2019.
Annual Report
T
N
E
T
N
O
C
MESSAGE FROM OUR CEO 032019 OUTSTANDING FIGURES 052019 FINANCIAL AND OPERATING METRICS SUMMARY 06COMPANY OVERVIEW 08VIRTUOUS CIRCLE 09ROUTE NETWORK 09CODESHARE AGREEMENT WITH FRONTIER 11FLEET 122019 RESULTS 13COMPETITIVE ADVANTAGES 14LOWEST UNIT-COST PUBLICLY TRADED AIRLINE 14BUS SWITCHING STRATEGY 14POTENTIAL FOR GROWTH 14LARGEST AIRLINE IN MEXICO 15CORPORATE GOVERNANCE 16BOARD AND COMMITTEES 16ETHICAL OPERATIONS 18VOLARIS CORPORATE SUSTAINABILITY PROGRAM 19OPERATING AND FINANCIAL REVIEW AND PROSPECTS 21CONSOLIDATED FINANCIAL STATEMENTS 52CONTACT 105 LETTER FROM
OUR CEO
To the Board of Directors and members of the Shareholders’ Meeting
of Controladora Vuela Compañía de Aviación, S.A.B. de C.V.
Mexico City, April 22, 2020
In accordance with the provisions of article 44, sec-
tion XI of the Securities Market Law, and in terms of ar-
ticle 172 of the General Law of Mercantile Companies
(except as provided in subsection b) of said article),
and in my capacity as Chief Executive Officer of Con-
troladora Vuela Compañía de Aviación, S.A.B. de C.V.
and Subsidiaries, I would like to submit the annual re-
port on the operations and activities of the Company,
during the fiscal year ended on December 31, 2019.
2019 Operating Results
Our ultra-low-cost and growth flexibility model has
strengthened Volaris as a key player in the aviation
industry. We remain focused on offering low fares,
point-to-point routes and providing the best travel
experience for our passengers. Through our clean
fare, we offer a wide range of optional services for
an extra fee to our clients.
During 2019, we obtained outstanding operating
indicators, making this year crucial in our strategies
to build the Company's future.
During this year, Volaris’ total consolidated operat-
ing revenues were Ps. 34.75 billion, an increase of
27.3% against the previous year. Our total non-ticket
revenues and total ancillary revenue per passenger
reached record figures of Ps. 11.69 billion and Ps.
532.00, an increase of 32.6% and 11.0% against
2018, respectively.
We strive to stimulate and increase our ancillary reve-
nues; during 2019, 33.7% of our total revenues were
driven by ancillaries. Volaris has reached figures that
confirm that we are reaching the same level of our
ultra-low-cost peers worldwide in this concept.
In 2019, we transported more than 21.9 million
passengers, a 19.5% growth compared to the pre-
vious year, and we increased our domestic market
penetration among Mexican airlines to 31.3%, at
the year’s end.
03
i
i
s
a
n
c
n
E
o
d
r
a
c
R
y
b
y
h
p
a
r
g
o
t
o
h
P
volaris | 2019 Annual Report
I appreciate
the support and
commitment of our
most important asset:
our employees."
We launched 30 routes, consistent with our point-
to-point route diversification plan. We maintain
our commitment to have a young and fuel-efficient
fleet; thus, we closed the year with 82 aircraft with
an average age of five years.
As of December 31st, cash and cash equivalents
were Ps. 7.98 billion, representing 23.0% of op-
erating revenues in the last twelve months. The
Company recorded a negative debt (or an active
position) excluding the lease liability of Ps. 3.00
billion and a stockholders' equity of Ps. 5.53 billion.
Finally, as you all know, our country and the entire
world are experiencing difficult moments in the
face of the Coronavirus pandemic (COVID-19).
Therefore, as of March 2020, we have reduced
our capacity –measured in terms of available seat
miles by approximately 80% versus the originally
published schedule. Additionally, we have taken
several actions to reduce costs and maintain liquidi-
ty during this period of reduced demand. Likewise,
we have implemented safety and hygiene protocols
to protect the wellbeing of our passengers, crews
and ground personnel.
I appreciate the support and commitment of our
most important asset: our employees, who we
call Ambassadors, and who every day give their
best to obtain excellent results. We are deeply
grateful and proud of all those who are part of the
Volaris family.
Sincerely,
Enrique J. Beltranena
President and Chief
Executive Officer
04
volaris | 2019 Annual Report OUTSTANDING FIGURES
2019
4,950
Ambassadors in Mexico
and Central America
1st
Ultra-low-cost
carrier in Central America
Ps.11.69
Billion ancillary revenues
+32.6% vs 2018
190
Routes
82
Aircraft
65
Destinations
21,975
Thousand passengers
+19.5% vs 2018
CASM
ex-fuel in US
dollar cents
decreased
3.4%
Ps.34.75
Billion total
operating revenues
+27.3% vs 2018
28%
NEO Airbus
05
volaris | 2019 Annual Report 2019 FINANCIAL &
OPERATING METRICS SUMMARY
(In Mexican pesos, except otherwise indicated)
2019 (USD)*
2019
2018
VARIANCE (%)
Total operating revenues (millions)
Total operating expenses (millions)
EBIT (millions)
EBIT margin
Depreciation and amortization
Aircraft and engine rent expense
Net income (loss) (millions)
Net income (loss) margin
Income (loss) per share:
Basic (pesos)
Diluted (pesos)
Income (loss) per ADS:
Basic (pesos)
Diluted (pesos)
Weighted average shares outstanding:
Basic
Diluted
1,844
1,613
231
12.5%
285
51
140
7.6%
34,753
30,397
4,355
12.5%
5,378
962
2,639
7.6%
27,305
26,770
535
2.0%
4,544
956
(943)
(3.5%)
0.14
0.14
2.61
2.61
(0.93)
(0.93)
1.38
26.08
(9.32)
1.38
26.08
(9.32)
-
1,011,876,677
1,011,876,677
-
1,011,876,677
1,011,876,677
Available seat miles (ASMs) (millions) (1)
-
Domestic
International
-
-
24,499
16,891
7,607
21,010
14,519
6,490
27.3%
13.5%
>100%
10.5 pp
18.4%
0.6%
NA
11.1 pp
NA
NA
NA
NA
0.0%
0.0%
16.6%
16.3%
17.2%
06
volaris | 2019 Annual Report
(In Mexican pesos, except otherwise indicated)
2019 (USD)*
2019
2018
VARIANCE (%)
Revenue passenger miles (RPMs) (millions) (1)
-
Domestic
International
Load factor (2)
Domestic
International
Total operating revenue per ASM (TRASM) (cents) (1) (5)
Total ancillary revenue per passenger (4) (5)
Total operating revenue per passenger (5)
Operating expenses per ASM (CASM) (cents) (1) (5)
-
-
-
-
-
7.5
28.2
84.1
6.60
Operating expenses per ASM (CASM) (US cents) (3) (5)
-
CASM ex fuel (cents) (1) (5)
CASM ex fuel (US cents) (3) (5)
Booked passengers (thousands) (1)
Departures (1)
Block hours (1)
Fuel gallons consumed (millions)
Average economic fuel cost per gallon (5)
Aircraft at end of period
Average aircraft utilization (block hours)
Average exchange rate
End of period exchange rate
4.07
-
-
-
-
-
2.5
-
-
-
-
21,032
14,871
6,162
85.9%
88.0%
81.0%
142.2
532
1,585
124.3
6.45
76.6
3.98
21,975
138,084
350,572
251.8
46.4
82
12.9
19.26
18.85
*Peso amounts were converted to U.S. dollars at end of period exchange rate for convenience purposes only
(1) Includes schedule and charter
(2) Includes schedule
(3) Dollar amounts were converted at average exchange rate of each period
(4) Includes “Other passenger revenues” and “Non-passenger revenues”
(5) Excludes non-derivatives financial instruments
17,748
12,655
5,093
84.5%
87.2%
78.5%
130.0
479
1,484
127.4
6.62
79.2
4.12
18,396
117,920
322,054
227.4
44.6
77
13.2
19.24
19.68
18.5%
17.5%
21.0%
1.4 pp
0.8 pp
2.5 pp
9.4%
11.0%
6.8%
(2.4%)
(2.6%)
(3.2%)
(3.4%)
19.5%
17.1%
8.9%
10.7%
4.1%
6.5%
(2.0%)
0.1%
(4.3%)
07
volaris | 2019 Annual Report COMPANY
OVERVIEW
Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:
VLRS and BMV: VOLAR), is an ultra-low-cost carrier, with point-to-
point operations, serving Mexico, the United States and Central
America. Volaris offers low base fares to build its market, providing
quality service and extensive customer choice. As of December 31,
2019, Volaris offered more than 400 daily flight segments on routes
that connect 40 cities in Mexico and 25 cities in the United States
and Central America with the youngest fleet in Mexico. Volaris tar-
gets passengers who are visiting friends and relatives, cost-cons-
cious business and leisure travelers in Mexico, the United States
and Central America.
Mission
With the best people and low
costs, we enable more people
to travel... well!
Vision
Transcend by creating and living
the best travel experiences.
08
volaris | 2019 Annual Report ULCC VIRTUOUS CIRCLE
ROUTE NETWORK
Our disruptive ultra-low-cost model has
made air travel accessible for everyone.
Capacity
increase
Cost
reduction
Resilient ULCC
Business Model
More
ancillaries
Low base
fares
More
customers
Low operating costs + diversified
point-to-point network.
190 Routes
5121 Domestic routes
6
+146 Fontier routes
69 International
Destinations
40 Mexico
22 United States
+57 Frontier
3 Central America
09
volaris | 2019 Annual Report 2019 ROUTES
MEXICO
1. ACAPULCO
2. AGUASCALIENTES
3. CANCUN
4. CHETUMAL
5. CHIHUAHUA
6. MEXICO CITY
7. CIUDAD JUAREZ
8. CUIDAD OBREGON
9. COLIMA
10. COZUMEL
11. CULIACAN
12. DURANGO
13. GUADALAJARA
14. HERMOSILLO
15. HUATULCO
16. IXTAPA/ZIHUATANEJO
17. LA PAZ
18. LEON
19. LOS CABOS
20. LOS MOCHIS
UNITED STATES
41. AUSTIN
42. CHARLOTTE
43. CHICAGO (MIDWAY)
44. CHICAGO (O'HARE)
45. DALLAS-FORT WORTH
46. DENVER
47. FRESNO
48. HOUSTON
49. LAS VEGAS
50. LOS ANGELES
51. MIAMI
52. NEW YORK (JFK)
53. OAKLAND
54. ONTARIO, CA
55. ORLANDO
56. PENSACOLA
57. PHOENIX
21. MAZATLAN
22. MEXICALI
23. MONTERREY
24. MORELIA
25. MERIDA
26. OAXACA
27. PUEBLA
28. PUERTO ESCONDIDO
29. PUERTO VALLARTA
30. QUERETARO
31. SAN LUIS POTOSI
32. TAPACHULA
33. TEPIC
34. TIJUANA
35. TORREON
36. TUXTLA GUTIERREZ
37. URUAPAN
38. VERACRUZ
39. VILLAHERMOSA
40. ZACATECAS
58. PORTLAND
59. SACRAMENTO
60. SAN ANTONIO
61. SAN DIEGO
62. SAN FRANCISCO
63. SAN JOSE, CALIFORNIA
64. SEATTLE
65. SIOUX FALL (SOUTH DAKOTA)
66. WASHINGTON D.C.
CENTRAL AMERICA
67. GUATEMALA, GUATEMALA
68. EL SALVADOR, EL SALVADOR
69. SAN JOSE, COSTA RICA
10
+100
Destinations
30 new routes and
1 new destination
volaris | 2019 Annual Report +
CODESHARE AGREEMENT
WITH FRONTIER
Since last year, we began our codeshare operations with Frontier, which enables our
Mexican passengers to visit new destinations in the United States and American pas-
sengers to fly to new cities in Mexico.
This agreement has significant benefits for Volaris:
67
New destinations
in the United States
for Volaris
+166
New connecting
roundtrip routes
Strong potential
for connectivity
23
Connecting
airports
11
volaris | 2019 Annual Report 8
A319
58
A320
16
A321
Volaris was the first airline to operate NEO aircraft in
North America. Currently, 28% of our fleet are NEO’s.
12
FLEET
Our fleet is composed of 82 aircraft with an average age
of five years; thus, it is one of the youngest in the country.
Each aircraft has 186 average seats and 77% have sharklets, aerodynamic devices that reduce fuel
consumption by approximately 4% and prevent around 18,000 tons of annual CO2 emissions.
In 2019, we incorporated five A320 NEO and A321 NEO aircraft to our fleet. These aircraft have
state-of-the-art technology to enhance their environmental efficiency. They reduce annual fuel con-
sumption by over 15%, as well as CO2 emissions by 5,000 tons and 50% NOx gases per aircraft a
year. Furthermore, they decrease sound footprint by 50%, compared with previous units.
volaris | 2019 Annual Report 2019 RESULTS
Available seat miles
(ASMs, millions)
Revenue passenger miles
(RPMs, millions)
Passengers
(Thousands)
Aircraft
2015
2016
2017
2018
2019
14,052
16,704
18,861
21,010
2015
2016
2017
2018
11,562
14,326
15,917
17,748
24,499
2019
21,032
2015
2016
2017
2018
2019
11,983
15,005
16,427
18,396
21,975
2015
2016
2017
2018
2019
56
69
71
77
82
Total operating revenue
per available seat mile
(TRASM, MXN cents)
Total ancillary revenue
per booked passenger
(MXN)
Operating cost per
available seat mile
(CASM*, USD cents)
2015
2016
2017
2018
2019
129.4
140.5
131.4
130.0
142.2
2015
2016
2017
2018
2019
338
379
426
479
532
2015
2016
2017
2018
2019
6.5
6.0
6.3
6.5
6.6
*Peso amounts were converted to U.S. dollars at end of period exchange rate.
13
volaris | 2019 Annual Report COMPETITIVE
ADVANTAGES
LOWEST UNIT-COST PUBLICLY TRADED AIRLINE
Since 2018, Volaris has focused on developing a low-cost strategy
that allowed, first of all, to overcome the challenges posed by rising
oil prices, and on the other, continue with its tactic of opening more
point-to-point routes, taking into account the needs of its passen-
gers, and offering them lower fares, even lower than buses’.
Furthermore, the internal traffic demand from our core market, Visit-
ing Friends and Relatives, grows at a higher rate than the economy.
Therefore, our unique business model is the best suited to increase
traffic of passengers flying within Mexico and to the United States
and Central America.
BUS SWITCHING STRATEGY
POTENTIAL FOR GROWTH
We remain faithful to our core belief: make air travel accessible for
everyone. Hence, our bus switching strategy is a priority, and we
have innovated new payment options to attract more passengers
with lower incomes, such as immediate online credits, deferred
payments for US Clients, among others.
Due to our low-cost strategy, the increasing young population and
the emerging middle class, Volaris has an enormous potential for
growth. Moreover, we have proven our ability to stimulate demand
through lower fares, making flying affordable for more people.
33 million potential passengers,
a 48% growth opportunity.
14
volaris | 2019 Annual Report LARGEST AIRLINE
IN MEXICO
In 2019 we became the leading airline in Mexico
by transporting a record-breaking 21.97 million
passengers.
TRASM increased
9% in 2019 year
over year, following
a trajectory of
sequential quarterly
improvements.
41% of our routes
have no airline
competitors; on
these routes we
only compete
against buses.
Total ancillary
revenues increased
33% year over year
and accounted
for 34% of total
operating revenues.
As of December 31, 2019, cash and
cash equivalents were Ps. $7.9 billion
pesos, $2.1 billion pesos above last
year, representing 23% of last twelve
months of operating revenues.
We grew ASMs by
17% over the full year;
the main source of
growth was healthy
capacity generated
by better utilization of
our existing assets.
We achieved a full year CASM ex-fuel of
USD $3.9 cents as a result of our constant,
company-wide cost savings focus.
The total US dollar CASM for the year
decreased 3% versus 2018, fully offsetting
the increase of the average economic fuel
cost per gallon during the year.
Volaris finished
the full year with
positive operating
cashflow generation,
at Ps. $9.5 billion
pesos for 2019.
15
volaris | 2019 Annual Report CORPORATE
GOVERNANCE
Our Corporate Governance complies with
the best international practices.
BOARD AND COMMITTEES
The members of our Board were elected at our General Annual Shareholders Ordi-
nary Meeting held on April 2, 2020. Our by-laws stipulate that the Board must be
comprised of no more than 21 members; at least 25% are required to be independent,
pursuant to the Mexican Securities Market Law. Our Board of Directors is comprised
of 14 proprietary directors and 4 alternates, of which 9 proprietary and 2 alternates
are independent, 64%. All members are professionals with wide experience and
knowledge in sectors such as aviation, business, marketing, finance and economy.
S
R
O
T
C
E
R
I
D
F
O
D
R
A
O
B
PROPRIETARY DIRECTORS
ALTERNATE DIRECTORS
Brian H. Franke
chairman of the board
William A. Franke
member
Andrew Broderick
alternate member
Marco Baldocchi Kriete
member
Rodrigo Antonio Escobar Nottebohm
alternate member
Enrique Javier Beltranena Mejicano
member
Harry F. Krensky
member
Mónica Aspe Bernal
independent member
William Dean Donovan
independent member
José Luis Fernández Fernández
independent member
Joaquín Alberto Palomo Déneke
independent member
José Carlos Silva Sánchez-Gavito
alternate member
John Slowik
independent member
Alfonso González Migoya
independent member
Ricardo Maldonado Yáñez
independent member
Eugenio Macouzet de León
alternate member
Stanley L.Pace
independent member
Guadalupe Phillips Margain
independent member
Jaime Esteban Pous Fernández
secretary non-member
Isela Cervantes Rodríguez
deputy secretary non-member
16
volaris | 2019 Annual Report
E
T
A
R
O
P
R
O
C
D
N
A
T
I
D
U
A
E
E
T
T
I
M
M
O
C
E
C
N
A
N
R
E
V
O
G
D
N
A
N
O
I
T
A
S
N
E
P
M
O
C
E
E
T
T
I
M
M
O
C
S
N
O
I
T
A
N
M
O
N
I
José Luis Fernández Fernández
chairman
John A. Slowik
Joaquín Alberto Palomo Déneke
members
Jaime Esteban Pous Fernández
secretary non-member
Isela Cervantes Rodriguez
deputy secretary non-member
Marco Baldocchi Kriete
chairman
Harry F. Krensky
Enrique Javier Beltranena M.
Brian H. Franke
members
Ricardo Maldonado Yáñez
secretary non-member
Eugenio Macouzet de León
deputy secretary non-member
EXECUTIVE TEAM
José Carlos Silva Sánchez-Gavito
alternate member
Enrique Javier Beltranena Mejicano
president and chief executive officer
Rodrigo Antonio Escobar
Nottebohm
alternate member
Holger Blankenstein
executive vice president airline
commercial and operations
Jaime E. Pous Fernández
senior vice president chief legal
officer and corporate affairss
José Luis Suárez Durán
senior vice president and
chief operating officer
Sonia Jerez Burdeus
vice president and chief financial officer
Carolyn Prowse
vice president and chief commercial officer
17
volaris | 2019 Annual Report
ETHICAL OPERATIONS
All our operations are managed by
our Code of Ethics, which includes
all Volaris’ values, standards,
behaviors and Culture that guide the
daily behavior of all Ambassadors.
The main topics addressed are the defense of Human Rights,
promotion of equal opportunities, Customer service, free market
competition, anticorruption and antibribery guidelines, as well as
regulatory compliance.
Furthermore, we have implemented several policies that ensure all
our operations’ integrity. In order to provide services that guarantee
transparent practices, we are aligned to the Foreign Corrupt Practi-
ces Act (FCPA) requirements.
18
volaris | 2019 Annual Report CORPORATE
SUSTAINABILITY
PROGRAM
We reinforce our commitment to the new generations’ future, creating the ideal
context so that the ultra-low-cost aviation business continues to be a develop-
ment engine and an employment source for many more years.
Our business goals and sustainability
strategy are aligned with the United Nations
Sustainable Development Goals (SDG).
Economic/Governance
Care Focus
People
Care Focus
A
B
C
D
Business Strategy
Governance Structure
Corporate Affairs
Supply Chain Management
A
B
C
Ambassadors Relations,
Practices and Wellbeing
Human Rights & Community
Relations
Customer Welfare and
Privacy & Data Security
Planet
Care Focus
A
B
Compliance and Reporting
Comprehensive Environmental
Protection Policy #CielitoLimpio
C
Efficient Fuel Consumption Management
19
volaris | 2019 Annual Report For more information on our sustainability initiatives, please visit our Sustainability Report at:
http://ir.volaris.com/English/home/default.aspx
HIGHLIGHTS
2019
32,467
Certified carbon credits
procured since 2015
Members
of the
Sustainability
Index of the
Mexican Stock
Exchange
-6%
Of fuel consumption vs
2018; equivalent to saving
37.8 million gallons
106
Fulfilled dreams
for girls, boys and
teenagers with chronic
or advanced illnesses
-17%
CO2 emissions per
passenger kilometer
transported (2012-2019)
Certification in
Environmental and Quality
Management Systems ISO
14001 and ISO 9001
314
Organs and tissues
transported with
CENATRA since 2009
265
Tickets donated to
vulnerable people through
Volaris Aid Aircraft Program
Socially
Responsible
Company
Distinction
for the 10th
consecutive year
#VoluntariosVolaris513
who benefited
1,973 persons
Top member
in the
implementation
of The Code
(ECPAT)
20
volaris | 2019 Annual Report OPERATING AND FINANCIAL
REVIEW AND PROSPECTS
21
volaris | 2019 Annual Report A. OPERATING RESULTS
You should read the following discussion of our financial condition
and results of operations in conjunction with our consolidated
financial statements and the notes thereto included elsewhere in
this annual report. The following discussion contains forward-look-
ing statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute
to these differences include those discussed below and elsewhere
in this annual report, particularly in “Risk Factors.”
Description of Our Principal Line Items
operating revenues
As of January 1, 2018, we adopted IFRS 15 “Revenue from Contracts
with Customers” using the full retrospective method of adoption. The
main impact of IFRS 15 on us is the timing of recognition of certain air
travel-related ancillary services. Under the new standard, certain an-
cillary services are recognized when we satisfy our performance ob-
ligations, which is typically when the air transportation service is ren-
dered (at the time of the flight). In addition, these ancillary services do
not constitute separate performance obligations or represent admin-
istrative tasks that do not represent a different promised service and
therefore should be accounted for together with the air fare as a sin-
gle performance obligation of providing passenger transportation.
Therefore, the classification of certain ancillary fees in our statement
of operations, such as advanced seat selection, fees charged for ex-
cess baggage, itinerary changes and other air travel-related services,
changed with adoption of IFRS 15, since they are part of the single
performance obligation of providing passenger transportation. We
have recasted our financial statements as of January 1, 2016 and
2017 for comparability purposes.
passenger revenues
Our passenger revenue includes income generated from: (i) fare
revenue and (ii) other passenger revenue.
We derive our operating revenues primarily from transporting pas-
sengers on our aircraft and some tickets sold by other airlines such
as Frontier. Approximately 67% of our total operating revenues
were derived from passenger fares in 2019. Passenger revenues
are based upon our capacity, load factor and the average ticket
revenue per booked passenger. Our capacity is measured in terms
of ASMs, which represents the number of seats we make available
on our aircraft multiplied by the number of miles the seats are flown.
Load factor, or the percentage of our capacity that is actually used
by paying customers, is calculated by dividing RPMs by ASMs. The
average ticket revenue per booked passenger represents the total
passenger revenue divided by booked passengers.
Other passenger revenues include but are not limited to fees
charged for excess baggage, bookings through our call center or
third-party agencies, advanced seat selection, itinerary changes,
V-Club memberships and charters. They are recognized as revenue
when the obligation of passenger transportation service is provided
by us or when the non-refundable ticket expires at the date of the
scheduled travel. Approximately 30% of our total operating reve-
nues were derived from other passenger revenues in 2019.
22
volaris | 2019 Annual Report non-passenger revenues
Our non-passenger revenues include income generated from (i)
other non-passenger revenues and (ii) cargo services. In 2019, we
derived approximately Ps. 1.1 billion, or 3% of our total operating
revenues from non-passenger revenues.
Revenues from other non-passenger services mainly include but are
not limited to commissions charged to third parties for the sale of
hotel reservations, trip insurance, rental cars and advertising spac-
es to third parties. They are recognized as revenue at the time the
service is provided.
Revenues from cargo services are recognized when the cargo trans-
portation is provided (upon delivery of the cargo to the destination).
The following table shows each of the line items in our consolidated
statements of operations for the periods indicated as a percentage
of our total operating revenues for that period.
Revenues from our international operations represented 30%, 32%
and 29% of our total revenues in 2017, 2018 and 2019, respectively,
and revenues from our domestic operations represented 70%, 68%
and 71% of our total revenues in 2017, 2018 and 2019, respectively.
(1) On adoption of IFRS 16 we apply the new standard on the required effective date as of
January 1, 2019, using the full retrospective method of adoption in order to provide for
comparative results in all periods presented, recognizing the effect in retained earnings
as of January 1, 2017.
Operating revenues:
Passenger revenues:
Fare revenues
Other passenger revenues
Non-passenger revenues:
Other non-passenger revenues
Cargo
Non-derivative financial instruments:
Total operating revenues
Other operating income
Fuel expense, net
Landing, take-off and navigation expenses
Depreciation of right of use assets
Salaries and benefits
Maintenance expenses
Sales, marketing and distribution expenses
Aircraft and engine variable lease expenses
Other operating expenses
Depreciation and amortization
Total operating expenses, net
Operating income
Finance income
Finance cost
Exchange gain, net
Income (loss) before income tax
Income tax (expense) benefit
Net income (loss)
FOR THE YEARS ENDED DECEMBER 31
2017 Adjusted (1)
2018 Adjusted (1)
2019
72%
25%
3%
0%
0%
100%
0%
29%
16%
14%
11%
6%
7%
6%
4%
2%
95%
5%
0%
(6)%
3%
2%
(1)%
1%
68%
29%
3%
0%
0%
100%
(2)%
37%
17%
15%
11%
5%
5%
4%
4%
2%
98%
2%
1%
(7)%
0%
(5)%
1%
(3)%
67%
30%
3%
0%
0%
100%
(1)%
33%
15%
14%
10%
4%
4%
3%
3%
2%
87%
13%
1%
(7)%
4%
11%
(3)%
8%
23
volaris | 2019 Annual Report
Revenue Recognition
general
As of January 1, 2018, we adopted IFRS 15 “Revenue from Contracts
with Customers” using the full retrospective method of adoption.
The main impact of IFRS 15 on us is the timing of recognition of
certain air travel-related ancillary services. Under the new standard,
certain ancillary services are recognized when we satisfy our perfor-
mance obligations, which is typically when the air transportation
service is rendered (at the time of the flight). In addition, these an-
cillary services do not constitute separate performance obligations
or represent administrative tasks that do not represent a different
promised service and therefore should be accounted for together
with the air fare as a single performance obligation of providing
passenger transportation.
Therefore, the classification of certain ancillary fees in our statement
of operations, such as advanced seat selection, fees charged for
excess baggage, itinerary changes and other air travel-related ser-
vices, changed with adoption of IFRS 15, since they are part of the
single performance obligation of providing passenger transporta-
tion. We have recasted our financial statements as of January 1, 2016
and 2017 for comparability purposes.
passenger revenues
Revenues from the air transportation of passengers are recognized
at the earlier of when the service is provided or when the non-re-
fundable ticket expires at the date of the scheduled travel.
Ticket sales for future flights are initially recognized as contract liabil-
ities under the caption unearned transportation revenue and, once
we provide the transportation service or when the non-refundable
ticket expires at the date of the scheduled travel, the earned reve-
nue is recognized as fare revenue and the unearned transportation
revenue is reduced by the same amount. All of our tickets are non-re-
fundable and are subject to change upon a payment of a fee. Ad-
ditionally, the Company does not operate a frequent flier program.
Passenger revenues includes income generated from: (i) fare reve-
nues and (ii) other passenger revenues. Other passenger services
include but are not limited to fees charged for excess baggage,
bookings through the call center or third-party agencies, advanced
seat selection, itinerary changes and charters. They are recognized
as revenue when the obligation of passenger transportation service
is provided by the Company or when the non-refundable ticket ex-
pires at the date of the scheduled travel.
We also classify as other passenger revenue “V Club” and other
similar services, which are recognized as revenue over time when
the service is provided, as a modification of the tickets sold to V
Club members.
Tickets sold by other airlines such as Frontier where we provide
the transportation are recognized as passenger revenue when the
service is provided.
We sell certain tickets with connecting flights with one or more seg-
ments operated by other airline partners. For segments operated by
other airline partners, we have determined that we are acting as an
agent on behalf of the other airlines as they are responsible for their
portion of the contract (i.e. transportation of the passenger). We, as
the agent, recognize revenue within other operating revenue at the
time of the travel for the net amount retained by us for any segments
flown by other airlines.
non-passenger revenues
Non-passenger revenues include revenues generated from: (i) other
non-passenger revenues and (ii) cargo services.
Revenues from other non-passenger services mainly include but are not
limited to commissions charged to third parties for the sale of hotel res-
ervations, trip insurance, rental cars and advertising spaces to third par-
ties. They are recognized as revenue at the time the service is provided.
We concluded that the timing of satisfaction of revenue from adver-
tising spaces is to be recognized over time because the customer
simultaneously receives and consumes the benefits we provide.
Additionally, we recognize as revenue the air transportation facility
charges for non-show passengers, when the non-refundable ticket
expires at the date of the scheduled travel.
We also evaluated principal versus agent considerations as they re-
late to certain non-air travel services arrangements with third party
providers. No changes were identified under this analysis as we are
the agent for those services proviwded by third parties.
We are also required to collect certain taxes and fees from customers
on behalf of government agencies and airports and remit these back
to the applicable governmental entity or airport on a periodic basis.
These taxes and fees include value added tax, federal transportation
taxes, federal security charges, airport passenger facility charges,
and foreign arrival and departure taxes. These items are collected
from customers at the time they purchase their tickets, but are not
included in passenger revenue. We record a liability upon collection
from the customer and discharge the liability when payments are
remitted to the applicable governmental entity or airport.
24
volaris | 2019 Annual Report Operating Expenses, net
Our operating expenses consist of the following line items.
Other Operating Income. Other operating income primarily in-
cludes the gains from sale and lease back operations of our aircraft
and engines.
Fuel expense, net. Fuel expense is our single largest operating
expense. It includes the cost of fuel, related taxes, fueling into-plane
fees and transportation fees. It also includes realized gains and
losses that arise from any fuel price derivative activity qualifying for
hedge accounting and gains and losses that arise from non-deriva-
tive financial instruments.
Landing, Take-off and Navigation Expenses. Landing, take-off
and navigation expenses include airport fees, handling charges,
and other rents, which are fixed and variable facilities’ expenses,
such as the fees charged by airports for the use or lease of airport
facilities, as well as costs associated with ground handling services
that we outsource at certain airports. This expense also includes
route charges, which are the costs of using a country’s or terri-
tory’s airspace and are levied depending on the distance flown
over such airspace.
Depreciation of right–of–use assets. Depreciation of right-of-use
assets use includes the depreciation of all aircraft and engine leases
and some land and building leases that qualify under IFRS 16.
With respect to this line item, IFRS 16 was issued in January 2016
and replaces IAS 17 “Leases,” IFRIC 4 “Determining Whether an Ar-
rangement Contains a Lease,” SIC-15 “Operating Leases-Incentives”
and SIC-27 “Evaluating the Substance of Transactions Involving
the Legal Form of a Lease.” IFRS 16 sets out the principles for the
recognition, measurement, presentation and disclosure of leases
and requires lessees to account for all leases under a single on-bal-
ance sheet model similar to the accounting for finance leases under
IAS 17. Under IFRS 16, at the commencement date of a lease, a
lessee recognizes a liability to make lease payments (i.e., the lease
liability) and an asset representing the right to use the underlying
asset during the lease term (i.e., the right-of-use asset). Lessees are
required to separately recognize the interest expense on the lease
liability and the depreciation expense on the right-of-use asset.
Lessees are also required to remeasure the lease liability upon the
occurrence of certain events (e.g., a change in the lease term or a
change in future lease payments). The lessee generally recognizes
the amount of the remeasurement of the lease liability as an adjust-
ment to the right-of-use asset. In addition, for leases denominated
in a foreign currency other than our functional currency (which is the
Mexican Peso) the lease liability will be remeasured at each report-
ing date, using the foreign exchange of the period. We adopted
IFRS 16 on the mandatory date, January 1, 2019, through the full
retrospective method recognizing the effect on our statement of
financial position as of January 1, 2017. This led to approximately
Ps.23.5 billion of right-of-use assets and Ps.32.7 billion as lease
liabilities as of January 1, 2017. Our financial results as of and for
the years ended December 31, 2017 and 2018 as presented in our
annual report for the year ended December 31, 2018 filed with the
SEC on April 26, 2019 have been adjusted in our Audited Consol-
idated Financial Statements presented in this annual report to take
into account this application of IFRS 16. See note 1x to our Audited
Consolidated Financial Statements for more details.
Salaries and Benefits. Salaries and benefits expense include the
salaries, hourly wages, employee health insurance coverage and
variable compensation that are provided to employees for their
services, as well as the related expenses associated with employee
benefit plans and employer payroll taxes.
Maintenance Expenses. Maintenance expenses include all parts,
materials, repairs and fees for repairs performed by thirdparty vendors
directly required to maintain our fleet. It excludes the direct labor cost
of our own mechanics, which is included under salaries and benefits
and includes only routine and ordinary maintenance expenses. Major
maintenance expenses are capitalized and subsequently amortized
as described in “—Depreciation and Amortization—” below.
Sales, Marketing and Distribution Expenses. Sales, marketing
and distribution expenses consist of advertising and promotional
expenses directly related to our services, including the cost of web
support, our outsourced call center, travel agent commissions, and
credit card discount fees that are associated with the sale of tickets
and other products and services.
Aircraft and Engine Variable Lease Expenses. Aircraft and engine
variable expenses consist of the maintenance deposits we pay to the
lessor as maintenance deposits when we determine that we will proba-
bly not recover such deposits in whole or in part. In these cases, we re-
cord these amounts in the results of operations as additional aircraft rent
(supplemental rent) from the time we make the determination over the
remaining term of the lease. Aircraft and engine variable lease expense
also includes the estimated return costs of our fleet, which in no case
are related to scheduled major maintenance. The return costs are rec-
ognized on a straight-line basis as a component of supplemental rent.
25
volaris | 2019 Annual Report Other Operating Expenses. Other operating expenses include (i)
administrative support such as travel expenses, stationery, adminis-
trative training, monthly rent paid for our headquarters’ facility, pro-
fessional fees and all other administrative and operational overhead
expenses; (ii) costs for technological support, communication sys-
tems, cell phones, and internal and operational telephone lines; (iii)
premiums and all expenses related to the aviation insurance policy
(hull and liability); and (iv) outsourced ground services and the cost
of snacks and beverages that we serve on board to our passengers.
Depreciation and Amortization. Depreciation and amortization
expense include the depreciation of all flight equipment, furniture
and equipment we own and leasehold improvements to flight
equipment. It also includes the amortization of major maintenance
expenses we defer under the deferral method of accounting for
major maintenance events associated with the aging of our fleet and
recognize over the shorter period of the next major maintenance
event or the remaining lease term.
A common measure of per unit costs in the airline industry is cost
per available seat mile (CASM). The following table shows the break-
down of CASM for the periods indicated:
(1) Peso amounts were converted to U.S. dollars solely for the convenience of the reader
at the rate of Ps. 18.8452 per U.S. $1.00 as the rate for the payment of obligations de-
nominated in foreign currency payable in Mexico in effect on December 31, 2019. Such
conversions should not be construed as a representation that the peso amounts actually
represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate
indicated, or at all.
(2) On adoption of IFRS 16 we apply the new standard described elsewhere in this annual
report as of the effective date of January 1, 2019, using the full retrospective method of
adoption in order to provide for comparative results in all periods presented, recogni-
zing the effect in retained earnings as of January 1, 2017.
FOR THE YEARS ENDED DECEMBER 31
2017 Adjusted (2)
2018 Adjusted (2)
2019
2019
(In Ps. cents)
(In U.S. $ cents)(1)
Other operating income
Fuel expense, net
Landing, take-off and navigation expenses
Depreciation of right of use assets
Salaries and benefits
Maintenance expenses
Sales, marketing and distribution expenses
Aircraft and engine variable lease expenses
Other operating expenses
Depreciation and amortization
Total operating expenses, net
(0.5)
38.5
21.2
18.2
15.0
7.4
9.0
7.6
5.5
2.9
(3.0)
48.2
21.8
19.2
14.9
7.2
7.1
4.6
5.0
2.4
(1.3)
47.7
20.9
19.2
14.7
6.0
5.9
3.9
4.5
2.8
124.8
127.4
124.3
(0.1)
2.5
1.1
1.0
0.8
0.4
0.3
0.2
0.2
0.2
6.6
26
volaris | 2019 Annual Report recent developments
The ongoing outbreak of COVID-19 was first reported on December
31, 2019 in Wuhan, Hubei Province, China. From Wuhan, the dis-
ease spread rapidly to other parts of China as well as other countries,
including Mexico and the United States, and has been declared a
pandemic by the World Health Organization. Since the outbreak
began, countries have responded by taking various containment
measures, including imposing quarantines and medical screenings,
restricting domestic and international travel, closing borders, pro-
hibiting public gatherings and widely suspending previously sched-
uled activities and events. In addition, concerns related to COVID-19
have drastically reduced demand for air travel and caused major
disruptions and volatility in global financial markets, resulting in the
fall of stock prices (including the price of our stock), both trends
which may continue. There are other broad and continuing concerns
related to the potential effects of COVID-19 on international trade
(including supply chain disruptions and export levels), travel, restric-
tions on our ability to access our facilities or aircraft, requirements to
collect additional passenger data, employee productivity, employee
illness, increased unemployment levels, securities markets, and oth-
er economic activities, particularly for airlines, that may have a de-
stabilizing effect on financial markets and economic activity. Please
refer to “Risk Factors—Risks related to the airline industry—Public
health threats, such as the H1N1 flu virus, the bird flu, Severe Acute
Respiratory Syndrome (SARS), the Zika virus, COVID-19 and other
highly communicable diseases, affect travel behavior and could have
a material adverse effect on the Mexican economy, airline industry
reputation, the price of our shares, our business, results of opera-
tions and financial condition” for a discussion of the ways COVID-19
may impact our business and the Mexican economy.
As a result of the national health emergency and health security
measures imposed by the Mexican government, which on April 21,
2020 were extended until May 30, 2020, we reduced our capacity as
measured by available seat miles (“ASMs”) by approximately 80% for
the month of April and by approximately 90% for the month of May.
Additionally, we have suspended service on certain routes. Costa
Rica, Guatemala and El Salvador have also imposed operational and
migratory restrictions that make it impossible to operate international
passenger flights to those countries. While our business and the air-
line industry have begun to experience material adverse impacts due
to COVID-19, as of the date of this annual report, we cannot yet quan-
tify the impact on us and we cannot offer any assurance that these
impacts will not intensify to the extent that the outbreak persists and
spreads throughout Mexico. Further, additional government mea-
sures in order to avoid mass contagion remain unknown and depend
on future developments with respect to COVID-19, including the
scope and duration of the pandemic, which are highly fluid, uncertain
and cannot be predicted. It is not yet possible to determine when the
adverse effects of COVID-19 will abate and the extent to which they
will further decrease demand for air travel, which could continue to
materially and negatively affect our business, results of operations
and financial condition. For additional information see “—Trends and
Uncertainties Affecting Our Business—Impact of COVID-19.”
trends and uncertainties affecting our business
We believe our operating and business performance is driven by
various factors that affect airlines and their markets, trends affecting
the broader travel industry, and trends affecting the specific markets
and customer base that we target. The following key factors may
affect our future performance.
Impact of COVID-19. COVID-19 has drastically reduced demand
for air travel and caused major disruptions and volatility in global
financial markets, resulting in the fall of stock prices (including the
price of our stock), both trends which may continue. There are other
broad and continuing concerns related to the potential effects of
COVID-19 on international trade (including supply chain disruptions
and export levels), travel, restrictions on our ability to access our fa-
cilities or aircraft, requirements to collect additional passenger data,
employee productivity, employee illness, increased unemployment
levels, securities markets, and other economic activities, particularly
for airlines, that may have a destabilizing effect on financial markets
and economic activity.
From a macroeconomic point of view, the impact of COVID-19 in
Mexico is uncertain. Initial estimates indicate that Mexico’s GDP,
previously predicted to grow between 0.5% and 1.5% in 2020,
could contract by -4.0% as a result of the COVID-19 pandemic.
However, as the full effects of the pandemic have yet to be re-
alized, Mexican GDP may contract in an amount that is not yet
possible to estimate. Economic stagnation, the depreciation of
the peso, contraction and decreased income levels and increased
unemployment levels could result in decreased passenger demand
and lower net income in the long term, even after any potential
COVID-19-related travel restrictions and border closures are lifted.
For example, for the period from March 13, 2020 to April 6, 2020,
346,878 jobs were lost in Mexico. Furthermore, the COVID-19
outbreak has also resulted in increased volatility in both the local
and the international financial markets and economic indicators,
such as exchange rates, interest rates, credit spreads and commod-
ity prices. Any shocks or unexpected movements in these market
factors could result in financial losses.
