Mexico’s Volaris spurs leisure rebound to lead airline recovery

Mexico’s biggest airline is forging a rebound from the travel collapse by using discount fares to tap demand for leisure trips.

After the pandemic hit, Volaris lowered fares 30% to coax people back onto routes that primarily serve the friends-and-family market, said Chief Executive Officer Enrique Beltranena. While a drag on revenue, the move helped the company boost passenger totals to more than 70% of last year’s levels, outpacing domestic rivals and counterparts in the U.S.

The carrier is currently reviewing options to raise as much as 3.5 billion pesos ($170 million) after getting a green light from investors last month. Volaris is exploring alternatives such as offering shares, debt or convertible bonds, and hasn’t set a deadline for a decision. Unlike U.S. carriers, Mexican airlines haven’t received government aid.

“We need to find the correct timing,” Beltranena said in an interview Oct. 23. “But there’s no rush. We’re going to take our time to do the right thing for our investors.

Volaris dropped 4.4% to 17.95 pesos at 11:59 a.m. in Mexico City amid broad declines in travel stocks. The shares fell 5.1% this year through Oct. 23. That was the shallowest decline in the Americas for a carrier with a market value of at least $500 million, according to data compiled by Bloomberg.

Deferring Payments

“Few airlines in the world are reporting this level of recovery,” Helane Becker, an analyst at Cowen & Co., said in a note to clients last week.

In the U.S., domestic passengers are at less than 40% of 2019 levels. In Mexico last month, Volaris carried 71% of last year’s passengers, compared with 44% for Grupo Aeromexico SAB and just 5.5% for Interjet, according to data compiled by the Mexican government.

Controladora Vuela Cia. de Aviacion SAB, Volaris’s full name, has negotiated to push back payments for almost $400 million by rescheduling jet deliveries from Airbus SE, Beltranena said. In addition, the airline negotiated delays in more than $100 million in aircraft lease payments.

Volaris plans to end the year with 86 Airbus planes. The fleet will only expand by one jetliner by the end of 2021, although the company is looking to replace some of its A320 aircraft with the more fuel-efficient A320neo.

Third-quarter sales fell 50% in the third quarter, Volaris said last week in an earnings report. Ancillary revenue such as bag-check fees and seat upgrades rose 13%.

Volaris has also announced deals with airport operator Grupo Aeroportuario del Sureste SAB to offer discounts on flights connecting Mexico City with destinations such as Cancun, Cozumel and Huatulco, as it looks to entice more customers.

“Those seats will, in the end, reactivate the market,” he said. “It’s a normal process and we need to invest in it.”