• Total Operating Revenue: $726 million, a 7% decrease year-over-year.
• TRASM (Total Revenue per Available Seat Mile): $0.0889, a 12% increase year-over-year.
• Load Factor: 85.5%, up from 84.6% a year ago.
• Ancillary Revenue per Passenger: $53, a 15% increase year-over-year.
• CASM (Cost per Available Seat Mile): $0.0808, a 9% increase year-over-year.
• CASM ex-fuel: $0.0533, an 11% increase year-over-year.
• EBIT: $66 million, a 29% increase, with an EBIT margin of 9.1%.
• EBITDAR: $261 million, a 23% increase, with an EBITDAR margin of 36%.
• Net Income: $10 million, translating to earnings per ADS of $0.09.
• Cash Flow from Operating Activities: $304 million.
• Total Liquidity Position: $758 million, representing 23% of the last 12 months' total operating revenues.
• Net Debt to EBITDAR Ratio: 2.9 times, down from 3.3 times at the end of 2023.
• Fleet Size: 136 aircraft, up from 123 a year ago.

• Warning! GuruFocus has detected 6 Warning Signs with VLRS.

Release Date: July 23, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Controladora Vuela Compania de Aviacion SAB de CV (NYSE:VLRS) recorded its highest absolute EBITDAR for the second quarter, despite managing a capacity reduction due to engine inspections.
• The company successfully coordinated with Pratt & Whitney to improve engine turnaround times, leading to a more optimistic ASM guidance.
• Volaris' ancillary revenue strategy is strong, with ancillaries comprising more than 50% of total revenues and ancillaries per passenger rising 15% year-over-year.
• The company has maintained a significant cost advantage over US peers, with approximately 70% of costs being variable, ensuring competitive pricing.
• Volaris ended the quarter with a strong liquidity position of $758 million, representing 23% of the last 12 months' total operating revenues.

Negative Points

• Approximately one-fourth of the fleet remains grounded due to ongoing engine inspections, impacting capacity.
• Total operating revenues decreased by 7% year-over-year due to a 17% reduction in capacity.
• The company faces ongoing challenges with engine time on wing, which remains a significant issue.
• There is uncertainty around macroeconomic variables due to the legislative agenda and government transitions in Mexico and the US.
• Maintenance costs are expected to fluctuate due to timing, which could impact cost predictions for the remainder of the year.

Q & A Highlights

Q: Can you discuss the industry's ability to flex up capacity during peak demand periods, especially given current constraints? A: Holger Blankenstein, Executive Vice President - Airline Commercial and Operations, explained that domestic capacity is constrained year-round. Volaris has implemented a stable schedule with additional peak lines during high-demand seasons like summer. Current trends for July are encouraging and above expectations.

Q: Your full-year capacity is down about 14%. Is this due to acquiring new spare engines, and when can you measure engine throughput improvements? A: Enrique Beltranena, CEO, noted that improved turnaround times are due to better spare parts availability. They forecast an average turnaround of 280 to 350 days. Jaime Pous, CFO, added that additional spare engines and aircraft extensions are part of the mitigation plan, expecting 32 engines to return in the second half of the year.

Q: Would Volaris consider a perpetual power agreement with lessors for engine supply, similar to a Latin competitor? A: Enrique Beltranena, CEO, stated they are not considering such agreements as they could impact costs and TRASM negatively. Jaime Pous, CFO, added that most additional engines are purchased, not leased, and they have an FHA agreement with Pratt for long-term maintenance.

Q: Regarding capacity for 2025, will the number of grounded airplanes decrease, allowing better capacity planning? A: Holger Blankenstein, Executive Vice President, expects the peak of aircraft on ground in Q3 2024, with gradual improvement thereafter. Capacity will be added cautiously to profitable markets, but 2023 levels won't be reached in 2025.

Q: With 45% of revenue collected in US dollars, how does this compare to costs in dollars, and is the gap narrowing? A: Jaime Pous, CFO, confirmed that about two-thirds of costs are in US dollars, and they aim for 45% revenue collection in dollars by year-end, narrowing the gap. Enrique Beltranena, CEO, noted peso revenue routes remain more profitable.

Q: The third-quarter guidance implies a weaker margin despite a stronger second half. What factors contribute to this? A: Holger Blankenstein, Executive Vice President, cited macroeconomic volatility due to legislative changes and elections as factors. Despite this, July bookings are strong, and the quarter is shaping up well. Jaime Pous, CFO, added that maintenance costs are predictable and should align with guidance.

Q: How high could the v.club membership sales percentage go, and what are the benefits of this program? A: Jaime Pous, CFO, highlighted that v.club, part of their ancillary revenue strategy, accounts for over 15% of sales. It offers discounted fares for repeat customers, fostering loyalty and repeat business.

Q: What is the timeline for trips per capita in Mexico to approach levels seen in Colombia or Chile, and could nearshoring accelerate this? A: Enrique Beltranena, CEO, noted that while the gap between regions may remain, all three could see growth over the next five years due to factors like nearshoring.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.