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

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

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May 2018

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 67 destinations throughout Mexico (40), USA (23) 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% +1.5 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 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 Proven ancillary revenue model Sustained profitability with strong balance sheet Continue geographic diversification through international growth and Codeshare (1) Continue geographic diversification through international growth and Codeshare (1) Attractive emerging air travel market in Mexico Attractive emerging air travel market in Mexico Flexible fleet plan and utilization; capacity management Flexible fleet plan and utilization; capacity management Continue cost reductions Continue cost reductions Continue route frequency increase Continue route frequency increase Upside in ancillary revenue Upside in ancillary revenue

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Accomplishments

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Volaris has a best-in-class unit cost structure

(1) DCOMPS public information for 1Q 2018, except Avianca, Azul, Gol, Copa, Latam. Indigo, Wizz Air and Ryan Air which public information is as of 4Q 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 (1Q 2018 (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
• 1Q 2018 average 13.2 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) Source: Airlines public information, for Wizz Airlines public information is as of 4Q 2017; (2) Financial information converted to USD using an average exchange rate for the period only for purposes of the presentation.

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 (1Q 2018 (1), as % of total operating revenue)(2)

Non-ticket revenue per pax (USD)

8 $25 $40 $25 $57

Note: Excludes routes and stations announced to start operations

Network enhancement: connecting the dots and diversifying further

1Q 2018 Volaris diversified its network by starting operations in 5 routes and 1 station

New International New Domestic New Volaris Costa Rica 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

New routes Domestic International Los Angeles

• 2

Cancun

• 1

Washington

• 1

New York

• 1

New stations DOM USA Central America

• Washington

D.C.

…supporting strong capacity growth

Joining existing airports Additional frequencies New airports Total ASM growth 1Q 2018 capacity growth contribution

Our network is well positioned for diversified growth

= + +

Volaris Costa Rica

+ +

4.6% 4.8% 0.0% 11.2% 1.8%

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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 as of March 2018 (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 45.4% 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 4.8(1) years; new generation aircraft

• Productive

network with high utilization

• Around 20 new routes per year
• Avg. 13.2 block hours/day in

1Q 2018

• High and healthy load factors

82.2%% in 1Q 2018

• 28.5% domestic passengers

market share as of March 2018.

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

(1) Data as of March 2018 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 (2)

Number of routes (1) Number of routes (3)

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

2016 air trips per capita (domestic)(4)

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) Growth potentital figures calculated as of March 2018 (3) Minimum stage length of 400 miles; CAM stands for Central America; SAM stands for South America (4) Source: DGAC and World Bank Note: 46% of domestic market growth attributable to Volaris from 2006-2017

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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 for example:

• Los Angeles International Airport to El Salvador

International Airport and to La Aurora International Airport

• John F. Kennedy International Airport to El Salvador

International Airport

• Washington Dulles International Airport to El Salvador

International Airport

• 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
• 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%(1) of total ASMS

Source: World Bank, ALTA, MI-DIIO, CEPAL Infare, Banco Central de Costa Rica. (1) As of March 2018

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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

Revenue CAGR 2011 - 2017 Revenues

• Adj. EBITDAR

2017 Adj. EBITDAR margin

Source: Airlines public information for Full year 2017

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Source: Airlines public information for 1Q 2018, except Avianca, Azul, Gol, Copa, Latam. and Gol which public information is as FY 2017 (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

Strong balance sheet and liquidity, well funded for continued growth

• Adj. net debt / EBITDAR 1Q 2018

Liquidity-cash and equivalents as a % of LTM as of March 2018 Op. Revenue

• Unrestricted cash of $7.3 billion pesos

(US$ 399 million) as of Mar 31, 2017.

• Net cash position of $3.9 billion pesos

(US$ 212 million) as of March 31st , 2018.

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

as of March 2018.

• Fully financed pre-delivery payments for

deliveries up to 2021.

• Expected 2018 net CAPEX (US $110 to

$150 million):

• PDPs: from US $50 to $70 million, net of

PDP reimbursements (includes 1 A/c deliveries)

• Major maintenance: from US $50 to $60

million

• Other: from US $10 to $20 million

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(1)

Appendix

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(1) Approximate percentage of gallons hedged

Fuel price protection

Period Total % hedged(1)

• Avg. price (gal/USD$)

Instrument

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

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(1) 2017 figures converted to USD at December end of the period spot exchange rate $19.74 for convenience purposes only (2) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $18.81 for convenience purposes only (3) 1Q 2018 figures converted to USD at March end of the period spot exchange rate $18.34 for convenience purposes only

Consolidated statements of operations summary

MXN millions unless otherwise stated (3) 2017 2017(1) 1Q 2017 1Q 2017 (2) 1Q 2018 1Q 2018 (3) % of total

• perating

revenues

(USD millions) (USD millions) (USD millions)

Passenger revenues: Fares revenues 17,791 901 4,025 214 3,886 212 66.4 Other passenger revenues 5,858 297 1,382 73 1,648 90 28.2 Non-passenger revenues: Cargo 171 9 41 2 49 3 0.8 Other non-passenger revenues 968 49 251 13 2,069 15 4.6 Total operating revenues 24,788 1,256 5,699 302 5,850 319 100 Other operating income (97) (5) (1)

