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 2020.

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

Third Quarter 2020 Highlights

During the third quarter 2020, Volaris continued to successfully navigate the uncertainties caused by the SARS-CoV-2 (COVID-19) pandemic. The Company has recovered much of the capacity resulting from COVID-19 as measured by available seat miles (ASMs), a result of its strong ultra-low-cost business model focused on the VFR (Visiting Friends and Relatives) and leisure segments in the domestic and US-transborder markets.

As the Company has been able to recover services and add new routes, management has remained focused on ensuring the well-being of its crews, personnel, and passengers.  Volaris has carried more than 4.5 million passengers following its successful biosafety protocol implementation in April 2020. Volaris was recognized with the "Safe travels" stamp, by the World Travel and Tourism Council, as well as the certificates of biosecurity best practices by the governments of Yucatan and Mexico City.

The Company was able to ramp up service to 63% of prior year in July and expanded further to 79% of prior year in August.  September is typically a low travel month so management cautiously increased capacity to 84% of prior year while focusing on increasing total revenue per available seat mile (TRASM). For the full period, Volaris operated 75% of ASMs compared to the same period in 2019. The domestic market led the capacity recovery, where Volaris operated 85% ASMs versus the same period in 2019. In the international market, Volaris operated 54% ASMs compared to the same period in 2019. Central American operations remained closed.

The main effects of the continuing recovery of demand and capacity at the end of the third quarter, are as follows:

• Total operating revenues were Ps.4,724 million for the third quarter, a decrease of 50.3% year over year.
• Total ancillary revenues were Ps.2,131 million for the third quarter, a decrease of 29.7% year over year. Total ancillary revenues per passenger for the third quarter reached Ps.614, an increase of 13.9% year over year. However, total ancillary revenues represented 45.1% of total operating revenues for the third quarter 2020, increasing 13.2 percentage points with respect to the same period of last year.
• Total operating revenues per available seat mile (TRASM) were Ps.102.8 cents for the third quarter, a decrease of 31.6% year over year.
• In the third quarter 2020, the Company recorded a one-time charge of Ps.746 million.
• Operating expenses per available seat mile (CASM) were Ps.149.2 cents for the third quarter, an increase of 20.9% year over year; with an average economic fuel cost per gallon of Ps.40.2 for the third quarter, a decrease of 10.5% year over year. Excluding the one-time charge, CASM was Ps.133.5 cents.
• Operating expenses per available seat mile excluding fuel, (CASM ex-fuel) were Ps.111.3 cents for the third quarter, an increase of 43.6% year over year; with an average exchange rate depreciation of the Mexican peso against the U.S. dollar of 13.9% year over year. Excluding the one-time charge, CASM ex-fuel was Ps.95.7 cents.
• Operating loss was Ps.2,227 million for the third quarter, a significant decrease compared with the operating income of Ps.1,703 million for the same period of last year. Operating margin for the third quarter was negative 47.1%, a deterioration of 65.0 percentage points year over year. Excluding the one-time charge, operating loss was Ps.1,481 million, a negative operating margin of 31.4%.
• Net loss was Ps.2,175 million (Ps.2.15 loss per share / U.S.$0.96 loss per ADS), a negative net margin of 46.0% for the third quarter. Excluding the one-time charge, net loss was Ps.1,429 million (Ps.1.41 loss per share / U.S.$0.63 loss per ADS), a negative net margin of 30.3%.
• At the close of the third quarter, the Mexican peso appreciated 2.2% against the U.S. dollar (Ps.22.46 per U.S. dollar) with respect to the exchange rate at the close of the previous quarter (Ps.22.97 per U.S. dollar). The Company booked a net foreign exchange gain of Ps.186 million derived from our U.S. dollar net monetary liability position.
• During the third quarter of 2020, the net cash flow used in operating activities was Ps.113 million. The net cash flow used in investing activities reached Ps.179 million. The net cash flow used in financing activities was Ps.1,357 million, which included Ps.1,724 million of aircraft rental payments. The negative net foreign exchange difference was Ps.163 million, thus leading to a net decrease of cash and cash equivalents in the third quarter of Ps.1,812 million. As of September 30, 2020, cash and cash equivalents were Ps.8,202 million.

Fuel Price reduction and Peso Depreciation

• Fuel price reduction: The average economic fuel cost per gallon decreased 10.5% in the third quarter of 2020, year over year, reaching Ps.40.2 per gallon (U.S.$1.8).
• Peso depreciation: The Mexican peso depreciated 13.9% against the U.S. dollar year over year, from an average exchange rate of Ps.19.42 per U.S. dollar in the third quarter of 2019 to Ps.22.11 per U.S. dollar during the third quarter of 2020. At the end of the third quarter of 2020, the Mexican peso (Ps.22.46 per U.S. dollar) depreciated 14.4% with respect to the exchange rate at the end of the same period of the last year (Ps.19.64 per U.S. dollar).

