These weeks are a journalist’s dream as airlines worldwide publish their financial reports for the third quarter of 2020. We can analyze the downturns of airlines due to the COVID-19 pandemic. In Mexico, one airline has had predominantly good news due to its V-shaped recovery, Volaris.
The ultra-low-cost carrier has massively increased its market share, both domestically and internationally, becoming the number one airline in Mexico. It has also avoided massive furloughs and has maintained its fleet size, even up-gauging into the future. Now, let’s analyze into detail the financial numbers of Volaris.
Volaris in the third quarter
Volaris had a net loss during the three quarters of 2020. Despite that, its net loss had remained stable, unlike many other carriers worldwide that saw deep losses during the second quarter, when the COVID-19 pandemic was at its height.
The first quarter is traditionally the low season, the hunger games (as Volaris CFO, Holger Blankenstein said), for Mexican airlines. During the second quarter, the Mexican aviation industry hit bottom. Still, operationally, Volaris remained as the top player in the region, even when it reduced its capacity by more than 80% at one point. According to the airline, the losses remained pretty similar in the third quarter if it wasn’t for a one-time charge of 746 million pesos ($35 million).
Likewise, the EBIT of Volaris has had a rough year but remained pretty much stable between the second and third quarters. On the other hand, operating revenues and expenses have had a V-shaped recovery. The costs have returned to where they were at the beginning of the year much faster than the revenues.
Operating revenues are still 50.3% below 2019’s third-quarter results. Still, there is good news for Volaris: its total ancillary revenues have remained more stable. These revenues are 29.7% under, on a year over year basis.
As Volaris said: “Total ancillary revenues per passenger for the third quarter reached 614 pesos, an increase of 13.9% year over year”. These revenues represented 45.1% of total operating revenues in the quarter.
Volaris throughout the year
Available seat miles are 24.9% below 2019’s levels. Meanwhile, revenue passenger miles are 35.2% below. Volaris has recovered its capacity well. Its ASMs were 76.6% down by the end of the second quarter, while the RPMs were 78.8% down.
Despite that, Volaris still has to find a way to close the gap between ASMs and RPMs, as it could be offering many extra seats, especially in the domestic market. In September, Volaris’ load factor was 76.4%, still 8.5% below 2019. Volaris is currently operating between 80 and 85% of its original capacity. It expects to close the year with over 90% and have a full recovery by 2021’s summer.
Now charts 3 and 4
Between June and August, Volaris’ passenger growth was outstanding. Thanks to the bounce-back of the VFR segment and the domestic market in Mexico, it quickly recovered much of its lost market. Nonetheless, by September, we see a stall. Volaris’ recovery is slowing as winter approaches. It will be fascinating to see if Volaris does get to a 90% capacity by December, especially if the passenger figures stall more in October and November.
The Mexican market share
By July, Volaris had a 50% domestic market share, thanks to Interjet’s troubles and Aeromexico’s Chapter 11 filing. Since then, its market share has decreased a little but is still over 40%. The Mexican aviation industry is now a three-player game, with Volaris in the driver seat. Viva Aerobus is also currently having a nice recovery and, domestically, is surpassing Grupo Aeromexico.
Internationally, though, the numbers are quite deceiving. Volaris seems to be the ultimate winner, but it won’t last. Grupo Aeromexico has a deeper international market waiting to rebound as the borders open, especially in South America. Still, Volaris has an area of opportunity if it deploys the correct capacity in the US-Mexico market.
Final Analysis
Volaris’ V-shaped recovery is still far from complete, but it is looking good. It has controlled its losses between the second and third quarters. It also has seized the opportunity in the market by launching new routes and attracting new passengers. Finally, it still has to work harder to improve its load factor, mainly since its low-cost rival Viva Aerobus already posts 80% load factors.