• (1)
• Fuel

7,256 368 1,892 101 2,175 119 37.2 Aircraft and engine rent expenses 6,073 308 1,699 90 1,596 87 27.3 Landing, take off and navigation expenses 4,010 203 1,035 55 1,125 61 19.2 Salaries and benefits 2,824 143 696 37 746 41 12.8 Sales, marketing and distribution expenses 1,692 86 358 19 357 19 6.1 Maintenance expenses 1,433 73 351 19 351 19 6 Other operating expenses 1,088 55 269 14 274 15 4.7 Depreciation and amortization 549 28 128 7 132 7 2.3 Total operating expenses 24,827 1,258 6,428 342 6,757 368 115.5

EBIT (39) (2) (729) (39) (906) (49) (15.5) Operating margin (%) (0.02) (0.02) (12.8) (12.8) (15.5) (15.5) Finance income 106 5 21 1 34 2 0.6 Finance cost (86) (4) (21) (1) (34) (2) (0.6) Exchange gain/ (loss), net (794) (40) (1,145) (61) (691) (38) (11.9) Income tax expense 161 8 556 30 479 26 8.2 Net income (652) (33) (1,318) (70) (1,118) (61) (19.1) Net margin (%) (2.6) (2.6) (23.1) (23.1) (19.11) (19.11) EPS Basic & Diluted (MXN) (0.64) (0.03) (1.30) (0.07) (1.11) (0.06) EPADS Basic & Diluted (MXN) (6.44) (0.33) (13.02) (0.69) (11.05) (0.60)

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(1) Net debt = financial debt - cash and cash equivalents (2) Adjusted debt = (LTM aircraft rent expense x 7) + financial debt (3) Adjusted net debt = adjusted debt - cash and cash equivalents (4) 2017 figures converted to USD at December end of the period spot exchange rate $19.74 respectively, for convenience purposes only (5) 1Q 2017 figures converted to USD at March end of period spot exchange rate $18.81 respectively, for convenience purposes only (6) 1Q 2018 figures converted to USD at March end of the period spot exchange rate $18.34 respectively, for convenience purposes only

Consolidated statements of financial position summary

MXN millions unless otherwise stated (5) 2017 2017 (4) 1Q 2017 1Q 2017 (5) 1Q 2018 1Q 2018 (6) (USD millions) (USD millions) (USD millions) Cash and cash equivalents 6,951 352 6,839 364 7,317 399 Current guarantee deposits 1,353 69 1,067 57 1,176 64 Other current assets 3,009 152 3,039 161 3,264 178 Total current assets 11,313 573 10,945 582 11,757 641 Rotable spare parts, furniture and equipment, net 4,376 222 2,751 146 4,567 249 Non-current guarantee deposits 6,098 309 5,992 319 5,627 307 Other non-current assets 879 45 1,010 54 890 48 Total assets 22,666 1,149 9,753 519 22,841 1,245 Unearned transportation revenue 2,162 110 2,987 159 3,300 180 Short-term financial debt 2,404 122 1,150 61 2,542 139 Other short-term liabilities 4,807 244 4,938 262 5,587 304 Total short-term liabilities 9,372 475 9,075 482 11,429 623 Long-term financial debt 1,079 55 885 47 881 48 Other long-term liabilities 2,052 104 1,516 81 1,581 86 Total liabilities 12,503 634 11,476 610 13,891 757 Total equity 10,163 515 9,222 490 8,950 488 Total liabilities and equity 22,666 1,149 20,698 1,100 22,841 1,245 Net debt (1) (3,468) (175) (4,804) 255 (3,894) (212)

Adjusted debt (2) 45,994 2,074 44,525 2,367 45,206 2,465 Adjusted net debt (3) 39,043 1,722 37,686 2,004 37,889 2,066

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Consolidated statements of cash flows summary

(1) 2017 figures converted to USD at December end of the period spot exchange rate $19.74 for convenience purposes only (2) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $18.81 for convenience purposes only (3) 1Q 2018 figures converted to USD at March end of the period spot exchange rate $18.34 for convenience purposes only

MXN millions unless otherwise stated (3) 2017 2017 (1) 1Q 2017 1Q 2017 (2) 1Q 2018 1Q 2018(3)

(USD millions) (USD millions) (USD millions)

Cash flow from operating activities Income before income tax (813) (41) (1,873) (100) (1,597) (87) Depreciation and amortization 549 28 128 7 132 7 Guarantee deposits 57 3 380 20 525 29 Unearned transportation revenue 65 3 791 42 1,007 55 Changes in working capital and provisions 1,127 57 1,043 55 1,026 56 Net cash flows provided (used in) by operating activities 986 50 469 25 1,093 60 Cash flow from investing activities Acquisitions of rotable spare parts, furniture, equipment and intangible assets (2,653) (134) (443) (24) (313) (17) Pre-delivery payments reimbursements 214 11

• Proceeds from disposals of rotable spare parts, furniture

and equipment 178 9 101 5

• Net cash flows used in by investing activities

(2,260) (115) (342) (18) (313) (17) Cash flow from financing activities Treasury shares purchase (10) (1)

• Proceeds from exercised stock options

1

• 1
• Interest paid

(105) (5) (20) (1) (31) (2) Other finance costs

• (17)

(1) Payments of financial debt (925) (47) (287) (15)

• Proceeds from financial debt

2,438 123 481 26 112 6 Net cash flows provided by financing activities 1,398 71 174 9 65 4 (Decrease) increase in cash and cash equivalents 124 6 300 16 844 46 Net foreign exchange differences (244) (12) (533) (28) (478) (26) Cash and cash equivalents at beginning of period 7,071 358 7,071 376 6,951 379 Cash and cash equivalents at end of period 6,951 352 6,839 364 7,317 399

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