Controladora Vuela (Volaris) — FY2022 Form 20-F
Business context and reporting period. Volaris is a Mexican ultra-low-cost airline operating primarily in Mexico, with routes across the United States, Central America and South America. This is its annual report for the fiscal year ended December 31, 2022, filed April 28, 2023—not a standalone fourth-quarter filing. Financial statements are audited and prepared under IFRS. The company changed its functional currency to the U.S. dollar effective December 31, 2021, and retrospectively changed its presentation currency to U.S. dollars for periods shown; historical figures may therefore differ from previously published reports.
Financial and operating performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Operating revenue | $2.847 billion | $2.200 billion |
| Operating income | $43.7 million; 1.5% margin | $397.0 million; 18.0% margin |
| Net income (loss) | $(80.2) million; $(0.07) per share | $106.5 million; $0.09 per share |
| Operating cash flow | $613.6 million | $785.4 million |
| Investing cash flow | $(130.7) million | $(134.6) million |
| Financing cash flow | $(513.1) million | $(435.2) million |
| Cash, cash equivalents and restricted cash at year-end | $711.9 million | $741.1 million |
| Total assets / total liabilities | $4.468 billion / $4.233 billion | $3.985 billion / $3.671 billion |
| Financial debt at year-end | $273.0 million | $304.9 million |
| Lease liabilities at year-end | $2.709 billion | $2.412 billion |
Revenue grew 29.4%, reflecting increased capacity and passenger demand. Capacity (ASMs) rose 25.6%, booked passengers rose 27.2% to 31.1 million, and load factor reached 85.6% versus 85% in 2021. Fare revenue increased 31.2%; other passenger revenue rose 24.4%. Passenger revenue was approximately 96% of total revenue.
Profitability weakened sharply: operating expenses rose 55.5%, faster than revenue, and the company moved from net income to a net loss. Fuel expense increased 113.2% to $1.299 billion, or 46% of operating expenses, reflecting higher fuel prices and greater consumption. CASM was about 7.9 cents, up from about 6.4–6.5 cents in 2021; CASM excluding fuel was about 4.3 cents versus 4.2 cents. Finance cost increased to $192.5 million. The 2021 foreign-exchange loss included a $109 million charge from ending hedge relationships after the functional-currency change; 2022 reported a $3.6 million net foreign-exchange gain.
Liquidity remains dependent on operating cash flow. Year-end current assets were $1.066 billion against current liabilities of $1.420 billion. Signed credit lines totaled $859.1 million, including $390.3 million of undrawn financial-debt capacity and $16.1 million of undrawn letter-of-credit capacity. Operating cash flow declined year over year, while financing cash outflows included $449.0 million of lease-liability payments and $196.6 million of financial-debt repayments.
Material changes versus the prior comparable period
- Operating revenue rose 29.4%, but operating income fell 88.9%, to $43.7 million, as fuel and other costs outpaced growth.
- The company swung from $106.5 million of net income in 2021 to an $80.2 million net loss in 2022.
- Operating cash flow fell to $613.6 million from $785.4 million; cash and restricted cash declined by $29.3 million.
- The fleet expanded from 101 to 117 aircraft; average daily utilization increased to 13.28 block hours from 12.53.
- On-time performance deteriorated to 71.2% from 77.3%, while the completion factor improved to 98.3% from 97.5%.
Outlook, risks and unusual items
- Plans and spending: Management describes continued route and fleet growth, but the filing does not provide clear numerical earnings or revenue guidance. It estimates 2023 capital expenditures of approximately $420 million. The company had firm commitments for 144 Airbus aircraft for delivery through 2030; disclosed aircraft and equipment purchase obligations were $6.826 billion at year-end.
- Fixed obligations: Contractual obligations included $2.709 billion of recognized lease liabilities and $1.301 billion of future lease payments tied to committed sale-and-leaseback arrangements. These amounts are distinct from aircraft purchase obligations.
- Fuel exposure: Volaris had no fuel hedge positions at December 31, 2022. It estimates a 5% increase in reference fuel prices would have raised 2022 fuel expense by about $56.5 million. Management says fare increases are constrained by its low-fare model and price-sensitive customers.
- Regulatory and market risks: Mexico remained at FAA IASA Category 2, restricting additions of aircraft, services or routes to the United States and preventing the Frontier codeshare from operating. The filing also discusses proposed Mexican government airline competition and a February 2023 decree to end cargo operations at Mexico City International Airport.
- Operational risks: The company relies on major airports, especially Mexico City, Tijuana, Guadalajara and Cancun; Mexico City airport capacity and slot availability are constraints. It also cites aircraft and engine supply delays, reliance on limited suppliers, and expected increases in maintenance as the fleet ages.
- Debt covenant item: Volaris reported non-compliance with a Sabadell working-capital facility covenant at December 31, 2022. It settled the facility on January 5, 2023; the filing says the issue did not trigger cross-defaults under other debt or lease agreements.
- Contingencies and audit: Possible legal contingencies totaled $7.8 million at year-end; management did not expect current proceedings to have a material adverse effect. The auditor issued an unqualified opinion and identified the $249.7 million aircraft and engine lease-return provision as a critical audit matter. Management and the auditor reported effective internal control over financial reporting.
- Capital allocation: Volaris reported no cash dividends paid and does not expect to pay them in the foreseeable future.
Most important facts for investors to verify
- Whether higher fuel costs, absent fuel hedges, and limited fare pass-through continue to compress margins.
- The availability and draw conditions of credit facilities, cash restrictions, debt maturities, lease payments and aircraft pre-delivery funding requirements.
- Progress on Mexico’s IASA Category 1 restoration, airport-slot access, and the practical effect of Mexican aviation and cargo policy changes.
- Aircraft delivery timing, engine availability, future sale-and-leaseback terms, and the assumptions behind the lease-return provision and rising maintenance costs.
- The sustainability-linked notes’ emissions targets and the potential 25-basis-point interest-rate step-up if targets are missed.
- The reported Sabadell covenant breach and January 2023 repayment, along with the status of the $31 million tax proceedings and other legal contingencies.