Higher fuel prices pressure profitability
1Q22 results reflected operational growth due to strong passenger demand, although with lower than expected margins. The solid financial balance stands out (3.0x ND/EBITDAR)
Volaris improved its 2022e guidance, but it also confirmed the expectation of higher profitability pressures. We will be looking carefully to current risks, specially oil prices evolution
Higher fuel expenses impact margins despite revenues recovery. Even though Volaris’ revenues and EBITDAR showed significant advances, both registered results below expectations, highlighting margins decrease. Available Seat Miles (ASMs) grew 49.8% y/y and total demand, measured in Revenue Passenger Miles (RPMs) rose 60.1% y/y, bringing the load factor to 83.5% (+5.4pp). Thus, the annual growth in total passenger of 63.6%, coupled with higher average fare base (+24%), offset the 7% decreased in ancillary revenue per passenger, which led to a total revenue increase of 80.0% y/y. In turn, operating expenses per available seat mile (CASM) rose 13% due to higher fuel costs (+64% y/y per gallon), resulting in a lower advance in EBITDAR of 51.6% y/y to $97 million (+21% vs 1Q19), with a margin of 17.0% (-3.2pp). It is worth noting that the company continued with cost discipline, recording an 8% reduction in CASM ex-fuel. Incorporating the figures, FV/EBITDAR multiple decreased from 5.6x to 5.4x. Positive growth prospects, but with greater pressures on margins. The airline raised its revenue estimate to $2.8-$3.0 billion (vs $2.6-$2.8 billion previous), which supports our outlook that the company will continue being one of the most benefited in the sector’s recovery. However, Volaris expect an EBITDAR margin in high twenties, confirming the higher cost expectations due to fuel prices increase which we will be incorporating to our estimates.
