Volaris* (NYSE: VLRS and BMV: VOLAR), the ultra-low-cost airline serving Mexico, the United States and Central America, today announces its financial results for the third quarter 2019.

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

Third Quarter 2019 Highlights

• Total operating revenues were Ps.9,502 million for the third quarter, an increase of 29.9% year over year.
• Total ancillary revenues were Ps.3,030 million for the third quarter, an increase of 36.4% year over year. Total ancillary revenues per passenger for the third quarter reached Ps.539, an increase of 13.6% year over year. Total ancillary revenues represented 31.9% of total operating revenues for the third quarter 2019, increasing 1.5 percentage points with respect to the same period of last year.
• Total operating revenues per available seat mile (TRASM) were Ps.150.3 cents for the third quarter, an increase of 11.4% year over year.
• Operating expenses per available seat mile (CASM) were Ps.123.4 cents for the third quarter, a decrease of 0.3% year over year; with an average economic fuel cost per gallon of Ps.44.9 for the third quarter, an increase of 3.2% year over year.
• Operating expenses excluding fuel, per available seat mile (CASM ex-fuel) reached Ps.77.5 cents for the third quarter, an increase of 2.9% year over year.
• Operating income was Ps.1,703 million for the third quarter, a significant increase compared with the operating income of Ps.601 million for the same period of last year. Operating margin for the third quarter was 17.9%, an improvement in margin of 9.7 percentage points year over year.
• Net income was Ps.713 million (Ps.0.70 per share / US$0.36 per ADS), for a net margin of 7.5% for the third quarter.
• At the close of the third quarter, the Mexican peso depreciated 2.4% against the U.S. dollar with respect to the exchange rate at the close of the previous quarter (Ps.19.17 per US dollar). The Company booked a foreign exchange loss of Ps.173 million derived from our U.S. dollar net monetary liability position, as result of the adoption of IFRS16.
• Net cash flows generated by operating activities were Ps.2,207 million. The net cash flows used in investing activities reached Ps.1,072 million. The net cash flows used in financing activities were Ps.1,606, which included Ps.1,657 million of aircraft rental payments. The positive net foreign exchange difference was Ps.156 million, with net cash used in the third quarter of Ps.314 million. As of September 30, 2019, cash and cash equivalents were Ps.7,810 million.

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

• Stable macroeconomics and domestic consumer demand: The macroeconomic indicators in Mexico during the third quarter were stable, with same store sales^[1] increasing 2.4% year over year; remittances^[2] increased 15.7% year over year during July and August 2019; and the Mexican Consumer Confidence Balance Indicator (BCC) ^[3]increased 3.1% in the third quarter year over year.
• Air traffic volume increase: The Mexican Federal Civil Aviation Agency reported an overall passenger volume growth for Mexican carriers of 8.4% year over year during July and August of 2019; the domestic overall passenger volume increased 7.3%, while the international overall passenger volume increased 1.7%.
• Exchange rate volatility: The Mexican peso depreciated 2.3% year over year against the US dollar, from an average exchange rate of Ps.18.98 per US dollar in the third quarter of 2018 to Ps.19.42 per US dollar during the third quarter of 2019. At the end of the third quarter of 2019, the Mexican peso depreciated 4.4% with respect to the exchange rate at the end of the same period of the last year. The Company booked a foreign exchange loss of Ps.173 million derived from our US dollar net monetary liability position, resulting from the adoption of IFRS16.
• Increased fuel prices: The average economic fuel cost per gallon increased 3.2% in the third quarter of 2019, year over year, reaching Ps.44.9 per gallon (US$2.3).

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

• Passenger traffic stimulation: Volaris booked 5.6 million passengers in the third quarter of 2019, an increase of 20.1% year over year. Volaris traffic (measured in terms of revenue passenger miles, or RPMs) increased 19.3% year over year. System load factor during the third quarter increased 1.6 percentage points year over year, reaching 85.1%.
• Positive TRASM growth: For the third quarter of 2019, TRASM increased 11.4% year over year. During the third quarter of 2019, the total capacity, in terms of ASMs, increased 16.9% year over year.
• Total ancillary revenue growth: For the third quarter of 2019, total ancillary revenue increased 36.4% year over year. Total ancillary revenue per passenger for the third quarter of 2019 increased 13.6% year over year. The total ancillary revenue generation continues to grow with new and mature products, appealing to customers' needs, representing 31.9% of total operating revenue of the third quarter, an increase of 1.5 percentage points year over year.
• New routes: Volaris began operations in two new international routes from El Salvador, San Salvador to Mexico Cityand Guadalajara, Jalisco, respectively. Additionally, Volaris launched one domestic route from Tapachula, Chiapasto Tijuana, Baja California and one international route from Leon, Guanajuato to Fresno, California.

Total Unit Cost Reduction, Despite Peso Depreciation and Fuel Price Pressures

• CASM and CASM ex-fuel for the third quarter of 2019 reached Ps.123.4 (US$6.4 cents) and Ps.77.5 cents (US$4.0), respectively. This represented a decrease of 0.3% and an increase of 2.9%, respectively, year over year; mainly driven by cost control discipline and the average exchange rate depreciation of 2.3%.

Young and Fuel-efficient Fleet

• During the third quarter of 2019, the Company incorporated two aircraft (A320 neo) to its fleet. As of September 30, 2019, Volaris' fleet was composed of 80 aircraft (8 A319s, 57 A320s and 15 A321s), with an average age of 4.9 years. At the end of the third quarter of 2019, Volaris' fleet had an average of 186 seats, 76% of which were in sharklet-equipped aircraft, and 24% were NEO.

Solid Balance Sheet and Good Liquidity

• Net cash flows generated by operating activities were Ps.2,207 million. The net cash flows used in investing activities reached Ps.1,072 million. The net cash flows used in financing activities were Ps.1,606 million, which included Ps.1,657 million of aircraft rental payments. The positive net foreign exchange difference was Ps.156 million, while the net cash used in the third quarter was Ps.314 million. As of September 30, 2019, cash and cash equivalents were Ps.7,810 million, representing 23.7% of last twelve months of the operating revenue. Volaris registered a negative net debt (or a positive net cash position) of Ps.3,533 million (excluding lease liability recognized under the IFRS16 adoption) and total equity of Ps.4,144 million.

Transition to IFRS 16

• The Company adopted IFRS 16 as of January 1, 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 1, 2017 as an increase in assets and liabilities and an adjustment in the retained earnings. The full disclosure and the estimated unaudited figures of this initial adoption are included in the Company´s 2018 annual report.
• This quarterly earnings release includes supplemental information for comparable purposes, with recast, estimated unaudited 2018 figures with the IFRS 16 adoption effects. These figures were derived from unaudited financial statements included in the quarterly reports on Form 6-K reported during the year ended as of December 31, 2018.
• Starting on March 25, 2019, the Company established a hedge on its USD denominated revenues, through a non-derivative financial instrument, 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. During 2019, the impacts of this hedge for the third quarter and year to date were Ps.29 million and Ps.40 million, respectively; which has been presented as part of the total operating revenue.
• Additionally, on the same date, the Company established a hedge on a portion of its forecasted fuel expense, through a non-derivative financial instrument, 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. During 2019, the impacts of this hedge for the third quarter and year to date were Ps.26 million and Ps.40 million, respectively; which has been presented as part of the total fuel expense.

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.