Volaris’ 1Q20 Report Shows Net Operating Loss

Depreciation of the Mexican peso and the COVID-19 outbreak hit ultra-low-cost airline Volaris, which reported a net operating loss during 1Q20. The first two months of 2020 were very good for Volaris. The airline reported double-digit growth in passengers in comparison to those two months the previous year, a 15.9 percent increase in national passengers and a 22.6 percent in international travel for a total growth of 17.2 percent. The airline also reported an 85.8 percent occupation rate. This positive environment led Volaris to its highest stock price as the airline reached MX$24.9 (US$1) per stock on Feb. 20, 2020.

However, the airline was also hit by the widespread effects of COVID-19. As cases grew in Mexico and abroad, passengers flew less, forcing the airline to heavily reduce its capacity. On March 24, the airline cut its capacity measured in available seat miles (ASK) by 50 percent. Just a week later Volaris had to cut down operations a second time as Mexico’s General Health Council declared COVID-19 a sanitary emergency, compelling the country’s population to stay home and to limit non-essential activities. The second reduction meant that Volaris capacity had shrank by about 80 percent in comparison to its originally scheduled capacity.

The COVID-19 outbreak also had a severe impact on the country’s economy and send the Mexican peso skyrocketing to reach exchange rates of over MX$25 per dollar. Together with the sharp reduction in demand, these circumstances hit Volaris’ finances. In its 1Q20 report, the airline reported a net loss of MX$1.49 billion (US$59.98 million), which represents a negative net margin of 19.1 percent. The airline’s stock was also hit and reached bottoms of MX$7.5 (US$0.30) by the beginning of April.

As the outbreak continues to rampage the country, the extent of the damage is still uncertain. On April 21, the General Health Council declared that Mexico had entered Phase 3, warning that COVID-19 cases would rise at an accelerated rate and confinement measures would extend through May 30. During that period, Volaris will operate at a 90 percent reduced capacity and it is still uncertain of when it will return to normal operations. “While our business and the airline industry have begun to experience material adverse impacts due to COVID-19, as of the date thereof, it is not yet possible to determine when the adverse effects of COVID19 will abate and the extent to which they will further decrease demand for air travel,” reported the airline.