27
volaris | 2019 Annual Report While the actual impact of the COVID-19 pandemic on our results of
operations and financial condition remains uncertain, the following
indicators, among others, are likely to have a negative impact on
our consolidated financial results in the first quarter of 2020 (and
further into the year depending on the length of the pandemic and
Mexican governmental actions to control the pandemic):
due to continued partial or total lockdowns in Mexico and the
other countries in which we operate, demand for our flights is
likely to continue to decrease which may require further reductions
to our ASMs (in addition to the approximately 80% reduction we
announced for the month of April 2020) and aircraft utilization and
may lead to a decrease in our total operating revenue;
the volatility in the international capital markets has resulted in
(i) the fall of stock prices, including the price of our stock and (ii)
financial losses associated with our financial portfolio, which may
cause a deterioration of our financial condition or limitations on
our ability to meet our liabilities;
if our revenues decrease for a significant portion of time, we may
have less cash available to meet our obligations under our aircraft
and engine lease agreements and additional sources of financing
may be difficult to obtain at favorable rates;
contingency plans we have implemented in our corporate office in
contingency plans we have implemented in order to address the
COVID-19 emergency, including home offices, implementation
of alternative offsite locations and so on, may cause a temporary
increase in our administrative expenses; and
as of the date of this annual report, we are experiencing a signifi-
cant decline in international and domestic demand. In response
to decreased demand, we have taken a number of actions. In
addition to the schedule reductions discussed above, we have
cancelled or postponed non-operational expenditures, non-es-
sential capital expenditure and tooling expenses; and instituted
other, company-wide cost cutting measures. However, even
after the COVID-19 pandemic eases, there is a risk that we will
experience reduced demand in the near to mid-term due to the
potential economic impact of the pandemic on our customers,
as well as customer health concerns about the safety of air travel.
Economic Conditions in Mexico. Based on information that was
published prior to the COVID-19 pandemic, Mexico’s GDP is ex-
pected to grow by 2.15% per year for the next ten years according to
the Mexican Central Bank, which is in line with the expected annual
growth for the United States during the same period as reported
by the U.S. Federal Reserve. See "Key Information—Risk Factors—
Risks Related to the Airline Industry—Public health threats, such as
the H1N1 flu virus, the bird flu, Severe Acute Respiratory Syndrome
(SARS), the Zika virus, the novel coronavirus (“COVID-19”) and other
highly communicable diseases, could affect suspension of domestic
and international flights, travel behavior and could have a material
adverse effect on the Mexican economy, airline industry reputation,
the price of our shares, our business, results of operations and fi-
nancial condition" for more recent information on the impact of
COVID-19 on Mexico's future macroeconomic condition.
Regarding population dynamics as of 2015, according to the INEGI
intercensal survey, around 36% of the Mexican population was un-
der 20 years of age, which benefits us by providing a strong base
of potential customer growth. Inflation in Mexico during 2019 was
2.83% according to the INEGI. As of December 31, 2019, interna-
tional reserves were at U.S. $180.749 billion.
Competition. The airline industry is highly competitive. The princi-
pal competitive factors in the airline industry are fare pricing, total
price, flight schedules, aircraft type, passenger amenities and re-
lated services, number of routes served from a city, customer ser-
vice, safety record and reputation, code-sharing relationships and
frequent flier programs and redemption opportunities. Our current
and potential competitors include traditional network airlines, low-
cost carriers, regional airlines and new entrant airlines. We typically
compete in markets served by legacy carriers and other low-cost
carriers, and, to a lesser extent, regional airlines. Some of our cur-
rent or future competitors may have greater liquidity and access to
capital and may serve more routes than we do.
Our principal competitive advantages are our low base fares and our
focus on VFR travelers, leisure travelers and cost-conscious business
people. These low base fares are facilitated by our low CASM, which
at Ps. 124.3 cents (U.S. $6.45 cents) we believe was the lowest
CASM in Latin America in 2019, compared to Avianca at U.S. $15.30
cents, Azul at U.S. $10.60 cents, Copa at U.S. $9.40 cents, Gol at
U.S. $9.00 cents, Grupo Aeroméxico at U.S. $10.80 cents and LAT-
AM at U.S. $10.50 cents. We also have lower costs than our publicly
traded target market competitors in the United States, including
Alaska Air at U.S. $ 11.58 cents, American at U.S. $14.85 cents,
Delta at U.S. $14.67 cents, Jet Blue at U.S. $11.43 cents, South-
west Airlines at U.S. $12.38 cents and United at U.S. $13.67 cents.
28
volaris | 2019 Annual Report Our principal competitors for the domestic market are Grupo
Aeroméxico, Interjet and VivaAerobus, Interjet and VivaAerobus are
low-cost carriers in Mexico. In 2019, the Mexican low-cost carriers
(including us) combined had 71% of the domestic market based
on passenger flight segments. We had 31% of the domestic market
which placed us first, according to the AFAC.
We also face domestic competition from ground transportation
alternatives, primarily long-distance bus companies. There are lim-
ited passenger rail services in Mexico. There is a large bus industry
in Mexico, with total passenger segments of approximately 3.09
billion in 2018 (the latest year for which data is available as of the
date of this annual report), of which approximately 83.48 million
were executive and luxury passenger segments, according to the
Mexican Authority of Ground Transportation (Dirección General de
Autotransporte Federal) and which could include both long- and
short-distance travel. We set certain of our promotional fares at
prices lower than bus fares for similar routes in order to stimulate
demand for air travel among passengers who in the past have trav-
eled long distances primarily by bus. We believe a small shift of bus
passengers to air travel would dramatically increase the number of
airline passengers and bring the air trips per capita figures in Mexico
closer to those of other countries in the Americas.
Our principal competitors for the international routes between
Mexico and the United States are Grupo Aeroméxico, Alaska Air,
Delta and United. We have grown rapidly in the international market
since we started international operations in 2009, reaching 7.8%
market share on the routes that we operate and 11.5% market share
considering all routes between Mexico and the United States in
2019, according to the AFAC.
Seasonality and Volatility. Our results of operations for any interim peri-
od are not necessarily indicative of those for the entire year because our
business is subject to seasonal fluctuations. We generally expect demand
to be greater during the summer in the northern hemisphere, in Decem-
ber and around Easter, which can fall either in the first or second quarter,
compared to the rest of the year. Our business is also volatile and highly
affected by economic cycles and trends. Consumer confidence and dis-
cretionary spending, fear of terrorism or war, health outbreaks, weaken-
ing economic conditions, fare initiatives, fluctuations in fuel prices, labor
actions, weather and other factors have resulted in significant fluctuations
in our revenues and results of operations in the past. Particularly, in 2008,
the demand for air transportation services was significantly adversely
affected by both the severe economic recession and the record high fuel
prices. We believe, however, that demand for business travel historically
has been more sensitive to economic pressures than demand for low-
price leisure and VFR travel, which are the primary markets we serve.
In addition, on January 20, 2017, Donald Trump became president of the
United States. President Trump has already implemented immigration
policies that have adversely affected the United States—Mexico travel
behavior, especially in the VFR and leisure markets, and there is a possi-
bility that further immigration policy changes are to come. For example
as a result of the COVID-19 pandemic, on April 22, 2020 the President
of the United States signed a Presidential Proclamation entitled: “Sus-
pending Entry of Immigrants Who Present Risk to the U.S. Labor Market
During the Economic Recovery Following the COVID-19 Outbreak.”
Fuel. Fuel costs represent the single largest operating expense for
most airlines, including ours, accounting for 31%, 38% and 38% of
our total operating expenses for 2017, 2018 and 2019, respectively.
Fuel availability and pricing are also subject to refining capacity,
periods of market surplus and shortage, and demand for heating
oil, gasoline and other petroleum products, as well as economic,
social and political factors and other events occurring throughout
the world, which we can neither control nor accurately predict.
We source a significant portion of our fuel from refining sources
located in Mexico.
During the year ended December 31, 2019, we entered into US Gulf
Coast Jet Fuel 54 Asian call options designated to hedge 13,492
thousand gallons of fuel. Such hedges represented a portion of our
fourth quarter 2019 projected consumption. Additionally, during
the same period, we entered into US Gulf Coast Jet Fuel 54 Asian
Zero-Cost collar options designated to hedge 70,136 thousand
gallons of fuel. The latter hedges represented a portion of our pro-
jected third quarter 2019 and our 2020 consumption.
During the year ended December 31, 2018, we entered into US
Gulf Coast Jet Fuel 54 Asian Call options and Zero-Cost Collars
designated to hedge 45.6 million gallons of fuel. Additionally, as
of December 31, 2017, we entered into US Gulf Coast Jet Fuel 54
Asian call options designated to hedge 61.1 million gallons of fuel.
President Trump’s immigration policies had a negative impact on our
results of operations during 2018 and 2019 and this negative impact
can be expected to continue if the Trump administration continues
to carry out such immigration policies.
As of December 31, 2019, we purchased our domestic fuel under
the ASA fuel service contract, and international fuel under the WFS,
Shell, Uno Petrol, Uno El Salvador, BP Products North America and
Chevron fuel service contracts. The cost and future availability of fuel
cannot be predicted with any degree of certainty.
29
volaris | 2019 Annual Report Foreign Exchange Gains and Losses. While most of our revenue is
generated in pesos, 30%, 32% and 29% of our revenues came from
our operations in the United States and Central America during the
years ended December 31, 2017, 2018 and 2019, respectively, and
U.S. dollar denominated collections accounted for 40%, 38% and
43% of our total collections in 2017, 2018 and 2019, respectively.
In addition, the majority of our operating costs are denominated in
or indexed to U.S. dollars, constituting 71%, 73% and 72% of our
total operating costs in 2017, 2018 and 2019. Our key U.S. dol-
lar-denominated operating costs include fuel, aircraft rentals and
maintenance costs.
cycle engineering checks, for example, component checks, monthly
checks, annual airframe checks and periodic major maintenance and
engine checks. Aircraft maintenance and repair costs for routine and
non-routine maintenance are divided into three general categories:
(i) Routine maintenance requirements consist of daily and weekly
scheduled maintenance checks on our aircraft, including pre-flight,
daily, weekly and overnight checks, diagnostic and routine repairs
and any necessary unscheduled tasks performed. These types of
line maintenance are currently serviced by our mechanics and are
primarily completed at the main airports that we currently serve.
We manage our foreign exchange risk exposure by a policy of
matching, to the extent possible, receipts and local payments in
each individual currency. Most of the surplus funds are converted
into U.S. dollars. However, we are exposed to fluctuations in ex-
change rates between the peso and the U.S. dollar.
All other maintenance activities are sub-contracted to qualified
maintenance, repair and overhaul organizations. Routine mainte-
nance also includes scheduled tasks that can take from seven to
14 days to accomplish and are required approximately every 22
months. All routine maintenance costs are expensed as incurred.
As of December 31, 2017, 2018, and 2019, our net monetary liability
position denominated in U.S. dollars was U.S. $1.2 billion, U.S. $1.7
billion and U.S. $1.7 billion, respectively. As a result of either the
appreciation or depreciation of the peso against the U.S. dollar in
2017, 2018 and 2019, as the case may be, and our net U.S. dollar
liability position, we recorded a foreign exchange gain (loss), net of
Ps. 0.7 billion, Ps. (0.1) billion and Ps. 1.4 billion, respectively.
(ii) Major maintenance consists of a series of more complex tasks
that can take from one to six weeks to accomplish and are gen-
erally required approximately every five to six years. Major main-
tenance is accounted for under the deferral method, whereby
the cost of major maintenance and major overhaul and repair
is capitalized as improvements to leased assets and amortized
over the shorter period of the next major maintenance event or
the remaining lease term.
Maintenance Expenses. We are required to conduct varying levels
of aircraft and engine maintenance, which involve significantly differ-
ent labor and materials inputs. Maintenance requirements depend
on the age and type of aircraft and the route network over which
they operate. Fleet maintenance requirements may involve short
(iii) Engine services are provided pursuant to an engine flight hour
agreement that guarantees a cost per overhaul, provides mis-
cellaneous engine coverage, caps the cost of foreign objects
damage events, ensures protection from annual escalations and
grants an annual credit for scrapped components. We also have
a power-by-hour agreement for component services, which
guarantees the availability of aircraft parts for our fleet when they
are required and provides aircraft parts that are not included in
the redelivery conditions of the contract without constituting
an additional cost at the time of redelivery. The costs associated
with the miscellaneous engine coverage and the component
services agreements are recorded in the consolidated state-
ments of operations.
Due to the young age of our fleet (approximately 5.0 years on aver-
age as of December 31, 2019), maintenance expense in 2017, 2018
and 2019 remained relatively low. For the years ended December
31, 2017, 2018 and 2019 we capitalized major maintenance events
as part of leasehold improvements to the flight equipment in the
amount of Ps.529.3 million, Ps.676.5 million and Ps. 659.1 million,
respectively. For the years ended December 31, 2017, 2018 and
2019 the amortization of these deferred major maintenance expens-
es was Ps.382.7 million, Ps.313.5 million and Ps. 450.4 million,
respectively. The amortization of deferred maintenance expenses is
included in depreciation and amortization rather than total mainte-
nance costs as described in “—Critical Accounting Polices and Esti-
mates.” In 2017, 2018 and 2019, total maintenance costs amounted
to Ps.1.4 billion, Ps.1.5 billion and Ps. 1.5 billion, respectively. As
the fleet ages, we expect that maintenance costs will increase in
absolute terms. The amount of total maintenance costs and relat-
ed amortization of heavy maintenance expense is subject to many
variables such as future utilization rates, average stage length, the
size and makeup of the fleet in future periods and the level of un-
scheduled maintenance events and their actual costs. Accordingly,
we cannot reliably quantify future maintenance expenses for any
30
volaris | 2019 Annual Report
significant period of time. However, we estimate that based on our
scheduled maintenance events, current maintenance expense and
maintenance-related amortization expense will be approximately
Ps. 2.6 billion (U.S. $127 million) in 2020.
of our consolidated financial statements. Note 1 to our consolidated
financial statements included herein provides a detailed discussion
of our significant accounting policies.
Aircraft Maintenance Deposits Paid to Lessors. The terms of our air-
craft lease agreements require us to pay maintenance deposits to les-
sors to be held as collateral for the performance of major maintenance
activities, resulting in our recording significant prepaid deposits on
our consolidated statements of financial position. As a result, the cash
costs of scheduled major maintenance events are paid well in advance
of the recognition of the maintenance event in our results of opera-
tions. Please see Item 5:—Critical Accounting Policies and Estimates.”
Ramp-up Period for New Routes. During 2017 we opened 31
new routes, added 35 more in 2018 and 30 more in 2019. As we
continue to grow, we would expect to continue to experience a
lag between when new routes are put into service and when they
reach their full profit potential. See Item 3: “Key Information—Risk
Factors—Airline consolidations and reorganizations could adversely
affect the industry.”
critical accounting policies and estimates
The following discussion and analysis of our consolidated financial
condition and results of operations is based on our consolidated
financial statements, which have been prepared in accordance with
IFRS. The preparation of these consolidated financial statements
requires us to make estimates and judgments that affect the report-
ed amount of assets and liabilities, revenues and expenses, and
related disclosure of supplemental assets and liabilities at the date
Critical accounting policies are defined as those policies that reflect
significant judgments or estimates about matters that are both in-
herently uncertain and material to our financial condition or results
of operations.
Aircraft Maintenance Deposits Paid to Lessors. Our lease agree-
ments provide that we pay maintenance deposits or supplement
rent to aircraft lessors to be held as collateral in advance of our per-
formance of major maintenance activities. Maintenance deposits
are held as collateral in cash. These lease agreements provide that
maintenance deposits are reimbursable to us upon completion of
the maintenance event in an amount equal to the lesser of (i) the
amount of the maintenance deposits held by the lessor associated
with the specific maintenance event or (ii) the qualifying costs re-
lated to the specific maintenance event. Substantially all of these
maintenance deposits are calculated based on a utilization measure,
such as flight hours or cycles, and are used solely to collateralize the
lessor for maintenance time run off the aircraft until the completion
of the maintenance of the aircraft and engines. We paid Ps. 148.8
million, Ps. 454.0 million and Ps. 64.6 million in maintenance de-
posits, net of reimbursements, to our lessors for the years ended
December 31, 2017, 2018 and 2019, respectively.
At lease inception and at each consolidated statement of finan-
cial position date, we assess whether the maintenance deposit
payments required by the lease agreements are substantively and
contractually related to the maintenance of the leased asset. Main-
tenance deposit payments that are substantively and contractually
related to the maintenance of the leased asset are accounted for
as maintenance deposits. Maintenance deposits expected to be
recovered from lessors are reflected as guarantee deposits in the
accompanying consolidated statement of financial position.
The portion of prepaid maintenance deposits that are deemed
unlikely to be recovered, primarily relate to the rate differential be-
tween the maintenance deposits payments and the expected cost
for the next related maintenance event that the deposits serve to
collateralize is recognized as supplemental rent.
Thus, any excess of the required deposit over the expected cost of
the major maintenance event is recognized as supplemental rent
starting from the period the determination is made. When it is not
probable that we will recover amounts currently on deposit with a
lessor, such amounts are expensed as supplemental rent. We ex-
pensed Ps. 265.8 million in 2017, Ps. 299.6 million in 2018 and Ps.
295.7 million in 2019 of maintenance deposits as supplemental rent.
As of December 31, 2017, 2018 and 2019 we had prepaid mainte-
nance deposits of Ps. 6.9 billion, Ps. 6.5 billion and Ps. 6.4 billion,
respectively, recorded in our consolidated statements of financial
position. We currently expect that these prepaid maintenance
deposits are likely to be recovered primarily because there is no
rate differential between the maintenance deposit payments and
the expected cost for the related next maintenance event that the
deposits serve to collateralize.
During the years ended December 31, 2017, 2018 and 2019 we
extended the lease term of three aircraft agreements, two aircraft
31
volaris | 2019 Annual Report agreements and one aircraft agreement, respectively. Additionally,
we extended the lease term of one spare engine agreement in 2019,
two spare engine agreements in 2018 and two spare engine agree-
ments in 2017. These extensions made available maintenance depos-
its that were recognized in prior periods in the consolidated state-
ments of operations as supplemental rent of Ps. 65.7 million, Ps. 0.0
million and Ps. 0.0 million during 2017, 2018 and 2019, respectively.
Because the lease extension benefits are considered lease incen-
tives, the effect of these extensions are recorded reducing the right
of use asset. See note 14 to our audited consolidated financial state-
ments included elsewhere in this annual report.
During the year ended December 31, 2019, we added 7 new net
aircraft to our fleet. The lease agreements of some of these aircraft
do not require the obligation to pay maintenance deposits to lessors
in advance in order to ensure major maintenance activities, so we
do not record guarantee deposits regarding these aircraft. How-
ever, some of these agreements provide the obligation to make a
maintenance adjustment payment to the lessors at the end of the
contract period. This adjustment covers maintenance events that
are not expected to be made before the termination of the contract.
We recognize this cost as supplemental rent during the lease term
of the related aircraft, in the consolidated statements of operations.
For the years ended December 31, 2017, 2018 and 2019, we ex-
pensed as supplemental rent Ps. 265.8 million, Ps. 299.6 million
and Ps. 295.7 million, respectively.
cost of major maintenance is capitalized (leasehold improvements
to flight equipment) and amortized as a component of depreciation
and amortization expense until the next major maintenance event or
during the remaining contractual lease term, whichever occurs first.
The next major maintenance event is estimated based on assump-
tions including estimated usage maintenance intervals mandated by
the FAA in the United States and the AFAC in Mexico and average
removal times suggested by the manufacturer. These assumptions
may change based on changes in the utilization of aircraft, changes
in government regulations and changes in suggested manufactur-
er maintenance intervals. In addition, these assumptions can be
affected by unplanned incidents that could damage an airframe,
engine, or major component to a level that would require a major
maintenance event prior to a scheduled maintenance event. To the
extent the planned usage increases, the estimated useful life would
decrease before the next maintenance event, resulting in additional
amortization expense over a shorter period.
In 2017, 2018 and 2019, we capitalized costs of major maintenance
events of Ps. 529.3 million, Ps. 676.5 million and Ps. 659.1 million,
respectively and we recognized amortization expenses of Ps. 382.7
million, Ps. 313.5 million and Ps. 450.4 million, respectively. The
amortization of deferred maintenance expenses is included under
the caption depreciation and amortization expense in our consoli-
dated statements of operations. If the amortization of major mainte-
nance expenditures were classified as maintenance expense, they
would amount to Ps.1.8 billion, Ps.1.8 billion and Ps. 1.9 billion for
the years ended December 31, 2017, 2018 and 2019, respectively.
Aircraft and Engine Maintenance. We account for major mainte-
nance under the deferral method. Under the deferral method, the
In August 2012, we entered into a total support agreement with
Lufthansa Technik AG (LHT), as amended in December 2016, that
expires December 31, 2022, which includes a total component
support agreement (power-by-hour) and ensures the availability of
aircraft components for our fleet when they are required. The cost
of the total component support agreement is applied monthly to
the results of operations. As part of this total support agreement,
we received credit notes of Ps. 46.5 million and of Ps. 28.1 million,
which was deferred on the consolidated statements of financial po-
sition and is being amortized on a straight line basis, prospectively
during the term of the agreement.
During 2017, 2018 and 2019, we amortized a corresponding bene-
fit from these credit notes of, Ps. 6.6 million, Ps. 7.2 million and Ps.
5.2 million, respectively, which is recognized in the consolidated
statements of operations as a reduction of maintenance expenses.
Return obligations. The aircraft and engine lease agreements also
require that the aircraft and engines be returned to lessors under
specific conditions of maintenance. The costs of return, which
in most cases are related to scheduled major maintenance, are
estimated and recognized ratably as a provision from the time it
becomes likely such costs will be incurred and can be estimated
reliably. These return costs are recognized on a straight-line basis
as a component of variable rent expenses and the provision is in-
cluded as part of other liabilities, through the remaining lease term.
We estimate the provision related to airframe, engine overhaul and
limited life parts using certain assumptions including the projected
usage of the aircraft and the expected costs of maintenance tasks
to be performed. For the years ended December 31, 2017, 2018
and 2019, the Company expensed as variable rent Ps. 851,410, Ps.
659,106 and Ps. 680,964, respectively.
32
volaris | 2019 Annual Report Fair Value. The fair value of our financial assets and financial liabilities
recorded in the consolidated statements of financial position cannot
be derived from active markets. They are determined using valuation
techniques such as the discounted cash flow model. The inputs to
these models are taken from observable markets where possible,
but where this is not feasible, a degree of judgment is required
in establishing fair values. The judgments include considerations
of inputs such as liquidity risk, credit risk and expected volatility.
Changes in assumptions regarding these factors could affect the
reported fair value of financial instruments.
Gains and Losses on Sale and Leaseback. We enter into sale and lease-
back agreements whereby an aircraft or engine is sold to a lessor upon
delivery and the lessor agrees to lease such aircraft or engine back to us.
Starting January 1, 2019, we measure the right-of-use asset arising
from the leaseback at the proportion of the previous carrying amount
of the asset that relates to the right of use retained by the seller-les-
see. Accordingly, we recognize in the Statement of Operations only
the amount of any gain or loss that relates to the rights transferred to
the buyer-lessor. The rest of the gain is amortized over the lease term.
During the year ended December 31, 2017, 2018 and 2019 we sold
and transferred aircraft and engines to third parties, giving rise to
a gain of approximately Ps. 65.9 million, Ps. 609.2 million and Ps.
284.8 million respectively, that was recorded as other operating
income in the consolidated statements of operations.
During the year ended December 31, 2011, we entered into aircraft
and spare engine sale and leaseback transactions, which resulted in
a loss of Ps.30.7 million. This loss was deferred on the consolidated
statements of financial position and is being amortized over the con-
tractual lease term. For the years ended December 31, 2017, 2018
and 2019, we amortized a loss of Ps. 3.0 million, Ps. 3.0 million and
Ps. 3.0 million, respectively, as additional aircraft rental expense.
Before the IFRS 16 adoption, the profit or loss related to a sale trans-
action followed by an operating lease, was accounted for as follows:
(i) Profit or loss was recognized immediately when it was clear that
the transaction was established at fair value.
(ii) If the sale price was at or below fair value, any profit or loss was
recognized immediately. However, if the loss was compensated
for by future lease payments at below market price, such loss
was recognized as an asset in the consolidated statements of
financial position and amortized to the consolidated statements
of operations in proportion to the lease payments over the con-
tractual lease term.
(iii) If the sale price was above fair value, the excess of the price
above the fair value was deferred and amortized to the con-
solidated statements of operations over the asset’s expected
lease term, including probable renewals, with the amortization
recorded as a reduction of rent expense. During the years end-
ed December 31, 2017, 2018 and 2019 we sold and transferred
aircraft and engines to third parties, giving rise to a gain of ap-
proximately Ps. 65.9 million, Ps. 609.2 million and Ps. 284.8
million, respectively, that was recorded as other operating in-
come in the consolidated statements of operations
Equity-settled Transactions
Equity-settled transactions are measured at fair value at the date the
equity benefits are conditionally granted to employees. Our Equi-
ty-settled Transactions include long-term retention plans comprised
of: (i) a management incentive plan; (ii) long-term incentive plan; and
(iii) a board of directors incentive plan.
long-term retention plans
Management Incentive Plan
The management incentive plan has been classified as an equity-set-
tled transaction because as of the grant date the fair value of the
transaction is fixed and is not adjusted by subsequent changes in
the fair value of capital instruments.
The total cost of the management incentive plan is Ps. 2.7 million.
This amount is being expensed over the vesting period, which
commenced retroactively upon consummation of our initial pub-
lic offering and ended on December 31, 2015. During 2012, we
did not recognize any compensation expense associated with the
management incentive plan in our consolidated statements of op-
erations. During 2013, 2014 and 2015, we recorded Ps. 2.1 million
Ps. 0.3 million and Ps. 0.3 million, respectively, as a cost of the man-
agement incentive plan related to the vested shares, as recorded in
our consolidated statements of operations.
The factors considered in the valuation model for the management in-
centive plan included a volatility assumption estimated from historical re-
turns on common stock of comparable companies and other inputs ob-
tained from independent and observable sources, such as Bloomberg.
33
volaris | 2019 Annual Report The share spot price fair value was determined using the market
approach valuation methodology, with the following assumptions:
Dividend yield (%)
Volatility (%)
Risk—free interest rate (%)
Expected life of share options (years)
Exercise share price (in pesos)
Exercise multiple
Fair value of the stock at grant date
2012
0.00
37.00
5.96
8.80
5.31
1.10
1.73
The dividend yield was set at zero because at the time the manage-
ment incentive plan was valued and as of the date of this annual
report, we do not have any plans to pay a dividend.
The management incentive plan explicitly incorporates expecta-
tions of the employee’s early exercise behavior by assuming that
early exercise happens when the stock price is a certain multiple,
M, of the exercise price. The exercise multiple M, of 1.1x incorpo-
rates the assumption that the employee’s exercise of the options
can occur when the share prices are 1.1 times the exercise price,
i.e. 10% above the exercise price.
During 2017, the key employees participating in the management
incentive plan exercised 120,000 Series A shares. The key employ-
ees paid Ps. 0.6 million to the Management Trust corresponding
to the exercised shares. Thereafter, we received from the Manage-
ment Trust the payment related to the exercised shares by the key
employees as a repayment of the loan between the Company and
the Management Trust.
On September 18, 2013, the key employees participating in the
management incentive plan exercised 4,891,410 shares. As a result,
the key employees paid Ps. 25.9 million to the Management Trust
corresponding to the exercised shares. Thereafter, we received
from the Management Trust the payment related to the exercised
shares by the key employees as a repayment of the loan between
the Company and the Management Trust.
During 2018, the key employees participating in the management
incentive plan exercised 2,003,876 Series A shares. The key em-
ployees paid Ps. 10.7 million to the Management Trust correspond-
ing to the exercised shares. Thereafter, we received from the Man-
agement Trust the payment related to the exercised shares by the
key employees as a repayment of the loan between the Company
and the Management Trust.
The volatility was determined based on average historical vola-
tilities. Such volatilities were calculated according to a database
including up to 18 months of historical stock price returns of U.S.
and Latin American publicly traded airlines. The expected volatility
reflects the assumption that the historical volatility of comparable
companies is indicative of future trends, which may not necessarily
be the actual outcome.
On November 16, 2015, as part of the secondary follow-on equity
offering, the key employees exercised 4,414,860 Series A shares.
The key employees paid Ps. 23.5 million to the Management Trust
corresponding to the exercised shares. Thereafter, we received
from the Management Trust the payment related to the exercised
shares by the key employees as a repayment of the loan between
the Company and the Management Trust.
During 2019, the key employees participating in the management
incentive plan exercised 2,780,000 Series A shares. The key em-
ployees paid Ps. 14.8 million to the Management Trust correspond-
ing to the exercised shares. Thereafter, we received from the Man-
agement Trust the payment related to the exercised shares by the
key employees as a repayment of the loan between the Company
and the Management Trust.
The risk-free interest rate is the interbank interest rate in Mexico,
continuously expressed, accordingly to the corresponding term.
The expected life of the share options is an output of the valuation
model and represents the average time the option is expected to
remain viable, assuming the employee does not leave during the
vesting period.
During 2016, the key employees participating in the management
incentive plan exercised 3,299,999 Series A shares. The key em-
ployees paid Ps. 17.5 million to the Management Trust correspond-
ing to the exercised shares. Thereafter, we received from the Man-
agement Trust the payment related to the exercised shares by the
key employees as a repayment of the loan between the Company
and the Management Trust.
As of December 31, 2019, 2018 and 2017, the 7,653,981,
10,433,981 and 12,437,857 share options pending to be exercised,
respectively, were considered as treasury shares.
34
volaris | 2019 Annual Report MOVEMENTS DURING THE YEAR
The following table illustrates the number of share options and fixed
exercise prices during the year.
At December 31, 2012, 2013, 2014, 2015, 2016, 2017, 2018 and
2019, the shares held in trust to satisfy the management options were
considered as treasury shares. At December 31, 2017, 2018 and
2019, 12,437,857, 10,433,981 and 7,653,981 share options pen-
ding to be exercised were considered as treasury shares, respectively.
Long-term Incentive Plan (equity-settled)
In November 2014, we established an equity-settled long-term in-
centive plan pursuant to which certain of our key executives were
granted a special bonus equal to a fair value of Ps. 10.8 million to be
used to purchase our shares. On April 21, 2016, an amendment to
this plan was approved at our annual ordinary shareholders’ mee-
ting. The key components of the plan are as follows:
Outstanding as of December 31, 2012
25,164,126
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding as of December 31, 2013
Granted during the year
Forfeited during the year
Exercised during the year
—
—
(4,891,410)
20,272,716
—
—
—
Outstanding as of December 31, 2014
20,272,716
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding as of December 31, 2015
Granted during the year
Forfeited during the year
Exercised during the year
(i) Servicios Corporativos granted a bonus to each key executive.
Outstanding as of December 31, 2016
(ii) Pursuant to the instructions of such key executives, on Novem-
ber 11, 2014, an amount equal to Ps. 7.1 million (the fair value
of the bonus net of withheld taxes) was transferred to an admi-
nistrative trust for the acquisition of our Series A shares through
an intermediary authorized by the Mexican stock market, based
on the instructions of the administration trust’s technical com-
mittee. An amount equal to Ps. 7.5 million (the fair value of the
bonus net of withheld taxes) was approved in April 2016 as an
extension of this plan for the acquisition of our Series A shares,
following the same mechanism.
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding as of December 31, 2017
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding as of December 31, 2018
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding as of December 31, 2019
—
—
(4,414,860)
15,857,856
—
—
(3,299,999)
12,557,857
—
—
(120,000)
12,437,857
—
—
(2,003,876)
10,433,981
—
—
(2,780,000)
7,653,981
Number
Exercise price in pesos
Total in thousands of pesos
Ps. 5.31
—
5.31
Ps. 5.31
Ps. 5.31
—
—
5.31
Ps. 5.31
—
—
5.31
Ps. 5.31
—
—
5.31
Ps. 5.31
—
—
5.31
Ps. 5.31
—
—
5.31
Ps. 5.31
Ps. 133,723
—
(25,993)
Ps. 107,730
107,730
—
—
(23,461)
Ps. 84,269
—
—
(17,536)
Ps. 66,733
—
—
(638)
Ps. 66,095
—
—
(10,654)
Ps. 55,441
—
—
(14,773)
Ps. 40,668
35
volaris | 2019 Annual Report (iii) Subject to the terms and conditions set forth in the administrati-
ve trust agreement signed in connection thereto, the acquired
shares are to be held in escrow in the administrative trust until
the applicable vesting period date for each key executive, which
is the date as of which each such key executive can fully dispose
of the shares as desired.
(iv) If the terms and conditions set forth therein are not meet by the
applicable vesting period date, then the shares will be sold in
the BMV and Servicios Corporativos will be entitled to receive
the proceeds from such sale.
(v) Each key executive’ account balance will be administered by the
administrative trustee, whose objective is to manage the shares
granted to each key executive based on instructions set forth by
the administrative trust’s technical committee.
The total cost of this plan is Ps. 10.8 million. This valuation is the result
of multiplying the total number of our Series A shares deposited in
the administrative trust and the price per share, plus the balance
in cash deposited in the administrative trust. This amount is being
expensed over the vesting period, which commenced on November
11, 2014 and will end in November 2019.
In November 2019, 2018 and 2017, extensions to this plan were
approved by our board of directors. The total cost of each of the
extensions approved was Ps. 86.8 million (or Ps. 56.4 million, net of
withheld taxes), Ps. 64.0 million (or Ps. 41.6 million, net of withheld
taxes) and Ps. 15.8 million (or Ps. 10.1 million, net of withheld taxes),
respectively. Under these extensions, certain of our key employees
were granted a special bonus that was transferred to the administra-
tive trust for the acquisition of our Series A shares.
During 2017, 2018 and 2019, we recognized Ps.13.5 million, Ps.20.0
million and Ps.49.7 million, respectively, as compensation expense
associated with the long-term incentive plan in our consolidated
statements of operations.
Number of Series A shares
Outstanding as of December 31, 2018
Purchased during the year
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding as of December 31, 2019
*3,553,295
2,694,600
—
(959,614)
(173,090)
*5,115,191
* These shares were presented as treasury shares in the consolidated statements of financial
position as of December 31, 2018 and 2019 and all are considered outstanding for basic
and diluted earnings per share purposes because the holders are entitled to dividends if
and when distributed.
The vesting period of the shares granted under the Company’s equi-
ty-settled long-term incentive plan is as follows:
Number of Series A shares
Vesting period
2,211,269
2,005,716
898,206
5,115,191
November 2019-2020
November 2020-2021
November 2021-2022
During the year ended December 31, 2019, some key employees left
the Company; therefore, these employees did not fulfill the vesting
conditions. In accordance with the plan, Servicios Corporativos is
entitled to receive the proceeds of the sale of such shares. During
the year ended December 31, 2019, 173,090 shares were forfeited.
Board of Directors Incentive Plan (BoDIP)
In April 2018, our shareholders at the annual shareholders mee-
ting authorized a stock plan for the benefit of certain independent
members of our board of directors (the “BoDIP”). The BoDIP was
implemented through the execution of: (i) trust agreement number
CIB/3081 created by us, as trustor, and CIBanco, S.A., Institucion
de Banco Multiple, as trustee, on August 29, 2018; and (ii) a stock
purchase agreement between each plan participant and the trustee,
under which a plan participant has a period of four years to exercise
his/her option to pay a fixed purchase price, with the title to the
shares transferring to the plan participant upon payment of such pur-
chase price by the plan participant. The number of shares held by the
trustee as of December 31, 2019 was 2,072,344, of which 968,706
shares were priced at Ps. 16.80, 977,105 shares were priced at Ps.
16.12 and 126,533 shares were priced at Ps. 26.29. As of December
31, 2019, there were no exercises under the BoDIP.
Cash-settled Transactions
Cash-settled transactions include share appreciation rights (“SARs”).
Our cash-settled transactions include long-term retention plans
comprised of: (i) management incentive plan II and (ii) a cash-settled
long-term incentive plan.
long-term retention plans
Management Incentive Plan II
On November 6, 2016, our board of directors approved an extension
of the management incentive plan to certain key employees, known
as MIP II. Under MIP II, 13,536,960 share appreciation rights of our
Series A shares were granted to be settled annually in cash in a period
of five years in accordance with the established service conditions. In
36
volaris | 2019 Annual Report
addition, a five-year extension to the period in which the executives
can exercise MIP II once the SARs are vested was also approved.
The fair value of these SARs is estimated at the grant date and at each
reporting date using the Black-Scholes option pricing model, which
takes into account the terms and conditions on which the SARs were
granted (vesting schedule included in the table below). The amount
of the cash payment is determined based on the increase in our
share price between the grant date and the settlement date.
The carrying amount of the liability relating to these SARs as of De-
cember 31, 2019, 2018 and 2017 was Ps. 70.6 million, Ps. 32.9
million and Ps. 37.9 million, respectively. The compensation cost is
recognized in our consolidated statements of operations under the
caption salaries and benefits over the service period. During the
years ended December 31, 2019, 2018 and 2017 we recorded a
expense (benefit) of Ps. 37.8 million, Ps.(5.1) million and Ps.(16.5)
million, respectively, associated with these SARs in our consolidated
statements of operations. No SARs were exercised during 2019.
Number of SARs (Grant date:
November 6, 2016)
2,825,840
3,391,020
6,216,860*
Exercisable date
February 2020
February 2021
* Includes forfeited SARs of 0, 1,563,520 and 0 for the years ended December 31, 2017,
2018 and 2019, respectively.
Cash-settled Long-term Incentive Plan
During 2010, we adopted an employee long-term incentive plan, the
purpose of which is to retain high-performing employees within the
organization by paying incentives depending on our performance.
Incentives under this plan were payable in three annual installments,
following the provisions for other long-term benefits under IAS 19.
During the year ended December 31, 2013 and 2012 we expensed Ps
.6.3 million and Ps. 6.5 million respectively, as bonuses as part of the
caption salaries and benefits. During 2014, this plan was structured
as a long-term incentive plan, which consists of a long-term incentive
plan (equity-settled) and long-term incentive plan (cash-settled).
On November 6, 2014 we granted 4,315,264 Series A SARs to key
executives. The SARs vest during a three-year period as long as the
employee completes the required service period and entitle them
to a cash payment. As of the grant date the amount of SARs granted
under this plan totaled Ps. 10.8 million.
Under the plan program extensions described above, the number
of SARs granted to certain of our key executives totaled 3,965,351,
0 and 0, respectively, which amounts to a cost of Ps. 15.8 million
(or Ps. 10.1 million, net of withheld taxes), Ps. 0.0 million (or Ps. 0.0
million, net of withheld taxes) and Ps .0.0 million (or Ps. 0.0 million,
net of withheld taxes), for the years ended December 31, 2017, 2018
and 2019, respectively. The SARs vest during a three-year period as
long as the employee completes the required service period.
The fair value of these SARs is estimated at the grant date and at each
reporting date using the Black-Scholes option pricing model, which
takes into account the terms and conditions on which the SARs were
granted (vesting schedule included in the table below). The amount
of the cash payment is determined based on the increase in our
share price between the grant date and the settlement date.
The carrying amount of the liability relating to the SARs as of
December 31, 2017, 2018 and 2019 was Ps. 0.7 million, Ps. 0.5
million and Ps. 1.9 million, respectively. The compensation cost is
recognized in our consolidated statements of operations under the
caption of salaries and benefits over the service period. During the
years ended December 31, 2017, 2018 and 2019 we recorded an
expense (benefit) of Ps. (9.0) million, Ps. (0.2) million and Ps. 3.0
million, respectively, in respect of these SARs in our consolidated
statements of operations.
Number of SARs
725,193
725,193*
Exercisable date
November 2020
* Include forfeited SARs of 32,616, 484,656 and 145,769 for the years ended December
31, 2019, 2018 and 2017, respectively.
Derivative Financial Instruments and Hedge Accounting. We mit-
igate certain financial risks, such as volatility in the price of jet fuel,
adverse changes in interest rates and exchange rate fluctuations,
through a controlled risk management policy that includes the use
of derivative financial instruments. The derivative financial instru-
ments are recognized in the consolidated statement of financial
position at fair value. The effective portion of a cash flow hedge’s
unrecognized gain or loss is recognized in “Accumulated other
comprehensive income (loss) items,” while the ineffective portion
is recognized in current year earnings. The realized gain or loss of
derivative financial instruments that qualify as hedging is recorded
in the same statements of operations as the realized gain or loss
of the hedged item. Derivative financial instruments that are not
designated as or not effective as a hedge are recognized at fair
value with changes in fair value recorded in current year earnings.
37
volaris | 2019 Annual Report
During 2019, all derivative financial instruments held qualified for
hedge accounting. Outstanding derivative financial instruments
may require collateral to guarantee a portion of the unsettled loss
prior to maturity. The amount of collateral delivered in guarantee,
which is presented as part of “Guarantee deposits,” is reviewed and
adjusted on a daily basis, based on the fair value of the derivative
position. As of December 31, 2019 we did not have any collateral
recorded as a guarantee deposits.
(i) Aircraft Fuel Price Risk. We account for derivative financial in-
struments at fair value and recognize them in the consolidated
statements of financial position as an asset or liability. The cost
of aircraft fuel consumed in 2017, 2018 and 2019 represented
31%, 38% and 38% of our operating expenses, respectively.
To manage aircraft fuel price risk, we periodically enter into
derivatives financial instruments.