Passenger Traffic Contraction, Ancillary Revenue Reduction, and TRASM decrease

• Passenger traffic contraction: Volaris had 3.4 million passengers booked in the third quarter of 2020, a decrease of 38.3% year over year. Volaris traffic (measured in terms of revenue passenger miles, or RPMs) decreased 35.2% year over year. System load factor during the third quarter decreased 11.7 percentage points year over year to a level of 73.4%.
• Total ancillary revenue reduction: For the third quarter of 2020, total ancillary revenue decreased 29.7% year over year. However, total ancillary revenue per passenger in the third quarter of 2020 increased 13.9% year over year. The total ancillary revenue generation continues to grow with new and mature products, appealing to customers' needs, representing 45.1% of total operating revenue of the third quarter, an increase of 13.2 percentage points year over year.
• TRASM decrease: For the third quarter of 2020, TRASM decreased 31.6% year over year. During the third quarter of 2020, the total capacity, measured by ASMs, decreased 24.9% year over year.

Total Unit Cost Increase and Peso Depreciation

• CASM and CASM ex fuel in the third quarter of 2020 reached Ps.149.2 (U.S.$6.64 cents) and Ps.111.3 cents (U.S.$4.96), respectively. This represented an increase of 20.9% for CASM and an increase of 43.6% for CASM ex fuel, year over year; mainly driven by the capacity reduction as measured by available seat miles (ASMs), and the depreciation of the Mexican peso against the U.S. dollar by 13.9%. Excluding the one-time charge, CASM was Ps.133.5 cents and CASM ex-fuel was Ps.95.7 cents.

Young and Fuel-Efficient Fleet

• During the third quarter of 2020, the Company returned one A320 aircraft and incorporated three new A320 NEO aircraft to its fleet. As of September 30, 2020, Volaris' fleet comprised 84 aircraft (7 A319s, 61 A320s and 16 A321s), with an average age of 5.4 years. At the end of the third quarter of 2020, Volaris' fleet had an average of 187 seats per aircraft 77% of our aircraft were sharklet-equipped, and 32% were NEOs.

Liquidity Preservation Plan with a Net Cash Flow Generated by Operating Activities

• Since the COVID-19 pandemic started, the Company's main objective has been to preserve its liquidity position. Specifically, for the third quarter, our liquidity preservation plan brought $1.9 billion pesos in benefits; of which $406 million pesos were cost reductions.
• During the third quarter of 2020, the net cash flow used in operating activities was Ps.113 million. The net cash flow used in investing activities was Ps.179 million. The net cash flow used in financing activities was Ps.1,357 million, which included Ps.1,724 million of aircraft rental payments. The negative net foreign exchange difference was Ps.163 million.  As a result, there was a net decrease of cash and cash equivalents in the third quarter of Ps.1,812 million. As of September 30, 2020, cash and cash equivalents were Ps.8,202 million, representing 34.5% of last twelve months of the operating revenue. Volaris registered a negative net debt (or a positive net cash position) of Ps.2,387 million (excluding lease liability recognized under the IFRS16 adoption).

Non-Derivative Financial Instruments

• During 2019, the Company established hedges on its U.S. dollar denominated revenues through a non-derivative financial instrument, using the lease liabilities denominated in U.S. dollar as a hedge instrument. This hedging relationship was designated as a cash flow hedge of forecasted revenues to mitigate the volatility of the foreign exchange variation arising from the revaluation of the lease liabilities. During the third quarter 2020, the impact of these hedges was Ps.171 million, which has been included as part of the total operating revenue.
• Additionally, during 2019, the Company established hedges on a portion of its forecasted fuel expense, through a non-derivative financial instrument, using as a hedge instrument a portion of its U.S. dollar denominated monetary assets. This hedging relationship was 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 U.S. dollar denominated monetary asset. During the third quarter 2020, the impact of these hedges was Ps.154 million, which has been presented as part of the total fuel expense.
• For the hedging relationships described, the effective portion of the hedging instrument's change in fair value is recognized in Other Comprehensive Income or OCI. The accounting records corresponding to the recycling of the OCI are made in accordance with IFRS 9. Under this Standard, the portion recorded in OCI is recognized in the results in the same period in which the expected hedging for cash flows affect the result of the period. As of September 30, 2020, OCI includes a negative foreign exchange effect of Ps.5,265 million. As of December 31, 2019, OCI includes a positive foreign exchange effect of Ps.14 million.