Business Context and Reporting Period
This Form 6-K filing by Controladora Vuela Compania De Aviacion, S.A.B. De C.V. (Volaris) reports unaudited financial results for the nine-month period ended September 30, 2015. The report was filed on November 9, 2015, and incorporates by reference into a Form F-3 registration statement. The company operates as a low-cost carrier in Mexico and the United States.
Key Financial Metrics
| Metric | 2015 (9 Months) | 2014 (9 Months) | Variance |
|---|---|---|---|
| Total Operating Revenues | Ps. 13,087 million | Ps. 10,078 million | +29.9% |
| Operating Income | Ps. 1,775 million | (Ps. 222 million) | Turnaround |
| Net Income | Ps. 1,810 million | (Ps. 98 million) | Turnaround |
| Operating Cash Flow | Ps. 2,140 million | (Ps. 136 million) | Significant Increase |
| Cash and Equivalents (Sep 30) | Ps. 4,408 million | Ps. 2,265 million (Dec 31) | +Ps. 2.1 billion |
| Available Credit Lines | Ps. 2,464 million | Ps. 1,837 million | +Ps. 627 million |
Operational Data: Capacity (ASMs) increased 16.6% to 10.26 billion; Load factor remained stable at 82.1%; Booked passengers increased 21.4% to 8.73 million.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues rose 29.9%, driven by a 25.0% increase in passenger revenue (due to fleet expansion of seven net aircraft) and a 50.7% surge in non-ticket revenue (ancillary products and insurance).
- Profitability Turnaround: The company shifted from an operating loss of Ps. 222 million in 2014 to an operating profit of Ps. 1,775 million in 2015. Net income similarly improved from a loss of Ps. 98 million to a profit of Ps. 1,810 million.
- Expense Dynamics: Total operating expenses increased 9.8%. Notable increases included Aircraft and engine rent (+33.5%) and Depreciation (+70.2%). However, Fuel expenses decreased 12.8% due to lower economic fuel costs, partially offset by hedging losses.
- Foreign Exchange Impact: A significant net exchange gain of Ps. 789 million (vs. Ps. 112 million in 2014) contributed to financing results, driven by a 26.4% depreciation of the peso against the U.S. dollar and a net U.S. dollar asset position of $503.1 million.
Outlook, Risks, and Management Commentary
- Liquidity Position: Management highlights strong liquidity with cash and equivalents rising to Ps. 4.4 billion. The company maintains committed financing for all 2015 aircraft deliveries and four 2016 deliveries.
- Investment Policy: As of September 30, 2015, 79% of cash and short-term investments were denominated in U.S. dollars to optimize performance and minimize risk.
- Risks: The filing notes exposure to future exchange rate fluctuations, which could result in gains or losses. Additionally, maintenance costs are rising due to fleet aging (average age 4.42 years).
- Tax Position: The company utilized Ps. 2,568 million of tax loss carry-forwards in the period. Remaining carry-forwards total Ps. 213 million, usable for ten years under Mexican law.
Investor Verification Checklist
- Verify the sustainability of the 50.7% non-ticket revenue growth and the specific pricing strategies for ancillary products.
- Confirm the impact of the peso's depreciation on future fuel costs and aircraft rent expenses, given the company's significant U.S. dollar-denominated liabilities.
- Review the details of the four sale and leaseback transactions that generated Ps. 131.7 million in other operating income.
- Assess the adequacy of the Ps. 2.1 billion increase in cash reserves against upcoming capital expenditure requirements for fleet expansion.
- Monitor the utilization of remaining tax loss carry-forwards (Ps. 213 million) against projected taxable income.