AND FINANCIAL REVIEW AND PROSPECTS
A. Operating
Results
You should read the following
discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and the notes
thereto included elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to these differences include those discussed below and elsewhere in this annual report, particularly in “Risk
Factors.”
Key Performance Indicators
The following measures are often
provided and used by our management, analysts, and investors to enhance comparability of year-over-year results, as well as to compare
results to other airlines: Revenue passenger miles, or RPMs; Average passenger revenue per booked passenger; Average non-passenger revenue
per booked passenger; Total operating revenue per ASM, or TRASM; Passenger Revenue per ASMs, or RASM; Operating expenses per ASM, or CASM;
CASM ex fuel, and average economic fuel cost per gallon. Average passenger revenue per booked passenger represents the total passenger
revenue divided by booked passengers. The CASM ex fuel represents total operating expenses, net excluding fuel expense divided by ASMs.
Average economic fuel cost per gallon represents total fuel expense net of hedging effect, divided by the total number of fuel gallons
consumed. We believe this operating data is useful in reporting the operating performance of our business, however, these measures may
differ from similarly titled measures reported by other companies and should not be considered in isolation or as a substitute for measures
of performance in accordance with IFRS.
Description of Our Principal
Line Items
Passenger Revenues
Our passenger revenues include:
(i) fare revenues and (ii) other passenger revenues.
We derive our operating revenues
primarily from transporting passengers on our aircraft and some tickets sold by other airlines such as Frontier. 43% of our total operating
revenues were derived from passenger fares in 2025. Passenger revenues are based upon our capacity, load factor and the average passenger
revenue per booked passenger. Our capacity is measured in terms of ASMs, which represents the number of seats we make available on our
aircraft multiplied by the number of miles the seats are flown. Load factor, or the percentage of our capacity that is actually used by
paying customers, is calculated by dividing RPMs by ASMs. The average passenger revenues per booked passenger represents the total passenger
revenue divided by booked passengers.
Our most significant passenger
revenue includes revenues generated from: (i) fare revenue and (ii) other passenger revenues. Other passenger services include but are
not limited to fees charged for excess baggage, bookings through the call center or third-party agencies, advanced seat selection, itinerary
changes, priority services (premium plus) and charters. They are recognized as revenue when the obligation of passenger transportation
service is provided by the Company or when the non-refundable ticket expires on the date of the scheduled travel. 52% of our total operating
revenues were derived from other passenger revenues in 2025.
We also classify as other passenger
revenue “v.club” membership and other similar services, which are recognized as revenue over time when the service is provided.
Non-Passenger Revenues
The most significant non-passenger
revenues include: (i) revenues from other non-passenger services described below and (ii) cargo services. In 2025, we derived U.S.$155.1
million, or 5%, of our total operating revenues from these sources. Revenues from other non-passenger services mainly include, but are
not limited to, commissions charged to third parties for the sale of services. These as well as cargo services, are
recognized as revenue at the time the service is provided.
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We also evaluate, in each new
transaction where applicable, the principal versus agent considerations concerning certain non-air travel service arrangements with third-party
providers. When we determine that the underlying services are provided through third parties who are primarily responsible for providing
the services, revenue for these specific non-air travel services is presented on a net basis (agent).
Proposed Transaction with
Viva
On December 18, 2025, the Company
and Viva entered into the Business Combination Agreement, pursuant to which, subject to the terms and conditions of the Business Combination
Agreement, Viva will be merged with and into Volaris with Volaris continuing thereafter as the surviving entity. In connection with the
Merger, each issued and outstanding Viva share as of the effective time of the Merger will be automatically cancelled and converted into
the right to receive the applicable per-share merger consideration, consisting of Combined Company Series A Shares (in the case of Mexican
Qualified Holders) or Combined Company American Depositary Shares (in the case of other holders), as specified in the Business Combination
Agreement, plus any applicable cash consideration payable in lieu of fractional shares. The closing merger consideration (the “Closing
Share Consideration”) consists of 1,078,528,426 Combined Company Series A Shares (or the equivalent thereof in Combined Company
ADSs or Combined Company Series B Shares for non-Mexican Qualified Holders). After giving effect to issuance of the Closing Share Consideration,
the pre-Merger shareholders of Viva and Volaris will hold approximately 48% and 50% of the Combined Company's capital stock, respectively,
with approximately 2% of the Combined Company’s capital stock held in treasury to support the potential conversion of certain legacy
convertible notes of Viva that will be assumed by the Combined Company in connection with the Merger. As of the date of this annual report,
both Volaris and Viva shareholders have approved the Merger and related transactions contemplated under the Business Combination Agreement,
with Volaris' shareholders approving the transaction at an Extraordinary General Shareholders' Meeting held on March 25, 2026, and Viva’s
shareholders having previously approved the Merger and related transactions by unanimous written resolutions. The completion of the Merger
is subject to certain closing conditions, including required regulatory approvals (including under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, Mexican competition authorities, Colombian aviation authorities, and the Mexican foreign investment commission). As of the
date of this annual report, the Company has filed the requests with the relevant authorities, and the resolutions are still pending.
If completed, the Proposed Transaction is expected to have a material impact on our business, results of operations and financial condition.
For more information, see "Part I, Item 3D. Risk Factors—Risks Related to the Proposed Transaction," "Part I, Item
4. Information on the Company—Proposed Transaction with Viva" and "Note 1" to the consolidated financial statements
contained in Part III, Item 18 of this annual report.
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Statements of Operations data
2023 2024 2025
Operating revenues
Passenger revenues:
Fare revenues 51 % 48 % 43 %
Other passenger revenues 45 % 48 % 52 %
Non-passenger revenues:
Other non-passenger revenues 3 % 3 % 4 %
Cargo 1 % 1 % 1 %
Total operating revenues 100 % 100 % 100 %
Other operating income (2) % (7) % (7) %
Fuel expense 36 % 28 % 29 %
Landing, take-off and navigation expenses 15 % 16 % 18 %
Salaries and benefits 12 % 13 % 15 %
Depreciation of right of use assets 11 % 13 % 15 %
Aircraft and engine variable lease expenses 3 % 4 % 6 %
Sales, marketing and distribution expenses 5 % 6 % 5 %
Maintenance expenses 3 % 3 % 4 %
Other operating expenses 6 % 5 % 4 %
Depreciation and amortization 4 % 6 % 7 %
Total operating expenses, net 93 % 87 % 96 %
Operating income 7 % 13 % 4 %
Finance income 1 % 2 % 2 %
Finance cost (7) % (9) % (10) %
Foreign exchange (loss) gain, net (1) % 0 % 0 %
(Loss) income before income tax 0 % 6 % (4) %
Income tax benefit (expenses) 0 % (2) % 0 %
Net (loss) income 0 % 4 % (4) %
Revenue Recognition
Passenger revenues
Revenues from the air transportation of passengers are recognized when (i) the service is provided
or (ii) when the non-refundable ticket expires on the date of the scheduled travel.
Ticket sales for future flights
are initially recognized as contract liabilities under the caption “unearned transportation revenue” and, once we provide
the transportation service or when the non-refundable ticket expires at the date of the scheduled travel, the earned revenue is recognized
as passenger ticket revenues and the unearned transportation revenue is reduced by the same amount. All of our tickets are non-refundable;
however, certain tickets may be changed upon payment of a fee.
The most significant passenger
revenue includes revenues generated from: (i) fare revenue and (ii) other passenger revenues. Other passenger services include but are
not limited to fees charged for excess baggage, bookings through the call center or third-party agencies, advanced seat selection, itinerary
changes, priority services (premium plus) and charters. They are recognized as revenue when the obligation of passenger transportation
service is provided by us or when the non-refundable ticket expires at the date of the scheduled travel.
We also classify as other passenger
revenues “v. club” membership and other similar services, which are recognized as revenue over time when the service is provided.
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Non-passenger revenues
The most significant non-passenger
revenues include: (i) revenues from other non-passenger services described below and (ii) cargo services.
Revenues from other non-passenger
revenues mainly include but are not limited to, commissions charged to third parties for the sale of services.
These as well as cargo services, are recognized as revenue at the time the service is provided.
We also evaluate, in each new
transaction where applicable, the principal versus agent considerations concerning certain non-air travel service arrangements with third-party
providers. When we determine that the underlying services are provided through third parties who are primarily responsible for providing
the services, revenue for these specific non-air travel services is presented on a net basis (agent).
We are also required to collect
certain taxes and fees from customers on behalf of government agencies and airports and remit these to the applicable governmental entity
or airport on a periodic basis. These taxes and fees include value added tax, federal transportation taxes, federal security charges,
airport passenger facility charges, and foreign arrival and departure taxes. These charges are collected from customers at the time they
purchase their tickets but are not included in passenger revenue. We record a liability when we receive payment from the customer and
discharge the liability when payments are remitted to the applicable governmental entity or airport.
