Volaris: the leading ultra-low-cost airline serving Mexico, USA and Central America September 2017
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 on 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 Serving 68 destinations throughout Mexico (40), USA (24) and Central America (4) Jun 17 CAGR 2008 2016 LTM (08-16) Unit cost (CASM ex- 5.5 4.8 4.9 -1.6% fuel; cents, USD) (1) Passenger demand 3.2 14.3 15.3 20.6% (RPMs, bn) Aircraft 21 69 66 16.0% (End of period) Routes 42 162 164 18.4% (End of period) Passengers 3.5 15.0 16.0 20.0% (mm) Operating revenue 4.4 23.5 24.8 23.3% (bn, MXN) Adj. EBITDAR 0.7 8.9 7.5 37.4% (bn. MXN) Adj. ROIC 11% 20% 15% +9 pp. (pre-tax) (1) Converted to USD at an average annual exchange rate Source: Company data 3
Volaris’ flight path for demand stimulation and continued growth Capacity increase Cost reduction More Resilient ULCC ancillaries business model (“You decide”) driving high, profitable growth “Clean”, low base fares More customers 4
Volaris’ consistent execution of its ULCC business model well positioned for growth Accomplishments Opportunities Strong penetration of Mexican air Attractive emerging air travel market in travel market Mexico Diversified and resilient point-to-point Continue geographic diversification network through international growth Bus to air substitution Continue route frequency increase Successful price unbundling Upside in ancillary revenue Flexible fleet plan and utilization; Proven ancillary revenue model capacity management Sustained profitability with strong Continue cost reductions balance sheet 5
Accomplishments
Volaris has a best-in-class unit cost structure Long-term unit cost advantage CASM and CASM ex-fuel (LTM June 2017, USD cents) (1) Cost structure • Economies of scale In line with best-in- - Dilute fixed costs class ULCCs - High seat density 13.3 13.2 13.1 • Young and fuel efficient fleet 12.5 11.5 - Sharklet rollout 2.9 3.5 2.5 11.0 10.3 - Average age of 4.4 years 3.7 9.8 2.5 2.7 - NEO Engines rollout 8.9 8.7 2.2 2.7 - Low fuel burn 7.6 7.4 7.1 2.4 2.4 6.4 6.4 5.9 5.9 • Productive network 1.9 1.8 2.0 - Point-to-point 1.9 2.4 1.7 1.2 10.6 10.4 9.8 8.8 8.3 8.9 8.1 - No connections complexity 7.2 6.5 5.6 6.3 5.7 • High aircraft utilization 5.0 4.5 4.0 4.2 4.6 - 2Q17 average 12.8 block hours per day Continued cost Latin American carriers US LCCs WW LCCs US network carriers improvement potential (1) DCOMPS = Direct Competitors: Delta, American Airlines, Alaska Airlines and United | (Average CASM and CASM ex-fuel) (2) As of March 2017 Note: Non-USD data converted to USD using an end of period exchange rate for the period 7 Source: Company data, airlines public information
Volaris’ cost structure enables us to lower base fares and increase ancillaries Volaris’ TRASM is below most competitors’ CASM TRASM and CASM (LTM June 2017 USD cents) 13.3 13.2 13.1 12.5 11.5 11.0 10.3 9.8 8.9 8.7 7.6 7.4 7.2 6.4 6.4 5.9 5.9 (1) DCOMPS = Direct Competitors: Delta, American Airlines, Alaska Airlines and United | (Average CASM and CASM ex-fuel) 8 Note: Non-USD data converted to USD using an end of period exchange rate for the period Source: Company data, airlines public information
Non-ticket revenues continue to grow, with upside potential Non-ticket revenue per passenger Ancillaries Volaris (MXN) per passenger • Apply revenue management techniques 2011-2016 CAGR: + 21,9% - Pricing by route, season, day 407 - Fully dynamic pricing for some products 381 338 • Add products 279 - New products & services 211 204 - Enhancements to existing products 142 • Improve presence - More touch-points to sell ancillaries throughout the journey 2011 2012 2013 2014 2015 2016 1H 2017 - Allow customization Best-in class ULCCs, including first bag fee (1) • Benefit from network diversification (Jun 2017 LTM, as % of total operating revenue) (2) - More international capacity 48% • First checked bag 45% 41% - USA and Puerto Rico 25% - Costa Rican AOC Increasing non-ticket revenue allows to Volaris Allegiant Wizz Spirit reduce fare further and stimulate Non-ticket revenue per demand $20.43 $54.91 $29.20 $41.94 pax (USD) (1) Mexican legislation does not allow Mexican airlines to charge for the first checked bag on domestic flights 9 (2) Converted to USD using an average exchange rate for the period Source: Company data, airlines public information
Network enhancement: connecting the dots and diversifying further LTM July 2017 Volaris diversified its network by starting operations in 16 routes and 5 stations Volaris’ LTM July 2017 new routes New routes Domestic International Guadalajara 3 2 Mexico City - 4 Costa Rica - 3 Other - 4 Total 3 13 New stations USA Central America Austin San Salvador Miami Managua Milwaukee New International New Domestic New Volaris Costa Rica 10 Note: Excludes routes and stations announced to start operations
…supporting strong capacity growth 1H 2017 capacity growth contribution (yoy) + Additional frequencies 10.3% + Joining existing airports 1.7% + New airports 3.4% + Volaris Costa Rica 1.0% = 16.4% Total ASM growth Our network is well positioned for diversified growth 11 Source: Company data
Growth opportunities
In recent years, Mexico’s volume growth has been robust despite challenging economic environment Mexico passenger market volume has increased since 2011 Passenger volume (millions) Main industry 2011 - 2016 CAGR: +8.6% 87 growth drivers 82 • Strong demand and 75 14 13 66 increasing middle 12 61 57 class 11 52 29 10 27 9 • LCC gaining market 26 8 23 through low fares 21 19 19 -43.8% LCC 44 share (1) 42 37 33 30 28 25 • High improvement potential: 2011 2012 2013 2014 2015 2016 LTM Jun -Domestic air 2017 trips per capita Domestic USA Other international in Mexico 0.42 vs. Brazil 0.49 4.0% 8.3% 8.3% 8.3% 12.3% 10.4% 10.6% (3) Yoy growth 4.0% 4.0% 1.4% 2.3% 2.6% 2.3% 3.1% GDP growth (2) 1.0 2.1 6.1 3.7 4.7 4.5 3.4 GDP multiplier 3.6x GDP multiplier (1) Considers Volaris and VivaAerobus domestic market share 1H 2017 in recent years (2) Values according to INEGI ´ s new methodology 13 (3) Yoy growth for LTM June 2016 vs. LTM June 2017 Source: DGAC-SCT; INEGI; Banco de México
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