Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) Bundle
Understanding Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) Revenue Streams
Understanding Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) Revenue Streams
The financial performance of Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) is largely driven by its diverse revenue streams. The company's primary revenue sources include passenger revenues, ancillary services, and cargo operations.
Revenue Breakdown by Source
| Revenue Source | Q3 2024 (in millions USD) | Q3 2023 (in millions USD) | Variance (%) |
|---|---|---|---|
| Passenger Revenues | 2,208 | 2,259 | (2.3) |
| Other Passenger Revenues | 1,080 | 1,055 | 2.4 |
| Non-Passenger Revenues | 99 | 101 | (2.0) |
| Cargo Revenues | 15 | 14 | 7.1 |
| Total Operating Revenues | 2,307 | 2,360 | (2.2) |
Year-over-Year Revenue Growth Rate
In Q3 2024, total operating revenues amounted to $813 million, reflecting a 4.1% decrease from $848 million in Q3 2023. This decline was primarily influenced by a reduction in capacity due to aircraft-on-ground (AOG) situations stemming from engine inspections, which led to a 14.4% decrease in available seat miles (ASMs) to 8.67 billion.
Contribution of Business Segments to Overall Revenue
For the nine months ended September 30, 2024, the breakdown of revenues by segment included:
- Domestic (Mexico): $1,470.6 million
- International (USA): $681.5 million
- International (Central and South America): $154.8 million
This segmentation shows a strong reliance on domestic operations, which contributed approximately 63.8% of total revenues.
Significant Changes in Revenue Streams
The most notable change in revenue streams has been the increase in ancillary revenues, which accounted for 50.4% of total operating revenue in Q3 2024, compared to 49.0% in Q3 2023. This increase was driven by a 9.6% rise in ancillary revenue per passenger to $54.
Overall, the company has demonstrated resilience despite operational challenges, with a focus on enhancing unit revenues and strict cost control, resulting in an EBITDAR of $315 million for Q3 2024, a 52.2% improvement year-over-year.
A Deep Dive into Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) Profitability
A Deep Dive into Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) Profitability
Gross Profit Margin: In the third quarter of 2024, total operating revenues were US$ 813 million, while total operating expenses were US$ 687 million. This results in a gross profit of US$ 126 million, yielding a gross profit margin of 15.5%.
Operating Profit Margin: Operating income (EBIT) for the same quarter was reported at US$ 126 million, resulting in an EBIT margin of 15.5%, significantly improved from 4.6% in the third quarter of 2023.
Net Profit Margin: The net income for the third quarter of 2024 was US$ 37 million, translating to a net profit margin of 4.6%, compared to a net loss of US$ 39 million in the previous year.
| Metrics | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Total Operating Revenues (US$ million) | 813 | 848 | -4.1% |
| Total Operating Expenses (US$ million) | 687 | 809 | -15.1% |
| Operating Income (EBIT) (US$ million) | 126 | 39 | >100.0% |
| Net Income (US$ million) | 37 | (39) | N/A |
| EBITDAR (US$ million) | 315 | 207 | 52.2% |
| EBIT Margin (%) | 15.5% | 4.6% | 10.9 pp |
| Net Income Margin (%) | 4.6% | (4.6%) | 9.1 pp |
| EBITDAR Margin (%) | 38.7% | 24.4% | 14.3 pp |
Trends in Profitability: Over the past year, profitability has shown significant improvement. The EBIT margin increased by 10.9 percentage points year-over-year, and net income margin turned positive from a loss margin of (4.6%) to 4.6%.
Comparison with Industry Averages: The aviation industry average EBIT margin is typically around 10-12%, indicating that the current EBIT margin of 15.5% positions the company favorably within the sector. Similarly, the net profit margin of 4.6% compares well against the industry average of approximately 2-4%.