Contract with FEMSA
On January 23, 2023, through
our subsidiary Volaris Opco, we entered into an agreement with Lealtad Mercadotecnia y Conocimientos Agregados, S.A.P.I. de C.V. (the
“Supplier”), a subsidiary of Fomento Económico Mexicano, S.A.B. de C.V. (FEMSA). Under this agreement, Volaris Opco
became a participating company in a coalition that integrated a Loyalty Program called “SpinPremia®”, established and
managed by the supplier. This program offered exclusive benefits to its users, allowing them to accumulate and redeem reward points with
OXXO and Volaris.
Under the "Spin Premia"
agreement customers participating in this program were entitled to accumulate or redeem points when they purchased goods or used services
with any of the companies that are part of the coalition.
The points accumulated for the
services we provided were recorded as a reduction in revenues. The points redeemed for our services were recorded as deferred revenue
until the time when the service was provided, or the points expired. The value of points was determined according to contractual conditions
between us and FEMSA.
On June 30, 2025, through our
subsidiary Volaris Opco, we terminated our coalition agreement with Lealtad Mercadotecnia y Conocimientos Agregados, S.A.P.I. de C.V.
Operating Expenses,
net
Our operating expenses consist
of the following line items.
Other Operating Income.
Other operating income includes gains from sale and leaseback transactions and the compensation received from the manufacturer related
to preventive accelerated inspections for the GTF engines.
Fuel expense. Fuel expense
is our single largest operating expense. It includes the cost of fuel, fueling into-plane fees and transportation fees. It
also includes realized gains and losses that arise from any fuel price derivative activity qualifying for hedge accounting.
Landing, Take-off and Navigation
Expenses. Landing, take-off and navigation expenses include airport fees, handling charges, rents, and variable facility-related costs,
such as the fees charged by airports for the use or lease of airport facilities, as well as costs associated with ground handling services
provided by specific suppliers. These expenses also include route charges, which are the costs incurred for the use of a country’s
or territory’s airspace, which are typically levied based on the distance flown through that airspace.
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Depreciation of right–of–use
assets. Depreciation of right-of-use assets includes the depreciation of all aircraft and engine leases and some land and building
leases that qualify under IFRS 16.
Under IFRS 16, at the commencement
date of a lease, a lessee recognizes a liability for making lease payments (i.e., the lease liability) and an asset representing
the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees are required to separately
recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees are also required
to remeasure the lease liability upon the occurrence of certain events (e.g., changes in the scope of the lease agreement). The
lessee generally recognizes the amount of remeasurement as a change in the lease liability and the right-of-use asset. In addition, for
leases denominated in a foreign currency other than our functional currency the lease liability will be remeasured at each reporting date,
using the foreign exchange of the period.
Salaries and Benefits.
Salaries and benefits expenses include salaries, hourly wages, employee health insurance coverage, and variable compensation provided
to employees for their services, as well as the related expenses associated with employee benefit plans and employer payroll taxes.
Maintenance Expenses. Maintenance
expenses include all parts, materials, repairs and fees for repairs performed by third party suppliers directly required to maintain our
fleet. It excludes the direct labor cost of our own mechanics, which is included under salaries and benefits and only includes routine
and ordinary maintenance expenses. Major maintenance expenses are capitalized and subsequently amortized as described in “Depreciation
and Amortization.”
Sales, Marketing and Distribution
Expenses. Sales, marketing, and distribution expenses consist of advertising and promotional expenses directly related to our services,
including the cost of web support, call center services, travel agent commissions, and credit card discount fees that are associated
with the sale of tickets and other products and services.
Aircraft and Engine Variable
Lease Expenses. Aircraft and engine variable expenses primarily include the estimated return costs of our fleet, which are determined
in accordance with IAS 37, which in no case are related to scheduled major maintenance. Additionally, aircraft and engine variable lease
expenses include the maintenance deposit we pay to the lessor as maintenance reserves, when we determine that we will not recover such
deposits in whole or in part. In these cases, we record these amounts as supplemental rents in the statements of operations from the time
the determination is made through the remaining lease term.
Other Operating Expenses.
Other operating expenses include: (i) administrative and operational support expenses, (ii) technology and communications and (iii)
insurance expenses.
Depreciation and Amortization.
Depreciation and amortization expense includes the depreciation of all owned flight equipment, furniture, and other equipment, as well
as leasehold improvements related to flight equipment. It also includes the amortization of major maintenance events that are accounted
for under the deferral accounting method. These deferred costs, related to the aging of our fleet, are amortized over the shorter of the
period until the next scheduled major maintenance event or the remaining term of the lease.
A common measure of per unit
costs in the airline industry is cost per available seat mile (CASM). The following table shows the breakdown of CASM for the periods
indicated:
For the years ended December 31,
2023 2024 2025
(In dollars cents)
Other operating income (0.1) (0.6) (0.6)
Fuel expense 3.0 2.6 2.5
Landing, take-off and navigation expenses 1.3 1.4 1.5
Salaries and benefits 1.0 1.2 1.2
Depreciation of right of use assets 0.9 1.2 1.2
Aircraft and engine variable lease expenses 0.3 0.4 0.5
Sales, marketing and distribution expenses 0.4 0.5 0.4
Maintenance expenses 0.3 0.3 0.4
Other operating expenses 0.4 0.5 0.3
Depreciation and amortization 0.3 0.5 0.6
Total operating expenses, net 7.8 8.0 8.0
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Trends and Uncertainties
Affecting Our Business
We believe our operating and
business performance is driven by various factors that affect airlines and their markets, trends affecting the broader travel industry,
and trends affecting the specific markets and customer base that we target. The following key factors may affect our future performance.
Continued conflict between
Russia and Ukraine and the conflict in the Middle East. Following the geopolitical crisis in Eastern Europe, on February 21, 2022,
the Russian Federation recognized the independence of the Ukrainian separatist regions of Donetsk and Luhansk in the Donbas region. The
next day, the Federal Council of Russia authorized use of military force abroad, which triggered an invasion of Ukraine by the Russian
Armed Forces on February 24, 2022.
The invasion was widely condemned
internationally with several sanctions being imposed against Russia and Belarus. As a result, the global markets reacted negatively, with
fuel prices surging to their highest level since 2008 amid global concerns on the commodity supply, affecting costs for the aviation industry
in 2022. However, according to IATA, as of 2023, the war in Ukraine has not yet significantly impacted the profitability of most airlines.
Nonetheless, if the conflict - escalates, it holds the potential for adverse effects on the global aviation industry. Political conflicts
are already impacting global trade and could potentially lead to a downturn in aviation.
Moreover, the escalation of
conflict in the Middle East, triggered by attacks between Israel and Iran in April 2024, has heightened geopolitical tensions in the region.
This direct confrontation between Iran and Israel marks a significant escalation in their long-standing political and religious tensions.
The uncertainty surrounding the conflict and the potential responses of each country has reverberated throughout the financial markets.
Notably, the price of Brent crude oil surged to over U.S.$90 per barrel reaching its highest level since the Gaza Strip conflict in October
2023. This uptick in oil prices poses a significant risk to the aviation industry.
The Iran-Israel conflict has
broader implications beyond the immediate region, and the tensions between these two nations have the potential to impact other countries
in the Middle East and beyond, with the possibility of the conflict further exacerbating geopolitical instability and economic uncertainty
globally.
The military conflict between
Iran, Israel, and the United States, which escalated sharply in February 2026, poses an immediate threat to global geopolitical and economic
stability. The targeting of Iranian leadership and subsequent retaliatory strikes have disrupted energy transit through the Strait of
Hormuz and caused widespread regional airspace closures. These developments have triggered significant volatility in global energy and
financial markets, with a prolonged confrontation risking global recession and heightened inflation.
A prolonged or escalating conflict
in Iran and the Middle East could further disrupt global energy markets and cause aircraft fuel prices to remain elevated or raise prices
even higher. We cannot predict the future availability, price volatility or cost of aircraft fuel, or how long current or future conflicts
will last or their ultimate impact on global energy markets. Moreover, even if the conflict in Iran and the Middle East subsides or ends,
there may be lasting disruptions to fuel production, including related infrastructure and transportation. Due to the large proportion
of aircraft fuel costs in our total operating cost base, even a relatively small increase or decrease in the price of aircraft fuel can
have a significant negative impact on our operating costs or revenues and on our business, results of operations and financial condition.
The recent spike in the price of aircraft fuel resulting from the conflicts in Iran and the Middle East is expected to have an immediate
and substantial negative impact on our results of operations.
The airline industry is impacted
by the price and availability of fuel. Fuel is our largest cost, representing 31% of our total operating expense in 2025, and continuous
volatility in fuel costs or significant disruptions in the supply of fuel could have a material adverse effect on our business, statements
of operations and financial position.
