third quarter, a 9.0 percentage points higher than the previous quarter, and 5.9 percentage points lower year over year.
• Net income was Ps.731 million (Ps.0.72 per share / US$0.40 per ADS) for the third quarter, with a net margin of 11.1%.
• As of September 30, 2017, cash and cash equivalents were Ps.5,373 million.

Volaris' CEO Enrique Beltranena commented: “During the third quarter, demand and traffic patterns, despite a competitive fare environment, had been sequentially improving, but in September, natural disasters in Mexico and in the region temporarily interrupted such recovery. We continued to drive non-ticket revenue growth, managed capacity prudently and reinforced our cost control discipline, reversing the negative cost trend. These actions positions Volaris with a defendable and resilient business model in a challenging environment.”

Resilient Macroeconomics and Exchange Rate Appreciation Partially Offset Fuel Price Pressures

• Stable macroeconomics and domestic consumer demand: The macroeconomic indicators in Mexico continued to be solid, with same store sales increasing 5.6%1 during September, remittances increasing 9%2 year over year in July and August, and the Mexican General Economic Activity Indicator (IGAE) increased 2.2%3 year over year in August of 2017
• Air traffic volume increase: The Mexican DGAC reported overall passenger volume growth for Mexican carriers of 7.4% year over year in July and August; domestic overall passenger volume increased 6.1%, while international overall passenger volume increased 12.0%.
• Exchange rate volatility: The Mexican peso appreciated 4.8% year over year against the U.S. dollar, from an average exchange rate of Ps.18.72 pesos per US dollar in the third quarter 2016 to Ps.17.82 pesos per U.S. dollar during the third quarter 2017.
• Higher fuel prices: The average economic fuel cost per gallon increased 3.0%, year over year, to Ps.31.8 per gallon (US$1.75) in the third quarter 2017.
• Natural disasters: During the month, Hurricanes Irma and Maria, tropical storms Max and Lidia in the Pacific, and two earthquakes that impacted 11 states in Mexico, affected operations with approximately 50 flights cancelled in eight airports, also triggering a decline in bookings for the period. Volaris worked in coordination with the federal, state, and local authorities to assist people that were stranded. We also helped our customers with free of charge changes in itineraries.

Strengthened ULCC Model with Further Non-Ticket Revenue Growth

• Passenger traffic stimulation: Volaris booked 4.2 million passengers in the third quarter of 2017, up 5.2% year over year. Volaris traffic (measured in terms of revenue passenger miles, or RPMs) increased 7.9% for the same period. System load factor during the quarter decreased 1.7 percentage points year over year to 86.2%.
• Competitive market environment pressured yields partially offset by non-ticket revenue: For the third quarter of 2017, yield and TRASM decreased 15.0% and 11.2% year over year, respectively. During the third quarter, domestic capacity, in terms of ASMs, increased 9.3% year over year, while international capacity increased 11.7% year over year.
• Non-ticket revenue growth: Non-ticket revenues and non-ticket revenues per passenger for the third quarter of 2017 increased 18.6% and 12.8% 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. We also increased our commission revenues from travel related products, such as a new hotel selection step in the purchasing process, cruise packages and car rentals. Non-ticket revenues now represent 27% of the total operating revenues for the quarter.
• New routes: In the third quarter 2017, Volaris began operations in two new international routes (Mexico City – San Antonio, Texas and Mexico City – San Jose, Costa Rica).

Tight Cost Controls, Despite Fuel Price Pressure

CASM and CASM ex fuel for the third quarter were Ps. 124.4 (US 6.8 cents) and Ps.88.9 cents (US 4.9 cents), respectively. These represented decreases of 5.0% and 6.2%, respectively; mainly driven by tightening cost controls and average exchange rate appreciation of 4.8%. At the end of the third quarter, the Mexican peso also depreciated 1.7% with respect to the end of previous quarter, leading to a net exchange rate gain of Ps.125 million as result of our U.S. dollar net monetary asset position.

Youngest and Most Fuel-efficient Fleet in Mexico

During the third quarter 2017, the Company incorporated the second A320NEO to its fleet. As of September 30, 2017, Volaris’ fleet was composed of 67 aircraft (12 A319s, 45 A320s and 10 A321s), with an average age of 4.6 years, the youngest fleet among Mexican carriers. At the end of the third quarter 2017, Volaris’ fleet had an average of 180 seats, 64% of which were in sharklet-equipped aircraft.

Solid Balance Sheet and Good Liquidity

As of September 30, 2017, cash and cash equivalents were Ps.5,373 million, representing 22% of last twelve month operating revenues. Volaris registered negative net debt (or a positive net cash position) of Ps.2,981 million and total equity of Ps.9,502 million.

Active in Fuel Risk Management

Volaris’ fuel risk management program provided protection from fuel prices increases, with 59% of its third quarter fuel consumption hedged, at an average strike price of US$1.44 per gallon, and resulting in a positive net settlement of Ps.2,6 million for the quarter. This hedged portion, combined with the 41% unhedged consumption, resulted in a blended average economic fuel cost of US$1.75 per gallon.

Central America Operations

On September 21, 2017 Volaris Costa Rica obtained approval from U.S. Department of Transportation to operate from Central America to the U.S., subject to operations and maintenance certifications by the Federal Aviation Administration.