Equity Analysis /
Mexico

Volaris: Flash: Solid passenger growth continues, although fuel pressures remain

  • Volaris registered an annual 24.4% increase in total passenger traffic during September

  • Highlighting the high load factor level, standing at 87.4% (+5.6pp), but with fuel costs above August’s figures

  • Higher interest rates scenario and energy crisis could continue to generate stock price volatility

Jose Itzamna Espitia Hernandez
Jose Itzamna Espitia Hernandez

Senior Equity Research Analyst, Infrastructure, Materials and Transportation

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Marissa Garza Ostos
Marissa Garza Ostos

Head of Equity Research

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Banorte
6 October 2022
Published byBanorte

Volaris registered an annual increase of 24.4% in total passenger traffic during September, transporting 2.6 million, with domestic growth increasing 23.4% y/y, and international passengers climbing 28.8% y/y. Capacity showed an upsurge, measured in terms of Available Seats Miles (ASMs) of 17.2% y/y, while demand measured in Revenues Passengers Miles (RPMs) recorded a greater advance of 25.2% y/y. Thus, the load factor rose 5.6pp, standing at 87.4%. On the other hand, the year-over-year increase of 64.1% in fuel cost per gallon to $3.84, slightly above that recorded in August (+0.8%), was again noteworthy.

Neutral implication: Volaris' figures reflected solid growth, highlighting the high load factor level; however, we believe that for the time being high fuel costs will continue to generate share price volatility, as it resumed its sequential increase, in contrast to what was observed in previous months. It is worth noting that average price per gallon for 3Q22 was $3.92, practically at the top of the airline's expected range between $3.8 and $3.9 per gallon, and we should not dismiss additional pressures given the tighten global environment. Thus, despite our longer-term favorable outlook for Volaris, alongside an attractive valuation (FV / EBITDAR of 5.2x), higher interest rates scenario and the possible energy crisis volatility, limits in our opinion a significant multiple revaluation. In the meantime, we will be looking forward to the results and outlook update that the airline may release when it reports 3Q22, next Monday, October 24th, after the market closes.