Volaris* (NYSE: VLRS and BMV: VOLAR), the ultra-low-cost airline serving Mexico, the United States of America and Central America, today announces its financial results for the fourth quarter 2020.

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

Fourth Quarter 2020 Highlights

During the fourth quarter of 2020, Volaris continued reinforcing its strategy to navigate the uncertainties of the SARS-CoV-2 (COVID-19) pandemic, focusing on its financial strength, cost reduction, liquidity preservation, capacity recovery and taking advantage of market opportunities.

For the fourth quarter, the Company posted an operating margin of 11.9%. Volaris continued to implement cost reduction initiatives and achieved a reduction in operating expenses per available seat mile in U.S. dollars of 8.7% as compared to 2019.

On December 11, 2020, the Company concluded an upsized, primary follow-on equity offering of 134,000,000 of its Ordinary Participation Certificates (Certificados de Participación Ordinarios), or CPOs, in the form of American Depositary Shares, or ADSs, at a price to the public of U.S.$11.25 per ADS in the United States of America and other countries outside Mexico, pursuant to the Company's shelf registration statement filed with the Securities and Exchange Commission. In connection with the offering, the underwriters exercised their option to purchase up to 20,100,000 additional CPOs in the form of ADSs. The Company received net proceeds of approximately U.S.$164 million dollars, which it will use for general corporate purposes. Volaris ended the fourth quarter of 2020 with Ps.$10,103 million in cash and cash equivalents and total equity of Ps.2,796 million.

During the fourth quarter, the Company was able to ramp up service (ASMs) to 94.9% when compared to the same period of the prior year. The domestic market led the capacity recovery, where Volaris operated 99.1% ASMs versus the same period in 2019. In the international market, Volaris operated 85.5% ASMs compared to the same period in 2019. During the fourth quarter 2020, Volaris began operations on two new domestic and seven new international routes.

During 2020, Volaris carried more than 14.7 million passengers after successfully implementing its biosecurity protocol in April 2020.

The main results for the fourth quarter are described as follows:

• Total operating revenues were Ps.8,086 million for the fourth quarter, a decrease of 16.9% year over year.
• Total ancillary revenues were Ps.3,877 million for the fourth quarter, an increase of 21.4% year over year. Total ancillary revenues per passenger for the fourth quarter reached Ps.798, an increase of 43.3% year over year. Total ancillary revenues represented 48.0% of total operating revenues for the fourth quarter 2020, increasing 15.2 percentage points with respect to the same period of last year.
• Total operating revenues per available seat mile (TRASM) were Ps.138.1 cents for the fourth quarter, a decrease of 10.9% year over year.
• Operating expenses per available seat mile (CASM) were Ps.120.6 cents for the fourth quarter, a decrease of 2.3% year over year, with an average economic fuel cost per gallon of Ps.37.2 for the fourth quarter, a decrease of 18.8% year over year.
• Operating expenses per available seat mile excluding fuel, (CASM ex-fuel) were Ps.85.3 cents for the fourth quarter, an increase of 12.2% year over year, with an average exchange rate depreciation of the Mexican peso against the U.S. dollar of 7.0% year over year.
• Operating income was Ps.960 million for the fourth quarter, a decrease of 51.2% compared with the same period of last year. Operating margin for the fourth quarter was 11.9%, a decrease of 8.4 percentage points year over year.
• Net income was Ps.897 million (Ps.0.85 earnings per share / U.S.$0.43 earnings per ADS), a net margin of 11.1% for the fourth quarter.
• At the close of the fourth quarter, the Mexican peso appreciated 11.2% against the U.S. dollar (Ps.19.95 per U.S. dollar) with respect to the exchange rate at the close of the previous quarter (Ps.22.46 per U.S. dollar). The Company booked a net foreign exchange gain of Ps.1,048 million derived from its U.S. dollar net monetary liability position.
  
  During the fourth quarter of 2020, the net cash flow generated by operating activities was Ps.1,551 million. The net cash flow generated by investing activities was Ps.77 million. The net cash flow generated by financing activities was Ps.883 million, which included Ps.2,242 million of aircraft rental payments. The negative net foreign exchange difference was Ps.609 million. As a result, there was a net increase in cash and cash equivalents in the fourth quarter of Ps.1,901 million. As of December 31, 2020, cash and cash equivalents were Ps.10,103 million.
• Despite the progress made in the fourth quarter 2020, there remain significant challenges in the current period with COVID-19 case counts increasing in both Mexico and the USA. Historically, the first quarter of any year tends to be a challenging quarter for airlines and in the context of the COVID-19 pandemic, it is even more so. For the first quarter 2021, the Company expects weakness in demand and booking curves to compress. Volaris operates approximately 30% of its network from Mexico to the USA and expects a short-term reduction in demand for cross border flights as a result of recent USA regulations requiring international passengers arriving to the USA to have completed a negative COVID-19 test not more than 72 hours prior to departure. As a result, the Company's network plans for the first quarter of 2021 will be more conservative, focused on deploying appropriate levels of capacity to align with the changing demand environment. At present, Volaris intends to operate approximately 80% of capacity as compared to the same period of last year, as measured by ASMs. This still represents a strong capacity comeback from the COVID-19 pandemic as compared to the global industry, which is currently operating at 56% of capacity compared to the previous year. Nonetheless, as the first quarter is still in progress, Volaris cannot offer any assurance as to how actual results will compare to the expected results mentioned herein.