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Since the contractual agreements
with jet fuel suppliers include reference to jet fuel index, we are exposed to fuel price risk which might have an impact on the forecasted
consumption volumes. Our jet fuel risk management policy aims to provide us with protection against increases in jet fuel prices. In an
effort to mitigate fuel price risk, the risk management policy allows the use of derivative financial instruments available on over the
counter (“OTC”) markets with approved counterparties and within approved limits.
We cannot assure that this macroeconomic
disruption would not adversely affect our financial performance since we can neither control nor accurately predict the performance of
fuel prices in the global markets or its availability in the airports in which we operate. Due to the large proportion of fuel costs in
our total operating cost base, even a relatively small increase in the price of fuel can have a significant negative impact on our operating
expenses and on our business, results of operations and financial condition.
Along with the cost pressure
due to the higher fuel price, this major disruption in the global economy has also raised concerns regarding inflationary pressures and
the global economic growth rate. Such disruption in inflation indexes could affect our cost in the near future, as several contracts are
subject to annual adjustments based on historical inflation ratios. A reduction in the economy’s growth pace could also adversely
impact demand for air transport services, potentially affecting our financial performance.
Economic Conditions in Mexico.
Mexico’s GDP is expected to grow by 1.9% per year for the next ten years according to the Mexican Central Bank, compared to a 2.0%
annual growth rate for the United States during the same period as reported by the U.S. Federal Reserve. See “Key Information—Risk
Factors—Risks Related to the Airline Industry.”
In terms of population dynamics
as of 2020, the INEGI intercensal survey revealed that approximately 34% of the Mexican population was under 20 years of age. This presents
a favorable outlook as it provides a solid foundation for potential passenger growth. Furthermore, the inflation rate in Mexico in 2025
was 3.69%, based on data from the INEGI. Despite this inflation rate, as of December 31, 2025, Mexico’s international reserves were
U.S.$251.9 billion.
Competition. The airline
industry is highly competitive. The principal competitive factors in the airline industry are fare pricing, total price, flight schedules,
aircraft type, passenger amenities and related services, number of routes served from a city, customer service, safety record and reputation,
code-sharing relationships and frequent flier programs and redemption opportunities. Our current and potential competitors include traditional
legacy airlines, low-cost carriers, regional airlines and new entrant airlines, such as New Mexicana de Aviación. We typically
compete in markets served by legacy carriers and other low-cost carriers, and, to a lesser extent, regional airlines. Some of our current
or future competitors may have greater liquidity and access to capital and may serve more routes than we do.
Our main competitive advantages
are our low base fares and our focus on VFR travelers, leisure travelers and cost-conscious business travelers. These low base fares are
facilitated by our low CASM, which is the lowest among Latin American publicly traded airlines. In 2025, our CASM was U.S. 8.04 cents,
compared to an average non-stage length adjusted CASM of U.S. 11.12 cents for the other Latin American publicly traded airlines, including
Aeroméxico, Copa, and LATAM. We also have lower costs than our U.S.-based publicly traded target market competitors, including
Alaska, Allegiant, American, Delta, Frontier, JetBlue, Southwest, and United, which had an average non-stage-length adjusted CASM of U.S.
16.77 cents in 2025.
Our main competitors in Mexico
are Grupo Aeroméxico and Aeroenlaces Nacionales. Internationally, we compete with Grupo Aeroméxico, Aeroenlaces Nacionales
and many U.S.-based carriers, including Alaska, American, Delta and United. In the Mexico - Central America market, our main competitors
are Grupo Aeroméxico and Avianca, while in the Central America - U.S. market our main competitors are Avianca and Delta. In the
Mexico - South America market our main competitors are Grupo Aeroméxico, Aeroenlaces Nacionales and LATAM.
In 2025, the two Mexican ultra
low-cost carriers, Volaris and Aeroenlaces Nacionales, held 73.5% of the domestic market based on passenger flight segments. Volaris had
34.0% of the domestic market, according to the AFAC.
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As of December 31, 2025, the
number of commercial aircraft in service in Mexico increased to 433, as compared to 389 as of December 31, 2024, according to AFAC. This
11% increase was comprised mainly of narrow body aircraft, including 64 Airbus A320neos, 100 Airbus A320s, 44 Boeing 737s, 48 Airbus A321neos
and 21 Airbus A321s.
As of December 31, 2025, AFAC
reports indicate that Grupo Aeroméxico’s subsidiaries Aeroméxico and Aeroméxico Connect, had fleets of 132
and 34 aircraft, respectively, as compared to 114 and 37, respectively, as of December 31, 2024.
In April 2023, Interjet declared
bankruptcy in Mexico.
Aeroenlaces Nacionales, our
largest competitor by domestic market share in 2025, increased its fleet from 96 as of December 31, 2024 to 101 as of December 31, 2025,
according to AFAC.
As of 2025, our international
market share considering all airlines flying internationally to and from Mexico, increased 0.4pp to 11.8%, compared to our market share
in December 2024. We also face domestic competition from ground transportation alternatives, primarily long-distance bus companies. There
is a large bus industry in Mexico, with total passenger segments of approximately 3.1 billion in 2024, of which approximately 84.6 million
were executive and luxury passenger segments, according to the SICT in Mexico and which could include both long- and short-distance travel.
We set certain of our promotional fares at prices lower than bus fares for similar routes in order to stimulate demand for air travel
among passengers who in the past have traveled long distances primarily by bus. There are limited passenger rail services in Mexico.
Our main competitors for the
international routes between Mexico and the United States are Grupo Aeroméxico, Alaska, American, Delta and United. We reached
44.9% market share on the routes that we operate and 15.6% market share considering all routes between Mexico and the United States in
2025, according to the AFAC.
Seasonality and Volatility.
Our results of operations for any interim period are not necessarily indicative of those for the entire year because our business is subject
to seasonal fluctuations. We generally expect demand to be greater during the summer, during December and around Easter, which can fall
either in the first or second quarter, compared to the rest of the year. Our business is also volatile and highly affected by economic
cycles and trends. Consumer confidence and discretionary spending, fear of terrorism or war, health outbreaks, weakening economic conditions,
fare initiatives, fluctuations in fuel prices, labor actions, weather and other factors have resulted in significant fluctuations in our
revenues and results of operations in the past. We believe, however, that demand for business travel historically has been more sensitive
to economic pressures than demand for low-price leisure and VFR travel, which are the primary markets we serve.
Fuel. Fuel costs represent
the single largest operating expense for most airlines, including ours, and accounted for 38%, 33%, and 31%, of our total operating expenses
for 2023, 2024, and 2025, respectively. Fuel availability and pricing are subject to refining capacity, periods of market surplus and
shortage, and demand for heating oil, gasoline and other petroleum products, as well as economic, social and political factors and other
events occurring throughout the world, which we can neither control nor predict. For 2026, we expect the fuel prices to remain volatile
due to uncertainties regarding the political and macroeconomic environment.
Since the contractual agreements
with jet fuel suppliers include reference to jet fuel index, we are exposed to fuel price risk which might have an impact on the forecasted
consumption volumes. Our jet fuel risk management policy aims to provide us with protection against increases in jet fuel prices. In an
effort to mitigate fuel price risk, the risk management policy allows the use of derivative financial instruments available on OTC markets
with approved counterparties and within approved limits.
The sensitivity analysis provided
below presents the impact of a change of U.S.$0.01 per gallon in fuel market spot price in our financial performance. Considering these
figures, an increase of U.S.$0.01 per gallon in the fuel prices during 2023, 2024 and 2025 would have impacted our operating expenses
by U.S.$3.7 million, U.S.$3.2 million and U.S.$3.4 million, respectively.
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For the years ended December 31,
2023 2024 2025
Operating costs Operating costs Operating costs
(In thousands of U.S. dollars)
+ U.S. $0.01 per gallon 3,719 3,227 3,400
- U.S. $0.01 per gallon (3,719) (3,227) (3,400)
We proactively aim to mitigate this
impact through our risk management policy, through efficient hedging strategies focused on specific time periods. Our ability to pass
on any significant increase in fuel costs through fare increases is limited by our ultra-low-cost business model and market high elasticity
to price.
As of December 31, 2025, the
Company held US Gulf Coast Jet Fuel 54 Asian call options, designated to hedge 2,986 thousand gallons, representing a portion of the projected
fuel consumption for the second quarter of 2026.
Our fuel cost is referenced
mainly to Core Jet Kero 54 USGC and Core Jet Kero Los Angeles CA, which are the commodities utilized to determine the cost of the fuel
provided by most of our suppliers. As of December 31, 2025, we purchased most of the domestic fuel under the ASA fuel service contract,
and our international fuel under the World Fuel Services, AvFuel, Shell, BP Products North America, Chevron, Associated Energy Group,
Puma Energy Group, Total Energies and Titan fuel service contracts. The cost and future availability of fuel cannot be predicted with
any degree of certainty.
The airline industry is impacted
by the price and availability of fuel. Fuel is our largest cost, representing 31% of our total operating expense in 2025, and continuous
volatility in fuel costs or significant disruptions in the supply of fuel could have a material adverse effect on our business, statements
of operations and financial position.
