Volaris Adding Frequencies To U.S. Routes Following Safety Upgrade
Following the recent national safety upgrade, Mexican ULCC Volaris will add frequencies to existing U.S. markets with “extremely high loads,” rather than adding new destinations.
Some of that added capacity will come out of the government-ordered aircraft slot reduction at Mexico City Airport, narrowing the per-hour number from 52 to 43 beginning in January. Volaris says it is currently on track to introduce four aircraft lines onto U.S.-bound routes by December, representing a 19% year-over-year increase in capacity. Its codeshare partnership with Denver-based ULCC Frontier Airlines is also set to resume in December.
Though accelerated geared turbofan (GTF) inspections “have affected our ability to reallocate aircraft for U.S.-bound routes more than anticipated,” the airline told investors during a third quarter earnings call that it is well-positioned to take advantage of additional demand in the U.S.-Mexico transborder market. Describing a different market segment focus than that of U.S. carriers, Volaris said demand for VFR travel in the region remains robust.
“We are focused on our VFR core markets, flying from Central Mexico to some of the Mexican heritage population markets in the U.S. that have no direct service, while many of the U.S. carriers focus on leisure destinations in Mexico,” Executive Vice President Holger Blankenstein said on Oct. 25. “We are seeing an increasing CASM [cost per available seat mile] gap between us here in Mexico and our U.S. peers.”
Volaris is one of more than 40 airlines affected by the GTF issue, telling investors that 73 (22 A321neo and 51 A320neos) of its 126 aircraft may be temporarily affected. At the time of the earnings call, 16 aircraft were grounded, executives said, noting that the situation affected July and August capacity by approximately 3%. Volaris is currently in talks with OEM Pratt & Whitney on compensation corresponding to the first batch of engines, and expects to reach an agreement on that figure next month.
“We’ll reflect the negotiated compensation and support package on our financial statements once that agreement is in place,” President and CEO Enrique Beltranena said. “Based on guidance from Pratt & Whitney, we expect there will be additional work required on the Neo engine lasting into [20]24 and [20]25, beyond the initial preventive inspections . . . we don’t expect to have any clarity on the longer-term impact until first quarter of 2024.”
A mitigation plan is aimed at partially offsetting GTF impacts, including extending leases on 18 aircraft that were slated for redelivery in 2024-25. Those extensions—currently under negotiation—will range between 24-48 months, on top of which the airline expects to take delivery of 11 Airbus aircraft in 2024 and 13 in 2025 as part of an existing purchase order.
“Notwithstanding our mitigation initiatives, it is fair to assume that we will be forced to shrink our capacity in 2024,” Beltranena said, describing a 2024 focus on maximizing unit revenues and margins while optimizing its network to the best extent possible.
In the third quarter, the airline reported operating revenues of $848 million, up 10.3% year-over-year, on a 10.2% uptick in operating expenses to $809 million. The airline reported a net loss of $39 million, reversed from a net income of $40 million in the year-ago quarter. Volaris earlier in the month updated guidance for full-year 2023 due to GTF impacts, and now expects 10% year-over-year growth in ASMs, lowered from prior guidance of 13%, and total operating revenues at the lowest end of its previously forecasted range of $3.2-3.4 billion.