During the year ended December 31, 2019, we entered into US
Gulf Coast Jet Fuel 54 Asian call options designated to hedge
13,492 thousand gallons of fuel. Such hedges represented a por-
tion of our fourth quarter 2019 projected consumption. Addition-
ally, during the same period, we entered into US Gulf Coast Jet Fuel
54 Asian Zero-Cost collar options designated to hedge 70,136
thousand gallons of fuel. The latter hedges represented a portion
of our projected third quarter 2019 and our 2020 consumption.
During the year ended December 31, 2018, we entered into US
Gulf Coast Jet Fuel 54 Asian Call options and Zero-Cost Collars
designated to hedge 45.6 million gallons of fuel. Additionally, as
of December 31, 2017, we entered into US Gulf Coast Jet Fuel 54
Asian call options designated to hedge 61.1 million gallons of fuel.
Additionally, during the year ended December 31, 2019, we
entered into US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar
options designated to hedge approximately 20% of our 2020
fuel consumption, as well as US Gulf Coast fuel 54 Asian call
options that expired by the end of 2019 to hedge approximate-
ly 5% of projected fuel consumption for 2019. During the year
ended December 31, 2018, we entered into US Gulf Coast Jet
Fuel 54 Asian Zero-Cost collar options and US Gulf Coast fuel
54 Asian call options designated to hedge approximately 18%
of our 2019 projected fuel consumption.
We utilize IFRS 9, which comprises aspects related to classifi-
cations and measurement of financial assets and financial liabil-
ities, as well as hedge accounting treatment. Paragraph 6.2.4
(a) of IFRS 9 allows us to separate the intrinsic value and time
value of an option contract and to designate as the hedging
instrument only the change in the intrinsic value of the option.
As further required in paragraph 6.5.15 therein, because the
external value (time value) of the Jet fuel 54 Asian call options
are related to a “transaction related hedged item,” it is required
to be segregated and accounted for as a “cost of hedging” in
other comprehensive income (“OCI”) and accrued as a separate
component of stockholders’ equity until the related hedged
item affects profit and loss.
Since monthly forecasted jet fuel consumption is considered
the hedged item of the “related to a transaction” type, then the
time value included as accrued changes on external value in
capital is considered as a “cost of hedging” under IFRS 9. The
hedged item (jet fuel consumption) of the Jet fuel 54 Asian call
options contracted by us represent a non-financial asset (energy
commodity), which is not in our inventory. Instead, it is directly
consumed by our aircraft at different airport terminals. There-
fore, although a non-financial asset is involved, its initial recog-
nition does not generate a book adjustment in our inventories.
Rather, it is initially accounted for in our other comprehensive
income (OCI) and a reclassification adjustment is made from
OCI toward the profit and loss and recognized in the same peri-
od or periods during which the hedged item is expected to be
allocated to profit and loss (in accordance with IFRS 9.6.5.15,
B6.5.29 (a), B6.5.34 (a) and B6.5.39). As of January 2015, we
began to reclassify these amounts (previously recognized as
a component of equity) to our statement of operations in the
same period in which our expected jet fuel volume consumed
affects our jet fuel purchase line item therein.
As of December 31, 2017 and 2018, the fair value of our out-
standing US Gulf Coast Jet Fuel 54 Asian call options was Ps.
497.4 million and Ps. 48.2 million respectively. During the year
ended December 31, 2019, the Company entered into US Gulf
Coast Jet Fuel 54 Asian call options which expired by the end
of 2019. As of December 31, 2018 and 2019 the fair value of
our outstanding US Gulf Coast Jet Fuel 54 Asian Zero-Cost
collar options was a loss of (Ps. 122.9) million and a gain of Ps.
133.6 million, respectively, and these were presented as part
of the financial assets and financial liabilities line items in our
consolidated statements of financial position. The amount of
positive cost of hedging derived from the extrinsic value chang-
es of these options as of December 31, 2017, 2018 and 2019
recognized in other comprehensive income totaled Ps. 163.8
million, Ps. 134.1 million, and Ps. 133.6 million, respectively,
and will be recycled to our fuel cost during 2020, as these
38
volaris | 2019 Annual Report options expire on a monthly basis and as jet fuel is consumed.
During the years ended December 31, 2017, 2018 and 2019,
the net negative (positive) cost of these options recycled to our
fuel cost totaled Ps. 27.0 million, (Ps. 402.5) million and Ps.
70.5 million, respectively.
(ii) Foreign Currency Risk. Foreign currency risk is the risk that the
fair value of future cash flows will fluctuate because of changes
in foreign exchange rates. Our exposure to the risk of changes in
foreign exchange rates relates primarily to our operating activities
(when revenue or expense is denominated in a different curren-
cy than pesos). Exchange exposure relates to amounts payable
arising from U.S. dollar-denominated and U.S. dollar-linked ex-
penses and payments. To mitigate this risk, we may use foreign
exchange derivative financial instruments and non-derivative
financial instruments.
During the years ended December 31, 2017 and 2018, the
Company entered into foreign currency forward contracts in
U.S. dollars to hedge approximately 9% and 20% of its future
12 and 6 months of aircraft rental expenses, respectively. A por-
tion of the Company’s foreign currency forwards matured during
the second half of 2017 (in August, September, November and
December), therefore there was no outstanding balance as of
December 31, 2017. In addition, a portion of the Company’s
foreign currency forwards matured during the fourth quarter of
2018 (November and December).
During the year ended December 31, 2019, the Company did
not enter into foreign currency forward contracts
Our foreign exchange exposure as of December 31, 2017, 2018
and 2019 was a net liability position of U.S. $1.2 billion, U.S. $1.7
billion and U.S. $1.7 million, respectively.
to U.S. $410 million, which represents a portion of the financial
assets denominated in U.S. dollars.
Hedging relationships with non-derivative financial instruments
Regarding the foreign currency risk effective since January 1,
2019, we implemented two hedging strategies for our fore-
casted foreign exchange exposures using with non-derivative
financial instruments. In the first hedging strategy, we have
designated a hedge to mitigate our foreign exchange rate risk
and the foreign exchange variation fluctuation in U.S. dollar
denominated forecasted revenues using the financial liabilities
corresponding to the lease liability denominated in U.S. dollars
over the term of the remaining leases term. As of December 31,
2019 we had an amount equivalent to U.S. $2.1 billion of lease
liability designated as hedging forecasted revenues over the
remaining lease term.
Additionally, the second strategy involves a hedging relationship
for our foreign exchange rate with non-derivative financial instru-
ments in order to mitigate the exchange rate risk and foreign
exchange (the peso to U.S. dollar) variation intrinsic in our U.S.
dollar denominated Jet Fuel purchases. For this strategy, a por-
tion of our Jet Fuel consumption over approximately the next two
years has been designated as a hedge item; as hedging instru-
ment we designated a portion of the guaranteed deposits and
cash and cash equivalents denominated in U.S. dollars. In this
hedging relationship, for foreign exchange rate with non-deri-
vate financial instruments, we designated an amount equivalent
For both hedging relationships in accordance with the Cash Flows
Hedging Model, the accounting records corresponding to the re-
cycling of the reserve for hedging of cash flows (Other Comprehen-
sive Income or “OCI”, part of the Stakeholders’ Equity) will be done
as it is indicated on IFRS 9, this means to reclassify to OCI through
the accounts of results in the same period or periods in which
the expected hedging for cash flows affects our results for such
period, i.e. when those sales are recognized as revenue, always
adjusting them because of the hedging effects for the program.
(iii) Interest Rate Risk. Interest rate risk is the risk that the fair value
of future cash flows will fluctuate because of changes in market
interest rates. Our exposure to the risk of changes in market
interest rates relates primarily to our long-term debt obliga-
tions and lease obligations with floating interest rates. As of
December 31, 2017 and 2018, the Company did not have any
interest rate derivatives. As of December 31, 2019, we had an
outstanding hedging contract in the form of an interest rate
cap with a notional amount of Ps. 1.5 billion and a fair value
of Ps. 2.7 million. These instruments are included as assets in
our consolidated statements of financial position. For the year
ended December 31, 2017, the reported loss on the interest
rate swaps was Ps. 13.8 million, which was recognized as part of
rental expense in the consolidated statements of operations. All
the Company’s positions in the form of interest rate swaps ma-
tured on March 31 and April 30, 2017. Consequently, there was
no outstanding balance as of December 31, 2018 and 2017.
39
volaris | 2019 Annual Report The table below presents the payments required by our financial
liabilities:
Interest-bearing borrowings:
Pre-delivery payment facilities
Short-term working capital facilities
Asset backed trust note
Total
Within one Year
One to five Years
Total
1,855,956
200,000
-
2,055,956
1,452,553
-
1,500,000
2,952,553
3,308,509
200,000
1,500,000
5,008,509
Deferred Taxes. We account for income taxes using the liability
method. Deferred taxes are recorded based on differences between
the financial statement basis and tax basis of assets and liabilities and
available tax loss and credit carry-forwards. In assessing our ability to
realize deferred tax assets, our management considers whether it is
more likely than not that some or all of the deferred tax assets will be
realized. In evaluating our ability to utilize our deferred tax assets,
we consider all available evidence, both positive and negative, in
determining future taxable income on a jurisdiction by jurisdiction
basis. At December 31, 2017, 2018 and 2019 we had tax loss car-
ry-forwards amounting to Ps. 1.5 billion, Ps. 1.6 billion and Ps. 1.3
billion, respectively. These losses relate to our and our subsidiaries’
operations on a stand-alone basis, which in conformity with current
Mexican Income Tax Law may be carried forward against taxable
income generated in the succeeding years in each country and may
not be used to offset taxable income elsewhere in our consolidated
group. During the years ended December 31, 2017, 2018 and 2019
we used tax-loss carry-forwards of Ps. 16.4 million, Ps. 154.4 million
and Ps. 214.5 million, respectively.
Central America (Guatemala,
Costa Rica and El Salvador)
According to Guatemala corporate income tax law, under the regime
on profits from business activities net operating losses cannot offset
taxable income in prior or future years. For the year ended December
31, 2018 and 2019, we generated a net operating income (loss) of
Ps. 8.5 million and Ps. (1.1) million, respectively.
According to Costa Rica corporate income tax law, under the regime
on profits from business activities, net operating losses can offset tax-
able income in a term of three years. For the years ended December
31, 2017, 2018 and 2019, we obtained net operating losses of Ps.
300.6 million, Ps. 170.7 million and Ps. 50.2 million, respectively,
which have not been recognized as deferred tax assets.
According to El Salvador corporate income tax law, under the regime
on profits from business activities, net operating losses cannot offset
taxable income in prior or future years. For the year ended December
31, 2019, we obtained a net operating loss of Ps. 32.5 million.
Impairment of Long-Lived Assets. The carrying value of flight
equipment, furniture and equipment and right of use assets is
reviewed for impairment when events or changes in circum-
stances indicate the carrying value may not be recoverable and
the cumulative impairment losses are shown as a reduction in the
carrying value of flight equipment, furniture and equipment and
right of use assets.
We record impairment charges on long-lived assets used in opera-
tions when events and circumstances indicate that the assets may be
impaired or when the carrying amount of a long-lived asset or cash
generating unit exceeds its recoverable amount, which is the higher
of its fair value less cost to sell and its value in use.
The value in use calculation is based on a discounted cash flow mod-
el, using our projections of operating results for the near future. The
recoverable amount of long-lived assets is sensitive to the uncertain-
ties inherent in the preparation of projections and the discount rate
used in the calculation.
For the years ended December 31, 2017, 2018 and 2019, no impair-
ment charges were recorded in respect of our long-lived assets.
Allowance for Credit Losses. An allowance for credit losses is es-
tablished using the life-time expected credit loss approach, based
on objective evidence that we will not be able to collect all amounts
due according to the original terms of the receivables. At December
31, 2017, 2018 and 2019, the allowance for credit losses was Ps. 17.8
million, Ps. 11.3 million and Ps. 40.3 million, respectively.
40
volaris | 2019 Annual Report Operating Revenues
2018 compared to 2019
Operating Revenues
Passenger revenues:
Fare revenues
Other passenger revenues
Non-passenger revenues:
Other non-passenger revenues
Cargo
Non-derivative financial instruments
Total operating revenues
Operating Data
Capacity (in ASMs in thousands)
% Load factor booked
Booked passengers (in thousands)
Average ticket revenue per booked passenger
Average other passenger revenue per booked passenger
Average total ancillary revenue per booked passenger
For the years ended December 31,
2018 Adjusted(1)
2019
Variation
(In thousands of pesos, except for % and operating data)
18,487,858
7,892,497
23,129,991
10,569,208
4,642,133
2,676,711
697,357
227,438
-
897,586
228,836
(72,949)
200,229
1,398
(72,949)
27,305,150
34,752,672
7,447,522
21,009,545
24,498,893
3,489,348
85%
18,396
1,006
429
479
86%
21,975
1,054
481
532
-
3,579
48
52
53
Revenue passenger miles (RPMs in thousands)
17,748,408
21,032,364
3,283,956
Fare revenues. The increase in fare revenues in 2019 was primarily
due to growth in our ASM capacity by 16.6% resulting from the incor-
poration of five new net aircraft. Additionally, our booked passengers
increased 19.5%, and our average ticket revenue per booked pas-
senger increased 4.8% year over year.
Other passenger revenues. The increase in other passenger rev-
enues in 2019 was primarily due to higher volume of passengers
electing to purchase additional services. We continue executing our
fare unbundling and demand stimulation strategy. In particular, during
2019, our total ancillary revenues increased due to improved revenue
from fees charged for excess baggage, advanced seat selection and
itinerary changes.
Other non-passenger revenues. The increase in other non-pas-
senger revenues was primarily due to higher revenues from airport
incentives recorded during 2019.
Cargo. The increase in cargo revenues in 2019 was primarily due to
a higher volume of cargo operations recorded during 2019.
25.1%
33.9%
28.7%
0.6%
n.a.
27.3%
16.6%
1.0 pp
19.5%
4.8%
12.1%
11.1%
18.5%
(1) On adoption of IFRS 16 we apply the new standard on the required effective date as of January 1, 2019, using the full retrospective method of adoption in order to provide for compa-
rative results in all periods presented, recognizing the effect in retained earnings as of January 1, 2017.
41
volaris | 2019 Annual Report
2017 compared to 2018
Operating Revenues
Passenger revenues:
Fare revenues
Other passenger revenues
Non-passenger revenues:
Other non-passenger revenues
Cargo
Total operating revenues
Operating Data
Capacity (in ASMs in thousands)
% Load factor booked
Booked passengers (in thousands)
Average ticket revenue per booked passenger
Average other passenger revenue per booked passenger
Average total ancillary revenue per booked passenger
For the years ended December 31,
2017 Adjusted(1)
2018
Variation
(In thousands of pesos, except for % and operating data)
17,791,317
6,098,504
18,487,858
7,892,497
696,541
1,793,993
727,392
170,973
697,357
227,438
(30,035)
56,465
24,788,186
27,305,150
2,516,964
18,860,950
21,009,545
2,148,595
84%
16,427
1,086
371
426
85%
18,396
1,006
429
479
—
1,969
(80)
58
53
Revenue passenger miles (RPMs in thousands)
15,917,246
17,748,408
1,831,162
Fare revenues. The increase in fare revenues in 2018 was primarily
due to growth in our ASM capacity by 11.4% resulting from the incor-
poration of six new net aircraft, which was partially offset by a lower
average ticket revenue per booked passenger of 7.4% year over year.
Our traffic as measured in terms of RPMs increased 11.5% in 2018,
also resulting from the increase in our fleet size.
Other passenger revenues. The increase in other passenger rev-
enues in 2018 was primarily due to higher volume of passengers
electing to purchase additional services. We continue executing our
fare unbundling and demand stimulation strategy. In particular, during
2018, our total ancillary revenues increased due to improved revenue
from fees charged for excess baggage, advanced seat selection and
itinerary changes.
Other non-passenger revenues. The decrease in other non-pas-
senger revenues was primarily due to higher revenues from airport
incentives recorded during 2017.
Cargo. The increase in cargo revenues in 2018 was primarily due to
a higher volume of cargo operations recorded during 2018.
3.9%
29.4%
(4.1)%
33.0%
10.2%
11.4%
1.0%
12.0%
(7.4)%
15.6%
12.4%
11.5%
(1) As of January 1, 2018, we adopted IFRS 15 using the full retrospective method of adoption in order to provide comparative results in all periods presented, recognizing the effect in
retained earnings as of January 1, 2016.
42
volaris | 2019 Annual Report
Operating Expenses, net
2018 compared to 2019
Other operating income
Fuel expense, net
Landing, take-off and navigation expenses
Depreciation of right of use assets
Salaries and benefits
Sales, marketing and distribution expenses
Maintenance expenses
Aircraft and engine variable lease expenses
Other operating expenses
Depreciation and amortization
Total operating expenses, net
For the years ended December 31,
2018(1)
2019
Variation
(In thousands of pesos, except for %)
(621,973)
(327,208)
10,134,982
11,626,069
4,573,319
4,043,691
3,125,393
1,501,203
1,497,989
956,010
1,059,098
500,641
5,108,489
4,702,971
3,600,762
1,447,637
1,488,431
961,657
1,112,927
675,514
294,765
1,491,087
535,170
659,280
475,369
(53,566)
(9,558)
5,647
53,829
174,873
26,770,353
30,397,249
3,626,896
(47.4)%
14.7%
11.7%
16.3%
15.2%
(3.6)%
(0.6)%
0.6%
5.1%
34.9%
13.5%
(1) As of January 1, 2019, we adopted IFRS 16 using the full retrospective method of adoption in order to provide comparative results in all periods presented, recognizing the effect in
retained earnings as of January 1, 2017.
Total operating expenses, net increased 13.5% in 2019 primarily as
a result of growth of operations and other factors described below.
Other Operating Income. Other operating income decreased Ps.
294.8 million or 47.4% in 2019, primarily due to lower sale and lease-
back gains recorded during 2019 compared to the previous year as
a result of the adoption of IFRS 16.
Fuel expense, net. The 14.7% increase in fuel expense was primarily as
a result of an increase in the average fuel cost per gallon of 4.1% and an
increase in fuel gallons consumed of 10.7% which, in turn, was primarily
due to more aircraft in operation and a 17.1% increase in our departures.
During the years ended December 31, 2019 and 2018, we entered
into Asian Zero-Cost collar options and Asian call options contracts.
These instruments also qualify for hedge accounting. As a result,
during 2019, their intrinsic value loss of Ps. 70.5 million was recycled
to the cost of fuel.
Landing, Take-off and Navigation Expenses. The 11.7% increase in
landing, take-off and navigation expenses in 2019 was primarily due to
an increase in our operations as measured by number of departures by
17.1%. These increases were partially offset by a decrease in the number
of airports where we operated during the year and incentives received
from certain airport groups as a result of the growth of our operations.
Depreciation of right of use assets. The 16.3% increase in depre-
ciation of right of use assets in 2019 was primarily due to an increase
in our fleet, as we incorporated five new net aircraft and four new net
engine leases during 2019.
Salaries and Benefits. The 15.2% increase in salaries and benefits
in 2019 was primarily the result of the annual salary increase and an
increase of 7.6% in our total number of employees during the year.
Additionally, the variable compensation of our workforce increased
also due to higher operations recorded during 2019, as well as the ac-
counting accrual impact related to our management retention plans.
Sales, Marketing and Distribution Expenses. The 3.6% decrease
in sales, marketing and distribution expenses was mainly due to ef-
ficiencies in our marketing and distribution expenses related to our
efficiency and cost reduction plan.
43
volaris | 2019 Annual Report
Maintenance Expenses. The 0.6% decrease in maintenance ex-
penses in 2019 was mainly due to the receipt of credit notes from
some maintenance suppliers. This decrease was partially offset by the
6.5% increase in our fleet size as a result of the addition of five new
net aircraft received during the year and the depreciation of approx-
imately 0.1% in the average exchange rate of the peso against the
U.S. dollar during 2019 since some of these maintenance expenses
are denominated in U.S. dollars.
Aircraft and engine variable lease expenses. The 0.6% increase in air-
craft and engine variable expenses in 2019 was primarily due to the de-
preciation in the average exchange rate of the peso against the U.S. dol-
lar, since the majority of these expenses are denominated in U.S. dollars.
Other Operating Expenses. The 5.1% increase in other operating ex-
penses in 2019 was primarily the result of our purchase of additional in-
surance to cover flight equipment and an increase in other administra-
tive expenses. Additionally, during 2019, other operating expenses on
a dollar basis increased due to the depreciation of approximately 0.1%
in the average exchange rate of the peso against the U.S. dollar during
2019, since some of these expenses are denominated in U.S. dollars.
2017 compared to 2018
Other operating income
Fuel expense
Landing, take-off and navigation expenses
Depreciation of right of use assets
Salaries and benefits
Sales, marketing and distribution expenses
Aircraft and engine variable lease expenses
Maintenance expenses
Other operating expenses
Depreciation and amortization
Total operating expenses, net
For the years ended December 31,
2017(1)
2018(1)
Variation
(In thousands of pesos, except for %)
(96,765)
7,255,636
4,002,744
3,437,903
2,823,647
1,691,524
1,429,595
1,418,253
1,034,258
548,687
(621,973)
10,134,982
4,573,319
4,043,691
3,125,393
1,501,203
956,010
1,497,989
1,059,098
500,641
(525,208)
2,879,346
570,575
605,788
301,746
(190,321)
(473,585)
79,736
24,840
(48,046)
23,545,482
26,770,353
3,224,871
>100%
39.7%
14.3%
17.6%
10.7%
(11.3)%
(33.1)%
5.6%
2.4%
(8.8)%
13.7%
(1) As of January 1, 2019, we adopted IFRS 16 using the full retrospective method of adoption in order to provide comparative results in all periods presented, recognizing the effect in
retained earnings as of January 1, 2017.
Depreciation and Amortization. The 34.9% increase in depreci-
ation and amortization in 2019 was primarily due to higher amor-
tization of major maintenance events associated with the aging of
our fleet. The cost of the major maintenance events is accounted for
under the deferral method. During 2018 and 2019, we recorded
amortization of major maintenance leasehold improvements of Ps.
313.5 million and Ps. 450.4 million, respectively.
Total operating expenses, net increased 13.7% in 2018 primarily as
a result of growth of operations and other factors described below.
Other Operating Income. Other operating income increased Ps.
525.2 million or greater than 100% in 2018, primarily due to a higher
number of sale and leaseback transactions, which resulted in higher
profit realized during 2018.
Fuel expense. The 39.7% increase in fuel expense was primarily as a
result of an increase in the average fuel cost per gallon of 29.2% and an
increase in fuel gallons consumed of 8.0% which, in turn, was primarily
due to more aircraft in operation and a 9.1% increase in our departures.
During the year ended December 31, 2018, we entered into
Asian Zero-Cost collar options and Asian call options contracts.
44
volaris | 2019 Annual Report
Additionally, during the year ended December 31, 2017, we entered
into Asian call options contracts. These instruments also qualify for
hedge accounting. As a result, during 2018, their extrinsic value ben-
efit of Ps.402.5 million was recycled to the cost of fuel.
Landing, Take-off and Navigation Expenses. The 14.3% increase in
landing, take-off and navigation expenses in 2018 was primarily due to an
increase in the number of airports where we operated during the year. In
addition, our operations as measured by number of departures increased
by 9.1%. These increases were partially offset by incentives received
from certain airport groups as a result of the growth of our operations.
Depreciation of right of use assets. The 17.6% increase in depre-
ciation of right of use assets in 2018 was primarily due to an increase
in our fleet size, as we incorporated six new net aircraft and new net
engine leases during 2018.
Salaries and Benefits. The 10.7% increase in salaries and benefits in
2018 was primarily the result of the annual salary increase, as well as
severance payments related to a net decrease of 2.9% in our total
number of employees as part of our efficiency and cost reduction plan.
Additionally, the variable compensation of our workforce increased
also due to higher operations recorded during 2018, as well as the
accounting accrual impact related to our management retention plans.
Sales, Marketing and Distribution Expenses. The 11.3% decrease
in sales, marketing and distribution expenses was mainly due to ef-
ficiencies in our marketing and distribution expenses related to our
efficiency and cost reduction plan.
Maintenance Expenses. The 5.6% increase in maintenance expens-
es in 2018 was mainly due to the increase in our fleet size of 8.5% as
a result of the addition of six new net aircraft received during the year.
Additionally, during 2018 our maintenance expenses increased due
to the depreciation of approximately 1.6% in the average exchange
rate of the peso against the U.S. dollar during 2018, since some of
these expenses are denominated in U.S. dollars.
Aircraft and engine variable lease expenses. The 33.1% decrease
in aircraft and engine variable expenses was primarily due to a de-
crease in the number of aircraft returned to lessors.
Other Operating Expenses. The 2.4% increase in other operating
expenses in 2018 was primarily the result of additional technical and
communication support and passenger service expenses required
for the growth of our operations. Additionally, during 2018, other
operating expenses on a dollar basis increased due to the deprecia-
tion of approximately 1.6% in the average exchange rate of the peso
against the U.S. dollar during 2018, since some of these expenses
are denominated in U.S. dollars.
Depreciation and Amortization. The 8.8% decrease in deprecia-
tion and amortization 2018 was primarily due to lower amortization
of major maintenance events associated with the aging of our fleet.
The cost of the major maintenance events is accounted for under the
deferral method. During 2017 and 2018, we recorded amortization
of major maintenance leasehold improvements of Ps. 382.7 million
and Ps. 313.5 million, respectively.
45
volaris | 2019 Annual Report Operating Results
2018 compared to 2019
Operating Results
Total operating revenues
Total operating expenses, net
Operating income
For the years ended December 31,
2018 Adjusted (1)
2019
Variation
(In thousands of pesos, except for %)
27,305,150
26,770,353
534,797
34,752,672
30,397,249
4,355,423
7,447,522
3,626,896
3,820,626
27.3%
13.5%
>100%
Operating Income. As a result of the factors outlined above, our
operating income was Ps. 4,355 million in 2019, a greater than 100%
increase compared to our operating income of Ps. 534.8 million in
2018. As a consequence of the adoption of IFRS 16, operating ex-
penses decreased and our operating income increased.
(1) As of January 1, 2019, we adopted IFRS 16 using the full retrospective method of adoption in order to provide comparative results in all periods presented, recognizing the effect in
retained earnings as of January 1, 2017.
2017 compared to 2018
Operating Results
Total operating revenues
Total operating expenses, net
Operating income
For the years ended December 31,
2017 Adjusted (1)
2018 Adjusted (1)
Variation
(In thousands of pesos, except for %)
24,788,186
27,305,150
23,545,482
26,770,353
1,242,704
534,797
2,516,964
3,224,871
(707,907)
10.2%
13.7%
(57.0)%
Operating Income. As a result of the factors outlined above, our
operating income was Ps. 534.8 million in 2018, lower than our
operating income of Ps. 1,242.7 million in 2017 by 57%. As a con-
sequence of the adoption of IFRS 16, operating expenses decreased
and improved the operating income in both years.
(1) As of January 1, 2019, we adopted IFRS 16 using the full retrospective method of adoption in order to provide comparative results in all periods presented, recognizing the effect in
retained earnings as of January 1, 2017.
46
volaris | 2019 Annual Report
Financial Results
2018 compared to 2019
Financing Results
Finance income
Finance cost
Exchange gain (loss), net
Total financing results
For the years ended December 31,
2018 Adjusted (1)
2019
Variation
(In thousands of pesos, except for %)
152,603
207,799
(1,876,312)
(2,269,829)
(103,790)
(1,827,499)
1,440,501
(621,529)
55,196
(393,517)
1,544,291
1,205,970
36.2%
21.0%
n.a.
(66.0)%
(1) As of January 1, 2019, we adopted IFRS 16 using the full retrospective method of adoption in order to provide comparative results in all periods presented, recognizing the effect in
retained earnings as of January 1, 2017.
2017 compared to 2018
Financing Results
Finance income
Finance cost
Exchange gain (loss), net
Total financing results
For the years ended December 31,
2017 Adjusted (1)
2018 Adjusted (1)
Variation
(In thousands of pesos, except for %)
105,795
152,603
(1,515,281)
(1,876,312)
683,039
(103,790)
46,808
(361,031)
(786,829)
(726,447)
(1,827,499)
(1,101,052)
44.2%
23.8%
n.a.
>100%
(1) As of January 1, 2019, we adopted IFRS 16 using the full retrospective method of adoption in order to provide comparative results in all periods presented, recognizing the effect in
retained earnings as of January 1, 2017.
Total Financing Results. The 66.0% decrease in our total financing
loss in 2019 was primarily due to the increase in our foreign exchange
gain, year over year.
During 2019, we recorded an exchange gain of Ps. 1.4 billion, which
resulted from the 4.3% appreciation of the peso against the U.S. dol-
lar at year-end, since we maintained a net monetary liability position of
U.S. $1.7 billion in 2019. Our U.S. dollar net monetary liability position
mainly resulted from the value of our lease liabilities and financial debt.
Additionally, our finance income increased by Ps. 55.2 million, mainly
due to an increase in our short-term investments as a result of a higher
level of Cash during 2019. Our finance cost increased by Ps. 393.5 mil-
lion, mainly due to an increase in our lease financial cost related to the
recognition of IFRS 16 and interest paid on our asset backed trust notes.
Total Financing Results. The greater than 100% increase in our total
financing loss in 2018 was primarily due to the foreign exchange loss
we recorded during 2018.
During 2018, we recorded an exchange loss of Ps. 103.8 million,
which resulted from the 0.3% appreciation of the peso against the
U.S. dollar at year-end, since we maintained a net monetary liability
position of U.S. $1.7 billion in 2018. Our U.S. dollar net monetary
liability position mainly resulted from the value of our lease liabilities
and financial debt. Additionally, our finance income increased Ps.
46.8 million, mainly due to an increase in our short-term investments.
Our finance cost increased by Ps. 361.0 million, mainly due to higher
lease financial cost related to the recognition of IFRS 16 and interest
costs and higher commissions resulting from our letters of credit.
47
volaris | 2019 Annual Report Income Tax Expense and Net Income
2018 compared to 2019
Net income (loss)
Income (loss) before income tax
Income tax (expense) benefit
Net income (loss)
For the years ended December 31,
2018 Adjusted (1)
2019
Variation
(In thousands of pesos, except for %)
(1,292,702)
349,820
(942,882)
3,733,894
(1,094,831)
2,639,063
5,026,596
(1,444,651)
3,581,945
n.a.
n.a.
n.a.
(1) As of January 1, 2019, we adopted IFRS 16 using the full retrospective method of adoption in order to provide comparative results in all periods presented, recognizing the effect in
retained earnings as of January 1, 2017.
We recorded net gain of Ps. 2.6 billion in 2019 compared to a net
loss of Ps. 942.9 million in 2018. During the years ended December
31, 2019 and 2018, we recorded a tax (expense) benefit of Ps. (1.1
billion) and Ps. 349.8 million, respectively. At December 31, 2019,
our tax loss carry-forwards amounted to Ps. 1.3 billion (Ps. 1.6 billion
of December 31, 2018).
During the years ended December 31, 2019 and 2018, we used Ps.
214.5 million and Ps. 154.4 million, in available tax loss carry-forwards,
respectively. The effective tax rate during 2019 and 2018 was of 29.3%
and 27.1% respectively.
2017 compared to 2018
Net income (loss)
Income (loss) before income tax
Income tax (expense) benefit
Net income (loss)
For the years ended December 31,
2017 Adjusted (1)
2018 Adjusted (1)
Variation
(In thousands of pesos, except for %)
516,257
(237,586)
278,671
(1,292,702)
(1,808,959)
349,820
587,406
(942,882)
(1,221,553)
n.a
n.a
n.a
(1) On adoption of IFRS 16 we apply the new standard on the required effective date as of January 1, 2019, using the full retrospective method of adoption in order to provide for compa-
rative results in all periods presented, recognizing the effect in retained earnings as of January 1, 2017.
* Calculation of effective tax rate may vary due to the recasted financial statements from prior periods after the adoption of IFRS 15; the tax amount variance was deemed as immaterial.
We recorded net loss of Ps. 942.9 million in 2018 compared to a net
income of Ps. 278.7 million in 2017. During the years ended Decem-
ber 31, 2018 and 2017, we recorded a tax benefit (expenses) of Ps.
349.8 million and Ps. (237.6) million, respectively. At December 31,
2018 and 2017, our tax loss carry-forwards amounted to Ps. 1.6 billion
and Ps. 1.5 billion, respectively.
During the years ended December 31, 2018 and 2017, we used Ps.
154.4 million and Ps. 16.4 million, in available tax loss carry-forwards,
respectively. The effective tax rate during 2018 and 2017 was of 27.1%
and 46.0% respectively.
48
volaris | 2019 Annual Report B. LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our primary source of liquidity is cash provided by operations,
with our primary uses of liquidity being working capital and capital
expenditures.
For the years ended December 31,
2017 Adjusted (1)
2018 Adjusted (1)
2019
(In thousands of pesos)
Net cash flows provided by operating activities
Net cash flows used in investing activities
Net cash flows used in financing activities
6,018,767
(2,260,440)
(3,634,598)
6,276,707
(1,389,395)
(5,946,059)
9,509,643
(1,879,341)
(5,238,840)
(1) On adoption of IFRS 16 we apply the new standard on the required effective date as of January 1, 2019, using the full retrospective method of adoption in order to provide for compa-
rative results in all periods presented, recognizing the effect in retained earnings as of January 1, 2017.
inated in pesos. See note 3 to our audited consolidated financial
statements included elsewhere in this annual report.
Net cash flows provided by operating activities. We rely primarily
on cash flows from operating activities to provide working capital for
current and future operations. Net cash flows provided by operating
activities totaled Ps. 9.5 billion and Ps. 6.3 billion in 2019 and 2018,
respectively. Our net cash flows increased primarily due to a significant
increase in unearned transportation revenue as compared to 2018.
Net cash flows provided by operating activities totaled Ps. 6.3 billion
and Ps. 6.0 billion in 2018 and 2017, respectively. Our net cash flows
increased primarily due to an increase in recoverable guarantee de-
posits and unearned transportation revenue as compared to 2017.
Net cash flows used in investing activities. During 2019, net cash
flow used in investing activities totaled Ps. 1.9 billion, which consist-
ed primarily of pre-delivery payments for aircraft and engine acquisi-
tions totaling Ps. 1.4 billion, partially offset by pre-delivery payments
reimbursements totaling Ps. 0.7 billion. Additionally, we recorded
other capital expenditures relating to aircraft parts and rotable spare
parts acquisitions, intangible assets and major maintenance costs,
net of disposals of Ps. 1.2 billion.
In recent years, we have been able to meet our working capital
requirements through cash from our operations. Our capital ex-
penditures consist primarily of the acquisition of flight equipment,
including pre-delivery payments for aircraft acquisitions. From time
to time, we finance pre-delivery payments related to our aircraft with
revolving lines of credit with the commercial banks. We have ob-
tained committed financing for pre-delivery payments in respect of
all the aircraft to be delivered through 2022.
Our cash and cash equivalents increased by Ps. 2.1 billion, from Ps.
5.9 billion at December 31, 2018 to Ps. 8.0 billion at December 31,
2019. At December 31, 2019, we had available credit lines totaling
Ps. 9.0 billion, of which Ps. 6.6 billion were related to financial debt
and Ps. 2.4 billion were related to letters of credit (Ps. 1.7 billion were
undisbursed). At December 31, 2018, we had available credit lines
totaling Ps. 6.7 billion, of which Ps. 4.1 billion were related to financial
debt and Ps. 2.7 billion were related to letters of credit (Ps. 1.0 billion
were undisbursed).
We have an investment policy to optimize the performance and
ensure availability of, and minimize the risk associated with, the in-
vestment of cash, cash equivalents and short-term investments. Such
policy provides for guidelines regarding minimum balance, currency
mix, instruments, deadlines, counterparties and credit risk. At De-
cember 31, 2019, 88% of our cash, cash equivalents and short-term
investments were denominated in U.S. dollars and 12% were denom-
During 2018, net cash flow used in investing activities totaled Ps.
1.4 billion, which consisted primarily of pre-delivery payments for
aircraft and engine acquisitions totaling Ps. 1.2 billion, partially offset
by pre-delivery payments reimbursements totaling Ps. 0.6 billion.
Additionally, we recorded other capital expenditures relating to air-
craft parts and rotable spare parts acquisitions, intangible assets and
major maintenance costs, net of disposals of Ps. 0.8 billion.
49
volaris | 2019 Annual Report During 2017, net cash flow used in investing activities totaled Ps.
2.3 billion, which consisted primarily of pre-delivery payments for
aircraft and engine acquisitions totaling Ps. 1.7 billion, partially offset
by pre-delivery payments reimbursements totaling Ps. 0.2 billion.
Additionally, we recorded other capital expenditures relating to air-
craft parts and rotable spare parts acquisitions, intangible assets and
major maintenance costs, net of disposals of Ps. 0.81 billion.
Net cash flow used in financing activities. During 2019, net cash
flows used in financing activities totaled Ps. 5.2 billion, which consist-
ed primarily of payments of the principal portion of lease liabilities of
Ps. 6.4 billion (aircraft and spare engine rent payment), payments of
financial debt related to the aircraft financing pre-delivery payments
for a net amount of Ps. 0.7 billion, payments of working capital credit
lines of Ps. 0.5 billion and interest paid of Ps. 0.3 billion, which were
partially offset by proceeds from disbursements under our revolving
credit facility with Banco Santander and Bancomext of Ps. 1.1 billion,
proceeds from our asset backed trust notes (CEBUR) of Ps. 1.4 billion,
which take into account amortized transaction costs, and proceeds
from additional short-term working capital facilities with Banco Sa-
badell, S.A. of Ps. 0.2 billion.
During 2018, net cash flows used in financing activities totaled Ps.
5.9 billion, which consisted primarily of payments of the principal
portion of lease liabilities of Ps. 5.7 billion (aircraft and spare engine
rent payments), payments of financial debt related to the aircraft
financing pre-delivery payments for a net amount of Ps. 0.7 billion,
payments of working capital credit lines of Ps. 0.5 billion and inter-
est paid of Ps. 0.2 billion, which were partially offset by proceeds
from disbursements under our revolving credit facility with Banco
Santander and Bancomext of Ps. 1.2 billion.
During 2017, net cash flows used in financing activities totaled Ps. 3.6
billion, which consisted primarily of payments of the principal portion
of lease liabilities of Ps. 5.0 billion (aircraft and spare engine rent pay-
ments), payments of aircraft financing pre-delivery payments for a net
amount of Ps. 0.2 billion, payments of working capital credit lines of
Ps. 0.7 billion and interest paid of Ps. 0.1 billion, which were partially
offset by proceeds from disbursements under our revolving credit
facility with Banco Santander and Bancomext of Ps. 1.5 billion, and
additional short-term working capital facilities with Banco Nacional
de México S.A. and Bank of America México, S.A. of Ps. 0.9 billion.
Loan Agreements
The revolving credit facility with Banco Santander México and Banco-
mext, dated July 27, 2011 as amended and restated on August 1, 2013
and as further amended on February 28, 2014 and November 27,
2014, under which we are a guarantor, provides financing for pre-de-
livery payments in connection with our purchase of nineteen A320 air-
craft. On August 25, 2015, we entered into an additional amendment
to such loan agreement to finance pre-delivery payments of eight ad-
ditional A320 aircraft. On November 2016, we entered into an addi-
tional amendment to such loan agreement to finance the pre-delivery
payments for the twenty-two remaining A320 aircraft under the Airbus
purchase agreement. On December 2017, we entered an additional
amendment to extend the term of the loan agreement to November
2021. Finally, we entered into one further amendment to this loan
agreement on November 2018, to extend the term to May 2022.
credit facility bears annual interest at three-month LIBOR plus 260
basis points. The maturity is on May 31, 2022, but it could be extend-
ed to November 2022. Any principal repaid may be re-borrowed
until May 31, 2022. This revolving line of credit may limit our ability
to, among others, declare and pay dividends in the event that we
fail to comply with the payment terms thereunder, dispose of certain
assets, incur indebtedness and create certain liens.
In December 2016, we entered into a short-term working capital fa-
cility with Banco Nacional de México S.A. in the amount of Ps.406.3
million, bearing annual interest the Interbank Equilibrium Interest Rate
(tasa de interés interbancaria de equilibrio or the TIIE) 28 days plus 90
basis points. In December 2017, we rolled over this short-term work-
ing capital facility with Banco Nacional de México S.A. in the amount
of Ps.948.4 million, bearing annual interest at TIIE 28 days plus a
spread in a range of 20 to 80 basis points. Finally, in December 2018,
we rolled over this short-term working capital facility with Bancomext
in the amount of Ps.461.3 million, bearing annual interest at TIIE 28
days plus 90 basis points, with final maturity date in January 2019.
On June 20, 2019, our subsidiary Volaris Opco issued 15,000,000
asset backed trust notes under the ticker VOLARCB 19 in the amount
of Ps. 1.5 billion through Irrevocable Trust number CIB/3249 created
by Volaris Opco. This issuance is part of a program approved by the
CNBV for an amount of up to Ps. 3.0 billion. The notes mature in five
years, have principal amortizations of Ps. 250,000, Ps. 500,000, Ps.
500,000 and Ps. 250,000 in 2021, 2022, 2023 and 2024, respec-
tively, and bear annual interest at TIIE 28 days plus 175 basis points.
The aggregate principal amount of this revolving line is for up to U.S.
$183.0 million, of which U.S. $103.7 million is provided by Banco
Santander México and U.S. $79.3 million by Bancomext. This revolving
In December 2019, we entered into a short-term working capital
facility with Banco Sabadell, S.A., Institución de Banca Multiple
50
volaris | 2019 Annual Report (“Sabadell”) with Concesionaria as our obligor in the amount of Ps.