Currency fluctuations. The value of the U.S. dollar
has been subject to significant fluctuations with respect to the Mexican peso in the past and may be subject to significant fluctuations
in the future. If the Mexican peso depreciates against the U.S. dollar, our operating demand could be adversely affected.
We manage our foreign exchange
risk exposure by a policy of matching, to the extent possible, receipts and local payments in each individual currency. However, we are
exposed to fluctuations in exchange rates between the U.S. dollar and the peso.
As of December 31, 2023, 2024 and 2025, our net
liability monetary position in Mexican pesos and other currencies denominated in U.S. dollars was U.S.$0.2 billion, U.S.$0.4 billion
and U.S.$0.3 billion, respectively. In 2023, 2024 and 2025, as a consequence of either the appreciation or depreciation of the U.S.
dollar against the peso, and our net monetary liability position in Mexican peso and other currencies, we recorded foreign exchange
(loss) gains of U.S.$(34.1) million, U.S.$13.7 million, and U.S.$13.1 million, respectively.
Maintenance Expenses.
We are required by the Civil Aviation Authorities to conduct several levels of aircraft and engine maintenance to
maintain its airworthiness condition and also comply with lease contracts, which involve significantly different labor and materials inputs. Maintenance
requirements depend on the age and type of aircraft and the route network over which it operates (utilization). Fleet maintenance requirements
may include preventive maintenance tasks based on manufactures recommendations, for example, component checks, airframe and systems checks,
periodic major maintenance and engine checks. Aircraft maintenance and repair consists of routine and non-routine tasks and are divided
into three general categories:
(i) Routine line maintenance requirements consist of scheduled maintenance checks on our aircraft, including pre-flight, daily, weekly checks, any diagnostics and routine repairs and any unscheduled maintenance is performed as required. These types of maintenance events are normally performed by Volaris trained mechanics and are primarily completed at the main airports that we currently serve supported by sub-contracted companies.
· Other maintenance activities, are sub-contracted to certified business partners, repair and overhaul organizations. Routine maintenance also includes scheduled tasks that can typically take from six to 15 days to accomplish and are required between every 24 or 36 months, such as 24-month checks and C checks. All maintenance costs are expensed as incurred.
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(ii) Major maintenance for the aircraft consists of a series of more complex tasks, including structural checks for the airframe.
· Major maintenance is accounted for under the deferral method, whereby the costs of major maintenance, major overhauls and repairs are capitalized as leasehold improvements to flight equipment and amortized over the shorter period of the next major maintenance event or the remaining contractual lease term
The next major maintenance
event is estimated based on assumptions including estimated time of usage. The FAA and the AFAC authorized maintenance intervals and average
removal times as recommended by the aircraft and components manufacturers of our fleet.
These assumptions may
change based on changes in the utilization of aircraft, changes in government regulations and recommended manufacturer maintenance intervals.
In addition, these assumptions can be affected by unplanned events that could damage an airframe, engine, or major component to a level
that would require a heavy maintenance event prior to a scheduled maintenance event. To the extent the planned usage increases, the estimated
life would decrease before the next maintenance event, resulting in additional expense over a shorter period.
(iii) We have a power-by-the hour agreement for component services, which guarantees the availability of aircraft components for our fleet when they are required. It also provides aircraft components that are included in the redelivery conditions of the contract (hard time) with a fixed price at the time of redelivery. The monthly maintenance cost associated with this agreement is recognized as incurred in the consolidated statements of operations.
· We have an engine flight hour agreement (repair agreement), that guarantees a cost for the engines shop visits, provides miscellaneous engine coverage, supports the cost of foreign objects damage events, ensures protection from annual escalations, and grants credit for certain scrapped components. The cost associated with the miscellaneous engine coverage is recorded monthly as incurred in the consolidated statements of operations.
Due to the young age of our
fleet, 6.6 years on average as of December 31, 2025, maintenance expense in 2023, 2024, and 2025, remained relatively low. For the years
ended December 31, 2023, 2024, and 2025, we capitalized major maintenance events as part of leasehold improvements to the flight equipment
by the amount of U.S.$139.8 million, U.S.$129.4 million, and U.S.$90.9 million respectively. For the years ended December 31, 2023, 2024,
and 2025, the amortization of these deferred major maintenance expenses was U.S.$114.9 million, U.S.$150.6 million, and U.S.$157.4 million,
respectively. The amortization of deferred maintenance expenses is included in depreciation and amortization rather than total maintenance
costs as described in “Other Accounting Polices and Estimates.” In 2023, 2024, and 2025 total maintenance expenses amounted
to U.S.$98.4 million, U.S.$100.4 million, and U.S.$129.9 million, respectively. As the fleet ages, we expect that maintenance costs will
increase in absolute terms. The amount of total maintenance costs and related amortization of heavy maintenance expense is subject to
many variables such as future utilization rates, average stage length, the size and makeup of the fleet in future periods and the level
of unscheduled maintenance events and their actual costs. Accordingly, we cannot reliably quantify future maintenance expenses for any
significant period. However, we estimate that based on our scheduled maintenance events, current major maintenance expense and maintenance-related
amortization expense will be approximately U.S.$309 million and U.S.$190 million, respectively, in 2026.
Maintenance Deposits Paid to Lessors. Certain of
our lease agreements require us to pay maintenance deposits to aircraft lessors in order to guarantee major maintenance work. These deposits
are recorded as a guaranteed deposit in our consolidated statements of financial position. See Item 5: “Other Accounting Policies
and Estimates.”
Ramp-up Period for New Routes.
We opened 58 new routes, 18 new routes, and 35 new routes, during 2023, 2024, and 2025, respectively. As we continue to grow, we would
expect to continue to experience a lag between when new routes are put into service and when they reach their full profit potential.
See Item 3: “Key Information—Risk Factors—Airline consolidations and reorganizations could adversely affect the industry.”
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Critical Accounting Estimates
The following discussion and
analysis of our consolidated financial condition and results of operations is based on our consolidated financial statements, which have
been prepared in accordance with IFRS. The preparation of these consolidated financial statements requires us to make estimates and
judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of supplemental assets
and liabilities at the date of our consolidated financial statements. Note 2 to our consolidated financial statements included herein
provides a detailed discussion of our material accounting policies.
Critical accounting policies
are defined as those policies that reflect significant judgments or estimates about matters that are both inherently uncertain and material
to our consolidated financial position or consolidated results of operations.
Return obligations.
Our aircraft and engine lease
agreements require specific return conditions, which are described as follows:
a)
Modifications to the underlying asset to meet the return conditions stipulated in the lease agreement, typically related to aircraft
standardization and painting which can be reasonably estimated at the beginning of the lease agreement. These costs are initially recognized
at present value as part of the right-of-use assets.
b)
Aircraft components (airframe, APU and landing gears) and engines (overhaul and limited life parts) must be returned to lessors
under specific conditions of maintenance. Return costs, which are not related to scheduled major maintenance, are estimated and recognized
ratably as a provision from the time it becomes probable that such costs will be incurred and they can be reliably estimated. These return
costs are recognized as a component of variable lease expenses and the provision is remeasured and presented as part of other liabilities,
through the remaining lease term. We estimate the provision related to aircraft components and engines using certain assumptions, which
include the projected usage of the aircraft and the expected costs of maintenance tasks to be performed. This provision is made in relation
to the present value of the expected future costs of meeting the return conditions.
As a result of the aircraft
and engine lease extension agreements entered into during the year ended December 31, 2025, we reassessed our return liabilities. The
effects of this remeasurement were presented as part of the variable lease expenses for aircraft and engines in our consolidated statements
of operations. For the years ended December 31, 2023, 2024, and 2025, we recorded net redelivery expenses of U.S.$103.8 million, U.S.$135.2
million, and U.S.$196.1 million, respectively.
Other Accounting Policies
and Estimates
Other accounting policies and
estimates used in the preparation of our Consolidated Statement of Financial Position and Consolidated Statement of Operations are presented
as follows:
Deposits for flight
equipment maintenance paid to lessors
Certain of our lease agreements
include an obligation to pay maintenance deposits to aircraft lessors in order to guarantee major maintenance events.
These lease agreements set forth that maintenance deposits
are reimbursable to us upon completion of the maintenance event in an amount equal to the lesser of (i) the amount of the maintenance
deposits held by the lessor associated with the specific maintenance events or (ii) the qualifying costs related to the specific maintenance
events.
Substantially all major maintenance
deposits are calculated based on the use of leased aircraft and engines (flight hours or operating cycles). We paid U.S.$52.6 million,
U.S.$16.8 million, and U.S.$5.0 million, in maintenance deposits, net of reimbursements, to our lessors for the years ended December
31, 2023, 2024, and 2025, respectively.
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Maintenance deposits that we
expect to recover from lessors are presented as security deposits in the consolidated statement of financial position.
