Controladora Vuela (Volaris) — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020; filed April 30, 2021. This is an annual report, not a standalone fourth-quarter filing. Financial statements are audited and prepared under IFRS as issued by the IASB. Unless stated otherwise, amounts below are Mexican pesos (Ps.) and rounded to billions; U.S. dollar conversions are for convenience only.
Business context and operating performance
Volaris is a Mexican ultra-low-cost airline operating primarily domestic and U.S. routes, with service in Central America. Its model combines low base fares with ancillary revenue. COVID-19 sharply reduced travel demand and led to capacity cuts and suspended routes; capacity recovered during the second half, reaching more than 2019 levels in December.
| Metric | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Operating revenue | Ps. 22.16bn | Ps. 34.75bn | Down 36.2% |
| Operating income (loss) | Ps. (3.25)bn | Ps. 4.36bn | Operating margin about (14.7%), versus 12.5% |
| Net income (loss) | Ps. (4.29)bn | Ps. 2.64bn | Net margin about (19.4%), versus 7.6% |
| Operating cash flow | Ps. 4.36bn | Ps. 9.51bn | Down about 54% |
| Cash and cash equivalents | Ps. 10.10bn | Ps. 7.98bn | Up Ps. 2.12bn |
| Current assets / current liabilities | Ps. 14.40bn / Ps. 20.97bn | Ps. 12.12bn / Ps. 17.32bn | 2020 current ratio about 0.69 |
| Financial debt | Ps. 5.35bn | Ps. 4.98bn | Excludes lease liabilities |
| Lease liabilities | Ps. 44.13bn | Ps. 40.52bn | IFRS 16 recognized on balance sheet |
Revenue, costs and operational metrics
- Fare revenue fell 44.3% to Ps. 12.87bn; other passenger revenue declined 18.5% to Ps. 8.61bn. Ancillary revenue per booked passenger increased 23.9% to Ps. 659, partially cushioning weaker ticket sales.
- ASMs fell 25.4%, booked passengers fell 33.1% to 14.7 million, and load factor declined about 6 percentage points to approximately 80%. Average ticket revenue per booked passenger fell 17.0% to Ps. 875.
- Net operating expenses fell 16.4% to Ps. 25.41bn, less than the revenue decline. Fuel expense decreased 42.9% to Ps. 6.64bn as fuel consumption and average cost per gallon declined, while aircraft lease-related depreciation, variable lease expense, sales and marketing, and depreciation and amortization increased.
- Reported CASM increased to 141.3 cents from 124.3 cents; CASM excluding fuel rose to 102.7 cents from 76.6 cents. TRASM declined to 123.5 cents from 142.2 cents.
- Volaris ended the year with 86 aircraft. Average daily utilization fell to 11.3 block hours from 12.94; on-time performance improved to 87.9% from 79.2%, while flight completion declined to 94.6% from 97.6%.
Cash, debt and funding
- Operating cash flow was Ps. 4.36bn; investing cash outflow was Ps. 0.07bn; financing cash outflow was Ps. 3.04bn. Cash rose to Ps. 10.10bn, partly reflecting equity-offering proceeds and financing activity.
- Available credit lines totaled Ps. 9.26bn, including approximately Ps. 6.85bn related to financial debt and Ps. 2.41bn for letters of credit. The filing reports undrawn availability, but the amount is not consistent across all disclosures; verify against the detailed facility notes.
- A December 2020 primary offering raised approximately US$164.4m net, issuing 154.1m CPOs in ADS form at US$11.25 per ADS, including the underwriters’ option.
- Contractual commitments remain substantial: the filing lists Ps. 44.13bn of recognized lease liabilities, Ps. 15.13bn of future sale-and-leaseback lease payments, and Ps. 87.21bn of aircraft, engine and related purchase obligations. These are distinct disclosed categories and should not be added without reviewing their scope and timing.
Material changes, outlook and risks
- COVID-19 impact: Capacity was cut by as much as 80% in April and 90% in May 2020, with reductions continuing through November. Industry passenger traffic in Mexico fell 51.2% for the year. Management said demand recovery and further restrictions remained uncertain.
- Liquidity actions: Management reported approximately US$200m of savings from cost reductions and supplier deferrals, negotiated reductions with more than 360 suppliers, and deferred some capital spending. It aimed to bring CASM ex-fuel to levels similar to 2019 by the end of 2021; this is a target, not formal earnings guidance.
- Network and fleet: Volaris added 13 routes in 2020. Its revised fleet plan aimed to keep the fleet near 85 aircraft through 2023, while Airbus delivery schedules were amended. The company disclosed firm aircraft commitments extending through 2028.
- Unusual items: A one-time Ps. 746m VAT expense from a northern-border VAT-rate adjustment increased sales, marketing and distribution expense. Sale-and-leaseback gains were Ps. 711m, versus Ps. 285m in 2019. Fuel-hedging losses and ineffectiveness affected results; the filing reports a Ps. 449m finance-cost loss from financial instruments and material amounts recycled from hedges. Peso depreciation also affected dollar-linked costs and liabilities.
- Principal risks: Further pandemic disruption and demand weakness; peso/U.S. dollar exposure (about 69% of operating costs and 44% of collections were dollar-linked or denominated); fuel price and supply risk; large fixed lease and aircraft commitments; airport access and Mexico City slot uncertainty; competition; and execution of the recovery and growth plans. The company reported a net U.S. dollar monetary liability position of about US$1.69bn.
- Contingencies and controls: Management said ordinary-course legal proceedings were not expected to be material. The auditor issued unqualified opinions on the financial statements and internal controls. Critical audit matters included aircraft lease-return provisions, aircraft maintenance deposits and impairment testing; no long-lived-asset impairment was recorded.
Most important facts for investors to verify
- Reconcile financial debt, lease liabilities, sale-and-leaseback obligations, aircraft purchase commitments and available undrawn credit across the filing; confirm covenant waiver coverage and future maturities.
- Assess the cash runway and operating cash generation if demand weakens again, considering advance-ticket liabilities, voucher balances, lease payments and capital commitments.
- Verify the 2021 recovery assumptions and the stated CASM ex-fuel target against actual quarterly capacity, load factor, fares and unit costs.
- Review the sensitivity of earnings and liquidity to peso depreciation, fuel prices and hedge settlements, including the disclosed hedge ineffectiveness.
- Check aircraft delivery and return schedules, maintenance-deposit recoverability, and the assumptions supporting the Ps. 2.50bn lease-return provision.
- Confirm the scope of one-time VAT and sale-and-leaseback gains, and compare adjusted or management operating metrics with audited IFRS results.