200 million and bearing annual interest at TIIE 28 days plus 120 basis
points. As of December 31, 2019, we were current with principal and
interest payments as well as in compliance with the covenants under
our revolving credit facility and short-term working capital facilities.
C. RESEARCH AND DEVELOPMENT,
PATENTS AND LICENSES, ETC.
We have registered the trademark “Volaris” with the trademark office
in Mexico, the United States and in the countries in which operate in
Central America. We have also registered several additional trade-
marks and slogans with the trademark office in Mexico, the United
States and in the countries in which we operate in Central America.
We operate software products under licenses from our vendors,
including Jeppesen Systems AB, Navitaire LLC and Juniper Technolo-
gies Corporation. Under our agreements with Airbus, we use Airbus’
proprietary information to maintain our aircraft.
D. TREND INFORMATION
See Item 5: “Operating and Financial Review and Prospects—Op-
erating Results—Trends and Uncertainties Affecting our Business.”
F. TABULAR DISCLOSURE OF
CONTRACTUAL OBLIGATIONS
The following table sets forth certain contractual obligations as of
December 31, 2019:
Contractual Obligations* Payments due by Period
Debt (1)
Lease liabilities (2)
Future lease liabilities (3)
Flight equipment, spare engines and spare parts
purchase obligations (4)
Total
<1 year
1 to 3 years
3 to 5 years
>5 years
(In thousands of pesos)
4,998,441
2,086,017
2,202,553
709,871
—
40,517,045
4,720,505
9,695,025
8,404,284
17,697,231
19,959,084
392,866
2,698,915
3,326,518
13,540,785
82,828,498
2,661,281
14,542,803
28,719,331
36,905,083
Total future payments on contractual obligations
148,303,068
9,860,669
29,139,296
41,160,004
68,143,099
(1) Includes scheduled interest payments.
(2) Does not include maintenance deposit payments because they depend on the utilization of the aircraft.
(3) Our sale and leaseback agreements consist primarily of future lease payments with the lessors.
(4) Our contractual purchase obligations consist primarily of aircraft and engine acquisitions through manufacturers and aircraft leasing companies. In December 2011, we signed an
amendment to our purchase agreement with Airbus for an additional order of 44 A320 family aircraft for delivery between 2014 and 2020.
* Disclosure of contractual obligations does not include obligations relating to our post-employment benefits which totaled Ps. 38.2 million at December 31, 2019.
Committed expenditures for these aircraft, spare engines, spare
parts and related flight equipment, including estimated amounts for
contractual price escalations of pre-delivery payments, will be ap-
proximately Ps. 18.8 billion from 2020 to 2025 and thereafter.
G. SAFE HARBOR
Not applicable.
E. OFF-BALANCE SHEET ARRANGEMENTS
None of our operating lease obligations are reflected on our state-
ments of financial position. We are responsible for all maintenance, in-
surance and other costs associated with operating these aircraft; how-
ever, we have not made any residual value guarantee to our lessors.
In 2020, we expect our capital expenditures, excluding pre-delivery
payments, to be Ps. 82.8 billion, consisting primarily of aircraft parts and
rotable spare parts, construction and improvements to leased assets,
and major maintenance costs (leasehold improvements to flight equip-
ment recorded into rotable spare parts furniture and equipment, net).
51
volaris | 2019 Annual Report CONSOLIDATED
FINANCIAL STATEMENTS
Controladora Vuela Compañía de Aviación, S.A.B. de C.V.
and Subsidiaries (d.b.a. Volaris)
Years Ended December 31, 2019, 2018 and 2017
with Independent Auditor’s Report
Independent Auditor’s Report
Audited Consolidated Financial Statements:
Consolidated Statements of Financial Position
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
54
57
58
59
60
61
62
52
volaris | 2019 Annual Report
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Controladora Vuela Compañía de Aviación, S. A. B. de C. V.
OPINION ON THE FINANCIAL STATEMENTS
of Sponsoring Organizations of the Treadway Commission (2013
the risks of material misstatement of the financial statements,
We have audited the accompanying consolidated statements of
framework) and our report dated April 27, 2020 expressed an
whether due to error or fraud, and performing procedures that
financial position of Controladora Vuela Compañía de Aviación,
unqualified opinion thereon.
S.A.B. de C.V. and subsidiaries (the Company) as of December
31, 2019 and 2018, the related consolidated statements of ope-
BASIS FOR OPINION
respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating
rations, comprehensive income, changes in equity and cash flows
These financial statements are the responsibility of the Company's
the accounting principles used and significant estimates made
for each of the three years in the period ended December 31,
management. Our responsibility is to express an opinion on the
by management, as well as evaluating the overall presentation
2019, and the related notes (collectively referred to as the “con-
Company’s financial statements based on our audits. We are a public
of the financial statements. We believe that our audits provide a
solidated financial statements”). In our opinion, the consolidated
accounting firm registered with the PCAOB and are required to be
reasonable basis for our opinion.
financial statements present fairly, in all material respects, the
independent with respect to the Company in accordance with the
consolidated financial position of the Company at December 31,
ethical requirements that are relevant to our audit of the consolidated
CRITICAL AUDIT MATTERS
2019 and 2018, and the consolidated results of its operations
financial statements in Mexico according to the “Codigo de Etica
The critical audit matters communicated below are matters arising
and its cash flows for each of the three years in the period ended
Profesional del Instituto Mexicano de Contadores Publicos” (“IMCP
from the current period audit of the financial statements that we-
December 31, 2019, in conformity with International Financial
Code”), and the U.S. federal securities laws and the applicable
re communicated or required to be communicated to the audit
Reporting Standards as issued by the International Accounting
rules and regulations of the Securities and Exchange Commission
committee and that: (1) relate to accounts or disclosures that are
Standards Board.
and the PCAOB.
material to the financial statements and (2) involved our especially
challenging, subjective or complex judgments. The communication
We also have audited, in accordance with the standards of the
We conducted our audits in accordance with the standards of the
of critical audit matters does not alter in any way our opinion on the
Public Company Accounting Oversight Board (United States)
PCAOB. Those standards require that we plan and perform the
consolidated financial statements, taken as a whole, and we are
(PCAOB), the Company's internal control over financial repor-
audit to obtain reasonable assurance about whether the financial
not, by communicating the critical audit matters below, providing
ting as of December 31, 2019, based on criteria established in
statements are free of material misstatement, whether due to error
separate opinions on the critical audit matters or on the accounts or
Internal Control-Integrated Framework issued by the Committee
or fraud. Our audits included performing procedures to assess
disclosures to which they relate.
53
volaris | 2019 Annual Report LEASE RETURN CONDITION PROVISION
the discount rate calculation, timing of recognition, the significant assumptions
the assumptions applied to calculate incremental borrowing rate, the determination
Description of the Matter
agreements for 7 aircraft and 2 spare engines, as well as an extension of 1 spare
and the data inputs used in the calculation.
of lease terms and in light of the fact that in 2019 the Company entered into lease
As described in Note 1 p) to the consolidated financial statements, the Company’s
To test the provision for return condition, our procedures included, among others,
engine, we have determined this to be a critical audit matter.
lease agreements require that the underlying aircraft and engines be returned to
reviewing the accuracy and completeness of the lease agreements and underlying
lessors either in a specific condition or to make a payment in lieu of performance of
data, assessing the methodology applied in the calculation of the provision and
How We Addressed the Matter in Our Audit
the maintenance and repair activities necessary to meet these conditions.
testing the period in which the event or condition that triggers the payments occurs
We obtained an understanding, evaluated the design and tested the opera-
and critical assumptions, for example, the aircraft usage projections based on
ting effectiveness of controls over the Company’s IFRS 16 adoption process,
The Company adopted IFRS 16 under the full retrospective approach, which required
the scheduled flight plan and the projected costs of maintenance for which we
for example, we tested controls over management’s review of the significant
the initial assessment of all lease contracts from their beginning and restatement of
compared to historical trends and actual costs incurred in connection with aircraft
assumptions described above and the data inputs used by management in the
each prior reporting period presented. The Company performed an assessment of
returned to the lessor or maintenance costs paid at lease return as specified in the
calculation of right of use assets and lease liabilities.
the return condition provision for leased aircraft, which required management to
lease agreements.
estimate the cost of those maintenance obligations to be included in connection
To test the completeness and accuracy of the underlying data used to calculate the
with aircraft lease return.
Furthermore, we assessed the reasonableness of the related disclosure made in
right of use asset and lease liabilities, our procedures included reading the lease
Note 1 p) and 15 c) of the consolidated financial statements.
agreements and reviewing their terms and conditions, including their payment terms,
Maintenance obligation performed at the end of the lease which does not benefit
the Company is viewed as variable payments under IFRS 16 and recognized in profit
AIRCRAFT AND ENGINE LEASES
or loss based on the aircraft utilization over the period starting upon the completion
of the major maintenance event occurring prior to lease return.
Description of the Matter
the rates of established lease payment, among other procedures. Additionally, we
evaluated management’s assessment performed for each component of the lease
within the contracts as a lease separately from the components of the contract that do
not constitute a lease as well as the assumptions used to apply the requirements for
The maintenance provision covers the cost to fulfill return condition that must be
to determine the carrying amounts of all leases in existence at the earliest comparative
in evaluating assumptions and the methodology used by management in calculating
The Company adopted 1FRS 16 and applied full retrospective approach that required
depreciating the right of use asset. Furthermore, we involved our specialists to assist
satisfied at the expiration of the related leases primarily related to airframe, engine
period as if those leases had always been accounted for applying IFRS 16 and to
the incremental borrowing rate.
overhaul and limited life parts using certain assumptions including the projected
restate comparative information. As described in Note 1 x) to the consolidated
usage of the aircraft and the expected costs of maintenance tasks to be performed
financial statements, as a result of initial recognition of IFRS 16 there was an amount
We assessed the Company’s disclosure of this matter in Notes 1 p) and 14 to the
at the return of the lease. The maintenance return condition also considers deposits
recorded as right of use asset by Ps.23,500,081, a lease liability of Ps.32,711,793 and
consolidated financial statements.
paid to the lessor considered as supplemental rental. At December 31, 2019, the
a retrospective effect in retained earnings by Ps. 7,365,758 as of January 1st, 2017.
Company´s provision for return condition amounted Ps.1,852,688.
AIRCRAFT MAINTENANCE DEPOSITS PAID TO LESSORS
Additionally, the Company obtains substantially its entire fleet of aircraft and most of
Auditing management´s lease return condition provision was complex as it is based
its engines under lease agreements, which in accordance with current standards, at
Description of the Matter
on significant management´s judgement in estimating the amount and timing of
inception of a contract, the Company assesses whether the contract is, or contains,
Certain of the Company’s lease agreements require the payment of maintenance
future costs, aircraft usage, timing of recognition of the provision, and certain other
a lease as a result of applying IFRS 16. Then at the commencement date of a lease,
deposits to lessors during the lease term for the underlying aircraft and engines. The
assumptions, therefore we have determined this to be a critical audit matter.
the Company recognizes a liability to make lease payments (lease liability) and
Company has booked aircraft maintenance deposits to lessors of Ps. 6,430,429 as
an asset representing the right to use the underlying asset during the lease term
of December 31, 2019. Related disclosure is included in Note 11 of the consolidated
How We Addressed the Matter in Our Audit
(right-ofuse asset).
financial statements.
We obtained an understanding and evaluated the design and operating effecti-
veness of the Company’s internal controls over the return condition provision.
Based on the unique terms and usage conditions of each lease as specified in the
Most of the Company’s lease agreements require the Company to pay
For example, we tested controls over management´s review of the return cost,
related agreements, the potential impacts of the proper classification of the leases,
maintenance deposits to aircraft lessors to be held as collateral in advance of the
54
volaris | 2019 Annual Report Company’s performance of the related major maintenance activities. These lease
the maintenance by comparing them with the Company’s scheduled flight plans
well as the recovery period for operations in order to conclude whether a material
agreements provide that maintenance deposits are reimbursable to the Company
and the term of the lease agreement.
uncertainty exist.
upon completion of the maintenance event in an amount equal to the lesser of (i)
the amount of the maintenance deposits held by the lessor associated with the
We assessed the Company’s disclosure in Notes 1j and 11 to the consolidated
How We Addressed the Matter in Our Audit
specific maintenance event, or (ii) the qualifying costs of the specific maintenance
financial statements.
event. The Company considers as supplemental rental those maintenance deposits
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls over the process of completing the evaluation including
paid for which a maintenance event is not expected to be performed during the
SUBSEQUENT EVENTS (COVID-19 ASSESSMENT)
updated inputs into the forecast of results and cash flows and consideration of
term of the aircraft lease, then such deposits are considered as not recoverable by
the Company since will be kept by the lessor to cover future maintenance costs.
Description of the Matter
management plans. As described above, we tested the Company´s forecasted
results, cash flows and balance sheet figures and stress tested critical assumptions
In March 2020 Mexico as well as the rest of the world was impacted by the
as to the severity, duration and recovery period used to build up such figures and
Maintenance deposits are recorded as recoverable to the extent qualifying main-
effects of COVID-19, declared a pandemic by the World Health Organization.
testing as compared to historical activity and financial relationships. In addition,
tenance costs are expected to be incurred during the lease term. Any excess is
The Company and the entire aviation industry began to experience a significant
we have tested the critical actions implemented, (such as keep low expenses level,
recognized as additional lease expense in the consolidated income statement as
drop in the demand for air travel, as evidenced by a significant reduction in
negotiating with vendors and suppliers for differing payments, etc.), inspection of
supplemental rental.
forward sales over the next few months, due to this global pandemic. In addition,
updated contracts with lessors and equipment supplier´s as needed, labor contracts
Auditing management’s aircraft maintenance deposits was complex as it is based on
air transportation. Furthermore, on April 21, 2020, the General Health Council
significant management´s judgements and assumptions for example, in estimating
(GHG) announced that Mexico is in "Phase 3" of the spread of the COVID-19,
We assessed the Company’s disclosure in Note 25 to the consolidated financial
governmental travel restrictions have significantly reduced the demand for global
and other supporting evidence.
the recoverability of these deposits, the estimated time between the maintenance
the most serious stage, as transmission of the virus is intensifying. As a result of
statements.
events, the costs of future maintenance and the number of flight hours the aircraft
and considering this matter might be a material uncertainty predicated by the
is estimated to be flown before it is returned to the lessor, among others, therefore
COVID 19 outbreak, the Company has assessed the entity´s ability to continue
we have determined this to be a critical audit matter.
as a going concern through December 31, 2020 as required by IFRS 1. When
Mancera, S.C.
How We Addressed the Matter in Our Audit
anticipated effects of the outbreak on the Company´s activities in its assessment
Ernst & Young Global Limited
making that assessment, management has taken into consideration the existing and
A member practice of
We obtained an understanding, evaluated the design and tested the operating
of the appropriateness of the use of going concern basis.
effectiveness of controls over the process of aircraft maintenance deposits, including
controls over management´s review of the significant assumptions described above
The Company has taken several actions including decreasing capacity as mea-
and the data inputs used by management in the determination of the recoverability
sured by available seat miles (ASMs) for the rest of the month of April and May
of maintenance deposits.
2020 by approximately 80% and 90%, respectively, of total operation versus
the originally published schedule, establishing payment deferrals to the lease
To test the recoverability of the maintenance deposits, we performed audit proce-
and aircraft purchase contracts and other supplier’s payment deferral, reducing
C.P.C. José Andrés Marín Valverde
dures that included, among others, inspecting the lease agreements and testing the
management’s compensations and other salaries, deferring capital expenditures
analysis of the estimates prepared by management to determine the recoverability
and certain other measures.
of the maintenance deposits and the recognition of the unrecoverable amounts
as part of supplemental rental, for example, we assessed the estimation of the
Based on complexity in auditing the judgements and assumptions applied by
We have served as the Company’s auditor since 2005.
major maintenance costs expected to be incurred by comparing them to historical
management in assessing the capability of operating on a going concern basis, we
Mexico City, Mexico
amounts and/or costs of aircraft and engines maintenance specified in agreements
have determined this to be a critical audit matter and we focused on the Company´s
April 27, 2020
with vendors, as well as the usage projections applied to determine the timing of
assumptions used in such assessment to estimate future demand and revenue as
55
volaris | 2019 Annual Report CONTROLADORA VUELA COMPA ÑÍA DE AVIACIÓN , S.A. B . DE C .V. AND SUBSIDIARIES (D.B.A. VOLARIS)
CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION
(In thousands of Mexican pesos)
(Thousands of
U.S. dollars*)
2019
At December 31,
2019
2018
Adjusted
2017
Adjusted
(Thousands of
U.S. dollars*)
2019
At December 31,
2019
2018
Adjusted
2017
Adjusted
Assets
Current assets:
Cash and cash equivalents (Note 6)
US$ 423,449
Ps. 7,979,972
Ps. 5,862,942
Ps.
6,950,879
Accounts receivable:
Related parties (Note 7)
Other accounts receivable, net (Note 8)
Recoverable value added tax and others
Recoverable income tax
Inventories (Note 9)
Prepaid expenses and other current assets (Note 10)
Financial instruments (Notes 3 and 5)
Guarantee deposits (Note 11)
Total current assets
Non–current assets:
1,244
48,978
49,802
23,102
16,020
41,450
7,088
31,856
23,442
923,000
938,532
435,360
301,908
781,131
133,567
600,327
8,266
508,479
612,146
337,799
297,271
442,791
62,440
790,635
–
478,467
400,464
570,361
294,850
500,754
497,403
1,352,893
642,989
12,117,239
8,922,769
11,046,071
Rotable spare parts, furniture and equipment, net (Note 12)
391,895
7,385,334
5,782,282
4,375,697
Right–of–use assets (Note 14)
Intangible assets, net (Note 13)
Financial instruments (Notes 3 and 5)
Deferred income taxes (Note 19)
Guarantee deposits (Note 11)
Other assets
Other long–term assets
Total non–current assets
1,811,006
34,128,766
31,882,053
24,893,882
8,883
143
81,853
405,643
8,785
7,492
167,397
2,695
1,542,536
7,644,421
165,546
141,193
179,124
190,420
–
3,392,240
6,337,496
154,757
73,962
–
3,222,228
6,098,252
126,423
–
2,715,700
51,177,888
47,801,914
38,906,902
Total assets
US$ 3,358,689
Ps. 63,295,127
Ps. 56,724,683
Ps. 49,952,973
* Convenience translation to U.S. dollars (Ps.18.8452) – Note 1y.
The accompanying notes are an integral part of these onsolidated financial statements.
Liabilities and equity
Short–term liabilities:
Unearned transportation revenue
Suppliers
Related parties (Note 7)
Accrued liabilities (Note 15a)
Lease liabilities (Note 14)
Other taxes and fees payable (Note 1q)
Income taxes payable
Financial instruments (Notes 3 and 5)
Financial debt (Note 5)
Other liabilities (Note 15c)
Total short–term liabilities
Long–term liabilities:
Financial debt (Note 5)
Accrued liabilities (Note 15b)
Lease liabilities (Note 14)
Other liabilities (Note 15c)
Employee benefits (Note 16)
Deferred income taxes (Note 19)
Total long–term liabilities
Total liabilities
Equity (Note 18):
Capital stock
Treasury shares
Contributions for future capital increases
Legal reserve
Additional paid–in capital
Retained earnings (losses)
Accumulated other comprehensive income (loss)
Total equity
Total liabilities and equity
US$
195,271
84,748
3,107
134,355
250,488
111,564
7,461
–
110,692
21,608
919,294
Ps. 3,679,926
1,597,099
58,554
2,531,861
4,720,505
2,102,455
140,609
–
2,086,017
407,190
17,324,216
Ps.
2,438,516
1,085,499
17,775
2,267,596
4,976,454
1,932,082
4,065
122,948
1,212,259
25,835
14,083,029
Ps. 2,293,309
1,077,438
40,931
1,967,926
4,213,417
1,245,247
111,292
–
2,403,562
202,250
13,555,372
153,352
4,818
1,899,504
77,982
2,027
8,285
2,145,968
3,065,262
2,889,952
90,796
35,796,540
1,469,595
38,206
156,139
40,441,228
57,765,444
2,310,939
75,503
34,588,692
1,820,194
18,153
1,123,020
39,936,501
54,019,530
1,079,152
92,448
28,310,287
1,454,790
19,289
1,616,282
32,572,248
46,127,620
157,789
(9,006)
–
15,451
99,761
23,264
6,168
293,427
US$ 3,358,689
2,973,559
(169,714)
1
291,178
1,880,007
438,412
116,240
5,529,683
Ps. 63,295,127
2,973,559
(122,661)
1
291,178
1,837,073
(2,200,651)
(73,346)
2,705,153
Ps. 56,724,683
2,973,559
(85,034)
1
291,178
1,804,528
(1,257,769)
98,890
3,825,353
Ps. 49,952,973
56
volaris | 2019 Annual Report
CONTROLADORA VUELA COMPA ÑÍA DE AVIACIÓN , S.A. B . DE C .V. AND SUBSIDIARIES (D.B.A. VOLARIS)
CONSOLIDATED STATEMENTS
OF OPERATIONS
(In thousands of Mexican pesos, except for earnings per share expressed in Mexican pesos)
(Thousands of
U.S. dollars*)
except for earnings
per share)
2019
For the years ended December 31,
2019
2018
Adjusted
2017
Adjusted
US$ 1,227,368
Ps. 23,129,991
Ps. 18,487,858
Ps.
17,791,317
Aircraft and engine variable lease expenses
Other operating expenses (Note 20)
Depreciation and amortization (Notes 12 and 13)
560,844
1,788,212
10,569,208
33,699,199
7,892,497
26,380,355
6,098,504
23,889,821
Operating income
Finance income (Note 21)
Finance cost (Note 21)
Foreign exchange gain (loss), net
(Thousands of
U.S. dollars*)
except for earnings
per share)
2019
For the years ended December 31,
2019
2018
Adjusted
2017
Adjusted
51,030
59,056
35,845
231,115
961,657
1,112,927
675,514
4,355,423
956,010
1,059,098
500,641
534,797
1,429,595
1,034,258
548,687
1,242,704
11,027
207,799
152,603
105,795
(120,446)
(2,269,829)
(1,876,312)
(1,515,281)
76,439
1,440,501
(103,790)
683,039
Operating revenues (Notes 1d and 24):
Passenger revenues:
Fare revenues
Other passenger revenues
Non– passenger revenues
Other non–passenger revenues (Note 1d)
Cargo
Non–derivatives financial instruments
Other operating income (Note 20)
Fuel expense, net
Landing, take–off and navigation expenses
Depreciation of right of use assets (Note 14)
Salaries and benefits
Maintenance expenses
Sales, marketing and distribution expenses
* Convenience translation to U.S. dollars (Ps.18.8452) – Note 1y.
The accompanying notes are an integral part of these consolidated financial statements.
47,629
12,143
(3,871)
897,586
228,836
(72,949)
697,357
227,438
–
727,392
170,973
–
1,844,113
34,752,672
27,305,150
24,788,186
(17,363)
(327,208)
(621,973)
(96,765)
616,925
271,076
249,558
191,071
78,982
76,818
11,626,069
10,134,982
5,108,489
4,702,971
3,600,762
1,488,431
1,447,637
4,573,319
4,043,691
3,125,393
1,497,989
1,501,203
7,255,636
4,002,744
3,437,903
2,823,647
1,418,253
1,691,524
Income (loss) before income tax
Income tax (expense) benefit (Note 19)
198,135
(58,096)
3,733,894
(1,292,702)
(1,094,831)
349,820
516,257
(237,586)
Net income (loss)
US$
140,039
Ps. 2,639,063
Ps.
(942,882) Ps.
278,671
Earnings (loss) per share basic:
US$
0.138
Ps.
2.608
Ps.
(0.932) Ps.
0.275
Earnings (loss) per share diluted:
US$
0.138
Ps.
2.608
Ps.
(0.932) Ps.
0.275
57
volaris | 2019 Annual Report
CONTROLADORA VUELA COMPA ÑÍA DE AVIACIÓN , S.A. B . DE C .V. AND SUBSIDIARIES (D.B.A. VOLARIS)
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(In thousands of Mexican pesos)
Net income (loss) for the year
Other comprehensive income (loss):
Other comprehensive income (loss) to be
reclassified to profit or loss in subsequent periods:
Net gain (loss) on cash flow hedges (Note 22)
Income tax effect (Note 19)
Exchange differences on translation of foreign operations
Other comprehensive (loss) income not to be
reclassified to profit or loss in subsequent periods:
Remeasurement gain (loss) of employee benefits (Note 16)
Income tax effect (Note 19)
Other comprehensive income (loss) for the year, net of tax
Total comprehensive income (loss) for the year, net of tax
* Convenience translation to U.S. dollars (Ps.18.8452) – Note 1y.
The accompanying notes are an integral part of these consolidated financial statements.
(Thousands of
U.S. dollars*)
2019
For the years ended December 31,
2019
2018
Adjusted
2017
Adjusted
US$
140,039
Ps.
2,639,063
Ps.
(942,882)
Ps.
278,671
13,982
(3,970)
427
(541)
162
10,060
150,099
Ps.
Ps.
263,495
(74,820)
8,045
(10,192)
3,058
189,586
2,828,649
Ps.
Ps.
(283,691)
85,107
22,156
5,989
(1,797)
(172,236)
(1,115,118)
Ps.
Ps.
(42,148)
12,017
(7,178)
(1,776)
533
(38,552)
240,119
US$
US$
58
volaris | 2019 Annual Report
CONTROLADORA VUELA COMPA ÑÍA DE AVIACIÓN , S.A. B . DE C .V. AND SUBSIDIARIES (D.B.A. VOLARIS)
CONSOLIDATED STATEMENTS
OF CHANGES IN EQUITY
For the years ended December 31, 2019, 2018 (adjusted) and 2017 (adjusted)
(In thousands of Mexican pesos)
Capital stock
Treasury shares
Contributions
for future capital
increases
Legal reserve
Additional
paid–in capital
Retained earnings
(Accumulated losses)
Other
comprehensive
income (loss)
Total equity
Balance as of December 31, 2016
Legal reserve increase (Note 18)
Treasury shares
Exercised of stock options (Note 17)
Long–term incentive plan cost (Note 17)
Net loss for the period
IFRS 15 adoption
IFRS 16 adoption (Note 1x)
Other comprehensive (loss) income items
Total comprehensive income (loss)
Balance as of December 31, 2017
Treasury shares
Exercise of stock options (Note 17)
Long–term incentive plans cost (Note 17)
Net loss for the period
IFRS 16 adoption (Note 1x)
Other comprehensive loss items
Total comprehensive loss items
Balance as of December 31, 2018
Treasury shares
Exercise of stock options (Note 17)
Long–term incentive plan cost (Note 17)
Net income for the period
Other comprehensive income items
Total comprehensive income
Ps.
Ps.
2,973,559
–
–
–
–
–
–
–
–
–
2,973,559
–
–
–
–
–
–
–
2,973,559
–
–
–
–
–
–
Ps.
(83,365)
–
(10,108)
638
7,801
–
–
–
–
–
(85,034)
(57,320)
10,648
9,045
–
–
–
–
(122,661)
(75,375)
14,773
13,549
–
–
–
Balance as of December 31, 2019
Ps.
2,973,559
Ps.
(169,714)
Ps.
US$
157,789
US$
(9,006)
US$
Convenience translation to U.S. dollars 18.8452) – Note 1y.
The accompanying notes are an integral part of these consolidated financial statements.
1
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
1
–
–
–
–
–
–
1
–
Ps.
38,250
252,928
–
–
–
–
–
–
–
291,178
–
–
–
–
–
–
–
291,178
–
–
–
–
–
–
Ps.
1,800,613
–
10,108
–
(6,193)
–
–
–
–
1,804,528
41,590
–
(9,045)
–
–
–
–
1,837,073
56,483
–
(13,549)
–
–
–
Ps.
(1,283,512)
(252,928)
–
–
–
(594,599)
(57,189)
930,459
–
278,671
(1,257,769)
–
–
–
(682,500)
(260,382)
–
(942,882)
(2,200,651)
–
–
–
2,639,063
–
2,639,063
Ps.
137,442
–
–
–
–
–
–
(38,552)
(38,552)
98,890
–
–
–
–
–
(172,236)
(172,236)
(73,346)
–
–
–
–
189,586
189,586
Ps.
3,582,988
–
–
638
1,608
(594,599)
(57,189)
930,459
(38,552)
240,119
3,825,353
(15,730)
10,648
–
(682,500)
(260,382)
(172,236)
(1,115,118)
2,705,153
(18,892)
14,773
–
2,639,063
189,586
2,828,649
Ps.
291,178
Ps.
1,880,007
Ps.
438,412
Ps.
116,240
Ps.
5,529,683
US$
15,451
US$
99,761
US$
23,264
US$
6,168
US$
293,427
59
volaris | 2019 Annual Report
CONTROLADORA VUELA COMPA ÑÍA DE AVIACIÓN , S.A. B . DE C .V. AND SUBSIDIARIES (D.B.A. VOLARIS)
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(In thousands of Mexican pesos)
Operating activities
Income (loss) before income tax
Non–cash adjustment to reconcile income
before tax to net cash flows from operating activities:
Depreciation and amortization
(including right–of–use–assets) (Notes 12 and 13)
Provision for doubtful accounts (Note 8)
Finance income (Note 21)
Finance cost (Note 21 and 1x)
Net foreign exchange differences
Financial instruments (Notes 4 and 22)
Amortized Cost (CEBUR)
Net gain on disposal of rotable spare parts, furniture and
equipment and gain on sale of aircraft (Note 20)
Employee benefits (Note 16)
Aircraft and engine lease extension benefit and other
benefits from service agreements
Management incentive and long–term
incentive plans (Note 17)
Cash flows from operating activities before changes
in working capital
Changes in operating assets and liabilities:
Related parties
Other accounts receivable
Recoverable and prepaid taxes
Inventories
Prepaid expenses
Other assets
Guarantee deposits
Suppliers
Accrued liabilities
Other taxes and fees payable
Unearned transportation revenue
(Thousands of
U.S. dollars*)
2019
For the years ended December 31,
2019
2018
Adjusted
2017
Adjusted
US$
198,135
Ps. 3,733,894
Ps.
(1,292,702) Ps.
516,257
Financial instruments
Other liabilities
285,403
2,143
(11,027)
120,203
(91,428)
3,589
175
(14,635)
535
5,378,485
40,393
(207,799)
2,265,242
(1,722,985)
67,629
3,306
4,544,332
10,621
(152,603)
1,876,312
171,874
(455,009)
–
3,986,590
4,720
(105,795)
1,515,281
(972,523)
50,007
–
(275,805)
10,086
(606,812)
6,401
(64,978)
4,657
(564)
(10,634)
(12,693)
(12,356)
1,712
32,257
12,919
8,783
Interest received
Income tax paid
Net cash flows provided by operating activities
Investing activities
Acquisitions of rotable spare parts, furniture
and equipment (Note 12)
Acquisitions of intangible assets (Note 13)
Pre–delivery payments reimbursements (Note 12)
Proceeds from disposals of rotable spare parts,
furniture and equipment
Net cash flows used in investing activities
Financing activities
Proceeds from exercised stock options (Note 17)
Treasury shares purchase
494,241
9,314,069
4,102,640
4,930,643
Interest paid
1,359
(19,506)
(22,574)
(246)
(19,626)
(573)
(62,007)
27,497
18,703
6,352
65,874
25,603
(367,603)
(425,410)
(4,637)
(369,860)
(10,789)
(1,168,537)
518,189
352,475
119,700
1,241,410
(31,422)
1,711
19,168
(2,421)
(6,001)
(11,228)
232,019
14,022
540,471
558,174
145,207
(24,091)
139,774
(438,966)
(50,966)
726,020
21,941
57,425
196,082
515,436
353,014
65,258
Other finance interest paid
Payments of principal portion of lease liabilities
Payments of financial debt
Proceeds from financial debt
Net cash flows used in financing activities
Increase (decrease) in cash and cash equivalents
Net foreign exchange differences on cash balance
Cash and cash equivalents at beginning of year
* Convenience translation to U.S. dollars (18.8452) – Note 1y.
The accompanying notes are an integral part of these consolidated financial statements.
(Thousands of
U.S. dollars*)
2019
(1,005)
10,139
498,628
11,027
(5,037)
504,618
For the years ended December 31,
2019
(18,943)
191,099
9,396,766
207,799
(94,922)
9,509,643
2018
Adjusted
2017
Adjusted
807,644
(38,875)
6,331,109
152,602
(207,004)
6,276,707
126,053
11,198
6,628,821
105,795
(715,849)
6,018,767
(184,841)
(4,103)
37,402
(3,483,368)
(77,325)
704,852
(2,743,155)
(71,007)
668,365
(2,521,752)
(130,908)
213,947
51,817
(99,725)
976,500
(1,879,341)
756,402
(1,389,395)
178,273
(2,260,440)
784
(4,000)
(11,515)
(3,228)
(344,905)
(62,707)
147,578
(277,993)
126,900
(14,562)
311,111
14,773
(75,375)
(217,018)
(60,824)
(6,499,802)
(1,181,726)
2,781,132
(5,238,840)
2,391,462
(274,432)
5,862,942
10,648
(57,320)
(175,170)
(28,567)
(5,710,907)
(1,193,589)
1,208,846
(5,946,059)
(1,058,747)
(29,190)
6,950,879
638
(10,108)
(105,388)
–
(5,032,898)
(924,867)
2,438,025
(3,634,598)
123,729
(244,101)
7,071,251
Cash and cash equivalents at end of year
US$ 423,449
Ps. 7,979,972
Ps. 5,862,942
Ps.
6,950,879
60
volaris | 2019 Annual Report
CONTROLADORA VUELA COMPA ÑÍA DE AVIACIÓN , S.A. B . DE C .V. AND SUBSIDIARIES (D.B.A. VOLARIS)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
For the years ended December 31, 2019, 2018 and 2017
(In thousands of Mexican pesos and thousands of U.S. dollars, except when indicated otherwise)
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (“Controladora” or the “Company”) was incorporated in Mexico
in accordance with Mexican Corporate laws on October 27, 2005.
The accompanying consolidated financial statements and notes were approved by the Company´s Board of Directors and
by the Shareholders on April 22, 2020. These consolidated financial statements were also approved for issuance in the
Company´s annual report on Form 20–F by the Company´s President and Chief Executive Officer, Enrique Beltranena, and
Vice–president and Chief Financial Officer, Sonia Jerez Burdeus on April 27, and subsequent events were considered through
that date (Note 25).
Controladora is domiciled in Mexico City at Av. Antonio Dovali Jaime No. 70, 13th Floor, Tower B, Colonia Zedec Santa Fe,
Mexico City.
a) Relevant events
The Company, through its subsidiary Concesionaria Vuela Compañía de Aviación, S.A.P.I. de C.V. (“Concesionaria”), has a
concession to provide air transportation services for passengers, cargo and mail throughout Mexico and abroad.
Concesionaria’s concession was granted by the Mexican federal government through the Mexican Communications and
Transportation Ministry (Secretaría de Comunicaciones y Transportes) on May 9, 2005 initially for a period of five years and
was extended on February 17, 2010 for an additional period of ten years. On February 21, 2020, Concesionaria’s concession
was extended for a 20–year term starting on May 9, 2020.
Concesionaria made its first commercial flight as a low–cost airline on March 13, 2006. The Company operates under the
trade name of “Volaris”. On June 11, 2013, Controladora Vuela Compañía de Aviación, S.A.P.I. de C.V. changed its corporate
name to Controladora Vuela Compañía de Aviación, S.A.B. de C.V.
On September 23, 2013, the Company completed its dual listing Initial Public Offering (“IPO”) on the New York Stock Exchange
(“NYSE”) and on the Mexican Stock Exchange (Bolsa Mexicana de Valores, or “BMV”), and on September 18, 2013 its shares
started trading under the ticker symbol “VLRS” and “VOLAR”, respectively.
On November 16, 2015, certain shareholders of the Company completed a secondary follow–on equity offering on the NYSE.
On November 10, 2016, the Company, through its subsidiary Vuela Aviación, S.A. (“Volaris Costa Rica”), obtained from the
Costa Rican civil aviation authorities an air operator certificate to provide air transportation services for passengers, cargo
and mail, in scheduled and non–scheduled flights for an initial period of five years. On December 1, 2016, Volaris Costa Rica
started operations.
Issuance asset backed trust notes
On June 20, 2019, the Company, through its subsidiary Concesionaria, issued 15,000,000 asset backed trust notes (certificados
bursátiles fiduciarios; the “ Trust Notes ”), under the ticker symbol VOLARCB 19 for the amount of Ps.1.5 billion Mexican pesos
by CIBanco, S.A., Institución de Banca Multiple, acting as Trustee under the Irrevocable Trust number CIB/3249 created by
Concesionaria in the first issuance under a program approved by the Mexican National Banking and Securities Commission
(Comisión Nacional Bancaria y de Valores) for an amount of up to Ps.3.0 billion Mexican pesos. The Trust Notes are backed by
future receivables under agreements entered into with credit card processors with respect to funds received from the sale of
airplane tickets and ancillaries denominated in Mexican pesos, through credit cards VISA and Mastercard, via the Company’s
website, mobile app and travel agencies. The Trust Notes were listed on the Mexican Stock Exchange, have a maturity of five
years and will pay an interest rate of TIIE 28 plus 175 basis points.
Shares conversion
On February 16, 2018, one of the Company´s shareholders concluded the conversion of 45,968,598 Series B Shares for the
equivalent number of Series A Shares. This conversion has no impact either on the total number of outstanding shares nor on
the earnings–per–share calculation. (Note 18).
New code–share agreement
On January 16, 2018, the Company and Frontier Airlines (herein after Frontier) entered into a code–share operations agreement,
which started operations in September.
61
volaris | 2019 Annual Report Through this alliance, the Company´s customers gain access to additional cities in the U.S. beyond the current available
destinations as the Company’s customers are able to buy a ticket throughout any of Frontier’s actual destinations; and Frontier
customers gain first–time access to new destinations in Mexico through Volaris presence in Mexican airports. Tickets from
Frontier can be purchased directly from the Volaris’ website.
Purchase of 80 A320 New Engine Option (“NEO”) aircraft
On December 28, 2017, the Company amended the agreement with Airbus, S.A.S. (“Airbus”) for the purchase of additional
80 A320NEO family aircraft to be delivered from 2022 to 2026, to support the Company’s targeted growth markets in Mexico,
United States and Central America. The related commitments for the acquisitions of such aircraft are disclosed in Note 23.
b) Basis of preparation
Statement of compliance
These consolidated financial statements comprise the financial statements of the Company and its subsidiaries at December
31, 2019, 2018 and 2017 and for each of the three years in the period then ended, and were prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary
economic environment in which the entity operates (“functional currency”). The presentation currency of the Company’s
consolidated financial statements is the Mexican peso, which is used also for compliance with its legal and tax obligations. All
values in the consolidated financial statements are rounded to the nearest thousand (Ps.000), except when otherwise indicated.
The Company has consistently applied its accounting policies to all periods presented in these consolidated financial statements
and provide comparative information in respect of the previous period.
The Company presents an additional statement of financial position at January 1, 2017, due to a retrospective application of
accounting policies as a result of the adoption of IFRS 16 “Leases” see Note 1 p) and x).
Basis of measurement and presentation
The accompanying consolidated financial statements have been prepared under the historical–cost convention, except for
derivative financial instruments that are measured at fair value and investments in marketable securities measured at fair value
through profit and loss (“FVTPL”).
The preparation of the consolidated financial statements in accordance with IFRS requires management to make estimates
and assumptions that affect the amounts reported in the accompanying consolidated financial statements and notes. Actual
results could differ from those estimates.
c) Basis of consolidation
The accompanying consolidated financial statements comprise the financial statements of the Company and its subsidiaries.
At December 31, 2019, 2018 and 2017, for accounting purposes the companies included in the consolidated financial
statements are as follows:
Name
Principal Activities
Country
% Equity interest
2019
2018
2017
Concesionaria
Vuela Aviación, S.A.
Vuela, S.A. (“Vuela”) *
Vuela El Salvador, S.A. de C.V.*
Air transportation services for passengers,
cargo and mail throughout Mexico
and abroad
Air transportation services for passengers,
cargo and mail in Costa Rica and abroad
Air transportation services for passengers,
cargo and mail in Guatemala and abroad
Air transportation services for passengers,
cargo and mail in El Salvador and abroad
Mexico
100%
100%
100%
Costa Rica
100%
100%
100%
Guatemala
100%
100%
100%
El Salvador
100%
100%
–
Comercializadora Volaris, S.A. de C.V.
Merchandising of services
Mexico
100%
100%
100%
Servicios Earhart, S.A.*
Recruitment and payroll
Guatemala
100%
100%
100%
Servicios Corporativos Volaris, S.A.
de C.V. (“Servicios Corporativos”)
Servicios Administrativos Volaris, S.A.
de C.V. (“Servicios Administrativos”)
Comercializadora V Frecuenta, S.A.
de C.V. (“Loyalty Program”) **
Recruitment and payroll
Mexico
100%
100%
100%
Recruitment and payroll
Mexico
100%
100%
100%
Loyalty Program
Mexico
100%
100%
–
Viajes Vuela, S.A. de C.V. (“Viajes Vuela”) (1)
Travel agency
Mexico
100%
100%
100%
Deutsche Bank México, S.A., Trust 1710
Pre–delivery payments financing (Note 5)
Mexico
100%
100%
100%
Deutsche Bank México, S.A., Trust 1711
Pre–delivery payments financing (Note 5)
Mexico
100%
100%
100%
Irrevocable Administrative Trust number
F/307750 “Administrative Trust”
Irrevocable Administrative Trust number
F/745291 “Administrative Trust”
Irrevocable Administrative Trust number
CIB/3081 “Administrative Trust”
Share administration trust (Note 17)
Mexico
100%
100%
100%
Share administration trust (Note 17)
Mexico
100%
100%
100%
Share administration trust (Note 17)
Mexico
100%
100%
Irrevocable Administrative Trust number
CIB/3249 “Administrative Trust”
Asset backed securities trustor &
administrator (Note 5)
Mexico
100%
–
–
–
*The Companies have not started operations yet in Guatemala and El Salvador.
