Source: Viva Aerobus
Grupo Viva Aerobus, S.A. de C.V. (“Viva Aerobus” or “Viva”), the parent company of Aeroenlaces Nacionales S.A. de C.V., announced today its 3Q 2023 financial results.
Effective October 1st, 2022, Viva Aerobus changed its reporting currency from Mexican Pesos (“MX$”) to U.S. Dollar (“US$”). Please refer to the section “Change in Reporting Currency to U.S. Dollar” for further detail.
Juan Carlos Zuazua, Chief Executive Officer, commented:
- “Our 3Q 2023 performance reflects the strength of the underlying market in Mexico and a disciplined capacity deployment, delivering our highest revenue, operating profit (EBIT), and net income in a quarter. Our revenues increased 44.8% YoY to US$571 million on robust demand, an improved fare environment, and a strong load factor of 88.4%. This resulted in an operating income of US$113 million and a net income of US$56 million.”
- “The Mexican domestic market continues to grow at a healthy double-digit rate while the recovery of CAT1 opens the opportunity to increase our presence in attractive markets in the U.S., allowing for more flexibility in our network. Our core markets are poised to benefit from the solid fundamentals, leveraging our unique and well-positioned network and effective revenue and ancillary management strategy.”
- “During the quarter, we reported an EBITDAR margin of 36.5% and an operating margin (EBIT) of 19.7% while delivering our second consecutive profitable quarter on a net income basis. This result reflects strong revenue generation and lower fuel costs, offsetting the higher unit costs, which continue to be impacted by supply chain headwinds and persisting inflationary pressures. In addition to our results, our cash generation continues to improve our solid net leverage to 2.1x.”
- “We continue to manage the variables in our control, however, the recent disclosure by Pratt & Whitney (“P&W”) on the accelerated revisions on powder metal manufacturing issues on certain engine parts will put further pressure on the aviation industry, including our operation. The off-wing inspections should start in early 2024 and persist throughout 2025; we are working closely with P&W to determine the schedule of the inspections and impact on our fleet for next year. Meanwhile, we seek to partially offset the impact in 2024 through new aircraft arrivals, some lease extensions, and short-term leases in a very tight leasing market.”
- “Last month, we announced our first “Balthazar Financing” to finance three Airbus A321neo aircraft. This insurance-wrapped structured financing reflects the Company’s commitment to diversify and increase its fleet financing sources efficiently.”
- “I want to thank our Gente Viva for always striving to be better, even in the most challenging environments. Our performance for the last couple of years during CAT2 has been nothing short of impressive, and despite the headwinds, we will remain focused and disciplined.”
Total Operating Revenues increased 44.8% to US$571 million, reflecting higher unit revenues, healthy load factors, and capacity growth. These figures were mainly driven by fare and ancillary revenue growth, with TRASM increasing 21.3% to US₵10.08, coupled with ASMs growing 19.4%.
During the quarter, Viva’s total passengers increased 25.6% to 6.9 million, reflecting higher demand in the domestic and international markets. Ancillary revenues increased 44.4% to US$254 million compared to 3Q 2022, representing 44.4% of total revenues.
Total Operating Expenses increased 27.8% to US$458 million, below revenue growth, reflecting lower jet fuel prices. This increase was mainly driven by a higher capacity of 19.4% in ASMs and a negative FX impact due to the appreciation of the Mexican peso versus the U.S. Dollar, coupled with inflationary pressures.
CASM increased 7.0% to US₵8.09, reflecting a decrease of 18.8% in CASM fuel to US₵3.11 and an increase of 33.6% in CASM ex-fuel to US₵4.98. The CASM ex-fuel increase was mainly driven by the appreciation of the Mexican peso versus the U.S. Dollar, inflationary pressures, coupled with the negative impacts in utilization from delayed deliveries in aircraft, engines, and spare parts. These effects were partially offset by continuous cost optimization initiatives and a higher seat density.
Operating Profit reached US$113 million, an increase of 216.8% compared to 3Q 2022, reflecting higher unit revenues and lower fuel prices. The operating margin increased 10.7 percentage points from 9.0% to 19.7%.