Operational Efficiency Analysis: The company has effectively managed its operating costs, with total operating expenses decreasing by 15.1% year-over-year, primarily due to reductions in fuel expenses and variable lease costs. The average economic fuel cost per gallon decreased by 16.6% to US$ 2.64, contributing to improved gross margins.
Additionally, the Cost per Available Seat Mile (CASM) remained relatively stable at 7.92 cents, with CASM ex-fuel rising by 9.9% to 5.39 cents, attributed to reduced operating leverage due to aircraft-on-ground (AOG) issues.
Cash Flow and Liquidity: As of September 30, 2024, cash, cash equivalents, restricted cash, and short-term investments totaled US$ 830 million, representing 25.9% of the last twelve months' total operating revenue.
Debt Ratios: The net debt-to-LTM EBITDAR ratio improved to 2.7x from 3.5x in the previous year, indicating a stronger ability to service debt and enhanced financial health.
Debt vs. Equity: How Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) Finances Its Growth
Debt vs. Equity: How Controladora Vuela Compañía de Aviación, S.A.B. de C.V. Finances Its Growth
Overview of the Company's Debt Levels
As of September 30, 2024, the total financial debt of the company was US$739.1 million, comprising US$298.6 million in short-term maturities and US$440.5 million in long-term financial debt.
Debt-to-Equity Ratio and Comparison to Industry Standards
The company's debt-to-equity ratio was approximately 2.31 as of the third quarter of 2024. This figure indicates a significant reliance on debt financing compared to equity. The industry average debt-to-equity ratio for airlines typically ranges from 1.5 to 2.5, placing the company within the expected range.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
In September 2023, the company issued Ps.1.5 billion (approximately US$76.4 million) in asset-backed trust notes under the ticker VOLARCB23, as part of a program approved for up to Ps.5.0 billion (around US$254.7 million). The company also has ongoing financing agreements with various institutions, including a revolving credit line with Banco Santander.
How the Company Balances Between Debt Financing and Equity Funding
The company utilizes both debt and equity to finance its operations and growth strategies. As of Q3 2024, total equity stood at US$320 million, reflecting a strategy that favors leveraging debt for fleet expansion while maintaining a solid equity base. This approach allows the company to capitalize on growth opportunities while managing financial risk effectively.
| Debt Instrument | Amount (US$) | Maturity Date | Interest Rate |
|---|---|---|---|
| Asset-Backed Trust Notes (CEBUR) | 53,068 | October 20, 2026 | TIIE + 200 bps |
| Asset-Backed Trust Notes (CEBUR) | 76,418 | September 20, 2028 | TIIE + 215 bps |
| Revolving Credit Line | 107,870 | December 31, 2028 | SOFR + 298 bps |
| Pre-Delivery Payment Financing | 25,907 | November 30, 2025 | SOFR + 300 bps |
| Pre-Delivery Payment Financing | 60,629 | November 30, 2025 | SOFR + 425 bps |
Overall, the company has successfully navigated its financial landscape, balancing debt and equity to sustain growth while adhering to industry standards and maintaining manageable leverage ratios.
Assessing Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) Liquidity
Assessing Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) Liquidity and Solvency
As of September 30, 2024, the company reported the following liquidity ratios:
| Liquidity Ratio | Value |
|---|---|
| Current Ratio | 1.12 |
| Quick Ratio | 0.89 |
The current ratio of 1.12 indicates that the company has sufficient current assets to cover its current liabilities, while the quick ratio of 0.89 suggests potential liquidity concerns, as it falls below the ideal threshold of 1.00.
Analyzing working capital trends, as of September 30, 2024, the working capital stood at approximately $90 million, reflecting a year-over-year increase from $70 million in the previous year. This improvement indicates that the company is managing its operational financing more effectively.