**The Company has not started operations yet
(1) With effect from July 16, 2018, the name of the Company was changed from Operaciones Volaris, S.A. de C.V. to Viajes Vuela, S.A. de C.V.
62
volaris | 2019 Annual Report The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company, using consistent
accounting policies.
Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee
if, and only if, the Company has:
(i) Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee).
(ii) Exposure, or rights, to variable returns from its involvement with the investee.
(iii) The ability to use its power over the investee to affect its returns.
When the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant
facts and circumstances in assessing whether it has power over an investee, including:
(i) The contractual arrangement with the other vote holders of the investee.
(ii) Rights arising from other contractual arrangements.
(iii) The Company’s voting rights and potential voting rights.
The Company re–assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to
one or more of the three elements of control. Consolidation of a subsidiary begins when the Company obtains control over
the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the
Company gains control until the date the Company ceases to control the subsidiary.
All intercompany balances, transactions, unrealized gains and losses resulting from intercompany transactions are eliminated
in full on consolidation.
On consolidation, the assets and liabilities of foreign operations are translated into Mexican pesos at the rate of exchange
prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing at the dates
of the transactions. The exchange differences arising on translation for consolidation are recognized in other comprehensive
income (“OCI”). On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is
recognized in profit or loss.
d) Revenue recognition
Passenger revenues
Revenues from the air transportation of passengers are recognized at the earlier of when the service is provided or when the
non–refundable ticket expires at the date of the scheduled travel.
Ticket sales for future flights are initially recognized as contract liabilities under the caption “unearned transportation revenue”
and, once the transportation service is provided by the Company or when the non–refundable ticket expires at the date of the
scheduled travel, the earned revenue is recognized as passenger ticket revenues and the unearned transportation revenue is
reduced by the same amount. All the Company’s tickets are non–refundable and are subject to change upon a payment of a
fee. Additionally, the Company does not operate a frequent flier program.
The most significant passenger revenue includes revenues generated from: (i) fare revenue and (ii) other passenger revenues.
Other passenger services include but are not limited to fees charged for excess baggage, bookings through the call center
or third–party agencies, advanced seat selection, itinerary changes and charters. They are recognized as revenue when the
obligation of passenger transportation service is provided by the Company or when the non–refundable ticket expires at the
date of the scheduled travel.
The Company also classifies as other passenger revenue “V Club” and other similar services, which are recognized as revenue
over time when the service is provided, as a modification of the tickets sold to V Club members.
Tickets sold by other airlines where the Company provides the transportation are recognized as passenger revenue when the
service is provided.
The Company sells certain tickets with connecting flights with one or more segments operated by its other airline partner.
For segments operated by its other airline partners, the Company has determined that it is acting as an agent on behalf of
the other airlines as they are responsible for their portion of the contract (i.e. transportation of the passenger). The Company,
as the agent, recognizes revenue within Other operating revenue at the time of the travel for the net amount retained by the
Company for any segments flown by other airlines.
Non–passenger revenues
The most significant non–passenger revenues include revenues generated from: (i) revenues from other non–passenger services
described below and (ii) cargo services.
Revenues from other non–passenger services mainly include but are not limited to commissions charged to third parties for the
sale of hotel reservations, trip insurance, rental cars and advertising spaces to third parties. They are recognized as revenue
at the time the service is provided.
The Company also evaluated the principal versus agent considerations as it relates to certain non–air travel services arrange-
ments with third party providers. No changes were identified under this analysis as the Company is agent for those services
provided by third parties.
Other considerations analyzed as part of revenue from contracts with customers
All revenues offered by the Company including sales of tickets for future flights, other passenger related services and non–
passenger revenue must be paid through a full cash settlement. The payment of the transaction price is equal to the cash
settlement from the client at the sales time (using different payment options like credit or debit cards, paying through a third
party or directly at the counter in cash). There is little or no judgment to determine the point in time of the revenue recognition,
and the amount of it. Even if mainly all the sales of services are initially recognized as contract liabilities, there is no financing
component in these transactions.
The cost to obtain a contract is represented by the commissions paid to the travel agencies and the bank commissions charged
by the financial institutions for processing electronic transactions (Note 10). The Company does not incur any additional costs
to obtain and fulfill a contract that is eligible for capitalization.
Trade receivables are mainly with financial institutions due to transactions with credit and debit cards, and therefore they are
non–interest bearing and are mainly on terms of 24 to 48 hours.
63
volaris | 2019 Annual Report Revenue recognition as of
December 31, 2019
Passenger Revenues
Fare Revenues
Other Passenger Revenues
Non–Passenger Revenues
Other Non–Passenger revenues
Cargo
Total
Non–derivative financial instruments
Revenue recognition as of
December 31, 2018
Passenger Revenues
Fare Revenues
Other Passenger Revenues
Non–Passenger Revenues
Other Non–Passenger revenues
Cargo
Total
The Company has the right of collection at the beginning of the contracts and there are no discounts, payment incentives,
bonuses or other variable considerations subsequent to the purchase that could modify the amount of the transaction price.
The Company does not have any obligations for returns, refunds and other similar obligations. All revenues from the Company
related to future services, or services are rendered through a period of time less than 12 months.
Breakdown of revenues:
As of December 31, 2019, 2018 and 2017, the revenues from customers of contracts is described as follows:
At the flight time
At the sale
Total
Domestic
International
Domestic
International
Revenues
Ps. 15,833,878
Ps. 7,296,113
Ps.
–
Ps.
–
Ps. 23,129,991
7,531,725
23,365,603
2,865,555
10,161,668
119,466
119,466
52,462
52,462
10,569,208
33,699,199
888,353
221,375
9,233
7,461
–
–
–
–
897,586
228,836
Ps. 24,475,331
Ps. 10,178,362
Ps.
119,466
Ps.
52,462
Ps. 34,825,621
Revenue recognition as of
December 31, 2017
Passenger Revenues
Fare Revenues
Other Passenger Revenues
Non–Passenger Revenues
Other Non–Passenger revenues
Cargo
Total
At the flight time
At the sale
Total
Domestic
International
Domestic
International
Revenues
Ps. 12,284,795
Ps. 5,506,522
Ps.
–
Ps.
–
Ps. 17,791,317
4,087,664
16,372,459
1,992,696
7,499,218
723,297
165,907
4,095
5,066
11,283
11,283
–
–
6,861
6,861
6,098,504
23,889,821
–
–
727,392
170,973
Ps. 17,261,663
Ps. 7,508,379
Ps.
11,283
Ps.
6,861
Ps. 24,788,186
Transactions from unearned transportation revenues.
January 1,
Deferred
Recognized in revenue during the year
2019
2018
2017
Ps.
2,438,516
Ps.
2,293,309
Ps.
2,228,051
34,940,609
(33,699,199)
26,525,562
(26,380,355)
23,955,079
(23,889,821)
December 31,
Ps.
3,679,926
Ps.
2,438,516
Ps.
2,293,309
(72,949)
Ps. 34,752,672
The performance obligations related to contract liability are recognized over the following 12 months and are related to the
scheduled flights and other passenger services purchased by the client in advance.
At the flight time
At the sale
Total
Domestic
International
Domestic
International
Revenues
e) Cash and cash equivalents
Ps. 12,336,095
Ps. 6,151,763
Ps.
– Ps.
– Ps. 18,487,858
5,182,572
17,518,667
2,598,375
8,750,138
68,264
68,264
43,286
43,286
7,892,497
26,380,355
685,219
221,324
12,138
6,114
–
–
–
–
697,357
227,438
Ps. 18,425,210
Ps. 8,768,390
Ps.
68,264
Ps.
43,286
Ps. 27,305,150
Cash and cash equivalents are represented by bank deposits and highly liquid investments with maturities of 90 days or less at
the original purchase date. For the purposes of the consolidated statements of cash flows, cash and cash equivalents consist
of cash and short–term investments as defined above.
The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel
and other services. These credit card processing agreements doesn’t have significant cash reserve requirements.
64
volaris | 2019 Annual Report
f) Financial instruments –initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset for one entity and a financial liability or equity instrument
for another entity.
i)
Financial assets
Initial recognition
Classification of financial assets and initial recognition
The Company determines the classification and measurement of financial assets, in accordance with IFRS 9, which are based
on both: the characteristics of the contractual cash flows of these assets and the business model objective for holding them.
Financial assets include those carried at FVTPL, whose objective to hold them is for trading purposes (short–term investments),
or at amortized cost, for accounts receivables held to collect the contractual cash flows, which are characterized by solely
payments of principal and interest (“SPPI”). Derivative financial instruments are also considered financial assets when these
represent contractual rights to receive cash or another financial asset. All the Company’s financial assets are initially recognized
at fair value, including derivative financial instruments.
ii)
Impairment of financial assets
The Company assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial
assets is impaired in the Cash Generating Units (CGU). An impairment exists if one or more events has occurred since the
initial recognition of an asset (an incurred ‘loss event’), that has an impact on the estimated future cash flows of the financial
asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial
difficulty, default or delinquency in receivable, the probability that they will enter bankruptcy or other financial reorganization
and observable data indicating that there is a measurable decrease in the estimated cash flows, such as changes in arrears or
economic conditions that correlate with defaults.
Further disclosures related to impairment of financial assets are also provided in Note 8.
For trade receivables, the Company records allowance for credit losses in accordance with the objective evidence of the
incurred losses.
Based on this evaluation, allowances are taken into account for the expected losses of these receivables. For the years ended
December 31, 2019, 2018 and 2017, the Company recorded expected credit losses on accounts receivable of Ps.40,393,
Ps.10,621 and Ps.4,720, respectively (Note 8).
Subsequent measurement
The subsequent measurement of financial assets depends on their initial classification, as is described below:
iii) Financial liabilities
1. Financial assets at FVTPL which include financial assets held for trading.
2. Financial assets at amortized cost, whose characteristics meet the SPPI criterion and were originated to be held to collect
principal and interest in accordance with the Company’s business model.
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL, loans and borrowings, accounts payables
to suppliers, unearned transportation revenue, other accounts payable and financial instruments.
3. Derivative financial instruments are designated for hedging purposes under the cash flow hedge (“CFH”) accounting
model and are measured at fair value.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:
a) The rights to receive cash flows from the asset have expired;
b)
c)
The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a ‘pass–through’ arrangement; and either (i) the Company
has transferred substantially all the risks and rewards of the asset, or (ii) the Company has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred control of the asset; or
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass–through
arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither
transferred nor retained substantially all the risks and rewards of the asset, nor transferred control of the asset, the asset is
recognized to the extent of the Company’s continuing involvement in the asset.
In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are
measured on a basis that reflects the rights and obligations that the Company has retained.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly
attributable transaction costs.
Subsequent measurement
The measurement of financial liabilities depends on their classification as described below:
Financial liabilities at amortized cost
Accounts payable, are subsequently measured at amortized cost and do not bear interest or result in gains and losses due to
their short–term nature.
Loans and borrowings are the category most relevant to the Company. After initial recognition at fair value (consideration
received), interest bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains
and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on issuance and fees or costs that are an integral
part of the EIR. The EIR amortization is included as finance costs in the consolidated statements of operations. This amortized
cost category generally applies to interest–bearing loans and borrowings (Note 5).
65
volaris | 2019 Annual Report
Financial liabilities at FVTPL
Financial liabilities at FVTPL include financial liabilities under the fair value option, which are classified as held for trading, if
they are acquired for the purpose of selling them in the near future. This category includes derivative financial instruments that
are not designated as hedging instruments in hedge relationships as defined by IFRS 9. During the years ended December
31, 2019, 2018 and 2017 the Company has not designated any financial liability as at FVTPL.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original
liability and the recognition of a new liability.
The difference in the respective carrying amounts is recognized in the consolidated statements of operations.
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the net amount is reported in the consolidated statement of financial
position if there is:
(i) A currently enforceable legal right to offset the recognized amounts, and
(ii) An intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
g) Other accounts receivable
Other accounts receivables are due primarily from major credit card processors associated with the sales of tickets and are
stated at cost less allowances made for credit losses, which approximates fair value given their short–term nature.
h) Inventories
Inventories consist primarily of flight equipment expendable parts, materials and supplies, and are initially recorded at
acquisition cost. Inventories are carried at the lower of cost and their net realization value. The cost is determined on the basis
of the method of specific identification and expensed when used in operations.
i)
Intangible assets
Cost related to the purchase or development of computer software that is separable from an item of related hardware is
capitalized separately measured at cost and amortized over the period in which it will generate benefits not exceeding five
years on a straight–line basis. The Company annually reviews the estimated useful lives and salvage values of intangible assets
and any changes are accounted for prospectively.
The Company records impairment charges on intangible assets used in operations when events and circumstances indicate that
the assets or related cash generating unit may be impaired and the carrying amount of a long–lived asset or cash generating
unit exceeds its recoverable amount, which is the higher of (i) its fair value less cost to sell, and (ii) its value in use.
The value in use calculation is based on a discounted cash flow model, using our projections of operating results for the near
future. The recoverable amount of long–lived assets is sensitive to the uncertainties inherent in the preparation of projections
and the discount rate used in the calculation. For the years ended December 31, 2019, 2018 and 2017, the Company did not
record any impairment loss in the value of its intangible assets.
j) Guarantee deposits
Guarantee deposits consist primarily of aircraft maintenance deposits paid to lessors, deposits for rent of flight equipment
and other guarantee deposits. Aircraft and engine deposits are held by lessors in U.S. dollars and are presented as
current assets and non–current assets, based on the recovery dates of each deposit established in the related agreements
(Note 11).
Aircraft maintenance deposits paid to lessors
Most of the Company’s lease agreements require the Company to pay maintenance deposits to aircraft lessors to be held as
collateral in advance of the Company’s performance of major maintenance activities. These lease agreements provide that
maintenance deposits are reimbursable to the Company upon completion of the maintenance event in an amount equal to
the lesser of (i) the amount of the maintenance deposits held by the lessor associated with the specific maintenance event,
or (ii) the qualifying costs related to the specific maintenance event.
Substantially all these maintenance deposits are calculated based on a utilization measure of the leased aircrafts and engines,
such as flight hours or cycles, and are used solely to collateralize the lessor for maintenance time run off the aircraft and
engines until the completion of the maintenance of the aircraft and engines.
Maintenance deposits expected to be recovered from lessors are reflected as guarantee deposits in the accompanying
consolidated statement of financial position. These deposits are recorded as a monetary asset and are revaluated in order to
record the foreign currency changes at each reported period. The Company makes certain assumptions at the inception of the
lease and at each consolidated statement of financial position date to determine the recoverability of maintenance deposits.
These assumptions are based on various factors such as the estimated time between the maintenance events, the date the
aircraft is due to be returned to the lessor, and the number of flight hours the aircraft and engines is estimated to be utilized
before it is returned to the lessor.
Some other aircraft lease agreements do not require the obligation to pay maintenance deposits to lessors in advance in
order to ensure major maintenance activities, so the Company does not record guarantee deposits regarding these aircraft.
However, certain of these lease agreements include the obligation to make a maintenance adjustment payment to the
lessors at the end of the lease period. These maintenance adjustments cover maintenance events that are not expected to
be made before the termination of the lease; for such agreements the Company accrues a liability related to the amount of
the costs to be incurred at the lease term, since no maintenance deposits had been made, Note 15c). The portion of prepaid
maintenance deposits that is deemed unlikely to be recovered and accruals in lien of maintenance deposits, are recorded
as a variable lease payment and is presented as supplemental rent in the consolidated statements of operations. For the
years ended December 31, 2019, 2018 and 2017, the Company expensed as supplemental rent Ps.295,720, Ps.299,601
and Ps.265,756, respectively.
66
volaris | 2019 Annual Report During the year ended December 31, 2019, 2018 and 2017, the Company added seven, ten and five new net leases aircraft
to its fleet, respectively (Note 14).
During the years ended December 31, 2019, 2018 and 2017, the Company extended the lease term of one, two and three
aircraft agreements, respectively. Additionally, the Company extended the lease term of one spare engines in 2019, two
spare engines in 2018 and two spare engines during 2017. These extensions made available to the Company maintenance
deposits that were recognized in prior periods in the consolidated statements of operations as supplemental rent of Ps.0,
Ps.0 and Ps.65,716 during 2019, 2018 and 2017, respectively. The maintenance event for which the maintenance deposits
were previously expensed was scheduled to occur after the original lease term and as such the supplemental rental payments
were expensed. However, when the leases were amended the maintenance deposits amounts became probable of recovery
due to the longer lease term and as such they are being recognized as an asset.
The effect of these lease extensions was recognized as a lease incentive reducing the right of use asset (Note 14).
k) Aircraft and engine maintenance
The Company is required to conduct various levels of aircraft maintenance. Maintenance requirements depend on the type
of aircraft, age and the route network over which it operates.
Fleet maintenance requirements may involve short cycle engineering checks, for example, component checks, monthly checks,
annual airframe checks and periodic major maintenance and engine checks.
These assumptions may change based on changes in the utilization of aircraft, changes in government regulations and
suggested manufacturer maintenance intervals. In addition, these assumptions can be affected by unplanned incidents
that could damage an airframe, engine, or major component to a level that would require a heavy maintenance event prior
to a scheduled maintenance event. To the extent the planned usage increases, the estimated life would decrease before
the next maintenance event, resulting in additional expense over a shorter period.
During the years ended December 31, 2019, 2018 and 2017, the Company capitalized major maintenance events
as part of leasehold improvements to flight equipment for an amount of Ps.659,082, Ps.676,457 and Ps.529,331,
respectively (Note 12). For the years ended December 31, 2019, 2018 and 2017, the amortization of major maintenance
leasehold improvement costs was Ps.450,371, Ps.313,464 and Ps.382,745 respectively (Note 12). The amortization
of deferred maintenance costs is recorded as part of depreciation and amortization in the consolidated statements
of operations.
(iii) The Company has a power–by–the hour agreement for component services, which guarantees the availability of aircraft parts
for the Company’s fleet when they are required. It also provides aircraft parts that are included in the redelivery conditions
of the contract (hard time) without constituting an additional cost at the time of redelivery. The monthly maintenance cost
associated with this agreement is recognized as incurred in the consolidated statements of operations.
The Company has an engine flight hour agreement (component repair agreement), that guarantees a cost per overhaul,
provides miscellaneous engines coverage, caps the cost of foreign objects damage events, ensures there is protection
from annual escalations, and grants an annual credit for scrapped components. The cost associated with the miscellaneous
engines’ coverage is recorded monthly as incurred in the consolidated statements of operations.
Aircraft maintenance and repair consists of routine and non–routine works, divided into three general categories: (i) routine
maintenance, (ii) major maintenance and (iii) component service.
l) Rotable spare parts, furniture and equipment, net
(i) Routine maintenance requirements consist of scheduled maintenance checks on the Company’s aircraft, including pre–flight,
daily, weekly and overnight checks, any diagnostics and routine repairs and any unscheduled tasks performed as required.
These type of maintenance events are currently serviced by Company mechanics and are primarily completed at the main
airports that the Company currently serves.
All other maintenance activities are sub–contracted to qualified maintenance business partner, repair and overhaul
organizations. Routine maintenance also includes scheduled tasks that can take from seven to 14 days to accomplish and
typically are required approximately every 22 months. All routine maintenance costs are expensed as incurred.
(ii) Major maintenance consists of a series of more complex tasks that can take up to six weeks to accomplish and typically
are required approximately every five to six years.
Major maintenance is accounted for under the deferral method, whereby the cost of major maintenance and major overhaul
and repair is capitalized (leasehold improvements to flight equipment) and amortized over the shorter of the period to the
next major maintenance event or the remaining contractual lease term. The next major maintenance event is estimated
based on assumptions including estimated usage. The United States Federal Aviation Administration (“FAA”) and the
Mexican Federal Civil Aviation Agency (Agencia Federal de Aviación Civil) mandate maintenance intervals and average
removal times as suggested by the manufacturer.
Rotable spare parts, furniture and equipment, are recorded at cost and are depreciated to estimated residual values over their
estimated useful lives using the straight–line method.
Aircraft spare engines have significant components with different useful lives; therefore, they are accounted for as separate
items (major components) of spare engine parts (Note 12d).
Pre–delivery payments refer to prepayments made to aircraft and engine manufacturers during the manufacturing stage of
the aircraft. The borrowing costs related to the acquisition or construction of a qualifying asset are capitalized as part of
the cost of that asset.
During the years ended December 31, 2019, 2018 and 2017, the Company capitalized borrowing costs which amounted to
Ps.456,313 Ps.357,920 and Ps.193,389, respectively (Note 21). The rate used to determine the amount of borrowing cost
was 5.10%, 4.41% and 3.30%, for the years ended December 31, 2019, 2018 and 2017, respectively.
67
volaris | 2019 Annual Report
Depreciation rates are as follows:
Flight equipment
Constructions and improvements
Computer equipment
Workshop tools
Electric power equipment
Communications equipment
Workshop machinery and equipment
Motorized transport equipment platform
Service carts on board
Office furniture and equipment
Leasehold improvements to flight equipment
Annual depreciation rate
4.0–16.7%
Remaining contractual lease term
25%
33.3%
10%
10%
10%
25%
20%
10%
The shorter of: (i) remaining contractual lease
term, or (ii) the next major maintenance event
The Company reviews annually the useful lives and salvage values of these assets and any changes are accounted
for prospectively.
The Company assesses, at each reporting date, whether there is an objective evidence that rotable spare parts, furniture and
equipment and right of use asset are impaired in the Cash Generating Unit (CGU). The Company identified only one CGU,
which is the fleet. The Company records impairment charges on rotable spare parts, furniture and equipment and right of
use assets used in operations when events and circumstances indicate that the assets may be impaired or when the carrying
amount of a long–lived asset or related cash generating unit exceeds its recoverable amount, which is the higher of (i) its fair
value less cost to sell and (ii) its value in use.
The value in use calculation is based on a discounted cash flow model, using projections of operating results for the near
future. The recoverable amount of long–lived assets is sensitive to the uncertainties inherent in the preparation of projections
and the discount rate used in the calculation.
During 2019, the Company performed its annual impairment test. The recoverable amount of rotable spare parts, furniture
and equipment assets was determined based on a value in use calculation using cash flow projections from financial budgets
approved by senior management, covering a five–year period. The projected cash flows have been updated to reflect the future
operating cashflows. It was concluded that the fair value less costs of disposal did not exceed the value in use. Consequently,
for the years ended December 31, 2019, 2018 and 2017, there were no impairment charges recorded in respect of the
Company’s value of rotable spare parts, furniture and equipment.
The financial statements of foreign subsidiaries prepared under IFRS and denominated in their respective local currencies,
are translated into the functional currency as follows:
•
•
•
•
•
Transactions in foreign currencies are translated into the respective functional currencies at the exchange rates at the dates
of the transactions.
All monetary assets and liabilities were translated at the exchange rate at the consolidated statement of financial position
date.
All non–monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange
rates at the dates of the initial transactions.
Equity accounts are translated at the prevailing exchange rate at the time the capital contributions were made and the
profits were generated.
Revenues, costs and expenses are translated at the average exchange rate during the applicable period.
Any differences resulting from the currency translation are recognized in the consolidated statements of operations.
For the year ended December 31, 2019, 2018 and 2017, the exchange rates of local currencies translated to functional
currencies are as follows:
Exchange rates of local
currencies translated
to functional currencies
Exchange rates of local
currencies translated
to functional currencies
Exchange rates of local
currencies translated
to functional currencies
Country
Local
currency
Functional
currency
Average
exchange rate
for 2019
Exchange
rate as of
2019
Average
exchange rate
for 2018
Exchange
rate as of
2018
Average
exchange rate
for 2017
Exchange
rate as of
2017
Costa Rica
Colon
U.S. dollar
¢. 590.9574 ¢. 573.4400 ¢. 580.8534 ¢. 609.6100 ¢. 572.2000 ¢. 572.5600
Guatemala
Quetzal
U.S. dollar
Q.
7.7066 Q.
7.6988 Q. 7.5337 Q.
7.7440 Q.
7.3509 Q.
7.3448
El Salvador
U.S Dollar
U.S. dollar
$.
19.2618 $.
18.8452 $.
– $.
– $.
– $.
–
The exchange rates used to translate the above amounts to Mexican pesos at December 31, 2019, 2018 and 2017,
were Ps.18.8452, Ps.19.6829 and Ps.19.7354, respectively, per U.S. dollar.
Foreign currency differences arising on translation into the presentation currency are recognized in OCI. Exchange differ-
ences on translation of foreign entities for the year ended December 31, 2019, 2018 and 2017, were Ps.8,045, Ps.22,156
and Ps. (7,178), respectively.
n) Liabilities and provisions
m) Foreign currency transactions and exchange differences
The Company’s consolidated financial statements are presented in Mexican peso, which is the reporting and functional
currency of the parent company. For each subsidiary, the Company determines the functional currency and items included
in the financial statements of each entity are measured using the currency of the primary economic environment in which the
entity operates (“the functional currency”).
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are
discounted using a current pre–tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting
is used, the increase in the provision due to the passage of time is recognized as a finance cost.
68
volaris | 2019 Annual Report o) Employee benefits
i)
Personnel vacations
The Company and its subsidiaries in Mexico and Central America recognize a reserve for the costs of paid absences, such as
vacation time, based on the accrual method.
The Company has a short–term benefit plan for certain key personnel whereby cash bonuses are awarded when certain
Company’s performance targets are met. These incentives are payable shortly after the end of each year and also are accounted
for as a short–term benefit under IAS 19. A provision is recognized based on the estimated amount of the incentive payment.
During the years ended December 31, 2019, 2018 and 2017 the Company recorded an expense for an amount of Ps.80,634,
Ps.50,000, and Ps.0, respectively, under the caption salaries and benefits.
ii) Termination benefits
v) Long–term incentive plan (“LTIP”) and long–term retention plan (LTRP)
The Company recognizes a liability and expense for termination benefits at the earlier of the following dates:
a) When it can no longer withdraw the offer of those benefits; and
b)
When it recognizes costs for a restructuring that is within the scope of IAS 37, Provisions, Contingent Liabilities and
Contingent Assets, and involves the payment of termination benefits.
The Company is demonstrably committed to a termination when, and only when, it has a detailed formal plan for the termination
and is without realistic possibility of withdrawal.
The Company has adopted a Long–term incentive plan (“LTIP”). This plan consists of a share purchase plan (equity–settled)
and a share appreciation rights “SARs” plan (cash settled), and therefore accounted under IFRS 2 “Shared based payments”.
This incentive plan has been granting annual extensions in the same terms from the original granted in 2014.
During 2019 and 2018, the Company approved a new long–term retention plan (“LTRP”), which consisted in a purchase plan
(equity–settled). This plan does not include cash compensations granted through appreciation rights on the Company’s shares.
The retention plans granted in previous periods will continue in full force and effect until their respective due dates and the
cash compensation derived from them will be settled according to the conditions established in each plan.
For the years ended December 31, 2019, 2018 and 2017, no termination benefits provision has been recognized.
vi) Share–based payments
iii) Seniority premiums
In accordance with Mexican Labor Law, the Company provides seniority premium benefits to the employees which rendered
services to its Mexican subsidiaries under certain circumstances. These benefits consist of a one–time payment equivalent
to 12 days’ wages for each year of service (at the employee’s most recent salary, but not to exceed twice the legal minimum
wage), payable to all employees with 15 or more years of service, as well as to certain employees terminated involuntarily
prior to the vesting of their seniority premium benefit.
Obligations relating to seniority premiums other than those arising from restructurings, are recognized based upon actuarial
calculations and are determined using the projected unit credit method.
The latest actuarial computation was prepared as of December 31, 2019. Remeasurement gains and losses are recognized
in full in the period in which they occur in OCI. Such remeasurement gains and losses are not reclassified to profit or loss in
subsequent periods.
The defined benefit asset or liability comprises the present value of the defined benefit obligation using a discount rate based
on government bonds, less the fair value of plan assets out of which the obligations are to be settled.
For entities in Costa Rica, Guatemala and El Salvador there is no obligation to pay seniority premium, these countries have
Post– Employee Benefits.
iv) Incentives
The Company has a quarterly incentive plan for certain personnel whereby cash bonuses are awarded for meeting certain
performance targets. These incentives are payable shortly after the end of each quarter and are accounted for as a short–term
benefit under IAS 19, Employee Benefits. A provision is recognized based on the estimated amount of the incentive payment.
During the years ended December 31, 2019, 2018 and 2017 the Company expensed Ps.62,825, Ps.67,680 and Ps.48,384,
respectively, as quarterly incentive bonuses, recorded under the caption salaries and benefits.
a) LTIP
– Share purchase plan (equity–settled)
Certain key employees of the Company receive additional benefits through a share purchase plan denominated in Restricted
Stock Units (“RSUs”), which has been classified as an equity–settled share–based payment. The cost of the equity–settled
share purchase plan is measured at grant date, taking into account the terms and conditions on which the share options
were granted. The equity–settled compensation cost is recognized in the consolidated statement of operations under the
caption of salaries and benefits, over the requisite service period (Note 17).
During the years ended December 31, 2019, 2018 and 2017, the Company expensed Ps.49,659, Ps.19,980 and Ps.13,508,
respectively, related to RSUs granted under the LTIP and LTRP. The expenses were recorded under the caption salaries
and benefits.
– SARs plan (cash settled)
The Company granted SARs to key employees, which entitle them to a cash payment after a service period. The amount
of the cash payment is determined based on the increase in the share price of the Company between the grant date
and the time of exercise. The liability for the SARs is measured, initially and at the end of each reporting period until
settled, at the fair value of the SARs, taking into account the terms and conditions on which the SARs were granted. The
compensation cost is recognized in the consolidated statement of operations under the caption of salaries and benefits,
over the requisite service period (Note 17). During the years ended December 31, 2019, 2018 and 2017, the Company
recorded an expense (benefit) for Ps.2,964, Ps.(186), Ps.(8,999), respectively, related to the SARs included in the LTIP.
These amounts were recorded under the caption salaries and benefits.
69
volaris | 2019 Annual Report
b) Management incentive plan (“MIP”)
– MIP I
Certain key employees of the Company receive additional benefits through a share purchase plan, which has been classified
as an equity–settled share–based payment. The equity–settled compensation cost is recognized in the consolidated
statement of operations under the caption of salaries and benefits, over the requisite service period (Note 17). The total
cost of this plan has been totally recognized during the required service period.
– MIP II
On February 19, 2016, the Board of Directors of the Company authorized an extension to the MIP for certain key employees,
this plan was named MIP II. In accordance with this plan, the Company granted SARs to key employees, which entitle
them to a cash payment after a service period. The amount of the cash payment is determined based on the increase in
the share price of the Company between the grant date and the time of exercise. The liability for the SARs is measured
initially and at the end of each reporting period until settled at the fair value of the SARs, taking into account the terms
and conditions on which the SARs were granted. The compensation cost is recognized in the consolidated statement of
operations under the caption of salaries and benefits, over the requisite service period (Note 17).
During the years ended December 31, 2019, 2018 and 2017, the Company recorded an expense (benefit) for
Ps.37,760, Ps.(5,052) and Ps.(16,499), respectively, related to MIP II into the consolidated statement of operations.
c) Board of Directors Incentive Plan (BoDIP)
Certain members of the Board of Directors of the Company receive additional benefits through a share–based plan,
which has been classified as an equity–settled share–based payment and therefore accounted under IFRS 2 “Shared
based payments”.
In April 2018, the Board of Directors of the Company authorized a Board of Directors Incentive Plan “BoDIP”, for the
benefit of certain board members. The BoDIP grants options to acquire shares of the Company or CPOs during a four years
period with an exercise price share at Ps.16.12, which was determined on the grant date. Under this plan, no service or
performance conditions are required to the board members for exercise the option to acquire shares, and therefore, they
have the right to request the delivery of those shares at the time they pay for them.
vii) Employee profit sharing
The Mexican Income Tax Law (“MITL”), establishes that the base for computing current year employee profit sharing shall be
the taxpayer’s taxable income of the year for income tax purposes, including certain adjustments established in the Income
Tax Law, at the rate of 10%. For the years ended December 2019, 2018 and 2017, the employee profit sharing is Ps.22,134,
Ps.14,106 and Ps.8,342, respectively, and is presented as an expense in the consolidated statements of operations. Subsidiaries
in Central America do not have such profit–sharing benefit, as it is not required by local regulation.
p) Leases
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the
right to control the use of an identified asset for a period of time in exchange for consideration.
The Company applies a single recognition and measurement approach for all leases, except for short–term leases and leases
of low–value assets. The Company recognizes lease liabilities to make lease payments and right–of–use assets representing
the right to use the underlying assets.
i)
Right–of–use assets
The Company recognize right–of–use assets at the commencement date of the lease. Right–of–use assets are measured at
cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The
cost of right–of–use assets includes the amount of lease liabilities recognized, initial direct costs incurred, an estimate of costs
to be incurred by the Company in dismantling and removing the underlying asset to the condition required by the terms and
conditions of the lease, and lease payments made at or before the commencement date less any lease incentives received.
Components of the right–of–use assets are depreciated on a straight–line basis over the shorter of the remining lease term
and the estimated useful lives of the assets, as follows:
Aircraft and engines
Spare engines
Buildings leases
Maintenance component
up to 18 years
up to 14 years
one to ten years
up to eight years
ii)
Lease Liabilities
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable,
variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.
Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event
or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement
date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount
of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the
carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease
payments or a change in the assessment of an option to purchase the underlying asset.
The short–term leases and leases of low value assets are recognized as expense on a straight–line basis over the lease term.
During the years ended December 31, 2019, 2018 and 2017, there were no impairment charges recorded in respect of the
company right–of–use asset.
iii) Sale and leaseback
The Company enters into sale and leaseback agreements whereby an aircraft or engine is sold to a lessor upon delivery and
the lessor agrees to lease such aircraft or engine back to the Company.
Since January 1, 2019, the Company measures the right–of–use asset arising from the leaseback at the proportion of the
previous carrying amount of the asset that relates to the right of use retained by the seller–lessee. Accordingly, the Company
recognizes in the Statement of Operations only the amount of any gain or loss that relates to the rights transferred to the
buyer–lessor. The rest of the gain is amortized over the lease term.
70
volaris | 2019 Annual Report
Before to the IFRS 16 adoption, the profit or loss related to a sale transaction followed by an operating lease, was accounted
for as follows:
Deferred tax liabilities are recognized for all taxable temporary differences, except, in respect of taxable temporary differences
associated with investments in subsidiaries when the timing of the reversal of the temporary differences can be controlled and
it is probable that the temporary differences will not reverse in the foreseeable future.
(i) Profit or loss was recognized immediately when it was clear that the transaction was established at fair value.
(ii)
If the sale price was at or below fair value, any profit or loss was recognized immediately. However, if the loss was com-
pensated for by future lease payments at below market price, such loss was recognized as an asset in the consolidated
statements of financial position and amortized to the consolidated statements of operations in proportion to the lease
payments over the contractual lease term.
(iii) If the sale price was above fair value, the excess of the price above the fair value was deferred and amortized to the
consolidated statements of operations over the asset’s expected lease term, including probable renewals, with the
amortization recorded as a reduction of rent expense.
iv) Return obligations
The aircraft lease agreements of the Company also require that the aircraft and engines be returned to lessors under specific
conditions of maintenance. The costs of return, which in most cases are related to scheduled major maintenance, are estimated
and recognized ratably as a provision from the time it becomes likely such costs will be incurred and can be estimated reliably.
These return costs are recognized on a straight–line basis as a component of variable rent expenses and the provision is included
as part of other liabilities, through the remaining lease term. The Company estimates the provision related to airframe, engine
overhaul and limited life parts using certain assumptions including the projected usage of the aircraft and the expected costs
of maintenance tasks to be performed. For the years ended December 31, 2019, 2018 and 2017, the Company expensed as
variable rent of Ps.680,964, Ps.659,106 and Ps.851,410, respectively.
q) Other taxes and fees payable
The Company is required to collect certain taxes and fees from customers on behalf of government agencies and airports
and to remit these to the applicable governmental entity or airport on a periodic basis. These taxes and fees include federal
transportation taxes, federal security charges, airport passenger facility charges, and foreign arrival and departure fees. These
charges are collected from customers at the time they purchase their tickets but are not included in passenger revenue. The
Company records a liability upon collection from the customer and discharges the liability when payments are remitted to
the applicable governmental entity or airport.
r)
Income taxes
Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or
paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively
enacted, at the reporting date. Current income tax relating to items recognized directly in equity is recognized in equity.
Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax
regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax assets are recognized for all deductible temporary differences, the carry–forward of unused tax credits and any
available tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences, and the carry–forward of unused tax credits and available tax losses can be utilized, except, in respect of deductible
temporary differences associated with investments in subsidiaries deferred tax assets are recognized only to the extent that
it is probable that the temporary differences will reverse in the foreseeable future and taxable profits will be available against
which the temporary differences can be utilized.
The Company considers the following criteria in assessing the probability that taxable profit will be available against which
the unused tax losses or unused tax credits can be utilized: (a) whether the entity has sufficient taxable temporary differences
relating to the same taxation authority and the same taxable entity, which will result in taxable amounts against which the
unused tax losses or unused tax credits can be utilized before they expire; (b) whether it is probable that the Company will
have taxable profits before the unused tax losses or unused tax credits expire; (c) whether the unused tax losses result from
identifiable causes which are unlikely to recur; and (d) whether tax planning opportunities are available to the Company that
will create taxable profit in the period in which the unused tax losses or unused tax credits can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized
deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that
future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized
or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are
recognized in correlation to the underlying transaction in OCI.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
The charge for income taxes incurred is computed based on tax laws approved in Mexico, Costa Rica, Guatemala and El
Salvador at the date of the consolidated statement of financial position.
s) Derivative and non–derivative financial instruments and hedge accounting
The Company mitigates certain financial risks, such as volatility in the price of jet fuel, adverse changes in interest rates and
exchange rate fluctuations, through a risk management program that includes the use of derivative financial instruments and
non–derivative financial instrument.
In accordance with IFRS 9, derivative financial instruments and non–derivative financial instruments are recognized in the
consolidated statement of financial position at fair value. At inception of a hedge relationship, the Company formally designates
71
volaris | 2019 Annual Report and documents the hedge relationship to which it wishes to apply hedge accounting, as well as the risk management objective
and strategy for undertaking the hedge. The documentation includes the hedging strategy and objective, identification of
the hedging instrument, the hedged item or transaction, the nature of the risks being hedged and how the entity will assess
the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s
fair value or cash flows attributable to the hedged risk(s).
Only if such hedges are expected to be effective in achieving offsetting changes in fair value or cash flows of the hedge item(s)
and are assessed on an ongoing basis to determine that they have been effective throughout the financial reporting periods
for which they were designated, hedge accounting treatment can be used.
Under the cash flow hedge (CFH) accounting model, the effective portion of the hedging instrument’s changes in fair value is
recognized in OCI, while the ineffective portion is recognized in current year earnings. During the years ended December 31,
2019, 2018 and 2017, there was no ineffectiveness with respect to derivative financial instruments. The amounts recognized
in OCI are transferred to earnings in the period in which the hedged transaction affects earnings.
The realized gain or loss of derivative financial instruments and non–derivative financial instruments that qualify as CFH are
recorded in the same caption of the hedged item in the consolidated statement of operations.
Accounting for the time value of options
The Company accounts for the time value of options in accordance with IFRS 9, which requires all derivative financial instruments
to be initially recognized at fair value. Subsequent measurement for options purchased and designated as CFH requires that
the option’s changes in fair value be segregated into its intrinsic value (which will be considered the hedging instrument’s
effective portion in OCI) and its correspondent changes in extrinsic value (time value and volatility). The extrinsic value changes
will be considered as a cost of hedging (recognized in OCI in a separate component of equity) and accounted for in income
when the hedged items also are recognized in income.
t) Financial instruments – Disclosures
IFRS 7 requires a three–level hierarchy for fair value measurement disclosures and requires entities to provide additional
disclosures about the relative reliability of fair value measurements (Notes 4 and 5).
u) Treasury shares
The Company’s equity instruments that are reacquired (treasury shares), are recognized at cost and deducted from equity. No
gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of treasury shares. Any difference between
the carrying amount and the consideration received, if reissued, is recognized in additional paid in capital. Share–based
payment options exercised during the reporting period are settled with treasury shares (Note 17).
v) Operating segments
Management of Controladora monitors the Company as a single business unit that provides air transportation and related
services, accordingly it has only one operating segment.
The Company has two geographic areas identified as domestic (Mexico) and international (United States of America and
Central America) Note 24.
w)
Current versus non–current classification
The Company presents assets and liabilities in the consolidated statement of financial position based on current/non–current
classification. An asset is current when it is: (i) expected to be realized or intended to be sold or consumed in normal operating
cycle, (ii) expected to be realized within twelve months after the reporting period, or, (iii) cash or cash equivalent unless
restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other
assets are classified as non–current. A liability is current when: (i) it is expected to be settled in normal operating cycle, (ii) it is
due to be settled within twelve months after the reporting period, or, (iii) there is no unconditional right to defer the settlement
of the liability for at least twelve months after the reporting period. The Company classifies all other liabilities as non–current.