According to the terms of
the corresponding lease agreement, in each contract we evaluate whether major maintenance of the leased aircraft and engines is
expected to be carried out. In the event that major maintenance is not expected to be performed at our own account, the deposit is
recorded as a variable lease payment, since it represents part of the use of the leased goods and is determined based on time or
flight cycles. For the years ended December 31, 2023, 2024, and 2025, we recorded supplemental lease payments of U.S.$83.5 million,
U.S.$114.3 million, and U.S.$ 179.0 million, respectively.
When modifications are made
to lease agreements that result in an extension of the lease term, maintenance deposits previously recognized as variable lease payments
may be reclassified as recoverable deposits and presented as recoverable assets at the modification date.
Certain aircraft lease agreements
do not require advance payment of maintenance deposits to lessors as security for major maintenance activities; accordingly, no guarantee
deposits are recorded or paid for these aircraft.
Some of these lease agreements
include the obligation to make maintenance adjustment payments to lessors at the end of the lease period. These maintenance adjustments
cover maintenance events that are not expected to be performed before the termination of the lease; for such agreements, we accumulate
a liability related to the amount of the costs that will be incurred at the end of the lease, since no maintenance deposits have been
made.
As of December 31, 2023, 2024,
and 2025, we had prepaid maintenance deposits of U.S.$417.1 million, U.S.$382.8 million, and U.S.$314.8 million, respectively, recorded
in our consolidated statements of financial position. We currently expect that, subject to the provisions of each lease agreement, these
prepaid maintenance deposits are likely to be recovered primarily because there is no rate differential between the maintenance deposit
payments and the expected cost for the related next maintenance event that the deposits serve to collateralize.
During the year ended December
31, 2023, we extended the lease period for aircraft and engines, through lease agreements for nine aircraft and six engines. During the
year ended December 31, 2024, we extended the lease period for aircraft and engines, through lease agreements for ten aircraft and two
engines. During the year ended December 31, 2025, we extended the lease period for six aircraft through lease agreements.
During the years ended December
31, 2023, 2024, and 2025, we added 13, 14, and 16 net new aircraft to our fleet, respectively. The lease agreements of these aircraft
do not require the obligation to pay maintenance deposits to lessors in advance in order to ensure major maintenance activities, so we
do not record guarantee deposits regarding these aircraft. However, some of these agreements provide the obligation to make a maintenance
adjustment payment to the lessors at the end of the contract period. This adjustment covers maintenance events that are not expected to
be made before the termination of the contract. We recognize this cost as supplemental rent during the lease term of the related aircraft,
in the consolidated statements of operations.
Aircraft and Engine Maintenance.
We account for major maintenance under the deferral method, whereby the cost of major maintenance, major overhaul and repair is capitalized
(leasehold improvements to flight equipment) and amortized over the shorter of the period to the next major maintenance event or the
remaining contractual lease term. The next major maintenance event is estimated based on assumptions including estimated usage maintenance
intervals mandated by the FAA in the United States and the AFAC in Mexico and average removal times recommended by the manufacturer.
These assumptions may change based on changes in the utilization of aircraft, changes in government regulations and changes in recommended
manufacturer maintenance intervals. In addition, these assumptions can be affected by unplanned events that could damage an airframe,
engine, or major component to a level that would require a heavy maintenance event prior to a scheduled maintenance event. To the extent
the planned usage increases, the estimated useful life would decrease before the next maintenance event, resulting in additional expense
over a shorter period.
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In 2023, 2024, and 2025, we
capitalized costs of major maintenance events of U.S.$139.8 million, U.S.$129.4 million, and U.S.$90.9 million, respectively and we recognized
amortization expenses of U.S.$114.9 million, U.S.$150.6 million, and U.S.$157.4 million, respectively. The amortization of maintenance
cost expenses is recorded as part of depreciation and amortization in our consolidated statements of operations.
In August 2012, we entered into
a total support agreement with LHT, as amended in December 2016, that expires December 2031, which includes a total component support
agreement (power-by-hour) and ensures the availability of aircraft components for our fleet when they are required. The cost of the total
component support agreement is applied monthly to our results of operations.
During December 2017, we entered
into an updated total support agreement for 66 months, with an effective date on July 1, 2018. This agreement includes similar terms
and conditions from the original agreement.
As part of this total support
agreement, we received credit notes of U.S.$5.0 million in 2022 and of U.S.$1.5 million in 2017, which are being amortized on a straight-line
basis, prospectively during the term of the agreement. During 2023, 2024, and 2025, we amortized a corresponding benefit from these credit
notes of, U.S.$0.5 million, U.S.$0.5 million, and U.S.$0.5 million, respectively, which is recognized as an offset to maintenance expenses
in the consolidated statements of operations as a reduction of maintenance expenses.
Fair Value. The fair
value of our financial assets and financial liabilities recorded in the consolidated statements of financial position cannot be derived
from active markets. They are determined using valuation techniques such as the discounted cash flow model. The inputs to these models
are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair
values. The judgments include considerations of inputs such as liquidity risk, credit risk and expected volatility. Changes in assumptions
regarding these factors could affect the reported fair value of financial instruments.
Gains and Losses on Sale
and Leaseback. We enter into sale and leaseback agreements whereby an aircraft or engine is sold to a lessor upon delivery and the
lessor agrees to lease such aircraft or engine back to us.
During the years ended December
31, 2023, 2024, and 2025, we sold and transferred aircraft to third parties, giving rise to a gain of U.S.$8.3 million, U.S.$32.2 million,
and U.S.$29.3 million, respectively, that was recorded as other operating income in the consolidated statements of operations.
Share-based payments
Long Term Incentive Plan
(LTIP)
- Share purchase plan (equity-settled)
Certain key executives receive
additional benefits through a share purchase plan denominated in Restricted Stock Units (“RSUs”), which has been classified
as an equity-settled share-based payment. The cost of the equity-settled share purchase plan is measured at the grant date, considering
the terms and conditions on which the share options were granted. The equity-settled compensation cost is recognized in the consolidated
statement of operations under the caption of salaries and benefits, over the required service period.
- SARs plan (cash settled)
We granted SARs to key executives,
which entitle them to a cash payment after a service period.
The cash payment amount is determined
based on the increase in Volaris’ share price between the grant date and the exercise date. The liability for the SARs is measured
initially and at the end of each reporting period until settlement at the fair value of the SARs, considering the terms and conditions
under which they were granted.
The compensation cost is recognized
in the consolidated statement of operations under the caption of salaries and benefits, over the required service period.
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The cost of the SARs plan is
measured initially at fair value at the grant date. This fair value is expensed over the period until the vesting date with recognition
of a corresponding liability. Similar to the equity settled awards described above, the valuation of cash settled award also requires
using similar inputs, as appropriate.
Board of Directors Incentive
Plan (BoDIP)
Certain members of the Board
of Directors receive additional benefits through a share-based plan, which has been classified as an equity-settled share-based payment
and therefore accounted under IFRS 2 “Share-based payment”.
In April 2018, the Board of
Directors authorized a Board of Directors Incentive Plan “BoDIP”, for the benefit of certain board members.
The BoDIP grants options to purchase shares of the Company
or CPOs over a five-year period, with the exercise price determined on the grant date. Under this plan, no service or performance conditions
are required for board members to exercise the option to purchase shares; therefore, they have the right to request delivery of such shares
upon making the corresponding payment. During the years ended 2023 and 2025, certain board members exercised their stock options. During
the year ended 2024, board members did not exercise these purchase options. In accordance with the terms of the plan, Volaris is entitled
to receive the proceeds from the sale of these shares. The number of forfeited shares during the end of the years as of December 31, 2023,
2024 and 2025, was 586,263, 807,255 and 1,898,603, respectively.
For such purposes on August 29, 2018, the Fideicomiso
Irrevocable de Administración número CIB/3081 was created by Volaris, which acted as trustee and CIBanco, S.A., Institucion
de Banco Multiple as trustor. The number of shares held as of December 31, 2023, 2024 and 2025 available to be exercised is 4,781,769,
3,388,251 and 1,138,384, respectively and are included in treasury shares.
In April 2023, our Annual General Shareholders’
Meeting modified the terms of the BoDIP. Effective as of 2023 certain members of the Board of Directors receive additional benefits through
a stock-based plan, which will be administered by the LTIP Trust and will be delivered to the beneficiaries once the established conditions
are met. The number of shares held by the trustee as of December 31, 2024 and 2025 were 588,205 shares and 1,030,094 shares, respectively
(and they are included as treasury shares). The total cost approved in 2024 and 2025 was U.S. $0.7 million (U.S. $0.5 million net of withheld
taxes) and U.S. $0.6 million (U.S. $0.4 million net of withheld taxes), respectively.
Additional details of these plans can be consulted in
note 18 to the Consolidated Financial Statements.
