Volaris: the leading ULCC airline serving Mexico, USA and Central - - PowerPoint PPT Presentation

Volaris: the leading ULCC airline serving Mexico, USA and Central America

March 2018

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Disclaimer

The information ("Confidential Information") contained in this presentation is confidential and is provided by Controladora Vuela Compañía de Aviación, S.A.B. de C.V., (d/b/a Volaris, the "Company") confidentially to you solely for your reference and may not be retransmitted or distributed to any other persons for any purpose whatsoever. The Confidential Information is subject to change without notice, its accuracy is not guaranteed, it has not been independently verified and it may not contain all material information concerning the Company. Neither the Company, nor any of their respective directors makes any representation or warranty (express or implied) regarding, or assumes any responsibility or liability for, the accuracy or completeness of, or any errors or omissions in, any information or opinions contained herein. None of the Company nor any of their respective directors, officers, employees, stockholders or affiliates nor any other person accepts any liability (in negligence, or otherwise) whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. No reliance may be placed for any purposes whatsoever on the information set forth in this presentation or on its completeness. This presentation does not constitute or form part of any offer or invitation for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities, nor shall it or any part of it form the basis of or be relied

• n in connection with any contract or commitment whatsoever. Recipients of this presentation are not to construe the

contents of this presentation as legal, tax or investment advice and should consult their own advisers in this regard. This presentation contains statements that constitute forward-looking statements which involve risks and uncertainties. These statements include descriptions regarding the intent, belief or current expectations of the Company or its officers with respect to the consolidated results of operations and financial condition, and future events and plans of the Company. These statements can be recognized by the use of words such as "expects," "plans," "will," "estimates," "projects," or words of similar meaning. Such forward-looking statements are not guarantees of future performance and actual results may differ significantly from those in the forward-looking statements as a result of various factors and assumptions. You are cautioned not to place undue reliance on these forward looking statements, which are based on the current view of the management of the Company on future

• events. The Company does not undertake to revise forward-looking statements to reflect future events or

circumstances. 2

Volaris: snapshot at 30,000 feet

(1) Converted to USD at an average period exchange rate

Serving 69 destinations throughout Mexico (40), USA (25) and Central America (4)

2008 2017 CAGR (08-17) Unit cost (CASM ex-fuel; cents, USD)(1) 5.5 4.7

• 1.7%

Passenger demand (RPMs, bn) 3.2 15.9 19.5% Aircraft (End of period) 21 71 14.5% Routes (End of period) 42 174 17.11% Passengers (mm) 3.5 16.4 18.7% Operating revenue (bn, MXN) 4.4 24.8 21.2%

• Adj. EBITDAR

(bn. MXN) 0.7 6.6 28.3%

• Adj. ROIC (pre-

tax) 11% 12.6% +1.6 pp.

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Volaris’ flight path for demand stimulation and continued growth

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Volaris’ consistent execution of its ULCC business model well positioned for growth

(1) On January 16, 2018; Volaris and Frontier Airlines executed a Codeshare agreement, and is undergoing regulatory approvals

Accomplishments Opportunities

Strong penetration of Mexican air travel market Diversified and resilient point-to-point network Bus to air substitution Successful price unbundling Proven ancillary revenue model Sustained profitability with strong balance sheet Continue geographic diversification through international growth and Codeshare (1) Attractive emerging air travel market in Mexico Flexible fleet plan and utilization; capacity management Continue cost reductions Continue route frequency increase Upside in ancillary revenue

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Accomplishments

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4.9 12.0 10.4 7.7 7.2 6.4 6.5 5.7 4.3 9.5 8.6 7.5 5.2 5.2 3.2 2.8 11.5 2.1 3.3 4.0 2.9 3.3 3.0 2.6 1.8 2.8 2.8 2.7 2.7 2.3 3.1 1.3 1.5 2.6

7.0

15.3 14.4 10.6 10.5 9.3 9.1 7.5 7.1 12.2 11.3 10.3 7.4 8.3 4.5 14.1

In line with best-in-class ULCCs

Latin American carriers US LCCs US network carriers WW LCCs

Volaris has a best-in-class unit cost structure

(1) DCOMPS public information for 4Q 2017, except Latam and AirAsia which public information is as of 3Q 2017 (2) DCOMPS = Direct Competitors: Delta, American Airlines, Alaska Airlines and United | (Average CASM and CASM ex-fuel) Note: Non-USD data converted to USD using an average exchange rate for the period Source: Airlines public information

Long-term unit cost advantage

Cost structure CASM and CASM ex-fuel (4Q 2017 (1), USD cents)