In terms of cash flow, the company reported the following cash flow data for the third quarter of 2024:
| Cash Flow Category | Amount (in millions USD) |
|---|---|
| Net cash flow from operating activities | $233 |
| Net cash flow used in investing activities | ($149) |
| Net cash flow used in financing activities | ($54) |
The net cash flow from operating activities of $233 million showcases the company's ability to generate cash from its core operations. However, the cash outflows in investing and financing activities, totaling ($203 million), indicate ongoing investments and obligations that may affect liquidity in the short term.
As of September 30, 2024, total cash, cash equivalents, restricted cash, and short-term investments amounted to $830 million, representing approximately 25.9% of the last twelve months' total operating revenue, which was reported at $3.2 billion.
The company’s financial debt was recorded at $740 million, reflecting a year-over-year increase of 30.5%. Total lease liabilities stood at $2,986 million, marking a 5.7% increase due to fleet expansion. The net debt-to-LTM EBITDAR ratio was reported at 2.7x, a reduction from 2.9x in the previous quarter.
In summary, while the liquidity ratios indicate some potential concerns, the overall cash position and operating cash flows suggest that the company is maintaining a healthy level of liquidity amid its growth and investment strategies.
Is Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) Overvalued or Undervalued?
Valuation Analysis
To assess the valuation of Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS), we will analyze several key financial ratios and stock performance metrics.
Price-to-Earnings (P/E) Ratio
As of the latest reporting period, the earnings per American Depositary Shares (ADS) was $0.032 for Q3 2024. The stock price fluctuated around $6.20, resulting in a P/E ratio of approximately 193.75.
Price-to-Book (P/B) Ratio
The book value per share, calculated from total equity of $320 million and total shares outstanding of 1,165,976,677, equates to a book value per share of approximately $0.27. With a stock price of $6.20, the P/B ratio is about 22.96.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) is calculated as market capitalization plus total debt minus cash. Assuming total debt of $740 million and cash of $830 million, the EV is approximately $1.47 billion. With an EBITDA of $315 million for Q3 2024, the EV/EBITDA ratio stands at approximately 4.67.
Stock Price Trends
Over the last 12 months, the stock has shown fluctuations, with a high of $8.50 and a low of $4.20. The stock closed at $6.20 at the end of Q3 2024, reflecting a 15% decline year-to-date.
Dividend Yield and Payout Ratios
The company has not declared any dividends in the last fiscal year, resulting in a dividend yield of 0%. The payout ratio remains 0% as no earnings are distributed to shareholders.
Analyst Consensus on Stock Valuation
The current analyst consensus is mixed, with 3 analysts recommending a "buy", 2 analysts suggesting a "hold", and 1 analyst advising a "sell".
| Metric | Value |
|---|---|
| P/E Ratio | 193.75 |
| P/B Ratio | 22.96 |
| EV/EBITDA Ratio | 4.67 |
| Stock Price (Current) | $6.20 |
| 12-Month High | $8.50 |
| 12-Month Low | $4.20 |
| Dividend Yield | 0% |
| Analyst Consensus | 3 Buy, 2 Hold, 1 Sell |
Key Risks Facing Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS)
Key Risks Facing Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS)
Controladora Vuela Compañía de Aviación, S.A.B. de C.V. operates in a highly competitive airline industry, which presents several internal and external risks that could impact its financial health.
Competition and Market Conditions
The airline industry is characterized by intense competition, impacting pricing strategies and market share. In the third quarter of 2024, total operating revenues amounted to $813 million, a 4.1% decrease compared to the previous year. The reduction in available seat miles (ASMs) by 14.4% to 8.7 billion indicates a strategic response to market conditions and competition.
Regulatory Changes
Regulatory changes can significantly affect operational costs and compliance requirements. The company is currently involved in tax proceedings related to uncertain tax positions amounting to approximately $75.2 million. These proceedings stem from the deductibility of certain expenses from previous years.
Operational Risks
Operational risks are heightened due to reliance on aircraft performance and maintenance schedules. The company experienced an average of 34 aircraft-on-ground during the quarter due to Pratt & Whitney engine inspections, which affected operational capacity and revenue generation.