Derivative Financial
Instruments and Hedge Accounting
We mitigate certain financial
risks, such as volatility in the price of jet fuel, adverse changes in interest rates and exchange rate fluctuations, through a controlled
risk management policy that includes the use of derivative financial instruments. The derivative financial instruments are recognized
in the consolidated statement of financial position at fair value. The effective portion of a cash flow hedge’s unrecognized gain
or loss is recognized in “Accumulated other comprehensive income (loss) items,” while the ineffective portion is recognized
in current year earnings. The realized gain or loss of derivative financial instruments that qualify as hedging is recorded in the same
statements of operations as the realized gain or loss of the hedged item. Derivative financial instruments that are not designated as
or not effective as a hedge are recognized at fair value with changes in fair value recorded in current year´s earnings. Outstanding
derivative financial instruments may require collateral to guarantee a portion of the unsettled loss prior to maturity. The amount of
collateral delivered in guarantee, which is presented as part of “Guarantee deposits,” is reviewed and adjusted daily, based
on the fair value of the derivative position. As of December 31, 2025, we did not have any collateral recorded as guarantee deposits associated
with jet fuel hedges.
(i)
Aircraft Fuel Price Risk. We account for derivative financial instruments at fair value and recognize them in the consolidated
statements of financial position as an asset or liability. The cost of aircraft fuel consumed in 2023, 2024, and 2025, represented 38%,
33%, and 31%, of our operating expenses, respectively.
During the year ended December 31, 2023, we did not enter
into derivative financial instruments to hedge our jet fuel exposure. During the six months ended December 31, 2024, we contracted US
Gulf Coast Jet Fuel 54 Asian call options, designated to hedge 14,356 thousand gallons, representing a portion of the projected fuel consumption
for the first quarter of 2025.
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During the year ended December
31, 2025, we contracted US Gulf Coast Jet Fuel 54 Asian call options, designated to hedge 2,986 thousand gallons, representing a portion
of the projected fuel consumption for the second quarter of 2026.
Our fuel cost is referenced
to Core Jet Kero 54 USGC and Core Jet Kero Los Angeles CA, which are
the references utilized to determine the cost of the fuel provided by our suppliers.
We apply IFRS 9, which comprises
aspects related to classifications and measurement of financial assets and financial liabilities, as well as hedge accounting treatment.
Paragraph 6.2.4 (a) of IFRS 9 allows us to separate the intrinsic value and time value of a derivatives contract and to designate as the
hedging instrument only the change in the intrinsic value of the contract. As further required in paragraph 6.5.15 therein, because the
external value (time value) of the Jet fuel derivatives contracts are related to a “transaction related hedged item,” it is
required to be segregated and accounted for as a “cost of hedging” in other comprehensive income (“OCI”), and
accrued as a separate component of stockholders’ equity until the related hedged item affects profit and loss.
Since monthly forecasted jet
fuel consumption is considered the hedged item of the “related to a transaction” type, then the time value included as accrued
changes on external value in capital is considered as a “cost of hedging” under IFRS 9. The hedged item (jet fuel consumption)
contracted by us represents a non-financial asset (energy commodity), which is not in our inventory. Instead, it is directly consumed
by our aircraft at different airport terminals. Therefore, although a non-financial asset is involved, its initial recognition does not
generate a book adjustment in our inventories. Rather, it is initially accounted for in our OCI and a reclassification adjustment is made
from OCI toward the profit and loss and recognized in the same period or periods during which the hedged item is expected to be allocated
to profit and loss (in accordance with IFRS 9.6.5.15, B6.5.29 (a), B6.5.34 (a) and B6.5.39). As of January 2015, we began to reclassify
these amounts (previously recognized as a component of equity) to our consolidated statement of operations in the same period in which
our expected jet fuel volume consumed affects our jet fuel purchase line item therein.
As of December 31, 2025, the
fair value of the outstanding US Gulf Coast Jet Fuel 54 Asian call options was U.S. $185 thousand. The cost of hedging derived from the
extrinsic value changes of the jet fuel hedged position given the out-of-the-money position as of December 31, 2025, recognized in other
comprehensive loss was U.S. $280 thousand.
The cost of hedging will be recycled to the fuel cost
during first and second quarter 2026, as these options expire on a monthly basis and the jet fuel is consumed.
(ii)
Foreign Currency Risk. Foreign currency risk is the risk that the fair value of future cash flows will fluctuate because
of changes in foreign exchange rates. Our exposure to the risk of changes in foreign exchange rates relates primarily to our operating
activities (when revenue or expense is denominated in a different currency than dollars). Exchange exposure relates to amounts payable
arising from pesos-denominated and pesos-linked expenses and payments. To mitigate this risk, we may use foreign exchange derivative financial
instruments.
During the years ended December
31, 2023, 2024, and 2025, the Company did not enter into foreign currency derivative contracts.
As of December 31, 2023, 2024,
and 2025, our foreign exchange exposure also was a net liability position of U.S.$0.2 billion, U.S.$0.4 billion, and U.S. $0.3 billion,
respectively, primarily denominated in Mexican Pesos.
Hedging relationships
derivative financial instruments.
We mitigate certain financial
risks, such as volatility in the price of jet fuel, adverse changes in interest rates and exchange rate fluctuations, through risk management
that includes the use of derivative financial instruments.
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In accordance with IFRS 9, derivative
financial instruments are recognized in the consolidated statement of financial position at fair value. At the inception of a hedge relationship,
we formally designate and document the hedge relationship to which we wish to apply hedge accounting, as well as the risk management objective
and strategy for undertaking the hedge. The documentation includes the hedging strategy and objective, identification of the hedging instrument,
the hedged item or transaction, the nature of the risks being hedged and how we will assess the effectiveness of changes in the hedging
instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to
the hedged risks.
Only if such hedges (i) are
expected to be effective in achieving offsetting changes in fair value or cash flows of the hedge items and (ii) are assessed on an ongoing
basis to determine that they have been effective throughout the financial reporting periods for which they were designated, can hedge
accounting treatment be used.
Under the cash flow hedge (“CFH”),
accounting model, the effective portion of the hedging instrument’s changes in fair value is recognized in OCI, while the ineffective
portion is recognized in current year earnings in the statement of profit or loss. The cash flow hedge reserve is adjusted to the lower
of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item. The amounts recognized
in OCI are transferred to earnings in the period in which the hedged transaction affects earnings.
The realized gain or loss of
derivative financial instruments that qualify as CFH are recorded in the same caption as the hedged item in the consolidated statement
of operations.
See Item 3: “Key Information—Risk
Factors—Currency fluctuations or the devaluation and depreciation of the U.S. dollar could adversely affect our business, results
of operations, financial condition and prospects.”
(iii)
Interest Rate Risk. The interest rate risk is the risk that the fair value of future cash flows will fluctuate because
of changes in market interest rates. Our exposure to the risk of changes in market interest rates relates primarily to our long-term
debt obligations and lease obligations with floating interest rates. As of December 31, 2023, we had an outstanding hedging contract
in the form of an interest rate caps with a notional amount of Ps.3.16 billion (U.S. $187.4 million based on an exchange rate of Ps.16.89
to U.S. $1 on December 31, 2023) and a fair value of U.S. $1.7 million. As of December 31, 2024, we had an outstanding hedging contract
in the form of an interest rate cap with a notional amount of Ps.2.4 billion (U.S. $119.2 million based on an exchange rate of Ps.20.27
to U.S. $1 on December 31, 2024) and a fair value of U.S. $0.3 million. As of December 31, 2025, we had an outstanding hedging contract
in the form of an interest rate cap with a notional amount of Ps.1.9 billion (U.S. $106.6 million based on an exchange rate of Ps.17.97
to U.S. $1 on December 31, 2025) and a fair value of U.S. $4 thousand. These instruments are included as assets in our consolidated statements
of financial position.
The table below presents the
payments required by our financial liabilities:
Within one One to five Five or more
Year Years Years Total
Interest-bearing borrowings:
Pre-delivery payment facilities 176,949 23,569 - 200,518
Asset backed trust notes 33,627 73,052 - 106,679
Other financing agreements 48,773 285,239 61,602 395,614
Total 259,349 381,860 61,602 702,811
Deferred Taxes.
Deferred taxes are recorded
based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit
carry-forwards. In assessing our ability to realize deferred tax assets, our management considers whether it is more likely than not
that some or all of the deferred tax assets will be realized. In evaluating our ability to utilize our deferred tax assets, we consider
all available evidence, both positive and negative, in determining future taxable income on a jurisdiction-by-jurisdiction basis. As
of December 31, 2023, 2024, and 2025, we had tax loss carry-forwards amounting to U.S. $131.2 million, U.S. $0.8 million, and U.S. $3.2
million, respectively. These losses relate to our and our subsidiaries’ operations on a stand-alone basis, which in conformity
with current Mexican Income Tax Law may be carried forward against taxable income generated in the succeeding years in each country and
may not be used to offset taxable income elsewhere in our consolidated group. During the year ended December 31, 2023, 2024, and 2025
we used tax-loss carry-forwards of U.S. $15.5 million, U.S. $107.9 million, and U.S. $2.5 million, respectively.