• Economies of scale
• Dilute fixed costs
• High seat density
• Young and fuel efficient fleet
• Sharklet roll-out
• Average age of 4.6 years
• NEO Engines rollout
• Lower fuel burn
• Productive network
• Point-to-point
• No connections complexity
• High aircraft utilization
• FY 2017 average 12.6 block

hours per day

Continued cost improvement potential

CASM ex-fuel CASM

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4.3

• Apply revenue management techniques
• Pricing by route, season, day
• Fully dynamic pricing for some products
• Add products
• New products & services
• Enhancements to existing products
• Improve presence
• More

touch-points to sell ancillaries throughout the journey

• Allow customization
• Benefit from network diversification
• More international capacity
• First checked bag
• USA Costa Rican AOC

Non-ticket revenues continue to grow, with upside potential

(1) Converted to USD using an average exchange rate for the period Source: Airlines public information

Non-ticket revenue per passenger

Ancillaries Volaris (MXN) per passenger

Increasing non-ticket revenue allows to reduce fare further and stimulate demand

142 204 211 279 338 381 429 2011 2012 2013 2014 2015 2016 2017 2011-2017 CAGR: + 20.9%

Best-in class ULCCs, including first bag fee (FY 2017, as % of total operating revenue)(1)

28% 41% 46% 48% Volaris Wizz Allegiant Spirit

Non-ticket revenue per pax (USD)

$22 $26 $56 $53

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Note: Excludes routes and stations announced to start operations

Network enhancement: connecting the dots and diversifying further

FY 2017 Volaris diversified its network by starting operations in 31 routes and 5 stations

New International New Domestic New Volaris Costa Rica New routes Domestic International Guadalajara 3 2 Mexico City

• 4

Costa Rica

• 3

Tijuana

• 2

Los Angeles

• 4

Monterrey 3

• Other

1 9 Total 7 24 New stations DOM USA Central America Cozumel Miami San Salvador Milwaukee Managua Codeshare agreement between Volaris and Frontier New access to cities in the U.S. offering customers the ability to purchase the lowest fares across an extensive and well-served network. 9

…supporting strong capacity growth

Joining existing airports Additional frequencies New airports Total ASM growth

2017 capacity growth contribution

Our network is well positioned for diversified growth

= + +

Volaris Costa Rica

+ +

6.8% 3.1% 1.5% 12.9% 1.5%

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Growth opportunities

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In recent years, Mexico’s volume growth has been robust despite challenging economic environment

(1) Considers Volaris and VivaAerobus domestic market share 2017 (2) Values according to INEGI´s new methodology Source: DGAC-SCT, INEGI and Banco de México

Mexico passenger market volume has increased since 2011

Best-in class ULCCs, including first bag fee (FY 2017, as % of total operating revenue)(1) Passenger volume (millions)

25 28 30 33 37 42 45 19 19 21 23 26 27 29 8 9 10 11 12 13 15 52 57 61 66 75 82 90 2011 2012 2013 2014 2015 2016 2017 Domestic USA Other international

2011 - 2017 CAGR: +5%

Main industry growth drivers

• Strong demand and

increasing middle class

• LCC gaining market through

low fares 44% LCC share(1)

• High improvement potential:
• Domestic air trips per

capita in Mexico 0.37 vs. Chile 0.7 4.6x GDP multiplier in recent years Yoy growth 4.0% 8.3% 8.3% 8.3% 12.3% 10.4% 8.8% GDP growth (2) 4.0% 4.0% 1.4% 2.3% 2.6% 2.3% 2.1% GDP multiplier 1.0 2.1 6.1 3.7 4.7 4.5 4.6

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6.5% 8.1% 8.8% 11.6% 8.0% 11.0% 23.4% 10.3% 19.6% 33.3% 26.9% 12.4% 2012 2013 2014 2015 2016 2017 Market Volaris

Volaris growth has surpassed market growth in both domestic and international markets

Domestic passenger growth (%)

10.3% 8.6% 7.9% 13.0% 12.8% 8.0% 25.2% 23.0% 7.7% 19.7% 24.8% 8.7% 2012 2013 2014 2015 2016 2017 Market Volaris

International passenger growth (%)

Source: DGAC

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Volaris has been the engine of growth for VFR and leisure markets in Mexico

Segment passenger CAGR Volaris vs. market (2010-2017) Volaris’ main growth drivers