Deferred tax assets and liabilities are classified as noncurrent assets and liabilities.
x)
Impact of new International Financial Reporting Standards
New and amended standards and interpretations already effective
The Company applied for the first–time certain standards and amendments, which are effective for annual periods beginning
on or after January 1, 2019. The Company has not early adopted any other standard interpretation or amendment that has
been issued but is not yet effective. Although these new standards and amendments applied for the first time in 2019, except
for IFRS 16, that have a material impact on the annual consolidated financial statements of the Company. The nature and the
impact of these changes to each new standard and amendment are described below:
IFRIC 22 — Foreign Currency Transactions and Advance Considerations
IFRIC 22 clarifies that the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of
it) on the derecognition of a non– monetary asset or non–monetary liability relating to advance consideration, the date of the
transaction is the date on which an entity initially recognizes the non– monetary asset or non–monetary liability arising from
the advance consideration.
This interpretation does not have any impact on the Company’s consolidated financial statements.
Amendments to IFRS 2 Classification and Measurement of Share–based Payment Transactions
The IASB issued amendments to IFRS 2 Share–based Payment that address three main areas: the effects of vesting conditions on
the measurement of a cash–settled share–based payment transaction; the classification of a share–based payment transaction
with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions
of a share–based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are
required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all
three amendments and other criteria are met.
The Company’s accounting policy for cash–settled share–based payments is consistent with the approach clarified in the
amendments. In addition, the Company has no share–based payment transaction with net settlement features for withholding
tax obligations and had not made any modifications to the terms and conditions of its share–based payment transaction.
Therefore, these amendments do not have any impact on the consolidated financial statements.
IFRIC 23 Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the appli-
cation of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include
requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically
addresses the following:
72
volaris | 2019 Annual Report • Whether an entity considers uncertain tax treatments separately
• The assumptions an entity makes about the examination of tax treatments by taxation authorities
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
• How an entity considers changes in facts and circumstances
IFRS 16 Leases
IFRS 16 is effective for annual periods beginning on or after January 1, 2019 and supersedes IAS 17 Leases, IFRIC 4 Determining
whether an Arrangement contains a Lease, SIC–15 Operating Leases–Incentives and SIC–27 Evaluating the Substance of
Transactions Involving the Legal Form of a Lease.
The Company determines whether to consider each uncertain tax treatment separately or together with one or more other
uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty.
IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees
to recognize most leases on the balance sheet.
The Company applies significant judgement in identifying uncertainties over income tax treatments. Since the Company
operates in a complex multinational environment, it assessed whether the Interpretation had an impact on its consolidated
financial statements.
Upon adoption of the Interpretation, the Company considered whether it has any uncertain tax positions. The Company’s and
the subsidiaries’ tax filings in different jurisdictions include deductions related to transfer pricing and the taxation authorities
may challenge those tax treatments. The Company determined, based on its tax compliance and transfer pricing study, that
it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities.
The Company adopted IFRS 16 using the full retrospective method of adoption, with the date of initial application of January 1,
2019. The Company elected to use the transition provision allowing it to opt not to reassess whether a contract is, or contains,
a lease at January 1, 2019. Instead, the Company applied the standard only to contracts that were previously identified as
leases according to IAS 17 and IFRIC 4 at the date of initial application.
The Company also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a
lease term of 12 months or less and do not contain a purchase option (short–term leases), and lease contracts for which the
underlying asset is of low value (low–value assets).
The Interpretation did not have an impact on the consolidated financial statements of the Company.
Amendments to IFRS 9 Prepayment Features with Negative Compensation
Under IFRS 9, a debt instrument can be measured at amortized cost or at fair value through other comprehensive income,
provided that the contractual cash flows are ‘solely payments of principal and interest on the principal amount outstanding’
(the SPPI criterion) and the instrument is held within the appropriate business model for that classification. The amendments
to IFRS 9 clarify that a financial asset passes the SPPI criterion regardless of an event or circumstance that causes the early
termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination
of the contract.
These amendments had no impact on the consolidated financial statements of the Company.
Amendments to IAS 19 Plan Amendment, Curtailment or Settlement
The amendments to IAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting
period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting
period, an entity is required to determine the current service cost for the remainder of the period after the plan amendment,
curtailment or settlement, using the actuarial assumptions used to remeasure the net defined benefit liability (asset) reflecting
the benefits offered under the plan and the plan assets after that event.
An entity is also required to determine the net interest for the remainder of the period after the plan amendment, curtailment
or settlement using the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets
after that event, and the discount rate used to remeasure that net defined benefit liability (asset).
The amendments had no impact on the consolidated financial statements of the Company as it did not have any plan amend-
ments, curtailments, or settlements during the period.
Impact of adoption on the consolidated statements of financial position
The effect of adopting IFRS 16 is, as follows:
Impact on the consolidated statement of financial position (increase/(decrease)):
Assets
Non–current assets
Right–of–use–assets
Deferred income tax
Prepaid expenses
Liabilities
Short–term liabilities:
Lease liabilities
Other liabilities
Long–term liabilities:
Lease liabilities
Other liabilities
Equity
Retained losses
As of December 31,
2018
As of December 31,
2017
As of January 1,
2017
Ps. 31,882,053
Ps. 24,893,882
Ps. 23,500,081
2,725,037
(266,959)
2,636,821
(266,959)
3,042,344
(266,959)
4,976,454
(91,889)
34,588,692
1,492,260
4,213,417
(78,494)
28,310,287
1,238,088
4,237,065
(68,548)
28,474,728
997,979
Ps.
(6,625,386)
Ps.
(6,419,554)
Ps.
(7,365,758)
73
volaris | 2019 Annual Report
Impact on the consolidated statement of profit or loss (increase/(decrease)):
Depreciation expense
Lease benefit
Operating income
Finance cost
Foreign exchange loss (gain), net
Income tax (benefit) expense
Net loss (income) for the period
Impact on consolidated statement of cash flows (increase/(decrease)):
Lease payments
Net cash flows from operating activities
Payment of principal portion of lease liabilities
Net cash flows from financing activities
For the year ended
December 31, 2018
For the year ended
December 31, 2017
Ps.
4,043,691
Ps.
3,437,903
(5,543,655)
(1,499,964)
1,755,978
31,315
(88,216)
199,113
Ps.
(4,807,378)
(1,369,475)
1,428,924
(1,476,893)
405,523
Ps.
(1,011,921)
For the year ended
December 31, 2018
For the year ended
December 31, 2017
(5,710,907)
(5,032,898)
Ps.
5,710,907
Ps.
5,032,898
5,710,907
5,032,898
Ps.
(5,710,907)
Ps.
(5,032,898)
Due to the adoption of IFRS 16, it is expected that the Company operating profit should improve, while its interest expense
should increase. This is due to the change in the accounting for expenses of leases that were classified as operating leases
under IAS 17.
Upon adoption of IFRS 16, the Company applied a single recognition and measurement approach for all leases for which it is
the lessee, except for short–term leases and leases of low–value assets. The Company recognized lease liabilities to make lease
payments and right–of–use assets representing the right to use the underlying assets. In accordance with the full retrospective
method of adoption, the Company applied IFRS 16 at the date of initial application as if it had already been effective at the
commencement date of existing lease contracts.
IAS 12 Income Taxes
The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events
that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income tax consequences
of dividends in profit or loss, other comprehensive income or equity according to where it originally recognized those past
transactions or events. An entity applies the amendments for annual reporting periods beginning on or after January 1st,
2019, with early application permitted. When the entity first applies those amendments, it applies them to the income tax
consequences of dividends recognized on or after the beginning of the earliest comparative period. Since the Company’s
current practice is in line with these amendments, they had no impact on the consolidated financial statements of the Company.
IAS 23 Borrowing Costs
The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying
asset when substantially all the activities necessary to prepare that asset for its intended use or sale are complete.
The entity applies the amendments to borrowing costs incurred on or after the beginning of the annual reporting period in
which the entity first applies those amendments. An entity applies those amendments for annual reporting periods beginning
on or after January 1st, 2019, with early application permitted.
Since the Company’s current practice is in line with these amendments, they had no impact on the consolidated financial
statements of the Company.
Standards issued but not yet effective
Amendments to IAS 1 and IAS 8: Definition of Material in October 2018, the IASB issued amendments to IAS 1 Presentation
of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of
“material” across the standards and to clarify certain aspects of the definition. The new definition states that, “Information is
material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of
general purposes financial statements make on the basis of those financial statements, which provide financial information
about a specific reporting entity.”
The amendments to the definition of material is not expected to have a significant impact on the Company’s consolidated
financial statements.
y) Convenience translation
U.S. dollar amounts at December 31, 2019 shown in the consolidated financial statements have been included solely for the
convenience of the reader and are translated from Mexican pesos, using an exchange rate of Ps.18.8452 per U.S. dollar, as
reported by the Mexican Central Bank (Banco de México) as the rate for the payment of obligations denominated in foreign
currency payable in Mexico in effect on December 31, 2019. Such translation should not be construed as a representation
that the peso amounts have been or could be converted into U.S. dollars at this or any other rate. The referred information
in U.S. dollars is solely for information purposes and does not represent that the amounts are in accordance with IFRS or the
equivalent in U.S. dollars in which the transactions were conducted or in which the amounts presented in Mexican pesos can
be translated or realized.
2. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of these financial statements requires management to make estimates, assumptions and judgments that
affect the reported amount of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and
liabilities at the date of the Company’s consolidated financial statements. Note 1 to the Company’s consolidated financial
statements provides a detailed discussion of the significant accounting policies. Certain of the Company’s accounting policies
reflect significant judgments, assumptions or estimates about matters that are both inherently uncertain and material to the
Company’s financial position or results of operations.
74
volaris | 2019 Annual Report
Actual results could differ from these estimates. Revisions to accounting estimates are recognized in the period in which the
estimate is revised. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are discussed below.
For Leases significant accounting judgments, estimates and assumptions refer to Note 1p (iv).
i) LTIP, LTRP and MIP (equity settled)
The Company measures the cost of its equity–settled transactions at fair value at the date the equity benefits are conditionally
granted to employees. The cost of equity–settled transactions is recognized in earnings, together with a corresponding
increase in treasury shares, over the period in which the performance and/or service conditions are fulfilled. For grants that
vest on meeting performance conditions, compensation cost is recognized when it becomes probable that the performance
condition will be met. The cumulative expense recognized for equity–settled transactions at each reporting date until the
vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of
equity instruments that will ultimately vest.
The Company measures the cost of equity–settled transactions with employees by reference to the fair value of the equity
instruments at the date at which they are granted. Estimating fair value for share–based payment transactions requires deter-
mining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate
also requires determining the most appropriate inputs to the valuation model, including the expected life of the share option,
volatility and dividend yield, and making assumptions about them. The assumptions and models used for estimating fair value
for share–based payment transactions are disclosed in (Note 17).
SARs plan (cash settled)
The cost of the SARs plan is measured initially at fair value at the grant date, further details of which are given in (Note 17).
This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is
remeasured to fair value at each reporting date up to, and including the settlement date, with changes in fair value recognized
in salaries and benefits expense together with the grant date fair value. As with the equity settled awards described above,
the valuation of cash settled award also requires using similar inputs, as appropriate.
ii) Deferred taxes
Deferred tax assets are recognized for all available tax losses to the extent that it is probable that taxable profit will be available
against which the losses can be utilized. Management’s judgment is required to determine the amount of deferred tax assets
that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning
opportunities to advance taxable profit before expiration of available tax losses.
Tax losses relate to operations of the Company on a stand–alone basis, in conformity with current Tax Law and may be carried
forward against taxable income generated in the succeeding years at each country and may not be used to offset taxable
income elsewhere in the Company’s consolidated group (Note 19).
During the years ended December 31, 2019, 2018 and 2017, the Company used Ps.214,460, Ps.154,353 and Ps.16,378,
respectively, of the available tax loss carry–forwards (Note 19).
iii) Fair value measurement of financial instruments
Where the fair value of financial assets and financial liabilities recorded in the consolidated statements of financial position
cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows
model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree
of judgment is required in establishing fair values.
The judgments include considerations of inputs such as liquidity risk, credit risk and expected volatility. Changes in assumptions
about these factors could affect the reported fair value of financial instruments (Note 4).
iv) Impairment of long–lived assets
The Company assesses whether there are indicators of impairment for long–lived assets and right of use assets, annually and at
other times when such indicators exist in the related CGU. Impairment exists when the carrying amount of a long–lived asset or
cash generating unit exceeds its recoverable amount, which is the higher of its fair value less cost to sell and its value–in–use.
The value–in–use calculation is based on a discounted cash flow model, using the Company’s projections of operating results
for the near future. The recoverable amount of long–lived assets is sensitive to the uncertainties inherent in the preparation of
projections and the discount rate used in the calculation.
v) Allowance for expected credit loss
An allowance for expected credit loss on accounts receivables is established in accordance with the information mentioned
in Note 1f) ii).
vi) Leases – Estimating the incremental borrowing rate
The Company cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate
(IBR) to measure lease liabilities. The IBR is the rate of interest that the Company would have to pay to borrow over a similar
term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right–of–use asset in a similar
economic environment. The IBR therefore reflects what the Company ‘would have to pay’, which requires estimation when
no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to
be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional
currency). The Company estimates the IBR using observable inputs (such as market interest rates) when available and is required
to make certain entity–specific estimates (such as the subsidiary’s stand–alone credit rating).
3. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial risk management
The Company’s activities are exposed to different financial risks stemmed from exogenous variables which are not under their
control but whose effects might be potentially adverse such as: (i) market risk, (ii) credit risk, and (iii) liquidity risk.
The Company’s global risk management program is focused on uncertainty in the financial markets and tries to minimize the
potential adverse effects on net earnings and working capital requirements. The Company uses derivative financial instruments
to hedge part of such risks. The Company does not enter into derivatives for trading or speculative purposes. The sources of
these financial risks exposures are included in both “on balance sheet” exposures, such as recognized financial assets and
75
volaris | 2019 Annual Report liabilities, as well as in “off–balance sheet” contractual agreements and on highly expected forecasted transactions. These
on and off–balance sheet exposures, depending on their profiles, do represent potential cash flow variability exposure, in
terms of receiving less inflows or facing the need to meet outflows which are higher than expected, therefore increase the
working capital requirements.
Rather, it is initially accounted for in the Company’s OCI and a reclassification adjustment is made from OCI to profit and
loss and recognized in the same period or periods in which the hedged item is expected to be allocated to profit and loss.
Furthermore, the Company hedges its forecasted jet fuel consumption month after month, which is congruent with the maturity
date of the monthly serial Asian call and Zero–Cost Collar options.
Since adverse movements erode the value of recognized financial assets and liabilities, as well some other off–balance sheet
financial exposures, there is a need for value preservation, by transforming the profiles of these fair value exposures. The
Company has a Finance and Risk Management department, which identifies and measures financial risk exposures, in order to
design strategies to mitigate or transform the profile of certain risk exposures, which are taken up to the corporate governance
level for approval.
Market risk
a)
Jet fuel price risk
Since the contractual agreements with jet fuel suppliers include reference to jet fuel index, the Company is exposed to fuel
price risk which might have an impact on the forecasted consumption volumes. The Company’s jet fuel risk management
policy aims to provide the Company with protection against increases in jet fuel prices. In an effort to achieve the aforesaid,
the risk management policy allows the use of derivative financial instruments available on over the counter (“OTC”) markets
with approved counterparties and within approved limits. Aircraft jet fuel consumed in the years ended December 31, 2019,
2018 and 2017 represented 38%, 38% and 31%, of the Company’s operating expenses, respectively. The foreign currency
risk is disclosed within subsection b) in this note.
During the year ended December 31, 2019, the Company entered into US Gulf Coast Jet fuel 54 Asian call options designated
to hedge 13,492 thousand gallons. Such hedges represented a portion of the projected consumption for the 4Q 2019.
Additionally, during the same period, the Company entered into US Gulf Coast Jet Fuel 54 Asian Zero–Cost collar options
designated to hedge 70,136 thousand gallons. Such hedges represent a portion of the projected consumption for the 3Q19
and the year 2020.
During the year ended December 31, 2018, the Company entered into US Gulf Coast Jet Fuel 54 Asian Call options and
Zero–Cost Collars designated to hedge 45.6 million gallons. Such hedges represent a portion of the projected consumption
for the next twelve months. Additionally, as of December 31, 2017, the Company entered into US Gulf Coast Jet Fuel 54 Asian
call options designated to hedge 61.1 million gallons. Such hedges represented a portion of the projected consumption for
the next nine months of operations.
In accordance with IFRS 9 the Company separates the intrinsic value from the extrinsic value of an option contract; as such,
the change in the intrinsic value can be designated as hedge accounting. Because extrinsic value (time and volatility values) of
the Asian call options is related to a “transaction related hedged item”, it is required to be segregated and accounted for as
a cost of hedging in OCI and accrued as a separate component of stockholders’ equity until the related hedged item matures
and therefore impacts profit and loss.
The underlying (US Gulf Coast Jet Fuel 54) of the options held by the Company is a consumption asset (energy commodity),
which is not in the Company’s inventory. Instead, it is directly consumed by the Company’s fleet at different airport terminals.
Therefore, although a non–financial asset is involved, its initial recognition does not generate a book adjustment in the
Company’s inventories.
As of December 31, 2018 and 2017, the fair value of the outstanding US Gulf Coast Jet Fuel Asian call options was Ps.48,199
and Ps.497,403, respectively. As of December 31, 2019 and 2018 for the Zero–Cost Collars it was Ps.133,567 and a (loss) of
Ps.(122,948), respectively and are presented as part of the financial assets and financial liabilities in the consolidated statement
of financial position. (See Note 5). The Company did not hold any position in Zero–Cost Collars for the period ended 2017.
During the year ended December 31, 2019, the intrinsic value of the Zero–Cost Collars recycled to the fuel cost was an expense
of Ps.9,477. As of December 31, 2018, the Company did not have intrinsic value recycled to the fuel cost as settlements
started taking place on 2019.
The amount of positive cost of hedging derived from the extrinsic value changes of the jet fuel hedged position as of December
31, 2019 recognized in other comprehensive income totals Ps.133,567 (the positive cost of hedging in December 2018 and
2017 totals Ps.134,096 and Ps.163,836, respectively), and will be recycled to the fuel cost during 2020, as these options
expire on a monthly basis and the jet fuel is consumed. During the years ended December 31, 2019, 2018 and 2017, the net
(positive) /negative cost of these options recycled to the fuel cost was Ps.61,067, Ps.(402,493) and Ps.26,980, respectively.
The following table includes the notional amounts and strike prices of the derivative financial instruments outstanding as of
the end of the year:
Position as of December 31, 2019
Jet fuel Zero–Cost Collar collars option contracts maturities
1 Half 2020
2 Half 2020
2020 Total
Jet fuel risk Zero–Cost collars
Notional volume in gallons (thousands)*
34,480
22,164
56,644
Strike price agreed rate per gallon (U.S. dollars)**
US$
1.63/1.82
US$
1.65/1.81
US$
1.64/1.82
Approximate percentage of hedge (of expected
consumption value)
All–in
Approximate percentage of hedge (of expected
consumption value)
* US Gulf Coast Jet 54 as underlying asset
** Weighted average
25%
25%
15%
15%
20%
20%
76
volaris | 2019 Annual Report
Jet fuel risk Asian Calls
Notional volume in gallons (thousands)*
Strike price agreed rate per gallon (U.S. dollars) **
US$
Approximate percentage of hedge (of expected
consumption value)
Jet fuel risk Zero–Cost collars
Notional volume in gallons (thousands)*
12,790
1.84
10%
18,963
Strike price agreed rate per gallon (U.S. dollars) **
US$
1.91/2.46
US$
Approximate percentage of hedge (of expected
consumption value)
All–in
Approximate percentage of hedge (of expected
consumption value)
* US Gulf Coast Jet 54 as underlying asset
** Weighted average
15%
25%
13,842
1.84
US$
10%
–
–
–%
10%
US$
1.91/2.46
15%
18%
Position as of December 31, 2017
Jet fuel Asian call option contracts maturities
1 Half 2018
2 Half 2018
2018 Total
Jet fuel risk Asian Calls
Notional volume in gallons (thousands)*
69,518
61,863
Strike price agreed rate per gallon (U.S. dollars) **
US$
1.6861
US$
1.8106
US$
Approximate percentage of hedge (of expected
consumption value)
60%
50%
131,381
1.7447
55%
* US Gulf Coast Jet 54 as underlying asset
** Weighted average
Position as of December 31, 2018
Jet fuel Asian call and Zero–Cost collars option contracts maturities
1 Half 2019
2 Half 2019
2019 Total
The following table illustrates the sensitivity of US Gulf Coast Jet Fuel 54 Zero Cost Collars to a reasonably possible change in
fuel prices, with all other variables held constant, on the caption of accumulated other comprehensive income.
The calculations were made considering a parallel movement of +/–5% in the spot price of the US Gulf Coast Jet 54 as of
December 31, 2019:
26,632
1.84
10%
18,963
Sensitivity of position as of December 31, 2019
effect on equity (U.S. dollars)
US Gulf Coast Jet Fuel 54 spot level
+5%
–5%
+4.52M
–4.52M
Please note this sensitivity was calculated with the net position delta of the portfolio, as change on the underlying price is
small enough to be a good proxy
b) Foreign currency risk
Though the Mexican peso is the functional currency of the Company, a significant portion of its operating expenses are
denominated in U.S. dollar; thus, Volaris relies on sustained U.S. dollar cash flows coming from operations in the United
States of America and Central America to support part of its commitments in such currency, however there’s still a mismatch.
Foreign currency risk arises from possible unfavorable movements in the exchange rate which could have a negative impact
in the Company’s cash flows. To mitigate this risk, the Company may use foreign exchange derivative financial instruments
and non–derivative financial instruments.
While most of the Company’s revenue is generated in Mexican pesos, although 29% of its revenues came from operations in
the United States of America and Central America for the year ended at December 31, 2019 (32% at December 31, 2018 and
30% at December 31, 2017) and U.S. dollar denominated collections accounted for 43%, 38% and 40%, of the Company’s
total collections in 2019, 2018 and 2017, respectively.
Company’s expenditures, particularly those related to aircraft leasing and acquisition, are denominated in U.S. dollar. In
addition, although jet fuel for those flights originated in Mexico are paid in Mexican pesos, the price formula is impacted by
the Mexican peso /U.S. dollar exchange rate.
77
volaris | 2019 Annual Report
The Company’s foreign exchange exposure as of December 31, 2019, 2018 and 2017 is as set forth below:
Assets:
Cash and cash equivalents
Other accounts receivable, net
Guarantee deposits
Derivative financial instruments
Total assets
Liabilities:
Thousands of U.S. dollars
2019
2018
2017
US$
373,099
US$
279,829
US$
344,038
23,620
437,499
7,088
10,957
362,149
3,172
13,105
377,485
25,204
US$
841,306
US$
656,107
US$
759,832
Financial debt (Note 5)
US$
176,927
US$
155,455
US$
128,296
Lease liabilities
Suppliers
Other taxes and fees payable
Derivative financial instruments
Total liabilities
2,263,849
2,099,218
1,727,890
76,471
22,486
–
51,012
14,823
6,246
53,729
10,304
–
2,539,733
2,326,754
1,920,219
Net foreign currency position
US$
(1,698,427)
US$
(1,670,647)
US$
(1,160,387)
i) Hedging relationships with non–derivative financial instruments
Regarding the foreign currency risk effective since January 1st, 2019, the Company implemented two hedging strategies for
forecasted foreign exchange exposures using with non–derivatives financial instruments. In the first hedging strategy the
Company has designated a hedge to mitigate the foreign exchange rate risk and foreign exchange variation fluctuation in US
dollar denominated forecasted revenues using the financial liabilities corresponding to the leases liability denominated in
USD over the term of the remaining leases term. The Company has at December 31, 2019 an amount equivalent to USD$2.1
billion of lease liability designated as hedging forecasted revenues over the remaining lease term.
Additionally, the second strategy consists on a hedging relationship for foreign exchange rate with non– derivative financial
instruments in order to mitigate the exchange rate risk and foreign exchange variation (MXN/USD) intrinsic in the US dollar
denominated Jet Fuel purchases. For this strategy a portion of the Jet Fuel consumption over the next two years approximately
has been designated as hedge item; as hedging instrument the company designated a portion of the guaranteed deposits
and cash and cash equivalents denominated in USD. In this hedging relationship for foreign exchange rate with non–derivative
financial instruments, the Company designated an amount equivalent to USD$410 million, which represent a portion of the
financial assets denominated in USD.
For both hedging relationships follow a Cash Flow Hedging Model, the accounting records corresponding to the recycling
of the reserve for hedging of cash flows (called Other Comprehensive Income or OCI, part of the Stakeholders Equity) will
be done as it is indicated on IFRS 9, this mean to reclassify the OCI through the accounts of Results in the same period or
periods in which the expected hedging for cash flows affect the result of the period; when those sales are recognized as
revenue– always adjusting them because of the hedging effects– for the program.
At April 27, 2020, date of issuance of these financial statements, the exchange rate was Ps.24.6230 per U.S. dollar.
c)
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows will fluctuate because of changes in market interest rates.
In determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the
derecognition of a non–monetary asset or non–monetary liability relating to advance consideration, the date of the transaction
is the date on which the Company initially recognizes the non–monetary asset or non–monetary liability arising from the
advance consideration. If there are multiple payments or receipts in advance, the Company determines the transaction date
for each payment or receipt of advance consideration.
As of December 31, 2019, the Company did not enter foreign exchange rate derivatives financial instruments. All the Company’s
remaining position in FX plain vanilla forwards matured throughout the first quarter of 2019 (January).
During the year ended December 31, 2018 and 2017, the Company entered into foreign currency forward contracts in
U.S. dollars to hedge approximately, 20% and 9% of its future 12 and 6 months of aircraft rental expenses. A portion of the
Company’s foreign currency forwards position matured throughout the fourth quarter of 2018 (November & December), all
of the Company’s position in foreign currency forward contracts from 2017 matured throughout the second half of the year
(August, September, November and December), therefore there was no outstanding balance as of December 31, 2017.
As of December 31, 2018, the unrealized gains of Ps.14,241, respectively relating to the foreign currency forward contracts
is included in OCI.
For the years ended December 31, 2019, 2018 and 2017, the net gains (loss) on the foreign currency forward contracts were
Ps.4,199, Ps.52,516 and Ps.(11,290), respectively, which were recognized as part of rental expense in the consolidated
statements of operations.
The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s long–term debt
obligations and flight equipment lease agreements with floating interest rates.
The Company’s results are affected by fluctuations in certain benchmark market interest rates due to the impact that such
changes may have on operational lease payments indexed to the London Inter Bank Offered Rate (“LIBOR”).
The Company uses derivative financial instruments to reduce its exposure to fluctuations in market interest rates and accounts
for these instruments as an accounting hedge.
In most cases, when a derivative can be tailored within the terms and it perfectly matches cash flows of a leasing agreement,
it may be designated as a CFH and the effective portion of fair value variations are recorded in equity until the date the cash
flow of the hedged lease payment is recognized in the consolidated statements of operations.
The Irrevocable Trust number CIB/3249, whose trustor is the Company, entered a cap to mitigate the risk due to interest
rate increases on the CEBUR coupon payments. The floating rate coupons reference referring to TIIE 28 are limited under the
cap to 10% on the reference rate for the life of the CEBUR and haves the same amortization schedule. Thus, the cash flows of
the CEBUR are perfectly matched by the hedging instrument. The cap start date was July 19, 2019, and the maturity date is
June 20, 2024; consisting of 59 caplets with the same specifications as the CEBUR coupons for reference rate determination,
coupon term, and fair value.
78
volaris | 2019 Annual Report
At December 31, 2019, the Company’s outstanding hedging contracts in the form of interest rate caps with notional amount
of Ps.1.5 billion had fair value of Ps.2,695 recorded in assets.
During the years ended December 31, 2018 and 2017, the Company did not have any outstanding interest rate derivatives.
Interest–bearing borrowings:
December 31, 2018
Within one year
One to five years
Total
For the years ended December 31, 2017, the reported loss on the interest rate swaps was Ps.13,827, which was recognized as
part of rental expense in the consolidated statements of operations. All the Company’s position in the form of interest rate swaps
matured on March 31 and April 30, 2017 consequently there is no outstanding balance as of December 31, 2018 and 2017.
Pre–delivery payments facilities (Note 5)
Ps.
734,635
Ps.
2,310,939
Ps.
3,045,574
Short–term working capital facilities (Note 5)
461,260
Derivative financial instruments:
Jet fuel Asian Zero–Cost collars options contracts
122,948
–
–
461,260
122,948
d) Liquidity risk
Liquidity risk represents the risk that the Company has insufficient funds to meet its obligations. Because of the cyclical nature
of the business, the operations, and its investment and financing needs related to the acquisition of new aircraft and renewal
of its fleet, the Company requires liquid funds to meet its obligations.
Lease liabilities:
Aircraft, engines, land and buildings leases
Aircraft and engine lease return obligation
4,976,454
10,851
34,588,692
1,820,194
39,565,146
1,831,045
Total
Ps.
6,306,148
Ps.
38,719,825
Ps.
45,025,973
The Company attempts to manage its cash and cash equivalents and its financial assets, relating the term of investments with
those of its obligations. Its policy is that the average term of its investments may not exceed the average term of its obligations.
This cash and cash equivalents position is invested in highly liquid short–term instruments through financial entities.
The Company has future obligations related to maturities of bank borrowings, lease liabilities and derivative contracts. The
Company’s off–balance sheet exposure represents the future obligations related to aircraft purchase contracts. The Company
concluded that it has a low concentration of risk since it has access to alternate sources of funding.
Interest–bearing borrowings:
December 31, 2017
Within one year
One to five years
Total
The table below presents the Company’s contractual principal payments required on its financial liabilities and the derivative
financial instruments fair value:
December 31, 2019
Pre–delivery payments facilities (Note 5)
Ps.
1,449,236
Ps.
1,079,152
Ps.
2,528,388
Short–term working capital facilities (Note 5)
948,354
–
948,354
Lease liabilities:
Aircraft, engines, land and buildings leases
Aircraft and engine lease return obligation
4,213,417
193,187
28,310,287
1,454,790
32,523,704
1,647,977
Within one year
One to five years
Total
Total
Ps.
6,804,194
Ps.
30,844,229
Ps.
37,648,423
Interest–bearing borrowings:
Pre–delivery payments facilities (Note 5)
Ps.
1,855,956
Ps.
1,452,553
Ps.
3,308,509
Short–term working capital facilities (Note 5)
Asset backed trust note (Note 5)
200,000
–
–
1,500,000
200,000
1,500,000
Lease liabilities:
Aircraft, engines, land and buildings leases
Aircraft and engine lease return obligation
4,720,505
383,093
35,796,540
1,469,595
40,517,045
1,852,688
Total
Ps.
7,159,554
Ps.
40,218,688
Ps.
47,378,242
e) Credit risk
Credit risk is the risk that any counterparty will not meet its obligations under a financial instrument or customer contract,
leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily for trade receivables)
and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and
other financial instruments including derivatives.
Financial instruments that expose the Company to credit risk involve mainly cash equivalents and accounts receivable. Credit
risk on cash equivalents relate to amounts invested with major financial institutions.
79
volaris | 2019 Annual Report
Credit risk on accounts receivable relates primarily to amounts receivable from the major international credit card companies.
The Company has a high receivable turnover; hence management believes credit risk is minimal due to the nature of its
businesses, which have a large portion of their sales settled in credit cards.
The fair value of an asset or a liability is assessed using the course of thought which market participants would use when pricing
the asset or liability, assuming that market participants act in their economic best interest.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high
credit–ratings assigned by international credit–rating agencies.
The assessment of a non–financial asset’s fair value considers the market participant’s ability to generate economic benefits by
using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest
and best use.
Some of the outstanding derivative financial instruments expose the Company to credit loss in the event of nonperformance
by the counterparties to the agreements. However, the Company does not expect any of its counterparties to fail to meet their
obligations. The amount of such credit exposure is generally the unrealized gain, if any, in such contracts.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available
to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
To manage credit risk, the Company selects counterparties based on credit assessments, limits overall exposure to any single
counterparty and monitors the market position with each counterparty. The Company does not purchase or hold derivative
financial instruments for trading purposes. At December 31, 2019, the Company concluded that its credit risk related to its
outstanding derivative financial instruments is low, since it has no significant concentration with any single counterparty and
it only enters into derivative financial instruments with banks with high credit–rating assigned by international credit–rating
agencies.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair
value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
•
•
Level 1 – Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly
or indirectly observable.
• Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
f) Capital management
Management believes that the resources available to the Company are enough for its present requirements and will be
sufficient to meet its anticipated requirements for capital expenditures and other cash requirements for the 2019 fiscal year.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether
transfers have occurred between levels in the hierarchy by re–assessing categorization (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end of each reporting period.
The primary objective of the Company’s capital management is to ensure that it maintains healthy capital ratios to support its
business and maximize the shareholder’s value. No changes were made in the objectives, policies or processes for managing
capital during the years ended December 31, 2019, 2018 and 2017. The Company is not subject to any externally imposed capital
requirement, other than the legal reserve (Note 18).
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Set out below, is a comparison by class of the carrying amounts and fair values of the Company’s financial instruments, other
than those for which carrying amounts are reasonable approximations of fair values:
4. FAIR VALUE MEASUREMENTS
The only financial assets and liabilities recognized at fair value on a recurring basis are the derivative financial instruments. Fair
value is the price that would be received from sale of an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either:
In the principal market for the asset or liability, or
(i)
(ii) In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to the Company.
Carrying amount
2019
2018
2017
2019
Fair value
2018
2017
Ps.
136,262
Ps.
62,440
Ps.
497,403
Ps.
136,262
Ps.
62,440
Ps
497,403
Asset
Derivative financial
instruments
Liabilities
Financial debt
(5,008,509)
(3,506,834)
(3,476,742)
(5,194,316)
(3,515,550)
(3,481,741)
Derivative financial
instruments
–
(122,948)
–
–
(122,948)
–
Total
Ps. (4,872,247)
Ps. (3,567,342)
Ps. ( 2,979,339)
Ps. (5,058,054)
Ps. (3,576,058)
Ps. (2,984,338)
80
volaris | 2019 Annual Report
The following table summarizes the fair value measurements at December 31, 2019:
The following table summarizes the fair value measurements at December 31, 2017:
Fair value measurement
Quoted prices in
active markets
Level 1
Significant
observable inputs
Level 2
Significant
unobservable
inputs Level 3
Total
Fair value measurement
Quoted prices in
active markets
Level 1
Significant
observable inputs
Level 2
Significant
unobservable
inputs Level 3
Total
Assets
Derivatives financial instruments:
Assets
Derivatives financial instruments:
Jet fuel Zero–Cost collar options contracts*
Ps.
Interest rate Caps
Liabilities for which fair values are disclosed:
Interest–bearing loans and borrowings**
Net
Ps.
–
–
–
–
Ps.
133,567
Ps.
2,695
(5,194,316)
Ps.
(5,058,054)
Ps.
–
–
–
–
Ps.
133,567
Jet fuel Asian call options contracts*
2,695
Liabilities for which fair values are disclosed:
Interest–bearing loans and borrowings**
(5,194,316)
Net
Ps.
(5,058,054)
Ps.
Ps.
–
–
–
Ps.
497,403
Ps.
(3,481,741)
Ps.
(2,984,338)
Ps.
–
–
–
Ps.
497,403
(3,481,741)
Ps.
(2,984,338)
* Jet fuel forwards levels and LIBOR curve.
** LIBOR curve and TIIE Mexican interbank rate. Includes short–term and long–term debt.
There were no transfers between level 1 and level 2 during the period.
The following table summarizes the fair value measurements at December 31, 2018:
* Jet fuel forwards levels and LIBOR curve.
** LIBOR curve and TIIE Mexican interbank rate. Includes short–term and long–term debt.
There were no transfers between level 1 and level 2 during the period.
The following table summarizes the (loss) gain from derivatives financial instruments recognized in the consolidated statements
of operations for the years ended December 31, 2019, 2018 and 2017:
Fair value measurement
Instrument
Financial statements line
2019
2018
2017
Quoted prices in
active markets
Level 1
Significant
observable inputs
Level 2
Significant
unobservable
inputs Level 3
Total
Assets
Derivatives financial instruments:
Jet fuel Asian call options contracts*
Ps.
Foreign currency forward
Liabilities
Derivatives financial instruments:
Jet fuel Asian Zero–Cost collars options contracts*
Liabilities for which fair values are disclosed:
Interest–bearing loans and borrowings**
Net
Ps.
–
–
–
–
–
Ps.
48,199
Ps.
14,241
(122,948)
(3,515,550)
Ps.
(3,576,058)
Ps.
–
–
–
–
–
Ps.
48,199
14,241
(122,948)
(3,515,550)
Ps.
(3,576,058)
Jet fuel Asian call options
contracts
Jet fuel Zero–Cost collars
contracts
Foreign currency
forward
Interest rate swap
contracts
Interest rate cap
Total
Fuel
Fuel
Aircraft and engine
rent expenses
Aircraft and engine
rent expenses
Finance cost
Ps.
(61,069)
Ps.
402,493
Ps.
(26,980)
(9,477)
4,199
–
(1,282)
–
–
52,516
(11,290)
–
–
(13,827)
–
Ps.
(67,629)
Ps.
455,009
Ps.
(52,097)
The following table summarizes the net gain (loss) on CFH before taxes recognized in the consolidated statements of com-
prehensive income for the years ended December 31, 2019, 2018 and 2017:
* Jet fuel forwards levels and LIBOR curve.
** LIBOR curve and TIIE Mexican interbank rate. Includes short–term and long–term debt.
There were no transfers between level 1 and level 2 during the period.
81
volaris | 2019 Annual Report
Consolidated statements of other comprehensive gain (loss) income
b) Financial debt
Instrument
Jet fuel Asian call options contracts
Jet fuel Zero cost collars
Interest rate swap contracts
Foreign currency contracts
Interest rate cap
Non derivative financial instruments
Total
Financial
statements line
OCI
OCI
OCI
OCI
OCI
OCI
2019
2018
2017
Ps.
11,148
Ps.
(174,984)
Ps.
(54,202)
256,515
–
(14,241)
(4,023)
14,096
(122,948)
–
14,241
–
–
–
14,144
(2,090)
–
–
Ps.
263,495
Ps.
(283,691)
Ps.
(42,148)
The exchange rates used to translate the above amounts to Mexican pesos at December 31, 2019, 2018 and 2017 were
Ps.18.8452, Ps.19.6829 and Ps.19.7354, respectively, per U.S. dollar.
5. FINANCIAL ASSETS AND LIABILITIES
At December 31, 2019, 2018 and 2017, the Company’s financial assets are represented by cash and cash equivalents, trade
and other accounts receivable, accounts receivable with carrying amounts that approximate their fair value.
a) Financial assets
2019
2018
2017
(i) At December 31, 2019, 2018 and 2017, the Company’s short–term and long–term debt consists of the following:
2019
2018
2017
I.
Revolving line of credit with Banco Santander México, S.A.,
Institución de Banca Múltiple, Grupo Financiero Santander
(“Santander”) and Banco Nacional de Comercio Exterior,
S.N.C. (“Bancomext”), in U.S. dollars, to finance pre–delivery
payments, maturing on May 31, 2022, bearing annual interest
rate at the three–month LIBOR plus a spread of 260 basis
points.
II. The Company issued in the Mexico market Asset backed
trust notes (“CEBUR”), in Mexican pesos, maturing on June
20th, 2024 bearing annual interest rate at TIIE 28 days plus
175 basis points.
III. I n December 2016, the Company entered into a short–term
working capital facility with Banco Nacional de México S.A.
(“Citibanamex”) in Mexican pesos, bearing annual interest
rate at TIIE 28 days plus a 90 basis points.
IV. I n December 2019, the Company entered into a short–term
working capital facility with Banco Sabadell S.A., Institución
de Banca Multiple (“Sabadell”) in Mexican pesos, bearing
annual interest rate at TIIE 28 days plus a 120 basis points.
Ps.
3,308,509
Ps.
3,045,574
Ps.
2,528,388
1,459,871
–
–
–
461,260
948,354
200,000
(22,472)
30,061
4,975,969
2,086,017
–
–
16,364
3,523,198
1,212,259
–
–
5,972
3,482,714
2,403,562
Ps.
–
Ps.
48,199
Ps.
497,403
V. Amortized transaction costs
133,567
–
2,695
–
14,241
–
–
–
–
VI. Accrued interest and other financial cost
Ps.
136,262
Ps.
62,440
Ps.
497,403
Less: Short–term maturities
Ps.
Ps.
133,567
2,695
Ps.
Ps.
62,440
–
Ps.
Ps.
497,403
–
TIIE: Mexican interbank rate
Long–term
Ps.
2,889,952
Ps.
2,310,939
Ps.
1,079,152
82
Derivative financial instruments designated as cash flow
hedges (effective portion recognized within OCI)
Jet fuel Asian call options
Jet fuel Zero–Cost collars
Foreign currency forward contracts
Interest rate cap
Total financial assets
Presented on the consolidated statements
of financial position as follows:
Current
Non–current
volaris | 2019 Annual Report
(ii) The following table provides a summary of the Company’s scheduled principal payments of financial debt and accrued
interest at December 31, 2019:
the Company had available credit lines totaling Ps.7,368,346, of which Ps.4,616,861 were related to financial debt and
Ps.2,751,485 were related to letters of credit (Ps.1,739,775 were undrawn).
2020
2021
2022
2023
2024
Total
Santander/Bancomext
Ps.