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Central America
(Guatemala, Costa Rica and El Salvador) According to Guatemala corporate income tax law, under the
regime on profits from business activities net operating losses cannot offset taxable income in prior or future years. For the years
ended December 31, 2023, 2024, and 2025, we generated tax profit of U.S. $623 thousand, U.S. $966 thousand, and U.S. $211 thousand,
respectively.
According to Costa Rica corporate
income tax law, the tax is based on the net income earned from traffic whose origin or final destination is Costa Rica and net operating
losses can offset taxable income in a term of three years. For the years ended December 31, 2023, 2024, and 2025, we generated a net operating
gain (loss) of U.S.$(9.5) million, U.S.$0.6 million, and U.S.$(3.4) million, respectively. Regarding operating loss no deferred tax asset
has been recognized.
According to El Salvador corporate
income tax law, under the regime on profits from business activities, net operating losses cannot offset taxable income in prior or future
years. For the years ended December 31, 2023, 2024, and 2025, we generated a net operating gain for an amount of U.S.$3.2 million, U.S.$35.8
million, and U.S.$1.3 million, respectively.
Impairment of Long-Lived Assets.
The carrying value of flight
equipment, furniture, and equipment and right of use assets is reviewed for impairment when events or changes in circumstances indicate
the carrying value may not be recoverable.
We have identified one Cash
Generating Unit (CGU), which includes the long-lived assets and the entire fleet, including right-of-use assets and flight equipment.
We assess at each reporting date, whether there is objective evidence that long-lived assets and the entire fleet, including right-of-use
assets and flight equipment are impaired in the CGU. We record impairment charges in operations when events and circumstances indicate
that the assets may be impaired or when the carrying amount of a long-lived asset or related cash generating unit exceeds its recoverable
amount, which is the higher of (i) its fair value less cost to sell and (ii) its value in use.
The value in use calculation
is based on a discounted cash flow model, using our projections of operating results for the near future, typically extending no more
than five years. The recoverable amount of long-lived assets is sensitive to the uncertainties inherent in the preparation of projections
and the discount rate used in the calculation.
For the year ended December
31, 2025, we performed an impairment test on our only Cash Generating Unit (CGU), comprising the long-lived assets and the entire aircraft
fleet, including right-of-use assets and flight equipment. The recoverable amount of the CGU was determined using a discounted cash flow
model based on projections covering a five-year period. The determination of the recoverable amount considered a post-tax discount rate
of 10.25% (pre-tax of 14.29%) and a long-term growth rate of 2.17%. We concluded that the carrying amount of the CGU did not exceed its
recoverable amount, based on the applied methodologies and assumptions, and therefore, no impairment charges were recorded.
For the years ended December
31, 2025 and 2024, we evaluated through an analysis if there were signs of impairment in its long- lived assets and right- of use assets,
and according to the result, we concluded there were no signs of impairment.
Allowance for Expected Credit
Losses. An allowance for expected credit losses is established using the life-time expected credit loss approach, based on objective
evidence that we will not be able to collect all amounts due according to the original terms of the receivables. At December 31, 2023,
2024, and 2025, the allowance for credit losses were U.S. $1.3 million, U.S. $0.8 million, and U.S. $0.9 million, respectively.
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Operating Revenues
2024 compared to 2025
For the years ended December 31,
2024 2025 Variation
(In thousands of dollars, except for %)
Operating Revenues
Passenger revenues:
Fare revenues 1,517,106 1,301,750 (215,356) (14.2 )%
Other passenger revenues 1,492,593 1,580,665 88,072 5.9 %
Non-passenger revenues:
Other non-passenger revenues 111,551 134,483 22,932 20.6 %
Cargo 20,626 20,618 (8) 0.0 %
Total operating revenues 3,141,876 3,037,516 (104,360) (3.3) %
Operating Data
Capacity (in ASMs in thousands) 33,989,693 36,118,110 2,128,417 6.3 %
% Load factor booked 87% 84% (2.5) pp
Booked passengers (in thousands) 29,473 30,995 1,522 5.2 %
Average passenger revenue per booked passenger 51 42 (9) (18.4) %
Average other passenger revenue per booked passenger 51 51 - 0.7 %
Average total ancillary revenue per booked passenger 55 56 1 1.6 %
Revenue passenger miles (RPMs in thousands) 29,504,673 30,453,201 948,528 3.2 %
Fare revenues. The 14.2%
decrease in fare revenues in 2025 was primarily driven by 18.4% decrease in average passenger revenue per booked passenger, partially
offset by a 5.2% increase in booked passenger. Additionally, during 2025 ASM capacity increased in response to passenger demand in our
market.
Other passenger revenues.
The 5.9% increase in other passenger revenues in 2025 was primarily driven by a higher number of passengers purchasing additional
services compared to 2024. During 2025, we implemented a new initiative to increase ancillary revenue sales.
Other non-passenger revenues.
The 20.6% increase in other non-passenger revenues in 2025 was primarily driven by higher other revenues, mainly attributable to
increased affinity credit card commissions compared to 2024.
2023 compared to 2024
For the years ended December 31,
2023 2024 Variation
(In thousands of dollars, except for %)
Operating Revenues
Passenger revenues:
Fare revenues 1,650,287 1,517,106 (133,181) (8.1) %
Other passenger revenues 1,473,237 1,492,593 19,356 1.3 %
Non-passenger revenues:
Other non-passenger revenues 115,424 111,551 (3,873) (3.4) %
Cargo 20,025 20,626 601 3.0 %
Total operating revenues 3,258,973 3,141,876 (117,097) (3.6) %
Operating Data
Capacity (in ASMs in thousands) 38,890,127 33,989,693 (4,900,434) (12.6) %
% Load factor booked 86 % 87 % 0.8 pp
Booked passengers (in thousands) 33,497 29,473 (4,024) (12.0) %
Average passenger revenue per booked passenger 49 51 2 4.1 %
Average other passenger revenue per booked passenger 44 51 7 15.9 %
Average total ancillary revenue per booked passenger 48 55 7 14.6 %
Revenue passenger miles (RPMs in thousands) 33,448,937 29,504,673 (3,944,264) (11.8) %
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Fare revenues. The
8.1% decrease in fare revenues in 2024 was primarily driven by a 12.0% decline in booked passengers, partially offset by a 4.1% increase
in average fare revenue per booked passenger. Additionally, ASM capacity was reduced during 2024 in response to passenger demand in our
markets.
Other passenger revenues.
The 1.3% increase in other passenger revenues in 2024 was primarily driven by a higher number of passengers purchasing additional
services compared to 2023. During 2024, we implemented new initiatives to increase ancillary revenue sales.
Other non-passenger revenues.
The 3.4% decrease in other non-passenger revenues in 2024 was primarily due to a decline in other services, including third-party
advertising, trip insurance, vacation packages, and others, compared to 2023.
Cargo. The 3.0% increase
in cargo revenues in 2024 was primarily driven by a higher volume of cargo operations compared to 2023.
Operating Expenses, net
2024 compared to 2025
For the years ended December 31,
2024 2025 Variation
(In thousands of dollars, except for %)
Other operating income (206,444) (222,256) (15,812) 7.7 %
Fuel expense 893,987 885,520 (8,467) (0.9) %
Landing, take-off and navigation expenses 492,507 544,298 51,791 10.5 %
Salaries and benefits 411,253 451,096 39,843 9.7 %
Depreciation of right of use assets 409,935 448,570 38,635 9.4 %
Aircraft and engine variable lease expenses 135,155 196,082 60,927 45.1 %
Sales, marketing and distribution expenses 169,472 144,208 (25,264) (14.9) %
Maintenance expenses 100,426 129,930 29,504 29.4 %
Other operating expenses 139,248 116,901 (22,347) (16.0) %
Depreciation and amortization 183,115 208,176 25,061 13.7 %
Total operating expenses, net 2,728,654 2,902,525 173,871 6.4 %
Total operating expenses, net
increased 6.4% in 2025 primarily attributed to the increase of our operations and other factors described below.
Other Operating Income.
The U.S. $15.8 million, or 7.7%, increase in other operating income in 2025 was primarily driven by compensation received from the engine
manufacturer related to preventive accelerated inspections of GTF engines.
Fuel Expense. The 0.9%
decrease in fuel expense in 2025 was primarily due to a 6.0% decrease in the average economic fuel cost per gallon, partially offset by
a 5.3% increase in fuel consumption compared to 2024.
Landing, Take-off and Navigation
Expenses. The 10.5% increase in landing, take-off, and navigation expenses in 2025 was primarily driven by a 9.0% increase in total
departures and a 5.2% increase in passenger volume compared to 2024.
Salaries and Benefits.
The 9.7% increase in salaries and benefits in 2025 was primarily driven by annual salary increases (including foreign exchange effects),
a 2.9% increase in total headcount, and higher performance-based compensation reflecting increased operational activity compared to 2024.