• Low costs allow Volaris to offer

lower fares and make flying possible

• Fleet
• Up-gauging: A320neo with 186

seats and A321 with 230 seats

• Young

and fuel efficient: average of 4.6(1) years; new generation aircraft

• Productive

network with high utilization

• Around 20 new routes per year
• Avg. 13 block hours/day in 4Q

2017

• High and healthy load factors

84.4%% in 2017

• 27% domestic passengers market

share during 2017

2017, Volaris was the source of 26% of the growth among Mexican carriers

(1) Data as of December 2017 Note: Markets not mutually exclusive, contested domestic markets

Market growth Volaris growth

19%

Tijuana Hermosillo Culiacan Vallarta Guadalajara Mexico City Cancun Monterrey

38% 10% 12% 17% 5% 9% 8% 23% 13% 27%

Los Cabos

10% 28% 11% 34% 8% 19% 11% 61%

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Significant untapped opportunities

25 50 75 100

USA (VFR) USA (Leisure) CAM, SAM, Canada, Caribbean

Domestic – growth potential of approx. 105 routes International – growth potential of approx. 124 routes (3)

Number of routes (1) Number of routes (2)

In terms of air trips per capita Mexico has plenty potential to grow

2016 air trips per capita (domestic)(5)

10 20 30 40 50

2.21 0.21 0.23 0.20 0.11 0.20 2.23 0.61 0.43 0.36 0.34 0.33 2006 2016

United States Chile Brazil Colombia Peru Mexico

65% growth

2.21 0.21 0.23 0.20 0.11 0.20 2.23 0.61 0.43 0.36 0.34 0.33 2006 2016

35M potential additional passengers at Chile’s level

(1) Minimum stage length of 170 miles (2) Minimum stage length of 400 miles; CAM stands for Central America; SAM stands for South America (3) Growth potentital figures calculated as of March 2017 Note: 46% of domestic market growth attributable to Volaris from 2006-2017 Source: DGAC and World Bank

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2012 2016 First, economy and other Executive and luxury

Volaris contributed by stimulating demand from bus to air substitution

Bus switching program

(1) Source: Secretaría de Comunicaciones y Transportes (SCT), 2017

Significant upside for air travel

28 42 29 40 2012 2016 Domestic International 55

Total air travel passengers in Mexico (mm) Total bus passengers in Mexico (mm)

Trial

Ticket giveaway #Nomáscamión

First sell

Strong conversion rate

ULCC model

Attracting 1st time flyers Mass media campaigns “Tarifa no + camion” positioning Digital capabilities

Education

2,729 3,004 74 82 2,655 2,922 82 2012 2017 2012 2017 16

Volaris Obtains Foreign Air Carrier Permit in the U.S. for its Costa Rican Operations “Through OD” flights:

• Los Angeles International Airport - El Salvador International

Airport (SJO-SAL-LAX)

• La Aurora International Airport – Los Angeles International

Airport (SJO-GUA-LAX)

• John F. Kennedy International Airport - El Salvador

International Airport (SJO-SAL-JFK)

• Washington Dulles International Airport - El Salvador

International Airport (SJO-SAL-IAD)

• The right market
• Costa Rica is top three middle class growth of

LATAM (GDP growth of 4.6% in 2017)

• VFR potential in the region and to the USA
• The right moment
• No ULCC presence in the region
• The right ULCC model
• Growth sustainable and proved model, easily

translatable to Central America

• USD denominated revenue contributing to FX

natural hedge

New York

Volaris’ Costa Rican AOC provides growth potential in Central America and to the U.S.

Potential markets Central America key insights

486K total passengers since the beginning of operations in CAM; however represents 2% of total ASMS

Source: World Bank, ALTA, MI-DIIO, CEPAL Infare, Banco Central de Costa Rica.

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Codeshare Agreement between two Ultra Low Cost Carriers: Frontier and Volaris

First codeshare between two Ultra Low Cost Carriers ▪ Frontier business model is aligned to Volaris’ ULCC model ▪ Volaris operates in 20 out of 63 Frontier’s airports Benefits ▪ Grow and enhance our network to offer a greater public benefit, the lowest prices between Mexico and USA

Strong connectivity potential: ~20 destinations and ~80 new beyond routes

Volaris and Frontier’s networks (1)

(1) Subject to authorization from the corresponding authorities Map source: Ghim-Lay Yeo, FlightGlobal.