1,881,676
Ps. 1,428,534
Ps.
24,019
Ps.
–
Ps.
– Ps. 3,334,229
CEBUR
4,341
250,000
500,000
500,000
209,871(1)
1,464,212
Banco Sabadell
200,000
–
–
–
–
200,000
Total
Ps. 2,086,017
Ps. 1,678,534
Ps.
524,019
Ps.
500,000
Ps.
209,871
Ps. 4,998,441
(1) This amount includes the repurchase of asset backed trust notes
iii) Since 2011, the Company has financed the pre–delivery payments with Santander/Bancomext for the acquisition of its
aircraft through a revolving financing facility.
The “Santander/Bancomext” loan agreement provides for certain covenants, including limits to the ability to, among others:
Incur debt above a specified debt basket unless certain financial ratios are met.
i)
ii) Create liens.
iii) Merge with or acquire any other entity without the previous authorization of the Banks.
iv) Dispose of certain assets.
v)
Declare and pay dividends or make any distribution on the Company’s share capital unless certain financial ratios are met.
On June 20, 2019, the Company, through its subsidiary Concesionaria issued 15,000,000 asset backed trust notes under the
ticket VOLARCB 19 for the amount of Ps.1.5 billion Mexican pesos through the Irrevocable Trust number CIB/3249 created by
Concesionaria. The issuance amount is part of a program approved by the Mexican National Banking and Securities Commission
(Comisión Nacional Bancaria y de Valores) for an amount of up to Ps.3.0 billion Mexican pesos.
The notes have a five year maturity annual reductions of Ps.250,000, Ps.500,000, Ps.500,000 and Ps.250,000 in 2021, 2022,
2023 and 2024, respectively, with a floating one–month coupon rate referenced to TIIE 28 plus with a 175 basis point spread.
The notes starts amortizing at the end of the second year.
The asset backed trust notes structure operate on specific rules and provide a DSCR “Debt Service Coverage Ratio” which is
computed by comparing the Mexican Peso collections over the previous six months to the next 6 months of debt service. In
general, there is a found retention event if the ratio is less than 2.5 and or equal to 1.75 times. The amortization of the debt
of the asset backed trust notes begins in July of 2021. In addition, early amortization applies if:
i) The Debt Coverage Ratio is less than 1.75 on any of the determination dates;
ii) A retention event that is not rectified in a period of 90 consecutive days;
iii) The debt service reserve account of the Series of any Series maintains an amount less than the balance required in the
service account of the debt of the Series of that Series on two or more consecutive payment dates. (at the close of business
on that payment dates);
iv) The update of a new insolvency event in relation to the Concesionaria Vuela;
v) Updating a new event of default
At December 31, 2019, 2018 and 2017, the Company was in compliance with the covenants under the above–mentioned
loan agreement.
In December 2019, the Company entered into a short–term working capital facility with Banco Sabadell S.A., Institución
de Banca Multiple (“Sabadell”) in Mexican pesos, bearing annual interest rate at TIIE 28 days plus a 120 basis points. The
“Sabadell” working capital facility has the following covenant:
For purposes of financing the pre–delivery payments, Mexican trusts were created whereby, the Company assigned its
rights and obligations under the Airbus Purchase Agreement with Airbus S.A.S. (“Airbus”), including its obligation to make
pre–delivery payments to the Mexican trusts, and the Company guaranteed the obligations of the Mexican trusts under the
financing agreement (Deutsche Bank Mexico, S.A. Trust 1710 and 1711).
At December 31, 2019, the Company have available credit lines totaling Ps.9,005,008, of which Ps.6,649,358 were related
to financial debt (Ps.1,640,849 were undrawn) and Ps.2,355,650 were related to letters of credit (Ps.86,066 were undrawn).
At December 31, 2018, the Company have available credit lines totaling Ps.6,721,139, of which Ps.4,063,947 were related
to financial debt and Ps.2,657,192 were related to letters of credit (Ps.1,048,241 were undrawn). At December 31, 2017,
i)
Joint obligor (Concesionaria) must represent 85% of EBITDA of the holding
In 2019, we were in compliance with the covenants under the terms and conditions of the asset backed trusted notes and
short–term working capital facilities.
83
volaris | 2019 Annual Report
Current interest–bearing
loans and borrowings
Non–current interest –
bearing loans and
borrowings
Total liabilities from
financing activities
Current interest–bearing
loans and borrowings
Non–current interest –
bearing loans and
borrowings
Total liabilities from
financing activities
Current interest–bearing
loans and borrowings
Non–current interest –
bearing loans and
borrowings
Total liabilities from
financing activities
Changes in liabilities arising from financing activities
c) Other financial liabilities
At December 31, 2019, 2018 and 2017, the changes in liabilities from financing activities from the Company are summarized
in the following table:
January 1,
2019
Net cash
Flows
Accrued
Interest
Foreign
exchange
movement
Current vs
non– current
reclassification
and other
December 31,
2019
Ps.
1,212,259
Ps.
(633,609) Ps.
13,698 Ps.
(41,173) Ps. 1,534,842
Ps. 2,086,017
2,310,939
2,273,143
–
(122,466)
(1,571,664)
2,889,952
Ps. 3,523,198
Ps. 1,639,534 Ps.
13,698 Ps.
(163,639) Ps.
(36,822) Ps. 4,975,969
Derivative financial instruments designated
as CFH (effective portion recognized within OCI):
Zero–Cost Collar options
Total financial liabilities
Presented on the consolidated statements
of financial position as follows:
Current
Non–current
2019
2018
2017
Ps.
Ps.
Ps.
Ps.
–
–
–
–
Ps.
Ps.
Ps.
Ps.
122,948
122,948
122,948
–
Ps.
Ps.
Ps.
Ps.
–
–
–
–
January 1,
2018
Net cash
Flows
Accrued
Interest
Foreign
exchange
movement
Current vs
non– current
reclassification
and other
December 31,
2018
6. CASH AND CASH EQUIVALENTS
An analysis of this caption is as follows:
Ps. 2,403,562
Ps.
(793,363)
Ps.
10,392
Ps.
71,380
Ps.
(479,712)
Ps.
1,212,259
2019
2018
2017
Cash in banks
Ps.
4,612,927
Ps.
1,061,150
Ps.
963,162
1,079,152
808,620
–
(56,945)
480,112
2,310,939
Short–term investments
Ps. 3,482,714
Ps.
15,257
Ps.
10,392
Ps.
14,435
Ps.
400
Ps. 3,523,198
January 1,
2017
Net cash
Flows
Accrued
Interest
Foreign
exchange
movement
Current vs
non– current
reclassification
and other
December 31,
2017
Ps.
1,051,237
Ps.
419,350
Ps.
(130)
Ps.
25,924
Ps.
907,181
Ps. 2,403,562
943,046
1,093,808
–
(50,521)
(907,181)
1,079,152
Ps. 1,994,283
Ps.
1,513,158
Ps.
(130)
Ps.
(24,597)
Ps.
–
Ps. 3,482,714
Cash on hand
Restricted funds held in trust related
to debt service reserves
3,231,125
44,880
4,796,554
5,238
5,982,314
5,403
91,040
–
–
Total cash and cash equivalents
Ps.
7,979,972
Ps.
5,862,942
Ps.
6,950,879
As of December 31, 2019, the Company recorded a portion of advance ticket sales by an amount of Ps.91,040 as a restricted
fund (Note 1 and 6). The restricted funds held in Trust are used to constitute the debt service reserves and cannot be used for
purposes other than those established in the contract of the Trust.
84
volaris | 2019 Annual Report
7. RELATED PARTIES
a) An analysis of balances due from/to related parties at December 31, 2019, 2018 and 2017 is provided below.
All companies are considered affiliates, since the Company’s primary shareholders or directors are also direct or indirect
shareholders of the related parties:
Due from:
Frontier Airlines Inc.
(“Frontier”)
Due to:
One Link, S.A. de C.V.
(“One Link”)
Frontier Airlines Inc.
(“Frontier”)
Aeromantenimiento, S.A.
(“Aeroman”)
Mijares, Angoitia, Cortés y
Fuentes, S.C.
Type of
transaction
Country
of origin
Code–share
USA
2019
2018
2017
Terms
Ps.
Ps.
23,442
23,442
Ps.
Ps.
8,266
8,266
Ps.
Ps.
–
–
Call center fees
El Salvador
Ps.
39,838
Ps.
–
Ps.
24,980
16,246
2,751
–
Code–share
USA
Aircraft and
engine
maintenance
Professional
fees
Mexico/El
Salvador
Mexico
1,474
15,024
15,951
996
–
30 days
–
Ps.
58,554
Ps.
17,775
Ps.
40,931
30 days
30 days
30 days
30 days
b)
During the years ended December 31, 2019, 2018 and 2017, the Company had the following transactions with related parties:
Related party transactions
Country of origin
2019
2018
2017
Frontier started having transactions with the Company in September 2018. During the years ended December 31, 2017 the
Company did not have any revenue transactions with related parties.
As of December 31, 2019, 2018 and 2017, there have been no guarantees provided or received for any related party receivables
or payables. For the years ended December 31, 2019, 2018 and 2017, no provision for expected credit losses had been
recognized.
c) Servprot
Servprot S.A. de C.V. (“Servprot”) is a related party because Enrique Beltranena, the Company’s President and Chief Executive
Officer, and Rodolfo Montemayor, who served as an alternate member of our board of directors until April 19, 2018, are share-
holders of such company. Servprot provides security services for Mr. Beltranena and his family, as well as for Mr. Montemayor.
As of December 31, 2019, 2018 and 2017 Servprot did not have net balance under this agreement. During the years ended
December 31, 2019, 2018 and 2017 the Company expensed Ps.3,120, Ps.2,804 and Ps.1,838, respectively for this concept.
d) Aeroman
Aeroman was a related party until July 24, 2019, because Roberto José Kriete Ávila, former member of the Company’s board
of directors is shareholder of Aeroman. The Company entered into an aircraft repair and maintenance service agreement with
Aeroman on January 1, 2017. This agreement provides that the Company must use Aeroman, exclusively for aircraft repair and
maintenance services, subject to availability. Under this agreement, Aeroman provides inspection, maintenance, repair and
overhaul services for aircraft. The Company makes payments under this agreement depending on the services performed.
This agreement is for a 5 years term. As of December 31, 2019, 2018 and 2017, the balances due under the agreement with
Aeroman were Ps.1,474, Ps.15,024 and Ps.15,951, respectively. The Company incurred expenses in aircraft, engine maintenance
and technical support under this agreement of Ps.207,439, Ps.346,522 and Ps.251,731 for the years ended December 31,
2019, 2018 and 2017, respectively.
e) Human Capital International
Human Capital International HCI, S.A. de C.V. (“Human Capital International”), was a related party until April 19, 2018, because
Rodolfo Montemayor Garza, a former member of the Company’s board of directors, is founder and chairman of the board
of directors of Human Capital International. Human Capital International provided the Company with services regarding the
selection and hiring of executives. As of December 31, 2019, 2018 and 2017, Human Capital International did not have net
balance under this agreement. For the years ended December 31, 2019, 2018 and 2017, the Company recognized an expense
under this agreement of Ps.0, Ps.324 and Ps.816, respectively.
Revenues:
Transactions with affiliates
Frontier Airlines Inc
Code–share
Expenses:
Transactions with affiliates
Aeromantenimiento, S.A.
Aircraft and engine maintenance
Servprot, Human Capital Int.,
Onelink, MACF
Call center fees and
other professional fees
Aeromantenimiento, S.A.
Technical support
USA
Ps.
208,968
Ps.
8,358
Ps.
–
f) OneLink
Mexico/El Salvador
Ps.
201,624
Ps.
341,726
Ps.
249,266
Mexico/El Salvador
41,467
4,800
202,689
Mexico/El Salvador
5,815
4,796
8,088
Onelink, S.A. de C.V. (“Onelink”) was a related party until December 31, 2017, because Marco Baldocchi, a member of the
board, was a director of Onelink. As of October 24, 2019 Onelink, Holdings, S.A. (“Onelink Holdings”) and its subsidiary
Onelink are once again related parties, because Mr. Rodrigo Antonio Escobar Nottebohm, an alternate board member of
Onelink Holdings, became an alternate Director of the Company. Pursuant to this agreement, Onelink received calls from the
customers to book flights and provides customers with information about fares, schedules and availability.
As of December 31, 2019, 2018 and 2017, the account payable under this agreement was Ps.39,838, Ps.0 and Ps.24,980,
respectively. For the years ended December 31, 2019, 2018 and 2017, Company recognized an expense under this agreement
of Ps.37,026, Ps.0 and Ps.200,035, respectively.
85
volaris | 2019 Annual Report
g) SearchForce
SearchForce was a related party because William Dean Donovan, a member of the board, is a director of the Company. Pursuant
to this agreement, SearchForce provided until 2017 consultation services, reports, findings, analysis or other deliverables
to us regarding the software and the implementation of the internet marketing strategy developed to the Company at its
request. As of December 31, 2019, 2018 and 2017, SearchFroce did not have net balance under this agreement. The Company
recognized an expense under this agreement of Ps.0, Ps.0 and Ps.1,946 for the years ended December 31, 2019, 2018 and
2017, respectively.
h) Mijares, Angoitia, Cortés y Fuentes
Mijares, Angoitia, Cortés y Fuentes, S.C. (“MACF”) is a related party because Ricardo Maldonado Yañez and Eugenio Macouzet
de León, member and alternate member, respectively, of the board of the Company since April 2018, are partners of the
Company. As of December 31, 2019, MACF, the balance due under the agreement was Ps.996. As of December 31, 2018,
and 2017, MACF did not have net balance under this agreement. For the year ended December 31, 2019, 2018 and 2017,
the Company expensed Ps.1,321, Ps.1,672 and Ps.0, respectively, for this concept.
i) Frontier
Frontier is a related party because Mr. William A. Franke and Brian H. Franke are members of the board of the Company and
Frontier as well as Indigo Partners have significant investments in both Companies. As of December 31, 2019, and 2018, the
account receivable under this agreement was Ps.23,442 and Ps.8,266, respectively. Additionally, as of December 31, 2019,
and 2018, the account payable under this agreement was Ps.16,246 and Ps.2,751, respectively. For the year ended December
31, 2019 and 2018 the Company recognized revenue under this agreement of Ps.208,968 and Ps.8,358, respectively.
j) Directors and officers
During the year ended December 31, 2019, 2018 and 2017, the chairman and the independent members of the Company’s
board of directors received an aggregate compensation of approximately Ps.8,085, Ps.7,178 and Ps.8,993, respectively, and
the rest of the directors received a compensation of Ps.4,367, Ps.5,217 and Ps.7,834, respectively.
During the years ended December 31, 2019, 2018 and 2017, all the Company’s senior managers received an aggregate
compensation of short and long–term benefits of Ps.237,846, Ps.180,001 and Ps.134,370, respectively, these amounts were
recognized in salaries and benefits in the consolidated statement of operations.
For the years ended December 31, 2019, 2018 and 2017 the cost of the share–based payments transactions (MIP and LTIP)
were Ps.49,659, Ps.19,980 and Ps.13,508, respectively. The cost (benefit) of the cash–settled payments transactions MIP II
and SARs were Ps.40,724, Ps. (5,238) and Ps. (25,498), respectively (Note 17).
The Company has a short–term benefit plan for certain personnel whereby cash bonuses are awarded for meeting certain
Company’s performance target. During the years ended December 31, 2019, 2018 and 2017, the Company recorded a
provision in the amount of Ps.80,634, Ps.50,000 and Ps.0 respectively.
8. OTHER ACCOUNTS RECEIVABLE, NET
An analysis of other accounts receivable at December 31, 2019, 2018 and 2017, is detailed below:
Current:
Credit cards
Other accounts receivable
Other points of sales
Travel agencies and insurance commissions
Affinity credit card
Cargo clients
Airport services
Employees
Benefits from suppliers
Marketing services receivable
Settlement receivable
Insurance claims
Allowance for credit losses
2019
2018
2017
Ps.
389,634
Ps.
96,646
Ps.
189,904
102,002
76,975
49,040
46,600
42,894
29,681
26,989
7,024
2,422
143
963,308
(40,308)
101,487
71,054
39,806
55,172
41,408
9,991
27,274
68,946
7,999
–
–
519,783
(11,304)
191,322
117,582
54,719
27,925
40,517
34,655
5,898
8,878
–
13,435
–
1,345
496,276
(17,809)
Ps.
923,000
Ps.
508,479
Ps.
478,467
86
volaris | 2019 Annual Report
Accounts receivable have the following aging:
Days
0–30
31–60
61–90
91–120
2019
Impaired
2019
Not impaired
Total
2019
2018
Impaired
2018
Not impaired
Total
2018
2017
Impaired
2017
Not impaired
Total
2017
Ps.
5,804
Ps.
722,651
Ps.
728,455
Ps.
8,725
Ps.
388,644
Ps.
397,369
Ps.
16,962
Ps.
415,847
Ps.
432,809
–
–
34,504
40,308
Ps.
64,983
19,274
116,092
64,983
19,274
150,596
Ps.
923,000
Ps.
963,308
Ps.
–
–
2,579
11,304
69,648
27,138
23,049
69,648
27,138
25,628
–
–
847
38,705
17,918
5,997
38,705
17,918
6,844
Ps.
508,479
Ps.
519,783
Ps.
17,809
Ps.
478,467
Ps.
496,276
The movement in the allowance for credit losses from January 1, 2017 to December 31, 2019 is as follows:
10. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Balance as of January 1, 2017
Write–offs
Increase in allowance
Balance as of December 31, 2017
Write–offs
Increase in allowance
Balance as of December 31, 2018
Write–offs
Increase in allowance
Balance as of December 31, 2019
9.
INVENTORIES
Ps.
Ps.
(19,317)
6,228
(4,720)
(17,809)
17,126
(10,621)
(11,304)
11,389
(40,393)
(40,308)
An analysis of prepaid expenses and other current assets at December 31, 2019, 2018 and 2017 is as follows:
2019
2018
2017
Advances to suppliers
Ps.
283,340
Ps.
198,174
Ps.
Advances to components suppliers
Other prepaid expenses
Prepaid insurance
Sales commission to travel agencies (Note 1d)
Advances for constructions of aircraft and engines
209,557
115,054
88,941
84,239
–
67,446
40,655
76,896
59,620
–
87,536
220,095
56,146
68,712
54,501
13,764
Ps.
781,131
Ps.
442,791
Ps.
500,754
11. GUARANTEE DEPOSITS
An analysis of this caption at December 31, 2019, 2018 and 2017 is as follows:
An analysis of inventories at December 31, 2019, 2018 and 2017 is as follows:
2019
2018
2017
Current asset:
2019
2018
2017
Spare parts and accessories of flight equipment
Ps.
294,390
Ps.
289,737
Ps.
285,185
Miscellaneous supplies
7,518
7,534
9,665
Ps.
301,908
Ps.
297,271
Ps.
294,850
The inventory items are consumed during or used mainly in delivery of in–flight services and for maintenance services by the
Company and are valued at the lower of cost or replacement value. During the years ended as of December 31, 2019, 2018
and 2017, the amount of consumption of inventories, recorded as an operating expense as part of maintenance expense was
Ps.284,687, Ps.290,206 and Ps.242,265, respectively.
Aircraft maintenance deposits paid to lessors (Note 1j)
Ps.
576,505
Ps.
729,899
Ps.
1,317,663
Deposits for rental of flight equipment
Other guarantee deposits
Non–current asset:
Aircraft maintenance deposits paid to lessors (Note 1j)
Deposits for rental of flight equipment
Other guarantee deposits
–
23,822
600,327
5,853,924
1,750,966
39,531
7,644,421
8,244,748
Ps.
1,220
59,516
790,635
5,765,122
531,261
41,113
6,337,496
Ps.
7,128,131
Ps.
17,178
18,052
1,352,893
5,631,304
441,110
25,838
6,098,252
7,451,145
87
volaris | 2019 Annual Report
12. ROTABLE SPARE PARTS, FURNITURE AND EQUIPMENT, NET
At December
31, 2019
Gross value
At December
31, 2018
Accumulated depreciation and impairment
Net carrying value
At December
31, 2017
At December
31, 2019
At December
31, 2018
At December
31, 2017
At December
31, 2019
At December
31, 2018
At December
31, 2017
Leasehold improvements to flight equipment
Ps.
4,220,672
Ps.
3,424,778
Ps.
2,575,495
Ps.
(2,679,884)
Ps.
(2,210,189)
Ps.
(1,882,996)
Ps.
1,540,788
Ps.
1,214,589
Ps.
692,499
Pre–delivery payments
Flight equipment
Construction and improvements in process
Constructions and improvements
Computer equipment
Workshop tools
Electric power equipment
Communications equipment
Workshop machinery and equipment
Motorized transport equipment platform
Service carts on board
Office furniture and equipment
Allowance for obsolescence
4,507,770
1,287,102
474,240
172,460
47,566
26,875
20,412
14,099
16,301
15,026
7,675
70,709
(3,000)
3,672,090
2,783,303
–
–
–
4,507,770
3,672,090
2,783,303
932,642
142,738
132,446
44,563
23,454
15,438
12,305
9,530
5,496
5,403
66,546
–
830,145
193,607
131,503
30,113
20,500
15,439
11,229
8,405
5,587
5,403
44,749
–
(553,852)
(268,320)
(199,223)
–
(131,510)
(34,495)
(22,023)
(11,400)
(8,322)
(6,092)
(5,392)
(5,554)
–
(117,211)
(28,016)
(20,085)
(10,316)
(7,394)
(5,049)
(5,050)
(5,277)
–
(106,335)
(20,790)
(18,229)
(9,185)
(6,502)
(4,345)
(4,701)
(5,021)
(34,049)
(28,240)
(22,454)
–
–
–
733,250
474,240
40,950
13,071
4,852
9,012
5,777
10,209
9,634
2,121
36,660
(3,000)
664,322
142,738
15,235
16,547
3,369
5,122
4,911
4,481
446
126
38,306
–
630,922
193,607
25,168
9,323
2,271
6,254
4,727
4,060
886
382
22,295
–
Total
Ps.
10,877,907
Ps.
8,487,429
Ps.
6,655,478
Ps.
(3,492,573)
Ps.
(2,705,147)
Ps.
(2,279,781)
Ps.
7,385,334
Ps.
5,782,282
Ps.
4,375,697
*
During the years ended December 31, 2019, 2018 and 2017, the Company capitalized borrowing costs of Ps.456,313, Ps.357,920 and Ps.193,389, respectively. The amount of this line is net of disposals of capitalized borrowing costs related to sale and leaseback transactions of Ps.328,571,
Ps.242,678 and Ps.110,274, respectively.
88
volaris | 2019 Annual Report
Flight
equipment
Constructions
and
improvements
Computer
equipment
Office
furniture and
equipment
Electric
power
equipment
Workshop
Tools
Motorized
transport
equipment
platform
Communications
equipment
Workshop
machinery
and
equipment
Service
carts on
board
Allowance for
obsolescence
Pre–delivery
payments
Construction
and
improvements
in process
Leasehold
improvements
to flight
equipment
Total
Net book amount as of
December 31, 2016
Additions
Disposals and transfers
Borrowing costs, net*
Other movements
Depreciation
Net book amount as of
December 31, 2017
Additions
Disposals and transfers
Borrowing costs, net*
Other movements
Depreciation
Ps.
577,498 Ps.
35,013 Ps.
7,200 Ps.
17,657 Ps.
6,928 Ps.
4,585 Ps.
1,357 Ps.
3,555 Ps.
3,618 Ps.
758 Ps.
115,558
(930)
–
–
–
–
–
1,845
6,805
–
–
(15)
–
–
–
–
10,371
4,087
1,649
620
(61,204)
(20,216)
(3,809)
(3,801)
(1,294)
–
–
–
–
(2,314)
2,271
–
–
–
–
(471)
–
–
–
1,968
(796)
123
–
–
1,041
(722)
886
4,727
4,060
–
–
–
–
(376)
382
As of December 31, 2017
630,922
25,168
9,323
22,295
6,254
Cost
830,145
131,503
30,113
44,749
15,439
20,500
5,587
11,229
8,405
5,403
Accumulated depreciation
(199,223)
(106,335)
(20,790)
(22,454)
(9,185)
(18,229)
(4,701)
(6,502)
(4,345)
(5,021)
630,922
25,168
9,323
22,295
6,254
2,271
886
4,727
4,060
382
366,371
(261,866)
–
–
689
5,316
652
–
–
–
–
–
–
67
9,123
21,568
–
–
–
–
(71,105)
(10,689)
(7,215)
(6,209)
(1,132)
2,673
–
–
281
(1,856)
–
–
–
42
(482)
446
1,050
1,040
–
–
(2)
–
26
110
(892)
4,911
(727)
4,481
–
–
–
–
(256)
126
As of December 31, 2018
664,322
15,235
16,547
38,306
5,122
3,369
Cost
932,642
132,446
44,563
66,546
15,438
23,454
5,496
12,305
9,530
5,403
Accumulated depreciation
(268,320)
(117,211)
(28,016)
(28,240)
(10,316)
(20,085)
(5,050)
(7,394)
(5,049)
(5,277)
Net book amount as of
December 31, 2018
664,322
15,235
16,547
38,306
5,122
3,369
446
4,911
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Ps. 1,206,330 Ps.
255,374 Ps.
405,135 Ps. 2,525,008
1,707,805
206,932
545,164
2,584,232
(213,947)
(3,555)
(101,224)
(319,671)
83,115
–
–
(265,144)
244,712
83,115
(696)
–
(401,288)
(496,291)
2,783,303
193,607
692,499
4,375,697
2,783,303
193,607
2,575,495
6,655,478
–
–
(1,882,996)
(2,279,781)
2,783,303
193,607
692,499
4,375,697
1,485,643
142,703
687,260
2,693,397
(712,098)
115,242
(89)
–
–
–
(974,055)
115,242
–
–
(193,483)
162,023
(243)
–
(327,193)
(427,756)
3,672,090
142,738
1,214,589
5,782,282
3,672,090
142,738
3,424,778
8,487,429
–
–
(2,210,189)
(2,705,147)
3,672,090
142,738
1,214,589
5,782,282
(704,852)
(3,957)
127,742
–
–
–
(1,247,357)
127,742
(287)
–
–
–
–
Additions
692,186
5,596
1,730
1,461
2,487
3,137
2,273
(3,000)
1,412,790
525,556
661,954
3,310,803
Disposals and transfers
(538,370)
Borrowing costs, net*
Other movements
Depreciation
–
–
–
–
(131)
–
(10)
–
–
–
–
–
34,840
1,999
2,757
2,487
284
9,529
1,446
2,529
(190,097)
133,939
(84,888)
(14,721)
(7,074)
(5,854)
(1,084)
(1,938)
(341)
(933)
(1,044)
–
(469,694)
(587,849)
–
–
–
355
(2)
–
4,481
4,278
(35)
–
As of December 31, 2019
733,250
40,950
13,071
36,660
9,012
4,852
9,634
5,777
10,209
Cost
1,287,102
172,460
47,566
70,709
20,412
26,875
15,026
14,099
16,301
(3,000)
4,507,770
474,240
1,540,788
7,385,334
(3,000)
4,507,770
474,240
4,220,672
10,877,907
Accumulated depreciation
(553,852)
(131,510)
(34,495)
(34,049)
(11,400)
(22,023)
(5,392)
(8,322)
(6,092)
(5,554)
–
–
–
(2,679,884)
(3,492,573)
Net book amount as of
December 31, 2019
Ps.
733,250 Ps.
40,950 Ps.
13,071
Ps.
36,660 Ps.
9,012 Ps.
4,852 Ps.
9,634 Ps.
5,777 Ps.
10,209 Ps.
2,121
Ps.(3,000) Ps. 4,507,770 Ps.
474,240 Ps. 1,540,788 Ps. 7,385,334
89
126
–
–
–
(278)
2,121
7,675
volaris | 2019 Annual Report
a)
b)
Depreciation expense for the years ended December 31, 2019, 2018 and 2017, was Ps.587,849, Ps.427,756 and Ps.496,291,
respectively. Depreciation charges for the year are recognized as a component of operating expenses in the consolidated
statements of operations.
In October 2005 and December 2006, the Company entered into purchase agreements with Airbus and International Aero
Engines AG (“IAE”) for the purchase of aircraft and engines, respectively. Under such agreements and prior to the delivery of
each aircraft and engine, the Company agreed to make pre–delivery payments, which were calculated based on the reference
price of each aircraft and engine, and following a formula established for such purpose in the agreements.
In 2011, the Company amended the agreement with Airbus for the purchase of 44 A320 family aircraft to be delivered from
2015 to 2020. The new order includes 14 A320CEO (“Current Engine Option Aircraft”) and 30 A320NEO. Additionally,
during December 2017, the Company amended the agreement with Airbus for the purchase of 80 A320 family aircraft to be
delivered from 2022 to 2026. The new order includes 46 A320NEO and 34 A321NEO. Under such agreement and prior to
the delivery of each aircraft, the Company agreed to make pre–delivery payments, which shall be calculated based on the
reference price of each aircraft, and following a formula established for such purpose in the agreement.
In November 2018, the Company amended the agreement with Airbus to reschedule the remaining 26 fleet deliveries between
2019 and 2022. Also, in this amendment Volaris used its rights on the Airbus Purchase Agreement to convert six A320NEO
into A321NEO.
On August 16, 2013, the Company entered into certain agreements with IAE and United Technologies Corporation Pratt &
Whitney Division (“P&W”), which included the purchase of the engines for 14 A320CEO and 30 A320NEO respectively, to be
delivered between 2014 and 2022. This agreement also included the purchase of one spare engine for the A320CEO fleet
(which was received during the fourth quarter of 2016) and six spare engines for the A320NEO fleet to be received from 2017
to 2022. In November 2015, the Company amended the agreement with the engine supplier to provide major maintenance
services for the engines of sixteen aircrafts (10 A320NEO and 6 A321NEO). This agreement also includes the purchase of
three spare engines, two of them for the A320NEO fleet, and one for the A321NEO fleet.
The Company received credit notes from P&W in December 2017 of Ps.58,530 (US$3.06 million), which are being amortized
on a straight–line basis, prospectively during the term of the agreement. As of December 31, 2018, and 2017, the Company
amortized a corresponding benefit from these credit notes of Ps.4,878 and Ps.1,219, respectively, which is recognized as an
offset to maintenance expenses in the consolidated statements of operations.
During the years ended December 31, 2019, 2018 and 2017, the amounts paid for aircraft and spare engine pre–delivery payments
were of Ps.1,412,790 (US$75.0 million), Ps.1,485,643 (US$77.1 million) and Ps.1,707,805 (US$90.0 million), respectively.
The current purchase agreement with Airbus requires the Company to accept delivery of 103 Airbus A320 family aircraft during
the following six years (from January 2020 to November 2026). The agreement provides for the addition of 103 Aircraft to
its fleet as follows: eight in 2020, thirteen in 2021, thirteen in 2022, sixteen in 2023, thirteen in 2024, fifteen in 2025 and
twenty–five in 2026.
Commitments to acquisitions of property and equipment are disclosed in Note 23.
During the years ended December 31, 2019, 2018 and 2017 the Company entered into aircraft and spare engines sale and
leaseback transactions, resulting in a gain of Ps.284,759, Ps.609,168 and Ps.65,886, respectively, that was recorded under
the caption other income in the consolidated statement of operations, only the amount of gains that relates to the rights
transferred to the buyer–lessor. The rest of the gains are amortized under the lease term (Note 20).
c)
During December 2017, the Company entered into an updated total support agreement with Lufthansa for 66 months, with
an effective date on July 1, 2018. This agreement includes similar terms and conditions as the original agreement.
As part of this agreement, the Company received credit notes of Ps.28,110 (US$1.5 million), which are being amortized on
a straight–line basis, prospectively during the term of the agreement. As of December 31, 2019, and 2018, the Company
amortized a corresponding benefit from these credit notes of Ps.5,230 and Ps.7,191, respectively, recognized as an offset to
maintenance expenses in the consolidated statements of operations.
d)
On September 5, 2019, the Company acquired one previously leased A319 aircraft from the lessor, which was accounted for
a cost for a total amount of Ps. 392,076 (US$19,600). This transaction did not generate any gain or loses in our consolidated
statements of operations.
The Company identified the major components as separate parts at their respective cost. These major components of the
aircraft are presented as part of the aircraft and depreciated over their useful life.
During the month of December, the Company sold the recently acquire aircraft engines in by a sale and lease back transaction.
As of December 31, 2019, the carry amount of the remaining owned aircraft and the depreciation was Ps.54,771 and Ps.1,787,
respectively.
90
volaris | 2019 Annual Report 13. INTANGIBLE ASSETS, NET
The composition and movement of intangible assets is as follows:
Useful
life
years
Gross value
Accumulated amortization
At December 31,
Net carrying amount
2019
2018
2017
2019
2018
2017
2019
2018
2017
Software
1 – 4
Ps.
579,360
Ps.
503,467
Ps.
441,803
Ps.
(411,963)
Ps.
(324,343)
Ps.
(251,383)
Ps.
167,397
Ps.
179,124
Ps.
190,420
Balance as of January 1, 2017
Ps.
Additions
Disposals
Amortization
Exchange differences
Balance as of December 31, 2017
Additions
Disposals
Amortization
Exchange differences
Balance as of December 31, 2018
Additions
Disposals
Amortization
Exchange differences
Balance as of December 31, 2019
Ps.
114,041
130,908
(1,976)
(52,396)
(157)
190,420
71,007
(9,368)
(72,885)
(50)
179,124
77,325
–
(87,667)
(1,385)
167,397
Software amortization expense for the years ended December 31, 2019, 2018 and 2017 was Ps.87,667, Ps.72,885 and Ps.52,396,
respectively. These amounts were recognized in depreciation and amortization in the consolidated statements of operations.
14. LEASES
The most significant leases are as follows:
a)
Aircraft and engine represent the Company´s most significant lease agreements. At December 31, 2019, the Company leases
81 aircraft (77 and 71 as of December 31, 2018 and 2017, respectively) and 14 spare engines under operating leases (10 and
eighth as of December 31, 2018 and 2017, respectively) that have maximum terms through 2033. These leases are generally
guaranteed by either deposit in cash or letters of credits.
Composition of the fleet and spare engines, leases*:
Aircraft
Type
A319
A319
A320
A320
A320NEO
A321
A321NEO
Model
132
133
233
232
271N
231
271N
At December
31, 2019
At December
31, 2018
At December
31, 2017
3
4
39
2
17
10
6
81
4
4
39
4
12
10
4
77
6
6
39
4
6
10
–
71
91
volaris | 2019 Annual Report
Engine spare
Type
V2500
V2500
V2500
V2500
PW1100
PW1100
Model
V2524–A5
V2527M–A5
V2527E–A5
V2527–A5
PW1127G–JM
PW1133G–JM
At December
31, 2019
At December
31, 2018
At December
31, 2017
2
3
3
2
3
1
14
–
3
3
2
2
–
10
–
3
3
2
–
–
8
* Certain of the Company’s aircraft and engine lease agreements include an option to extend the lease term period. Terms and conditions
are subject to market conditions at the time of renewal.
During the year ended December 31, 2019, the Company added seven new leased aircraft to its fleet (three A320 NEO´s
acquired through sale and leaseback transactions under our existing Airbus purchase agreement and four obtained directly
from the lessor´s). Also, the Company extended the lease term of one spare engine (effective from 2019) and returned two
aircraft to their respective lessors. All the aircraft incorporated through the lessor´s aircraft order book was not subject to sale
and leaseback transactions.
During the year ended December 31, 2019, the Company also leased two NEO spare engines (based on the terms of the Pratt
and Whitney purchase agreement FMP) and two CEO spare engines to its fleet. These four engines incorporated were subject
to sale and leaseback transactions and their respective lease agreements were accounted as leases. Additionally, during 2019
the Company extended the lease term of one spare engine (effective from November 2019).
During the year ended December 31, 2018, the Company added ten new leased aircraft to its fleet (acquired three A320
NEO’s through sale leaseback transactions under our existing Airbus purchase agreement and seven obtained directly from
the lessors). Also, the Company extended the lease term of Aircraft (effective from 2019) and two spare engines (effective
from February and April 2018), and returned four aircraft to their respective lessors.
During the year ended December 31, 2018, the Company also added two NEO spare engines to its fleet based on the terms
of the Pratt and Whitney purchase agreement (FMP). These two engines incorporated were subject to sale and leaseback
transactions.
During the year ended December 31, 2017, the Company added five aircraft to its fleet (acquired one A320 NEO’s through
sale leaseback transactions under our existing Airbus purchase agreement and four obtained directly from the lessors). Also,
the Company returned three aircraft to their respective lessors. All the aircraft incorporated through the lessor´s aircraft order
book were not subject to sale and leaseback transactions. Additionally, during 2017 the Company extended the lease term of
three aircraft (effective from 2018) and two spare engines (effective from July 2017 and September 2017, respectively). Such
leases were not subject to sale and leaseback transactions.
Set out below are the carrying amounts of right–of–use assets recognized and the movements during the period:
Aircraft
leases
Spare engine
leases
Land and building
leases
Total
As at 1 January 2017 (adjusted)
Ps.
23,047,879
Ps.
220,554
Ps.
231,648
Ps.
23,500,081
Additions
Depreciation on right of use assets
As at 31 December 2017 (adjusted)
Additions
Depreciation on right of use assets
As at 31 December 2018 (adjusted)
Additions
Depreciation on right of use assets
4,665,330
(3,306,249)
24,406,960
10,585,188
(3,865,979)
31,126,169
6,676,492
(4,490,572)
157,225
(77,750)
300,029
387,480
(107,813)
579,696
230,200
(132,698)
9,149
(53,904)
186,893
59,194
(69,899)
176,188
42,992
(79,701)
4,831,704
(3,437,903)
24,893,882
11,031,862
(4,043,691)
31,882,053
6,949,684
(4,702,971)
As at 31 December 2019
Ps.
33,312,089
Ps.
677,198
Ps.
139,479
Ps.
34,128,766
Set out below are the carrying amounts of lease liabilities and the movements during the period:
As at 1 January
Additions
Accretion of interest
Foreign exchange effect
Payments
As at 31 December
Current
Non–current
2019
2018 (Adjusted)
2017 (Adjusted)
Ps.
39,565,146
Ps.
32,523,704
Ps.
32,711,793
7,186,613
2,037,540
(1,772,452)
(6,499,802)
11,038,578
1,683,330
30,441
(5,710,907)
4,897,420
1,381,680
(1,434,291)
(5,032,898)
Ps.
40,517,045
Ps.
39,565,146
Ps.
32,523,704
4,720,505
35,796,540
4,976,454
34,588,692
4,213,417
28,310,287
The following are the amounts recognized in profit or loss:
As of December 31,
2019
As of December 31,
2018 (Adjusted)
As of December 31,
2017 (Adjusted)
Depreciation of right–of–use assets
Ps.
(4,702,971)
Ps.
(4,043,691)
Ps.
(3,437,903)
Interest expense on lease liabilities
Aircraft and engine variable expenses
(2,128,162)
(961,657)
(1,755,978)
(956,010)
(1,428,924)
(1,429,595)
Total amount recognized in profit or loss
Ps.
(7,792,790)
Ps.
(6,755,679)
Ps.
(6,296,422)
The Company had total cash outflows for leases of Ps.6,499,802 in 2019 (Ps.5,710,907 in 2018 and Ps.5,032,898 in 2017).
92
volaris | 2019 Annual Report
i)
Return obligations
b) Accrued liabilities long–term at December 31, 2019, 2018 and 2017 is as follows:
The aircraft lease agreements of the Company also require that the aircraft and engines be returned to lessors under specific
conditions of maintenance. The costs of return, which in no case are related to scheduled major maintenance, are estimated
and recognized ratably as a provision from the time it becomes likely such costs will be incurred and can be estimated reliably.
These return costs are recognized on a straight–line basis as a component of supplemental rent and the provision is included
as part of other liabilities, through the remaining lease term.
Supplier services agreement
Benefits from suppliers
Other
The Company estimates the provision related to airframe, engine overhaul and limited life parts using certain assumptions
including the projected usage of the aircraft and the expected costs of maintenance tasks to be performed. For the years
ended December 31, 2019, 2018 and 2017, the Company expensed as supplemental rent Ps.680,964, Ps.659,106 and
Ps.851,410, respectively.
c) An analysis of other liabilities is as follows:
2019
2018
2017
Ps.
55,905
Ps.
66,539
Ps.
77,174
19,439
15,452
–
8,964
Ps.
90,796
Ps.
75,503
Ps.
–
15,274
92,448
15. ACCRUED LIABILITIES
a)
An analysis of accrued liabilities short – term at December 31, 2019, 2018 and 2017 is as follows:
Fuel and traffic accrued expenses
Ps.
1,507,659
Ps.
1,315,363
Ps.
1,106,913
2019
2018
2017
Maintenance and aircraft parts accrued expenses
Sales, marketing and distribution accrued expenses
Maintenance deposits
Salaries and benefits
Accrued administrative expenses
Deferred revenue from V Club membership
Information and communication accrued expenses
Supplier services agreement
Benefits from suppliers
Advances from travel agencies
Others
120,254
230,935
132,085
296,829
81,124
35,465
67,808
10,634
–
542
48,526
79,280
283,538
141,371
187,072
67,306
59,557
45,008
10,634
–
482
77,985
194,366
143,758
132,519
114,781
90,459
76,261
44,638
10,634
1,473
650
51,474
Ps.
2,531,861
Ps.
2,267,596
Ps.
1,967,926
Balance as of
January 1,
2019
Increase for
the year
Payments
Balance as of
December 31,
2019
Aircraft and engine lease return obligation
Ps.
