Controladora Vuela Compañía de Aviación SAB de CV Q2 FY2026 earnings call

Liquidity and Balance Sheet

• Ended Q2 2026 with $824 million in cash, a $58 million sequential increase from Q1 2026, representing 25% of the last 12 months' total operating revenues. Net debt-to-EBITDAR ratio remained stable at 3.3x, up only 0.1x sequentially. Executed a $78 million net proceeds engine financing facility to diversify funding, and rescheduled Airbus deliveries for 2027/2028 to reduce pre-delivery payment requirements.

Network and Capacity Strategy

• Implemented disciplined capacity management amid record high fuel prices, ensuring all routes operated cash positive during the quarter. Proactively adjusted network to align capacity with the strongest economic returns, prioritizing high-margin international transborder routes over low-margin domestic off-peak/weekend flights.

Fleet and Engine Recovery

• Reduced aircraft on ground (AOGs) from 41 at the start of 2026 to 24 at the end of Q2, in line with management expectations. AOGs are expected to stay in the low-to-mid 20s in the near term, with full normalization of aircraft availability targeted by the end of 2027.
• Scheduled lease returns will reduce the contractual fleet to ~137 aircraft by end of 2027, from 155 aircraft at the end of Q2 2026. This is expected to generate $50 million in annual lease savings and reduce lease liabilities by $360 million.
• Increased utilization of fuel-efficient NEO aircraft to 66.5% of the productive fleet in Q2, up from 56.6% in 2025, driving a record 3.3% YoY improvement in fuel efficiency (109.2 ASMs per gallon), avoiding 2 million gallons of fuel consumption and generating $7 million in fuel savings in Q2.

Commercial and Ancillary Growth

• Total TRASM reached $0.095, up 22% YoY and 10% sequentially, reflecting strong commercial execution. Achieved 86% fuel cost recapture in the international transborder market in Q2, with full recapture targeted by Q4 2026 under current market conditions.
• Altitude loyalty program now has over 2.1 million active members, fully integrated with the co-branded INVEX credit card (1+ million cardholders). Announced upcoming fleet-wide rollout of Starlink high-speed Internet, starting in 2027, to enhance customer experience and drive future ancillary growth.

Proposed Merger with Viva

• The regulatory approval process is progressing as expected. Final approval received from Colombia, and 2/3 of information requests from Mexico's antitrust commission have been completed. Management expects to secure remaining approvals and close the transaction by the end of 2026.

Volaris operates two core revenue segments: U.S.-Mexico Transborder International, and Mexican Domestic. For Q2 2026:

• Total Company: Total operating revenue reached $859 million, growing 24% year-over-year (YoY) on 2% total available seat mile (ASM) capacity growth. Ancillary revenue hit $59 per passenger, up 9% YoY, and accounted for 56% of total quarterly revenue.
• International Segment: ASM capacity grew 8% YoY, accounting for 43% of total company ASMs (up from ~30% three years prior). In the U.S.-Mexico transborder sub-segment specifically, ASMs grew 12% YoY, driving more than 30% YoY revenue growth, with average base fares up 25% YoY, TRASM up 21% YoY, and load factor reaching 79.6%.
• Domestic Segment: ASM capacity decreased 2% YoY, accounting for the remaining 57% of total ASMs. Load factor remained strong at 88.6% (89% overall core network load factor), with deliberate capacity alignment to soft domestic demand and price sensitivity.

• Q3 2026 Guidance: Expects 10% YoY ASM growth, front-loaded into July and August to capture peak summer demand, with meaningful capacity trimming in September. Expects TRASM of ~$0.099 (up 4% sequentially and 14% YoY), CASM ex-fuel of ~$0.0635, and EBITDAR margin of ~22%. Assumes an average exchange rate of MXN 17.6 per USD 1 and average U.S. Gulf Coast jet fuel price of $3.5 per gallon.
• Full Year 2026 Guidance: Reinstates full year EBITDAR margin guidance, now expecting ~23% margin, with 5% YoY ASM growth, concentrated in the high-yield U.S. transborder market. Expects full year CapEx of ~$350 million, with over 90% allocated to engine maintenance events and aircraft redelivery costs. Assumes an average exchange rate of MXN 17.6 per USD 1 and average U.S. Gulf Coast jet fuel price of $3.2 per gallon.
• Q4 2026 Implied Guidance: Expects jet fuel price of $3.08 per gallon, and TRASM higher than Q3's guided $0.099 due to typical Q4 seasonality. Expects full fuel cost recapture in the international market by Q4 2026.
• 2027 Capacity Base Case: Maintains a long-term base case of ~5% annual ASM growth, with flexibility to adjust growth by ±3 percentage points based on demand and market conditions.

• Sustained elevated or volatile jet fuel prices driven by geopolitical developments remain the primary near-term risk, requiring ongoing calibration of capacity and pricing to protect margins and cash flow.
• Domestic Mexican market demand remains soft relative to international transborder demand, and aggressive fuel price pass-through could erode demand for price-sensitive domestic consumers, who have access to subsidized ground transportation alternatives.
• Continued engine maintenance events and AOG rotations are expected through the near-term fleet recovery period, keeping unit costs elevated until full AOG normalization is achieved by end of 2027.
• The proposed merger with Viva remains subject to remaining regulatory approvals, with no guarantee of closing by the end of 2026 as currently expected.

Q: What factors drive the Q3 CASM ex-fuel outlook, and what is the underlying core trend excluding one-time items? What are current and projected 2027 fleet sizes? / A: Q3 CASM ex-fuel is guided to $0.0635, impacted by foreign exchange effects, higher costs for U.S.-based operations, ongoing maintenance for engine inductions, 6 remaining aircraft redeliveries in H2 2026, merger regulatory fees, and lower Pratt & Whitney compensation as AOGs decline. Volaris currently has 155 total aircraft, with AOG expected to end 2026 in the low 20s, and the total contractual fleet will fall to 137 aircraft by end of 2027, reducing lease liabilities by $400 million and generating $50 million in annual lease savings. (318 characters)

Q: What was Volaris' Q2 2026 fuel recapture rate, and what is the expected trajectory through the end of the year? How will Starlink be integrated into Volaris' ULCC ancillary model, and what is the CapEx impact? / A: Volaris calculates recapture against February guidance assumptions, reaching 28% overall in Q2, at the high end of prior guidance. The transborder market hit 86% recapture, while domestic recapture is lower due to price sensitivity and competition with subsidized ground transport; full international recapture is targeted by Q4. Starlink was negotiated as part of the Indigo Partners group deal, with operational data cost savings expected to fully offset CapEx for installation, and Volaris plans to monetize the service to grow ancillary revenue. (441 characters)

Q: How much of Q3 is already booked, and is TRASM guidance at risk or has upside? / A: Volaris has already completed 3 weeks of July 2026, with load factor and TRASM performance tracking strong so far. Booking trends for August are also healthy, with capacity intentionally allocated to the highest-return international transborder markets, and capacity will be meaningfully trimmed in September to protect unit revenues. Management is confident it will hit the guided $0.099 TRASM for Q3. (297 characters)

Q: How does variable fleet utilization in H2 2026 impact CASM ex-fuel, and how are redeliveries and new deliveries progressing in 2026? / A: Utilization will rise for the July-August peak, then fall in September-October before rising again in December. Lower utilization explains ~20% of the elevated CASM ex-fuel guidance versus historical levels, a deliberate tradeoff to avoid flying unprofitable routes. 11 aircraft will be redelivered in 2026, with only a net small reduction in total fleet size for the full year, as a similar number of new aircraft will be delivered. (335 characters)