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Fleet and financials

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Volaris’ fleet plan supports its strategy to drive lower unit costs

Note: NEO stands for the Airbus new engine option; CEO stands for the Airbus current engine option (1) Net fleet after additions and returns (2) Source: Airbus (3) 40 commitments + 80 follow-on order aircraft; out until 2026

• A321 (CEO and NEO)
• 230 seats (up-gauge)
• ~10% CASM dilution(2)
• A320 NEO
• Combined fuel consumption

reduction by approx. 17-19% per seat(2)

• A320 CEO with sharklets
• Fuel consumption reduction by
• approx. 3%(2)
• All PDP requirements fully

financed for next four year deliveries Contractual fleet obligations (number of aircraft)(1)

Backlog of 120 Aircraft to support growth (3)

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High growth and solid financial performance

1.2 2.5 2.8 3.1 6.5 8.9 6.6 5 10 2011 2012 2013 2014 2015 2016 2017 (MXN bn)

2011 - 2017 CAGR: +32.3%

8.9 11.7 13.0 14.0 18.2 23.5 24.8 15 30 2011 2012 2013 2014 2015 2016 2017 (MXN bn)

2011 - 2017 CAGR: +18.7%

Revenue CAGR 2011 - 2017 Revenues

• Adj. EBITDAR

2017 Adj. EBITDAR margin

Source: Airlines public information for Full year 2017, except Latam, AirAsia; which public information is LTM as of September 2017

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1.6x

4.8x

5.1x 5.2x 5.2x 5.9x 6.7x 7.3x

Copa Volaris Latam Gol Aeromexico Avianca Azul Interjet

Gol Avianca

Strong balance sheet and liquidity, well funded for continued growth

• Adj. net debt / EBITDAR

Liquidity-cash and equivalents as a % of 2017 Op. Revenue

• Unrestricted cash of $6.9 billion pesos

(US$ 352 million) as of Dec 31, 2017.

• Net cash position of $3.5 billion pesos

(US$ 175 million) as of Dec 31, 2017.

• Adjusted net debt to EBITDAR of 4.8x (1)

as of Dec 31, 2017.

• Fully financed pre-delivery payments for

deliveries up to 2021.

• Expected 2018 net CAPEX (US $80 to

$110 million):

• PDPs: from US $20 to $30 million, net of

PDP reimbursements (includes 4 A/c deliveries)

• Major maintenance: from US $50 to $60

million

• Other: from US $10 to$ 20 million

(1) Excluding supplemental and contingent rent for adjusted debt *Non-USD data converted to USD using an end of period exchange rate for the period Source: Airlines public information public information for 4Q 2017, except Latam and AirAsia which public information is as of 3Q 2017

(1)

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Appendix

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(1) Approximate percentage of gallons hedged

Fuel price protection

Period Total % hedged(1)

• Avg. price (gal/USD$)

Instrument

1Q18 60% $1.63 Asian Call 2Q18 60% $1.74 Asian Call 3Q18 55% $1.78 Asian Call 4Q18 45% $1.85 Asian Call

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Consolidated statements of operations summary

(1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.66 for convenience purposes only (2) 2017 figures converted to USD at December end of the period spot exchange rate $19.74 for convenience purposes only (3) Audited financial information 2014A – 2016A

MXN millions unless otherwise stated (3) 2016A(1) 2017 2017(2) 4Q 2016 4Q 2017 4Q 2017 % of total

• perating

revenues (USD millions) (USD millions) (USD millions) (USD millions) Passenger 861 17,791 901 235 4,742 240 71.6 Non-ticket 277 7,054 357 78 1,884 96 28.4 Total operating revenues 1,138 24,845 1,259 313 6,626 336 100 Other operating income (24) (97) (5) (6) (78) (4) (1.2) Fuel 278 7,256 368 87 1,972 100 29.8 Aircraft and engine rent expenses 271 6,073 308 77 1,612 82 24.3 Landing, take off and navigation expenses 158 4,010 203 42 981 50 14.8 Salaries and benefits 117 2,824 143 33 715 36 10.8 Sales, marketing and distribution expenses 68 1,692 86 21 480 24 7.2 Maintenance expenses 65 1,433 73 16 396 20 6 Other operating expenses 46 1,088 55 14 300 15 4.5 Depreciation and amortization 26 549 28 7 131 7 2 Total operating expenses 1,005 24,827 1,258 290 6,508 330 98.2

EBIT 133 19 1 23 118 6 1.8 Operating margin (%) 11.7 0.08 0.08 7.3 1.78 1.78 Finance income 5 106 5 1 33 2 0.5 Finance cost (2) (86) (4) (1) (24) (1) (0.4) Exchange gain/ (loss), net 105 (794) (40) 41 784 40 11.8 Income tax expense (71) 161 8 (18) (356) (18) (5.4) Net income 170 (595) (30) 47 555 28 8.4 Net margin (%) 15.0 (2.4) (2.4) 15.0 8.4 8.3 EPS Basic and Diluted (Pesos) 0.17 (0.59) (0.030) 0.05 0.55 0.03 EPADS Basic and Diluted (Pesos) 1.68 (5.88) (0.30) 0.46 5.48 0.28