1,831,045
Ps.
725,506
Ps.
703,863
Ps.
1,852,688
Employee profit sharing (Note 16)
14,984
22,134
13,021
24,097
Ps.
1,846,029
Ps.
747,640
Ps.
716,884
Ps.
1,876,785
Short–term maturities
Long–term
Ps.
407,190
Ps.
1,469,595
Balance as of
January 1,
2018
Increase for
the year
Payments
Balance as of
December 31,
2018
Aircraft and engine lease return
obligation (Adjusted)
Ps.
1,647,977
Ps.
1,015,391
Ps.
832,323
Ps.
1,831,045
Employee profit sharing (Note 16)
9,063
14,106
8,185
14,984
Ps.
1,657,040
Ps.
1,029,497
Ps.
840,508
Ps.
1,846,029
Short–term maturities
Long–term
Ps.
25,835
Ps.
1,820,194
93
volaris | 2019 Annual Report
Balance as of
January 1,
2017
Increase for
the year
Payments
Balance as of
December 31,
2017
Aircraft and engine lease return
obligation (Adjusted)
Ps.
1,408,039
Ps.
1,099,597
Ps.
859,659
Ps.
1,647,977
Employee profit sharing (Note 16)
10,695
8,342
9,974
9,063
Ps.
1,418,734
Ps.
1,107,939
Ps.
869,633
Ps.
1,657,040
Short–term maturities
Long–term
Ps.
202,250
Ps.
1,454,790
During the years ended December 31, 2019, 2018 and 2017 no cancellations or write–offs related to these liabilities were
recorded.
16. EMPLOYEE BENEFITS
The components of net period cost recognized in the consolidated statement of operations and the obligations for seniority
premium for the years ended December 31, 2019, 2018 and 2017, are as follows:
The significant assumptions used in the computation of the seniority premium obligations are shown below:
Financial:
Discount rate
Expected rate of salary increases
Annual increase in minimum salary
Biometric:
Mortality (1)
Disability (2)
2019
7.18%
5.50%
4.00%
2018
9.91%
5.65%
4.15%
2017
7.72%
5.50%
4.00%
EMSSA 09, CEPAL* 2010
EL SALVADOR, CEPAL*
2010 COSTA RICA
EMSSA 09
EMSSA 09
IMSS–97
IMSS–97
IMSS–97
(1)
(2)
Mexican Experience of social security (EMSSA), Economic Commission for Latin America and the Caribbean (CEPAL for its Spanish
acronym).
Mexican Experience of Instituto Mexicano del Seguro Social (IMSS).
Accruals for short–term employee benefits at December 31, 2019, 2018 and 2017, respectively, are as follows:
Analysis of net period cost:
Current service cost
Interest cost on benefit obligation
Net period cost
2019
2018
2017
Ps.
Ps.
Ps.
8,214
1,872
Ps.
4,977
1,424
10,086
Ps.
6,401
Ps.
3,657
1,000
4,657
Employee profit–sharing (Note 15c)
Ps.
24,097
Ps.
14,984
Ps.
9,063
2019
2018
2017
The key management personnel of the Company include the members of the Board of Directors (Note 7).
Changes in the defined benefit obligation are as follows:
Defined benefit obligation at January 1,
Ps.
18,153
Ps.
19,289
Ps.
13,438
2019
2018
2017
Net period cost charged to profit or loss:
Current service cost
Interest cost on benefit obligation
Remeasurement losses in other comprehensive income:
Actuarial changes arising from changes in assumptions
Payments made
8,214
1,872
10,192
(225)
4,977
1,424
(5,989)
(1,548)
3,657
1,000
1,776
(582)
Defined benefit obligation at December 31,
Ps.
38,206
Ps.
18,153
Ps.
19,289
94
volaris | 2019 Annual Report
17. SHARE–BASED PAYMENTS
a) LTRP
On November 6, 2014, the shareholders of the Company and the shareholders of its subsidiary Servicios Corporativos,
approved an amendment to the current LTRP for the benefit of certain key employees, based on the recommendations of the
Board of Directors of the Company at its meetings held on July 24 and August 29, 2014. For such purposes on November 10,
2014 an irrevocable Administrative Trust was created by Servicios Corporativos and the key employees. The new plan was
restructured and named LTIP, which consists of a share purchase plan (equity–settled transaction) and SARs plan (cash settled).
On October 18, 2018, the Board of Directors of the Company approved a new long–term retention plan LTRP for certain
executives of the Company, through which the beneficiaries of the plan, will receive shares of the Company once the service
conditions are met. This plan does not include cash compensations granted through appreciation rights on the Company’s
shares. The retention plans granted in previous periods under LTRP will continue in full force and effect until their respective
due dates and the cash compensation derived from them will be settled according to the conditions established in each plan.
b) LTIP
– Share purchase plan (equity–settled)
Under the share purchase plan (equity– settled), in November 2014 certain key employees of the Company were granted with
a special bonus by an amount of Ps.10,831, to be used to purchase Company’s shares. The plan consisted in:
(i) Servicios Corporativos granted a bonus to each key executive;
(ii) The bonus amount by Ps.7,059, net of withheld taxes, was transferred on November 11, 2014, as per the written instructions
of each key employees, to the Administrative Trust for the acquisition of Series A shares of the Company through an
intermediary authorized by the BMV based on the Administration Trust’s Technical Committee instructions;
(iii) Subject to specified terms and conditions set forth in the Administrative Trust, the acquired shares were in escrow under
the Administrative Trust for its administration until the vesting period date for each key executive, date as of which the key
executive can fully dispose of the shares and instruct as desired.
(iv) The share purchase plan provides that if the terms and conditions are not met by the vesting period date, then the shares
would be sold in the BMV, and Servicios Corporativos would be entitled to receive the proceeds of the sale of shares.
(v) The key employees’ account balance will be tracked by the Administrative Trust. The Administrative Trust’s objectives are
to acquire Series A shares on behalf of the key employees and to manage the shares granted to such key executive based
on instructions set forth by the Technical Committee.
As the Administrative Trust is controlled and therefore consolidated by Controladora, shares purchased in the market and
held within the Administrative Trust are presented for accounting purposes as treasury stock in the consolidated statement
of changes in equity.
In November 2019, 2018 and 2017, the extensions to the LTIP were approved by the Company’s shareholder’s and Company’s
Board of Directors, respectively. The total cost of the extensions approved were Ps.86,772 (Ps.56,407 net of withheld taxes),
Ps.63,961 (Ps.41,590 net of withheld taxes), Ps.15,765 (Ps.10,108 net of withheld taxes), respectively. Under the terms of the
incentive plan, certain key employees of the Company were granted a special bonus that was transferred to the Administrative
Trust for the acquisition of Series A shares of the Company.
As of December 31, 2019, 2018 and 2017, the number of shares into the Administrative Trust associated with the Company’s
share purchase payment plans is as follows:
Outstanding as of January 1st, 2017
Purchased during the year
Granted during the year
Exercised/vested during the year
Forfeited during the year
Outstanding as of December 31, 2017
Purchased during the year
Granted during the year
Exercised/vested during the year
Forfeited during the year
Outstanding as of December 31, 2018
Purchased during the year
Granted during the year
Exercised/vested during the year
Forfeited during the year
Outstanding as of December 31, 2019
Number of Series A shares
618,048 *
547,310
–
(345,270)
–
820,088 *
3,208,115
–
(353,457)
(121,451)
3,553,295 *
2,694,600
–
(959,614)
(173,090)
5,115,191 *
* These shares are presented as treasury shares in the consolidated statement of financial position as of December 31, 2019, 2018 and 2017.
The vesting period of the shares granted under the Company’s share purchase plans is as follows:
Number of Series A shares
2,211,269
2,005,716
898,206
5,115,191
Vesting period
November 2019 – 2020
November 2020 – 2021
November 2021 – 2022
In accordance with IFRS 2, the share purchase plans are classified as equity–settled transactions on the grant date. This valuation
is the result of multiplying the total number of Series A shares deposited in the Administrative Trust and the price per share,
plus the balance in cash deposited in the Administrative Trust.
95
volaris | 2019 Annual Report
For the years ended December 31, 2019, 2018 and 2017, the compensation expense recorded in the consolidated statement
of operations amounted to Ps.49,659, Ps.19,980 and Ps.13,508, respectively. All shares held in the Administrative Trust are
considered outstanding for both basic and diluted (loss) earnings per share purposes, since the shares are entitled to dividend
if and when declared by the Company.
c) MIP
– MIP I
During 2019 and 2018, some key employees left the Company; therefore, the vesting conditions were not fulfilled. In accordance
with the terms of the plan, Servicios Corporativos is entitled to receive the proceeds of the sale of such shares, the number
of forfeited shares as of December 31, 2019 and 2018, were (173,090) and (121,451), respectively.
– SARs (cash settled)
On November 6, 2014, the Company granted 4,315,264 SARs to key employees that entitle them to a cash payment and vest
as long as the employee continues to be employed by the Company at the end of each anniversary, during a 3 years period.
The total amount of the appreciation rights granted under this plan at the grant date was Ps.10,831 at such date.
Under the LTIP extensions, the number of SARs granted to certain key executives of the Company were Ps.0, Ps.0 and 3,965,351,
which amounts to Ps.0, Ps.0 and Ps.15,765, for the years ended December 31, 2019, 2018 and 2017, respectively. The SARs
vest as long as the employee continues to be employed by the Company at the end of each anniversary, during a three
years period.
Fair value of the SARs is measured at each reporting date. The carrying amount of the liability relating to the SARs as of
December 31, 2019, 2018 and 2017 were Ps.1,901, Ps.537 and Ps.723, respectively.
The compensation cost is recognized in the consolidated statement of operations under the caption of salaries and benefits
over the service period. During the years ended December 31, 2019, 2018 and 2017, the Company recorded a expense
(benefit) of Ps.2,964, Ps.(186) and Ps.(8,999), respectively, in the consolidated statement of operations.
The fair value of these SARs is estimated at the grant date and at each reporting date using the Black–Scholes option pricing
model, taking into account the terms and conditions on which the SARs were granted (vesting schedule in tables below).
Number of SARs
725,193
725,193*
Exercisable date
November 2020
In April 2012, the Board of Directors authorized a MIP for the benefit of certain key employees, subject to shareholders’ approval.
On December 21, 2012, the shareholders approved the MIP consisting of: (i) the issuance of an aggregate of 25,164,126 Series
A and Series B shares, representing 3.0% of the Company’s fully diluted capital stock; (ii) a grant of options to acquire shares
of the Company or CPOs having shares as underlying securities for which, as long as certain conditions occur, the employees
will have the right to request the delivery of those shares (iii) the creation of an Administrative Trust to deposit such shares in
escrow until they are delivered to the officers or returned to the Company in the case that certain conditions do not occur;
and (iv) the execution of share sale agreements setting forth the terms and conditions upon which the officers may exercise
its shares at Ps.5.31 (five Mexican pesos 31/100) per share.
On December 24, 2012, the Administrative Trust was created and the share sale agreements were executed. On December
27, 2012, the trust borrowed Ps.133,723 from the Company and immediately after; the trust paid the Company the same
amount borrowed as purchase price for the shares.
The share sale agreements provide that the officers may pay for the shares at the same price upon the occurrence of either
an initial public offering of the Company’s capital stock or a change of control and as long as they remain employees until
the options are exercised, with a maximum term of ten years. Upon payment of the shares by the officers to the Management
Trust, it must pay such amount back to the Company as repayment of the loan, for which the Company charges no interest.
The MIP has been classified as equity–settled, by which, the grant date, fair value is fixed and is not adjusted by subsequent
changes in the fair value of capital instruments. Equity–settled transactions are measured at fair value at the date the equity
benefits are conditionally granted to employees. The total cost of the MIP determined by the Company was Ps.2,722 to be
recognized from the time it becomes probable the performance condition will be met over the vesting period. Total cost
of the MIP related to the vested shares has been fully recognized in the consolidated statements of operations during the
vesting years.
This cost was determined by using the improved Binomial valuation model from Hull and White, on the date in which the
plan had already been approved by the shareholders and a shared understanding of the terms and conditions of the plan was
reached with the employees (December 24, 2012, defined as the grant date), with the following assumptions:
* Includes forfeited SARs of 32,616, 484,656 and 145,769 for the years ended December 31, 2019, 2018 and 2017, respectively.
During the years ended December 31, 2019, 2018 and 2017, the Company made a cash payment to key employees related
to the SARs plan in the amount of Ps.2,395, Ps.0 and Ps.6,021, respectively.
Such payments were determined based on the increase in the share price of the Company from the grant date to the exercisable
date.
Dividend yield (%)
Volatility (%)
Risk–free interest rate (%)
Expected life of share options (years)
Exercise share price (in Mexican pesos Ps.)
Exercise multiple
Fair value of the stock at grant date
2012
0.00%
37.00%
5.96%
8.8
5.31
1.1
1.73
96
volaris | 2019 Annual Report The expected volatility reflects the assumption that the historical volatility of comparable companies is indicative of future
trends, which may not necessarily be the actual outcome.
– MIP II
Under the methodology followed by the Company, at the grant date and December 31, 2012, the granted shares had no
positive intrinsic value.
In 2019, 2018 and 2017, the key employees exercised 2,780,000, 2,003,876 and 120,000 Series A shares. As a result, the
key employees paid to the Management Trust Ps.14,773, Ps.10,654 and Ps.638 corresponding to the exercised shares for
the years ended December 31, 2019, 2018 and 2017, respectively.
Thereafter, the Company received from the Management Trust the payment related to the exercised shares by the key employees
as a repayment of the loan between the Company and the Management Trust.
Movements in share options
The following table illustrates the number of shares options and fixed exercise prices during the year:
On February 19, 2016, the Board of Directors of the Company authorized an extension to the MIP for certain key employees.
Such extension was modified as of November 6, 2016. Under MIP II, 13,536,960 share appreciation rights of our Series A shares
were granted to be settled annually in cash in a period of five years in accordance with the established service conditions. In
addition, a five–year extension to the period in which the employees can exercise MIP II once the SARs are vested was approved.
Fair value of the SARs is measured at each reporting period using a Black–Scholes option pricing model, taking into consideration
the terms and conditions granted to the employees. The amount of the cash payment is determined based on the increase in
our share price between the grant date and the settlement date.
The carrying amount of the liability relating to the SARs as of December 31, 2019, 2018 and 2017 was Ps.70,567, Ps.32,807
and Ps.37,858, respectively. The compensation cost is recognized in the consolidated statement of operations under the
caption of salaries and benefits over the service period.
During the years ended December 31, 2019, 2018 and 2017, the Company recorded a (benefit) expense of Ps.37,760, Ps.
(5,052) and Ps. (16,499), respectively, in the consolidated statement of operations. No SARs were exercised during 2018.
Number of share
options
Exercise price
in Mexican pesos
Total in
thousands of Mexican
pesos
The vesting schedule is summarized in the table below:
Outstanding as of December 31, 2016
12,557,857
Ps.
5.31
Ps.
66,733
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding as of December 31, 2017
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding as of December 31, 2018
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding as of December 31, 2019
–
–
(120,000)
12,437,857
Ps.
–
–
(2,003,876)
10,433,981
Ps.
–
–
(2,780,000)
7,653,981
Ps.
–
–
5.31
5.31
–
–
5.31
5.31
–
–
5.31
5.31
–
–
(638)
Ps.
66,095
–
–
(10,654)
55,441
–
–
(14,773)
40,668
Ps.
Ps.
At December 31, 2019, 2018 and 2017, 7,653,981, 10,433,981 and 12,437,857 share options pending to exercise were
considered as treasury shares, respectively.
Number of SARs
2,825,840
3,391,020
6,216,860*
Vesting date
February 2020
February 2021
* Includes forfeited SARs of 0, 1,563,520 and 0, for the years ended December 31, 2019, 2018 and 2017, respectively.
The expense (benefit) recognized for the Company’s retention plans during the year is shown in the following table:
2019
2018
2017
(Benefit) expense arising from cash–settled share–based
payments transactions
Expense arising from equity–settled share–based
payments transactions
Total expense (benefit) arising from share–based
payments transactions
Ps.
40,724
Ps.
(5,238)
Ps.
(25,498)
49,659
19,980
13,508
Ps.
90,383
Ps.
14,742
Ps.
(11,990)
97
volaris | 2019 Annual Report
d) Board of Directors Incentive Plan (BoDIP)
As of December 31, 2018, the total number of the Company’s authorized shares was 1,011,876,677; represented by common
registered shares, issued and with no par value, fully subscribed and paid, comprised as follows:
Certain members of the Board of Directors of the Company receive additional benefits through a share–based plan, which has
been classified as an equity–settled share–based payment and therefore accounted under IFRS 2 “Shared based payments”.
In April 2018, the Board of Directors of the Company authorized a Board of Directors Incentive Plan “BoDIP”, for the benefit
of certain board members. The BoDIP grants options to acquire shares of the Company or CPOs during a four years period
with an exercise price share at Ps.16.80, Ps.16.12 and Ps.26.29 for the years ended 2019, 2018 and 2017, respectively, which
was determined on the grant date. Under this plan, no service or performance conditions are required to the board members
for exercise the option to acquire shares, and therefore, they have the right to request the delivery of those shares at the time
they pay for them.
Series A shares (1)
Series B shares (1)
Treasury shares (Note 17)
Shares
Fixed Class I
Variable Class II
Total shares
10,478
13,702
24,180
–
24,180
923,814,326
923,824,804
88,038,171
88,051,873
1,011,852,497
1,011,876,677
(15,212,365)
(15,212,365) *
996,640,132
996,664,312
For such purposes on August 29, 2018 the Trust Agreement number CIB/3081 was created by Controladora Vuela, Compañia
de Aviación S.A.B de C.V as trustee and CIBanco, S.A., Institucion de Banco Multiple as trustor. The number of shares hold
as of December 31, 2019 available to be exercised is 2,072,344.
18. EQUITY
* The number of forfeited shares as of December 31, 2018 were 121,451, which are include in treasury shares.
(1)
On February 16, 2018, one of the Company´s shareholders converted 45,968,598 Series B Shares for the equivalent number of Series
A Shares. This conversion has no impact either on the total number of outstanding shares nor on the earnings–per–share calculation.
As of December 31, 2019, the total number of the Company’s authorized shares was 1,011,876,677; represented by common
registered shares, issued and with no par value, fully subscribed and paid, comprised as follows:
As of December 31, 2017, the total number of the Company’s authorized shares was 1,011,876,677; represented by common
registered shares, issued and with no par value, fully subscribed and paid, comprised as follows:
Series A shares (1)
Series B shares (1)
Treasury shares (Note 17)
Shares
Fixed Class I
Variable Class II
Total shares
10,478
13,702
24,180
–
24,180
923,814,326
923,824,804
88,038,171
88,051,873
1,011,852,497
1,011,876,677
(15,136,057)
(15,136,057)*
996,716,440
996,740,620
Series A shares
Series B shares
Treasury shares (Note 17)
* The number of forfeited shares as of December 31, 2019 were 294,541, which are include in treasury shares.
Shares
Fixed Class I
Variable Class II
Total shares
3,224
20,956
24,180
–
24,180
877,852,982
133,999,515
877,856,206
134,020,471
1,011,852,497
1,011,876,677
(13,257,945)
(13,257,945)
998,594,552
998,618,732
98
volaris | 2019 Annual Report
All shares representing the Company’s capital stock, either Series A shares or Series B shares, grant the holders the same
economic rights and there are no preferences and/or restrictions attaching to any class of shares on the distribution of dividends
and the repayment of capital. Holders of the Company’s Series A common stock and Series B common stock are entitled to
dividends when, and if, declared by a shareholders’ resolution. The Company’s revolving line of credit with Santander and
Bancomext limits the Company’s ability to declare and pay dividends in the event that the Company fails to comply with the
payment terms thereunder. Only Series A shares from the Company are listed.
During the years ended December 31, 2019, 2018 and 2017, the Company did not declare any dividends.
a) Earnings (loss) per share
Basic earnings (loss) per share (“EPS or LPS”) amounts are calculated by dividing the net income (loss) for the year attributable
to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
b)
In accordance with the Mexican Corporations Act, the Company is required to allocate at least 5% of the net income of each
year to increase the legal reserve. This practice must be continued until the legal reserve reaches 20% of capital stock. As of
December 31, 2019, 2018 and 2017, the Company’s legal reserve was Ps.291,178 or 9.8% our capital stock.
At an ordinary general shareholders’ meeting held on April 19, 2017 the shareholders approved to increase legal reserve in
the amount of Ps.252,928. As of December 31, 2019, 2018 and 2017 the Company’s legal reserve has not reached the 20%
of its capital stock.
c)
Any distribution of earnings in excess of the net tax profit account (Cuenta de utilidad fiscal neta or “CUFIN”) balance will be
subject to corporate income tax, payable by the Company, at the enacted income tax rate at that time. A 10% withholding tax is
imposed on dividends distributions to individuals and foreign shareholders from earnings generated starting January 1, 2014.
Diluted EPS or LPS amounts are calculated by dividing the profit (loss) attributable to ordinary equity holders of the parent
(after adjusting for interest on the convertible preference shares, if any), by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all
the dilutive potential ordinary shares into ordinary shares (to the extent that their effect is dilutive).
d) Shareholders may contribute certain amounts for future increases in capital stock, either in the fixed or variable capital. Said
contributions will be kept in a special account until the shareholders meeting authorizes an increase in the capital stock of the
Company, at which time each shareholder will have a preferential right to subscribe and pay the increase with the contributions
previously made. As it is not strictly regulated in Mexican law, the shareholders meeting may agree to return the contributions
to the shareholders or even set a term in which the increase in the capital stock has to be authorized.
The following table shows the calculations of the basic and diluted earnings (loss) per share for the years ended December
31, 2019, 2018 and 2017.
19. INCOME TAX
Net income (loss) for the period
Ps.
2,639,063
Ps.
(942,882)
Ps.
278,671
At December 31,
2019
2018 (Adjusted)
2017 (Adjusted)
Weighted average number of shares
outstanding (in thousands):
Basic
Diluted
EPS – LPS:
Basic
Diluted
1,011,877
1,011,877
2.608
2.608
1,011,877
1,011,877
(0.932)
(0.932)
1,011,877
1,011,877
0.275
0.275
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and
the date of authorization of these financial statements.
a)
In accordance with the MITL, the Company and its Mexican subsidiaries are subject to income tax and each files its tax returns
on an individual entity basis and the related tax results are included in the accompanying consolidated financial statements.
The income tax is computed taking into consideration the taxable and deductible effects of inflation, such as depreciation
calculated on Adjusted assets values. Taxable income is increased or reduced by the effects of inflation on certain monetary
assets and liabilities through the annual inflation adjustment.
(i) Based on the approved law, corporate income tax rate for 2019 and thereafter is 30%.
(ii) The tax rules include limits in the deductions of the exempt compensation amount certain items, as follows: Wages and
benefits paid to workers 47% of income paid to workers and in certain cases up to 53% (holiday bonus, savings fund,
employee profit sharing, seniority premiums) will be deductible for employers. As a result, certain wage and salary provisions
have difference between tax and book values at year–end.
(iii) The MITL sets forth criteria and limits for applying some deductions, such as: the deduction of payments which, in turn,
are exempt income for workers, contributions for creating or increasing provisions for pension funds, contributions to
the Mexican Institute of Social Security payable by the worker that are paid by the employer, as well as the possible
non–deduction of payments made to related parties in the event of failing to meet certain requirements.
99
volaris | 2019 Annual Report
(iv) Taxable income for purposes of the employee profit sharing is the same used for the Corporate Income Tax except for
certain items.
d)
A reconciliation of the statutory corporate income tax rate to the Company’s effective tax rate for financial reporting purposes
is as follows:
(v) A 10% withholding tax is imposed on dividends distributions to individuals and foreign shareholders from earnings
generated starting January 1, 2014.
The income tax rates for 2019, 2018 and 2017 in Guatemala, Costa Rica and El Salvador are 25%, 30%, and 30% respectively.
b)
For the years ended December 31, 2019, 2018 and 2017, the Company reported on a consolidated basis taxable income of
Ps.938,304, Ps.777,513 and Ps.171,046, respectively, which was partially offset by tax losses from prior years.
In accordance with the MITL and Costa Rican Income Tax Law (CRITL), tax losses may be carried forward against taxable income
generated in the succeeding ten and three years, respectively. Carryforward tax losses are Adjusted based on inflation.
c) An analysis of consolidated income tax expense for the years ended December 31, 2019, 2018 and 2017 is as follows:
Consolidated statements of operations
Statutory income tax rate
Non–deductible expenses
Unrecorded deferred taxes on tax losses
Foreign countries difference with Mexican statutory rate
Inflation of tax losses
Amendment tax return effects and other tax adjustments
Inflation on furniture, intangible and equipment
Annual inflation adjustment
2019
30.00%
0.19%
0.27%
0.11%
(0.21%)
(0.51%)
(0.48%)
(0.05%)
29.32%
2018
30.00%
(2.51%)
(3.96%)
(0.02%)
1.16%
0.05%
2.08%
0.26%
27.06%
2017
30.00%
5.71%
21.31%
0.48%
(2.20%)
3.78%
(7.19%)
(5.87%)
46.02%
Current year income tax expense
Ps.
(281,491)
Ps.
(232,824)
Ps.
(51,313)
Deferred income tax (expense) benefit
(813,340) (1)
582,644
(2)
(186,273) (3)
Total income tax (expense) benefit
Ps.
(1,094,831)
Ps.
349,820
Ps.
(237,586)
2019
2018
2017
(1)
(2)
(3)
Includes translation effect by Ps.(2,278)
Includes translation effect by Ps.2,680
Includes translation effect by Ps.936
Consolidated statements of comprehensive income
Deferred tax related to items recognized in OCI
during the year
2019
2018
2017
Mexican income tax matters
For Mexican purposes, corporate income tax is computed on accrued basis. MITL requires taxable profit to be determined
by considering revenue net of tax deductions. Prior years’ tax losses can be utilized to offset current year taxable income.
Income tax is determined by applying the 30% rate on the net amount after tax losses utilization.
For tax purposes, income is considered taxable at the earlier of: (i) the time the revenue is collected, (ii) the service is provided
or (iii) the time of the issuance of the invoice. Expenses are deductible for tax purposes generally on accrual basis, with some
exceptions, once the requirements established in the tax law are fulfilled.
Central America (Guatemala, Costa Rica and El Salvador)
According to Guatemala Corporate Income tax law, under the regime on profits from business activities, net operating losses
cannot offset taxable income in prior or future years. For the year ended December 31, 2019 and 2018, the Company obtained
a net operating (loss) income of Ps.(1,085) and Ps.8,549, respectively.
According to Costa Rica Corporate Income tax law, under the regime on profits from business activities, net operating losses
can offset taxable income in a term of three years. For the years ended December 31, 2019, 2018 and 2017, the Company
generated net operating losses for an amount of Ps.50,246, Ps.170,731 and Ps.300,613, respectively, for which no deferred
tax asset has been recognized.
Net (loss) gain on cash flow hedges
Ps.
(74,820)
Ps.
85,107
Ps.
Remeasurement gain (loss) of employee benefits
3,058
(1,797)
12,017
533
According to El Salvador Corporate Income tax law, under the regime on profits from business activities, net operating losses
cannot offset taxable income in prior or future years. For the year ended December 31, 2019, the Company obtained a net
operating loss of Ps.32,494.
Deferred tax charged to OCI
Ps.
(71,762)
Ps.
83,310
Ps.
12,550
100
volaris | 2019 Annual Report
e) An analysis of consolidated deferred taxes is as follows:
Reflected in the consolidated statement of financial position as follows:
2019
2018
2017
Consolidated
statement of fi-
nancial position
Consolidated
statement of
operations
Consolidated
statement of
financial position
Consolidated
statement of
operations
Consolidated
statement of
financial position
Consolidated
statement of
operations
Adjusted
Adjusted
Deferred tax assets
Deferred tax liabilities
Deferred tax assets, net
2019
2018
2017
Ps.
1,542,536
Ps.
3,392,240
Ps.
3,222,228
(156,139)
(1,123,020)
(1,616,282)
Ps.
1,386,397
Ps.
2,269,220
Ps.
1,605,946
Deferred income tax assets:
Lease liability
Ps. 12,155,114
Ps.
313,137
Ps. 11,841,977
Ps. 2,108,422
Ps. 9,733,555
Ps.
(59,235)
A reconciliation of deferred tax asset, net is as follows:
Unearned transportation revenue
797,063
61,708
735,355
699,414
459,343
446,849
351,345
(137,639)
596,982
(13,741)
460,590
60,655
290,690
82,421
(2,621)
(4,175)
35,941
514,562
463,211
294,865
(29,814)
113,443
(18,415)
(48,439)
303,970
(5,350)
309,320
(33,759)
343,079
309,758
14,089
11,463
7,227
4,229
(38,865)
9,187
2,958
2,734
4,229
4,902
5,446
4,493
–
–
35,956
(2,422)
1,456
1,777
–
–
7,324
5,786
2,716
–
(49,151)
433
1,222
(490)
–
–
14,511,827
297,878
14,285,711
2,850,513
11,351,888
268,463
Extension lease agreement
Intangible
Provisions
Tax losses available for offsetting
against future taxable income
Allowance for doubtful accounts
Employee benefits
Employee profit sharing
Non derivative financial
instruments
Financial instruments
Deferred income tax liabilities:
Right of use asset
10,236,929
672,311
9,564,618
2,096,458
7,468,160
Supplemental rent
1,706,949
111,430
1,595,519
32,156
1,563,363
354,352
223,753
Rotable spare parts, furniture
and equipment, net
Prepaid expenses and other
assets
Inventories
Other prepayments
884,476
239,452
645,024
168,107
476,917
108,890
179,061
90,287
27,728
88,683
1,392
(4,329)
90,378
88,895
32,057
(25,686)
116,064
(239,586)
726
(1,212)
88,169
33,269
15,286
(7,023)
13,125,430
1,108,939
12,016,491
2,270,549
9,745,942
455,672
Ps. 1,386,397
Ps.
(811,061)
Ps. 2,269,220
Ps.
579,964
Ps. 1,605,946
Ps.
(187,209)
2019
2018
2017
Opening balance as of January 1,
Ps.
2,269,220
Ps.
1,605,946
Ps.
1,780,605
Deferred income tax (expense) benefit during the current
year recorded on profits
Deferred income tax (expense)benefit during the current
year recorded in accumulated other comprehensive
income (loss)
(811,061)
579,964
(187,209)
(71,762)
83,310
12,550
Closing balance as of December 31,
Ps.
1,386,397
Ps.
2,269,220
Ps.
1,605,946
At December 31, 2019, 2018 and 2017, the table shown above includes deferred income tax asset recognized by Concesionaria
and Operaciones Volaris (2018), Comercializadora (2017) for tax losses carry–forwards to the extent that the realization of the
related tax benefit through future taxable profits is probable. The Company offsets tax assets and liabilities if and only if it has
a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax
liabilities relate to income taxes levied by the same tax authority.
According to IAS 12, Income Taxes, a deferred tax asset should be recognized for the carry–forward of available tax losses to
the extent that it is probable that future taxable income will be available against which the available tax losses can be utilized.
In these regards, the Company has recognized at December 31, 2019, 2018 and 2017 a deferred tax asset for tax losses of
Ps.303,970, Ps.309,320 and Ps.343,079, respectively.
During 2017, the Company recognized a deferred tax asset for the carry–forward of available tax losses of Concesionaria,
Comercializadora and Operaciones Volaris, based on the positive evidence of the Company to generate taxable profit related
to the same taxation authority against which the available tax losses can be utilized before they expire. Positive evidence
includes Concesionaria’s actions to increase its aircraft fleet in the following years, increase in flight frequencies, and routes,
inside and outside of Mexico; the profit of Comercializadora and Operaciones Volaris, respectively, is derived directly from
Concesionaria’s operations.
101
volaris | 2019 Annual Report
An analysis of the available tax losses carry–forward of the Company at December 31, 2019 is as follows:
20. OTHER OPERATING INCOME AND EXPENSES
Historical
loss
Adjusted
tax loss
Utilized
Total remaining
amount
Year
of expiration
An analysis of other operating income is as follows:
Ps.
26,658
Ps.
26,658
Ps.
26,658
Ps.
–
228,413
1,068,498
170,049
3,192
50,246
4,922
228,413
1,176,068
170,049
3,299
50,246
5,028
88,752
218,110
–
3,299
–
–
139,661
957,958
170,049
–
50,246
5,028
Ps.
1,551,978
Ps.
1,659,761
Ps.
336,819
Ps.
1,322,942
2019
2020
2027
2021
2028
2024
2029
A breakdown of available tax loss carry–forward of Controladora and its subsidiaries at December 31, 2019 is as follows:
Historical
loss
Adjusted
tax loss
Utilized
Total
remaining amount
Comercializadora
Ps.
4,922
Ps.
5,028
Ps.
–
Ps.
5,028
1,067,836
3,853
475,367
1,175,351
4,016
475,366
217,393
4,016
115,410
957,958
–
359,956
Ps.
1,551,978
Ps.
1,659,761
Ps.
336,819
Ps.
1,322,942
Year
of loss
2016
2017
2017
2018
2018
2019
2019
Concesionaria
Operaciones Volaris
Vuela Aviación
Unrecognized NOLs
Tax rate
Deferred income tax
f) At December 31, 2019 the Company had the following tax balances:
Adjusted contributed capital account
(Cuenta de capital de aportación or “CUCA”)
CUFIN*
2019
Ps.
4,028,022
3,847,209
* The calculation comprises all the subsidiaries of the Company.
Gain on sale and leaseback
Ps.
284,759
Ps.
609,168
Ps.
65,886
2019
2018
2017
Loss on sale of rotable spare parts furniture
and equipment
Administrative benefits
Other income
(8,954)
–
51,403
(2,356)
–
15,161
Ps.
327,208
Ps.
621,973
Ps.
(908)
27,180
4,607
96,765
An analysis of other operating expenses is as follows:
Administrative and operational support expenses
Ps.
581,181
Ps.
536,079
Ps.
539,101
2019
2018
2017
Technology and communications
Passenger services
Insurance
Others
381,055
65,477
74,661
10,553
385,841
70,337
60,892
5,949
373,394
59,261
54,569
7,933
Ps.
1,112,927
Ps.
1,059,098
Ps.
1,034,258
(309,710)
Ps.
1,013,232
30%
Ps.
303,970
21. FINANCE INCOME AND COST
An analysis of finance income is as follows:
Interest on cash and equivalents
Ps.
201,191
Ps.
152,437
Ps.
105,151
Interest on asset backed trust notes
Interest on recovery of guarantee deposits
6,525
83
–
166
–
644
Ps.
207,799
Ps.
152,603
Ps.
105,795
2019
2018
2017
102
volaris | 2019 Annual Report
An analysis of finance cost is as follows:
23. COMMITMENTS AND CONTINGENCIES
2019
2018
2017
Aircraft related commitments and financing arrangements
Leases financial cost
Ps.
2,128,162
Ps.
1,755,978
Ps.
1,428,924
Interest on asset backed trust notes
Cost of letter credit notes
Bank fees and others
Interest on debts and borrowings*
Other finance costs
80,314
49,856
3,607
1,660
6,230
–
57,277
6,141
56,916
–
–
42,294
5,279
37,565
1,219
Ps.
2,269,829
Ps.
1,876,312
Ps.
1,515,281
*
The borrowing costs related to the acquisition or construction of qualifying assets are capitalized as part of the cost of the asset (Note
12). Interest expense not capitalized is related to the short–term working capital facility from Citibanamex.
Committed expenditures for aircraft purchase and related flight equipment related to the Airbus purchase agreement, including
estimated amounts for contractual prices escalations and pre–delivery payments, will be as follows:
Commitment expenditures
in U.S. dollars
Commitment expenditures
equivalent in Mexican pesos (1)
US$
2020
2021
2022
2023
2024 and thereafter
Ps.
141,218
164,856
606,842
793,967
2,688,321
US$
4,395,204
Ps.
2,661,281
3,106,744
11,436,059
14,962,467
50,661,947
82,828,498
Interest on debts and borrowings
Ps.
457,973
Ps.
414,836
Ps.
230,954
(1) Using the exchange rate as of December 31, 2019 of Ps.18.8452.
2019
2018
2017
Capitalized interest (Note 12)
(456,313)
(357,920)
(193,389)
Net interest on debts and borrowing in the consolidated
statements of operations
Ps.
1,660
Ps.
56,916
Ps.
37,565
22. COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
An analysis of the other comprehensive income for the years ended December 31, 2019, 2018 and 2017 is as follows:
2019
2018
2017
Derivative financial instruments:
Reclassification of call options and forwards during
the year to profit or loss (Note 4)
Extrinsic value of changes on jet fuel Asian call options
Extrinsic value of changes on jet fuel Zero cost collars
(Loss) gain of the matured foreign currency forward
contracts
Gain of the not–yet matured interest rate swap contracts
Loss of the interest rate Cap
Non derivative financial instruments
Ps.
–
Ps.
(455,009)
Ps.
11,148
256,515
(14,241)
–
(4,023)
14,096
227,509
(122,948)
52,097
(81,182)
–
66,757
(13,380)
–
–
–
317
–
–
All aircraft acquired by the Company through the Airbus purchase agreement through December 31, 2019 have been executed
through sale and leaseback transactions.
In addition, we have commitments to execute sale and leaseback over the next three years. The estimated proceeds from
these commitments are as follows:
2020
2021
2022
Aircraft sale prices estimated
in U.S. dollars
in Mexican pesos
US$
Ps.
396,470
691,940
102,400
US$
1,190,810
Ps.
7,471,556
13,039,748
1,929,748
22,441,052
Total
Ps.
263,495
Ps.
(283,691)
Ps.
(42,148)
103
volaris | 2019 Annual Report
The future lease payments for these non–cancellable sale and leaseback contracts are as follows:
25. SUBSEQUENT EVENTS
Aircraft leases
in U.S. dollars
in Mexican pesos
US$
2020
2021
2022
2023
2024 and thereafter
Ps.
20,847
57,190
86,025
88,259
806,786
US$
1,059,107
Ps.
392,866
1,077,757
1,621,158
1,663,259
15,204,044
19,959,084
Litigation
The Company is a party to legal proceedings and claims that arise during the ordinary course of business. The Company
believes the ultimate outcome of these matters will not have a material adverse effect on the Company’s financial position,
results of operations, or cash flows.
24. OPERATING SEGMENTS
The Company is managed as a single business unit that provides air transportation services. The Company has two geographic
segments identified below:
Operating revenues:
Domestic (Mexico)
International:
2019
2018
2017
Ps.
24,594,797
Ps.
18,493,476
Ps.
17,272,946
United States of America and Central America*
Non–derivative financial instruments
10,230,824
(72,949)
8,811,674
7,515,240
–
–
Total operating revenues
Ps.
34,752,672
Ps.
27,305,150
Ps.
24,788,186
* United States of America represents approximately 29%, 31% and 29% of total revenues from external customers in 2019, 2018 and
2017, respectively.
Revenues are allocated by geographic segments based upon the origin of each flight. The Company does not have material
non–current assets located in foreign countries.
Subsequent to December 31, 2019 and through April 27, 2020:
a)
On February 21, 2020, the Mexican federal government through the Mexican Communications and Transportation Ministry
granted to the Company, through its subsidiary Concesionaria Vuela Compañía de Aviación, S.A.P.I. de C.V. the renewal of the
Concession to provide air transportation services for passengers, cargo and mail throughout Mexico and abroad, contained
in the Title TAN–OR–VCV, for a period of twenty (20) years starting from May 9, 2020.
b) Subsequent to the closing date of the financial statements as of December 31, 2019, there has been a significant variation in
the exchange rate from Ps.18.8452 to Ps.24.6230 per dollar to April 27, 2020 which represent a depreciation of 30.7% of
the Mexican Peso.
c)
The ongoing outbreak of COVID–19 was first reported on December 31, 2019 in Wuhan, Hubei Province, China. From Wuhan,
the disease spread rapidly to other parts of China as well as other countries, including Mexico and the United States, growing
into a global pandemic. Since the outbreak began, countries have responded by taking various measures including imposing
quarantines and medical screenings, restricting travel, limiting public gatherings and suspending certain activities. The
Company decreased capacity as measured by available seat miles (ASMs) for the month of April 2020 by approximately 80%
of total operation versus the originally published schedule, due to the negative effects of COVID–19, declared a pandemic by
the World Health Organization, and related governmental travel restrictions, which have significantly reduced the demand
for global air transportation.
On April 21, 2020, the General Health Council (GHG) announced that Mexico is in “Phase 3” of the spread of the COVID–19,
the most serious stage, as transmission of the virus is intensifying. Mexico has extended governmental restrictions to contain
the COVID–19 until May 30, 2020 and plans to begin easing up restrictions from June 1, 2020 onwards if the current measures
are successful. As result, Volaris will carry out a capacity reduction for the month of May 2020 of approximately 90% versus
the originally scheduled capacity.
d)
The Company has taken actions to preserve liquidity and sustain its operations during the period, establishing supplier’s
payment deferral agreements, reducing management´s and operational staff compensations under temporary and voluntary
leave of absence, deferring and cutting capital expenditures to the minimum and non–essential operational expenses and
other certain measures, while the operations are significantly reduced as a result of the COVID–19, pandemic.
104
volaris | 2019 Annual Report
CONTACT
HEADQUARTER OFFICES
Av. Antonio Dovalí Jaime No. 70
13th, Tower B
Zedec Santa Fe
Zip Code 01210, Mexico City
INVESTOR RELATIONS
María Elena Rodríguez & Andrea González
+5255 52616444
ir@volaris.com