Despite posting a traffic record during 2022’s first half, the Mexican ultra-low-cost carrier Volaris closed the second quarter with a US$98 million net loss due to the impact of higher fuel prices and economic uncertainty.
Financial losses
Volaris has had an outstanding 2022 from an operational point of view. The airline carried 14.4 million passengers during the first half of the year, a 38% increase compared to 2021 (remember, the airline had a traffic record last year).
Moreover, its total operating revenues were worth US$1.25 billion, a 41.5% increase compared to 2021, which shows a booming business for the Mexican carrier. The higher revenue was driven by higher capacity, healthy load factors, and solid unit revenue. Demand has remained relatively strong throughout the quarter, notwithstanding certain headwinds such as high inflation, economic uncertainty, and an increase of COVID-19 cases in Mexico.
Despite these good numbers, the airline posted a US$98 net loss during the first half of the year.
Volaris closed the second quarter with a US$98 million net loss. Photo: Daniel Martínez Garbuno | Simple Flying.
Uncertainty and high fuel prices
Globally there’s a high degree of economic uncertainty and rising inflation in most of the world’s economies. Mexico is not an exception, with inflation reaching 8% (albeit fewer than other nations such as the United States).
The economic uncertainty, the Russian invasion of Ukraine, and higher oil prices have led to a painful increase in fuel prices for airlines worldwide.
Volaris’ total operating expenses in the quarter were US$710 million, a 61% increase driven by higher fuel costs. The average economic fuel cost increased 107% to US$4.4 per gallon in the period. To cope with the rising fuel prices, Volaris passed a portion to the passenger through fare increases or, in some instances, reallocated flights to more profitable routes. It also controlled other costs efficiently.
Enrique Beltranena, Volaris Chief Executive Officer, said,
“Volaris has always been disciplined about adding capacity to match passenger demand and has demonstrated flexibility to adapt capacity. We will continue with our strategy of disciplined growth and will remain nimble and respond decisively to any changes in market conditions in the coming months.”
Volaris closed 2022’s first half with 113 aircraft. Photo: Volaris.
What’s next for Volaris?
Volaris and its ultra-low-cost competitor Viva Aerobus have been growing at double-digit for the last two years. That growth rate is not sustainable and has only been possible due to Interjet’s cease of operation, Aeromexico’s Chapter 11, and a strong recovery by the Mexican market from the COVID-19 pandemic.
Beltranena added,
“We have grown quickly in the last two years, allowing us to fill the void left by some of our competitors and, considering we have met our objectives, will return to our historical growth rate during 2023.”
Despite the global macroeconomic and geopolitical challenges, demand remains robust throughout Volaris’ network. Accordingly, Volaris expects to continue with its growth plans. For instance, it expects its total operating revenue to be in the range of US$2.8 to $3.0 billion for 2022.
In terms of fleet, Volaris closed 2022’s first half with 113 aircraft (six Airbus A319s, 86 A320s, and 21 A321s). During the second quarter, the company incorporated nine new A320neo family aircraft with an average of 190 seats per aircraft. Volaris expects to close the year with approximately 115 planes.
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