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News Article

Volaris Faces Harsh 2Q20

By Alicia Arizpe | Tue, 07/28/2020 - 12:35

Mexico’s ultra-low-cost airline Volaris reports losses in revenue for 2Q20 due to the COVID-19 pandemic. However, the airline is seeing a gradual recovery in demand, leading it to increase its capacity for the coming months.

The damage the COVID-19 outbreak has brought to Mexico’s aviation industry is deep and widespread, with a recovery been further away as the crisis continues unabated. The sector began to see the effects of the outbreak in March as demand plummeted, leading all airlines in the country to sharply cut their operations the following months to reduce costs. Volaris saw double-digit growth in passenger traffic during the first two months of 2020 only for it to shrink rapidly in March, a trend that persisted throughout the second quarter of 2020. In April, the airline sharply reduced its capacity in response to lower demand, shrinking its available seat miles (ASM) to 10 percent year-on-year. May saw a further reduction in capacity leaving the airline operating only at 12 percent of its ASM. Behind the shrunken demand are the measures to contain the spread of COVID-19, which led many to shelter in place, which caused several of Volaris’ destinations in Central America to close their borders. However, the tide turned in June as an increase in demand led Volaris to increase its capacity to 41 percent. The airline explained that by late June, it had restarted operations in 49 of its domestic routes and 22 of its international routes to the US.

Altogether, Volaris transported only 1.1 million passengers during 2Q20, an 80.5 percent year-on-year reduction, causing it to see a 78.8 percent contraction in revenue passenger miles (RPM), which is the number of paying passengers per the distance they traveled. Moreover, the ultra-low-cost airline also saw a 75.5 percent reduction in ancillary revenue, referring to revenue not directly related to booked tickets, such as concessions or baggage fees for a total of MX$711 million (US$32.4 million). These figures added up to other operating expenses leading Volaris to see a net loss of MX$1.49 billion (US$59.98 million), which represents a negative net margin of 19.1 percent.

The COVID-19 outbreak is expected to continue causing trouble for airlines across the globe. In Mexico airlines could see up to US$8.13 billion in potential revenue evaporate in 2020, according to the International Air Transport Association (IATA), putting 148,500 jobs at risk.

Alicia Arizpe Alicia Arizpe Senior Writer