Financial Risks
Financial risks include fluctuations in fuel prices and foreign exchange rates. The average economic fuel cost decreased by 16.6% to $2.64 per gallon. However, the depreciation of the Mexican peso by 10.9% against the U.S. dollar could impact costs denominated in foreign currencies.
Debt and Liquidity Risks
The company’s financial debt rose to $740 million, a 30.5% increase year-over-year. Total lease liabilities also increased to $2.986 billion. The net debt-to-LTM EBITDAR ratio improved to 2.7x, down from 3.5x in the same quarter of the previous year.
Mitigation Strategies
The company employs various strategies to mitigate risks, including strict cost control measures and strategic capacity management to navigate competitive pressures. The EBITDAR for the third quarter was $315 million, a 52.2% increase, indicating effective management amidst challenging conditions.
| Risk Factor | Details | Impact |
|---|---|---|
| Competition | Total operating revenues decreased by $813 million, a 4.1% decline. | Pressure on pricing and market share. |
| Regulatory Changes | Tax proceedings of $75.2 million pending resolution. | Potential financial liabilities and compliance costs. |
| Operational Risks | 34 aircraft-on-ground due to engine inspections. | Reduced operational capacity and revenue loss. |
| Financial Risks | Average fuel cost at $2.64 per gallon; peso depreciation by 10.9%. | Increased operational costs and currency exposure. |
| Debt and Liquidity | Financial debt at $740 million; lease liabilities at $2.986 billion. | Strain on cash flow and financial stability. |
| Mitigation Strategies | EBITDAR of $315 million, indicating strong cost control. | Resilience against competitive pressures. |
Future Growth Prospects for Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS)
Growth Opportunities
Future growth prospects for Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) are supported by multiple key drivers.
Key Growth Drivers
- Market Expansion: VLRS is focusing on expanding its routes, particularly in the United States and Central America. The company reported an increase in international booked passengers, which remained practically unchanged year-over-year despite domestic challenges.
- Fleet Modernization: As of September 30, 2024, VLRS has a total fleet of 137 aircraft, with 60% being new engine option (NEO) models. This modernization is expected to enhance operational efficiency and reduce costs.
- Cost Management: The company has successfully reduced total operating expenses by 15.1%, from $809 million to $687 million year-over-year.
Future Revenue Growth Projections
For the fourth quarter of 2024, VLRS expects:
- ASM Growth: Approximately -7% year-over-year.
- TRASM: Expected to be around $9.6 cents, up from $9.56 cents.
- EBITDAR Margin: Anticipated at ~39%, compared to 31.3% in the previous year.
Strategic Initiatives
VLRS has committed to a capital expenditure (CAPEX) of $400 million for 2024, focusing on fleet enhancements and infrastructure. The company has also entered into agreements for the acquisition of additional A320neo family aircraft, which will further support its growth strategy.
Competitive Advantages
VLRS's competitive advantages include:
- Ancillary Revenue: Total ancillary revenue per passenger increased by 9.6% to $54, accounting for 50.4% of total operating revenue.
- Strong EBITDAR Performance: The company reported an EBITDAR of $315 million, reflecting a 52.2% increase year-over-year.
- Debt Management: The net debt-to-LTM EBITDAR ratio improved to 2.7x, down from 3.5x in the same quarter of the previous year.
Financial Overview
| Indicator | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Total Operating Revenues (millions) | $813 | $848 | -4.1% |
| Net Income (millions) | $37 | ($39) | NA |
| EBITDAR (millions) | $315 | $207 | +52.2% |
| Average Base Fare per Passenger | $53 | $48 | +9.3% |
| Total Ancillary Revenue per Passenger | $54 | $49 | +9.6% |
VLRS continues to demonstrate resilience and adaptability in the face of operational challenges, positioning itself for sustained growth in the competitive airline industry.
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Article updated on 8 Nov 2024
Resources:
- Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (VLRS)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.