Fuel Price reduction and Peso Depreciation

• Fuel price reduction: The average economic fuel cost per gallon decreased 18.8% in the fourth quarter of 2020, year over year, to Ps.37.2 per gallon (U.S.$1.9).
• Peso depreciation: The Mexican peso depreciated 7.0% against the U.S. dollar year over year, from an average exchange rate of Ps.19.28 per U.S. dollar in the fourth quarter of 2019 to Ps.20.63 per U.S. dollar during the fourth quarter of 2020. At the end of the fourth quarter of 2020, the Mexican peso (Ps.19.95 per U.S. dollar) depreciated 5.9% with respect to the exchange rate at the end of the same period of the last year (Ps.18.85 per U.S. dollar).

Passenger Traffic Contraction, Ancillary Revenue Growth and Increased Route Network

• Passenger traffic contraction: Volaris had 4.9 million booked passengers in the fourth quarter of 2020, a decrease of 15.3% year over year. Volaris traffic (measured in revenue passenger miles, or RPMs) decreased 13.1% year over year. System load factor during the fourth quarter decreased 7.4 percentage points year over year to 80.2%.
• Total ancillary revenue growth: For the fourth quarter of 2020, total ancillary revenue and total ancillary revenue per passenger increased 21.4% and 43.3% year over year, respectively. The total ancillary revenue generation continues to grow with new and mature products, focusing on customers' needs, and represents 48.0% of total operating revenue of the fourth quarter, an increase of 15.2 percentage points year over year.
• TRASM decrease: For the fourth quarter of 2020, TRASM decreased 10.9% year over year. During the fourth quarter of 2020, the total capacity, measured by ASMs, decreased 5.1% year over year.
• New routes: During the fourth quarter of 2020, Volaris began operations in two new domestic routes and seven new international routes. In the domestic market: 1) Mexico City to Campeche, Campeche; and 2) Cancun, Quintana Roo to Oaxaca, Oaxaca. In the international market: 1) Mexico City to Dallas, Texas; 2) Mexico City to Houston, Texas; 3) Mexico City to Fresno, California; 4) Mexico City to Ontario, California; 5) Mexico City to San Jose, California; 6) Mexico City to Sacramento, California; and 7) Morelia, Michoacán to Chicago O´Hare, Illinois.

Total Unit Cost Increase and Peso Depreciation

• CASM and CASM ex fuel in the fourth quarter of 2020 was Ps.120.6 (U.S.$6.04 cents) and Ps.85.3 cents (U.S.$4.27), respectively. This represented a decrease of 2.3% for CASM and an increase of 12.2% for CASM ex fuel, year over year, mainly driven by the capacity reduction measured in available seat miles (ASMs), and the depreciation of the Mexican peso against the U.S. dollar by 7.0%.

Young and Fuel-Efficient Fleet

• During the fourth quarter of 2020, the Company returned one A319 aircraft and incorporated three new A320 NEO aircraft into its fleet. As of December 31, 2020, Volaris' fleet comprised 86 aircraft (6 A319s, 64 A320s and 16 A321s), with an average age of 5.3 years. At the end of the fourth quarter of 2020, Volaris' fleet had an average of 188 seats per aircraft, 79% of our aircraft were sharklet-equipped, and 35% were NEOs.

Solid Balance Sheet and Liquidity with Net Cash Flow Generated by Operating Activities

• As of December 31, 2020, cash and cash equivalents were Ps.10,103 million, representing 45.6% of last twelve months operating revenue. Volaris registered a negative net debt (or a positive net cash position) of Ps.4,749 million (excluding the lease liability recognized under IFRS16) and total equity of Ps.2,796 million.
• During the fourth quarter of 2020, the net cash flow generated by operating activities was Ps.1,551 million. The net cash flow generated by investing activities was Ps.77 million. The net cash flow generated by financing activities was Ps.883 million, which included Ps.2,242 million of aircraft rental payments. The negative net foreign exchange difference was Ps.609 million. As a result, there was a net increase of cash and cash equivalents in the fourth quarter of Ps.1,901 million.

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 fourth quarter 2020, the impact of these hedges was Ps.174 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 fourth quarter 2020, the impact of these hedges was Ps.84 million, which is included 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 affects the result of the period. As of December 31, 2020, OCI includes a negative foreign exchange impact of Ps.1,577 million. As of December 31, 2019, OCI includes a positive foreign exchange effect of Ps.14 million.