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(1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.66 for convenience purposes only (2) Net debt = financial debt - cash and cash equivalents (3) Adjusted debt = (LTM aircraft rent expense x 7) + financial debt (4) Adjusted net debt = adjusted debt - cash and cash equivalents (5) Audited financial information 2014A – 2016A (6) Certain amounts related to prepaid income tax and guarantee deposits, presented in the consolidated statement of financial position have been reclassified in 2015A, in order to be comparative with the classification between current and non-current assets presented during 2016A (7) 2017 figures converted to USD at December end of the period spot exchange rate $19.74 respectively, for convenience purposes only

Consolidated statements of financial position summary

MXN millions unless otherwise stated (5) 2014A 2015A(6) 2016A 2016A(1) 2017 2017(7) (USD millions) (USD millions) Cash and cash equivalents 2,265 5,157 7,071 342 6,951 352 Current guarantee deposits 545 873 1,167 56 1,353 69 Other current assets 879 1,193 3,313 160 3,009 152 Total current assets 3,689 7,224 11,551 559 11,313 573 Rotable spare parts, furniture and equipment, net 2,223 2,550 2,525 122 4,376 222 Non-current guarantee deposits 3,541 4,693 6,560 317 6,098 309 Other non-current assets 452 765 1,146 55 879 45 Total assets 9,905 15,232 21,782 1,054 22,666 1,149 Unearned transportation revenue 1,421 1,957 2,154 104 2,162 110 Short-term financial debt 823 1,371 1,051 51 2,404 122 Other short-term liabilities 2,524 3,745 4,683 227 4,807 244 Total short-term liabilities 4,768 7,073 7,888 382 9,372 475 Long-term financial debt 425 220 943 46 1,079 55 Other long-term liabilities 242 1,113 2,157 104 2,052 104 Total liabilities 5,435 8,407 10,988 532 12,503 634 Total equity 4,470 6,825 10,794 522 10,163 515 Total liabilities and equity 9,905 15,232 21,782 1,054 22,666 1,149 Net debt (2) (1,017) (3,566) (5,077) (246) (3,468) (175) Adjusted debt (3) 18,990 26,268 41,125 1,994 45,994 2,074 Adjusted net debt (4) 16,725 21,111 34,053 1,652 39,043 1,722

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Consolidated statements of cash flows summary

(1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.66 for convenience purposes only (2) 2017 figures converted to USD at December end of the period spot exchange rate $19.74 for convenience purposes only (3) Audited financial information 2014A – 2016A

MXN millions unless otherwise stated (3) 2016A(1) 2017 2017(2) 4Q 2016 4Q 2017 4Q 2017(2) (USD millions) (USD millions) (USD millions) (USD millions) Cash flow from operating activities Income before income tax 241 (756) (38) 65 911 46 Depreciation and amortization 26 549 28 7 131 7 Guarantee deposits (95) 57 3 (47) (230) (12) Unearned transportation revenue 10 8

• (11)

(292) (15) Changes in working capital and provisions (134) 1,127 57 (39) 595 30 Net cash flows provided (used in) by operating activities 47 986 50 (25) 1,116 57 Cash flow from investing activities Acquisitions of rotable spare parts, furniture, equipment and intangible assets (109) (2,653) (134) (72) (1,143) (58) Pre-delivery payments reimbursements 84 214 11 40 214 11 Proceeds from disposals of rotable spare parts, furniture and equipment 24 178 9 6 77 4 Net cash flows used in by investing activities (1) (2,260) (115) (25) (852) (43) Cash flow from financing activities Treasury shares purchase (1) (10) (1)

• (10)

(1) Proceeds from exercised stock options 1 1

• Interest paid

(2) (105) (5)

• (39)

(2) Other finance costs (7)

• (7)
• Payments of financial debt

(74) (925) (47) (20) (225) (11) Proceeds from financial debt 83 2,438 123 65 1,139 58 Net cash flows provided by financing activities 1 1,398 71 38 865 44 (Decrease) increase in cash and cash equivalents 47 124 6 (13) 1,130 57 Net foreign exchange differences 46 (244) (12) 17 448 23 Cash and cash equivalents at beginning of period 250 7,071 358 338 5,373 272 Cash and cash equivalents at end of period 342 6,951 352 342 6,951 352

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