During 3Q 2023, we added 5 net aircraft (1 Airbus 320ceo, 1 Airbus 320neo, and 3 Airbus 321neo), and 13 net aircraft (1 Airbus 320ceo, 2 Airbus 320neo, and 10 Airbus 321neo) compared to September 2022.
Our fleet ended 3Q 2023 with an average age of 5.2 years. Viva’s fleet was recognized as the youngest in Mexico and the fourth youngest in North America by ch-aviation’s Youngest Aircraft Fleet Award 2023.
During the 3Q 2023, we had an average of 3.5 A320neo aircraft on ground, mainly due to Pratt & Whitney GTF engines reliability issues. Of the first batch announced in July, three GTF engines were identified and sent to inspection in September 2023.
Hedging
As of September 30, 2023, Viva has jet fuel and FX hedging to mitigate volatility and price shifts. We hedged 14.7% of our expected jet fuel for the rest of the year and, as for FX, our hedging is equivalent to 46.5% of our projected exposure for the rest of the year.
Change in Reporting Currency to U.S. Dollar
In 2020, Viva Aerobus determined that its functional currency was the U.S. Dollar. Effective October 1st, 2022, Viva decided to change its reporting currency from Mexican Pesos (“MX$”) to U.S. Dollar (“US$”) based on International Accounting Standard 21, “The Effects of Changes in Foreign Exchange Rates”(“IAS 21”) under International Financial Reporting Standards (“IFRS”), having the authorization of Grupo Viva Aerobus, S.A. de C.V. Board of Directors, considering the previous favorable opinion of the Audit Committee. KPMG’s auditors letter acknowledges Viva’s change in reporting currency to comply with the Comisión Nacional Bancaria y de Valores (“CNBV”) requirements.
Viva believes that the use of the U.S. Dollar for the reporting of its consolidated financial information will improve and facilitate the analysis of its consolidated financial statements for a wide range of users (rating agencies, analysts, investors, and creditors, among others).
Glossary
ASMs: Stands for “available seat miles” and represents the number of seats available for passengers multiplied by the number of miles.
Average operating aircraft utilization is calculated by block hours per aircraft per day, meaning the total number of block hours divided by the average operating fleet and divided by the number of days in the period.
Average total aircraft utilization is calculated by block hours per aircraft per day, meaning the total number of block hours divided by the average total fleet and divided by the number of days in the period.
CASM: Stands for “cost per available seat mile” and represents total operating expenses divided by available seat miles (ASMs).
CASM ex-fuel: Represents total operating expenses excluding fuel expense divided by available seat miles (ASMs).
EBITDA: Stands for “Earnings before interest, taxes, depreciation and amortization” and it is calculated as consolidated Net Income (loss) for the year adding back income taxes, financial income and financial costs and depreciation and amortization. Financial income includes interest income on cash and cash equivalents, interest paid by related parties and exchange gains. Financial costs include interest expense on financial liabilities, interest on lease liabilities, valuation of financial instruments and exchange loss. EBITDA is a non-International Financial Reporting Standards (“IFRS”) financial measure. A non-IFRS financial measure is generally defined as one that purports to measure financial performance but excludes amounts that would not be so adjusted in the most comparable IFRS measure.
EBITDAR: Stands for “Earnings before interest, taxes, depreciation, amortization and rent expense” and it is calculated as consolidated net income (loss) for the year adding back income taxes, financial income and financial costs, depreciation and amortization, and leases. EBITDAR is a non-IFRS financial measure, as defined above.
Load Factor: Represents the number of miles flown by passenger (RPMs) divided by available seat miles (ASMs) and expressed as a percentage.
TRASM: Stands for “total operating revenue per available seat mile” and represents our total operating revenue divided by our total available seat miles.
RPMs: Stands for “revenue passenger miles” and represents the number of miles flown by passengers. Passengers: Customers who purchased their plane ticket to fly during the month referred in the report, regardless of whether they flew or not.
Yield: Defined as total operating revenues divided by revenue passenger miles (RPMs).
Starting on January 1, 2020, the Company determined the US Dollar (USD) as its functional currency. Starting October 1, 2022, the Company determined the US Dollar (USD) as its reporting currency.