See Item 6: “Directors, Senior Management and Employees—Employees.”
Depreciation of Right of
Use Assets. The 9.4% increase in depreciation of right-of-use assets in 2025 was primarily driven by fleet expansion, including the
addition of 16 new aircraft.
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Sales, Marketing and Distribution
Expenses. The 14.9% decrease in sales, marketing, and distribution expenses in 2025 was primarily attributable to improved efficiencies
in marketing and distribution, as well as lower revenue levels.
Other Operating Expenses. The 16.0% decrease in
other operating expenses in 2025 was primarily attributable to lower administrative and technology-related expenses.
Aircraft and Engine Variable Lease Expenses. The
45.1% increase in aircraft and engine variable lease expenses in 2025 was primarily driven by return condition accruals recognized during
the year. In addition, 2024 benefited from higher gains related to the remeasurement of aircraft associated with lease extensions.
Maintenance Expenses. The 29.4% increase in maintenance
expenses in 2025 was driven by an increase in our maintenance activities resulting from the age of our fleet.
Depreciation and Amortization. The 13.7% increase
in depreciation and amortization in 2025 was primarily driven by the amortization of major maintenance events associated with the aging
of our fleet, accounted for under the deferral method. In 2024 and 2025, we recorded amortization of major maintenance leasehold improvements,
totaling U.S. $150.6 million and U.S. $157.4 million, respectively.
2023 compared to
2024
For the years ended December 31,
2023 2024 Variation
(In thousands of dollars, except for %)
Other operating income (54,710) (206,444) (151,734) 277.3 %
Fuel expense 1,165,078 893,987 (271,091) (23.3) %
Landing, take-off and navigation expenses 503,366 492,507 (10,859) (2.2) %
Salaries and benefits 386,723 411,253 24,530 6.3 %
Depreciation of right of use assets 362,015 409,935 47,920 13.2 %
Sales, marketing and distribution expenses 167,341 169,472 2,131 1.3 %
Other operating expenses 169,864 139,248 (30,616) (18.0) %
Aircraft and engine variable lease expenses 103,845 135,155 31,310 30.2 %
Maintenance expenses 98,445 100,426 1,981 2.0 %
Depreciation and amortization 134,296 183,115 48,819 36.4 %
Total operating expenses, net 3,036,263 2,728,654 (307,609) (10.1) %
Total operating expenses, net
decreased 10.1% in 2024 primarily attributed to the reduction of our operations and other factors described below.
Other Operating Income.
The U.S. $151.7 million, or 277.3%, increase in other operating income in 2024 was primarily driven by a higher number of sale and leaseback
transactions and the compensation received from the engine manufacturer related to preventive accelerated inspections for the GTF engines.
Fuel Expense. The 23.3%
decrease in fuel expense in 2024 was primarily due to an 11.6% reduction in the average economic fuel cost per gallon and a 13.3% decrease
in fuel consumption compared to 2023.
Landing, Take-off and Navigation
Expenses. The 2.2% decrease in landing, take-off, and navigation expenses in 2024 was primarily driven by a 14.0% reduction in total
departures and a 12.0% decline in passenger volume compared to 2023.
Salaries and Benefits.
The 6.3% increase in salaries and benefits in 2024 was primarily driven by the annual salary increase and the provision for employee profit
sharing.
Depreciation of Right of
Use Assets. The 13.2% increase in depreciation of right-of-use assets in 2024 was primarily driven by fleet expansion, including the
addition of 14 new aircraft.
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Sales, Marketing and Distribution
Expenses. The 1.3% increase in sales, marketing, and distribution expenses in 2024 was primarily driven by higher marketing expenditures
aimed at promoting our routes and increasing our revenues.
Other Operating Expenses.
The 18.0% decrease in other operating expenses in 2024 was primarily driven by the reduction in administrative and operational support
expenses.
Aircraft and Engine Variable
Lease Expenses. The 30.2% increase in aircraft and engine variable expenses in 2024 was primarily due to return accruals recorded
during the year. Additionally, in 2023, we recognized benefits from the remeasurement of aircraft related to lease extensions.
Maintenance Expenses.
The 2.0% increase in maintenance expenses in 2024 was driven by routine maintenance activities, resulting from a higher average fleet
size during the year.
Depreciation and Amortization.
The 36.4% increase in depreciation and amortization in 2024 was primarily due to higher amortization of major maintenance events, driven
by the aging of our fleet. These maintenance costs are accounted for using the deferral method. In 2023 and 2024, we recorded amortization
of major maintenance leasehold improvements totaling U.S. $114.9 million and U.S. $150.6 million, respectively.
Operating Results
2024 compared to 2025
For the years ended December 31,
2024 2025 Variation
(In thousands of dollars, except for %)
Operating Results
Total operating revenues 3,141,876 3,037,516 (104,360) (3.3) %
Total operating expenses, net 2,728,654 2,902,525 173,871 6.4 %
Operating income 413,222 134,991 (278,231) (67.3) %
Operating income. As
a result of the factors outlined above, our operating income decreased from U.S. $413.2 million to U.S. $135.0 million in 2025.
2023 compared to 2024
For the years ended December 31,
2023 2024 Variation
(In thousands of dollars, except for %)
Operating Results
Total operating revenues 3,258,973 3,141,876 (117,097) (3.6) %
Total operating expenses, net 3,036,263 2,728,654 (307,609) (10.1) %
Operating income 222,710 413,222 190,512 85.5 %
Operating income. As
a result of the factors outlined above, our operating income increased from U.S. $222.7 million to U.S. $413.2 million in 2024.
Financial Results
2024 compared to 2025
For the years ended December 31,
2024 2025 Variation
(In thousands of dollars, except for %)
Financing results
Finance income 49,444 47,841 (1,603) (3.2) %
Finance cost (293,639) (314,139) (20,500) 7.0 %
Foreign exchange gain, net 13,662 13,059 (603) (4.4) %
Total financing results (230,533) (253,239) (22,706) 9.8 %
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Total Financing Results.
The 9.8% increase in total financing loss in 2025 was primarily attributable to higher finance costs associated with an increase in aircraft
and engine lease agreements, as well as a 3.2% decrease in financing income compared to 2024.
2023 compared to 2024
For the years ended December 31,
2023 2024 Variation
(In thousands of dollars, except for %)
Financing results
Finance income 38,222 49,444 11,222 29.4 %
Finance cost (219,343) (293,639) (74,296) 33.9 %
Foreign exchange (loss) gain, net (34,147) 13,662 47,809 n/a
Total financing results (215,268) (230,533) (15,265) 7.1 %
Total Financing Results.
The 7.1% increase in our total financing loss in 2024 was primarily due to higher financial cost related to aircraft and engine lease
agreements, partially offset by the foreign exchange gains recorded during the year compared to 2023.
Income Tax Benefit and Net
Loss
2024 compared to 2025
For the years ended December 31,
2024 2025 Variation
(In thousands of dollars, except for %)
Income (loss) before income tax 182,689 (118,248) (300,937) n/a
Income tax (expense) benefit (56,314) 14,376 70,690 n/a
Net income (loss) 126,375 (103,872) (230,247) n/a
During the year ended December
31, 2024 and 2025, we recorded an income tax (expense) benefit of U.S. ($56.3) million and U.S. $14.4 million, respectively. As of December
31, 2025, our tax loss carry-forwards amounted to U.S. $3.2 million (compared to U.S. $0.8 million as of December 31, 2024).
During the year ended December
31, 2024, we utilized U.S. $107.9 million in available tax loss carry-forwards, while in 2025, the utilization decreased to U.S. $2.5
million. The effective tax rate for 2024 was 30.8%, whereas in 2025 was 12.2%.
2023 compared to 2024
For the years ended December 31,
2023 2024 Variation
(In thousands of dollars, except for %)
Income before income tax 7,442 182,689 175,247 >100.0%
Income tax benefit (expense) 377 (56,314) (56,691) n/a
Net income 7,819 126,375 118,556 >100.0%
During the year ended December
31, 2023 and 2024, we recorded an income tax benefit (expense) of U.S. $0.4 million and U.S. ($56.3) million, respectively. As of December
31, 2024, our tax loss carry-forwards amounted to U.S. $0.8 million (compared to U.S. $131.2 million as of December 31, 2023).
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During the year ended December
31, 2023, we utilized U.S. $15.5 million in available tax loss carry-forwards, while in 2024, the utilization increased to U.S. $107.9
million. The effective tax rate for 2023 was (5.1%), whereas in 2024 was 30.8%.
Selected Consolidated Financial
Information and Operating Data
The following tables summarize
selected financial and operating data for our business for the periods presented. You should read this selected consolidated financial
data in conjunction with our audited consolidated financial statements, including the related notes thereto, included elsewhere in this
annual report. We prepare our consolidated financial statements in accordance with IFRS.
We derived the selected consolidated
statements of operations data for the years ended December 31, 2023, 2024, and 2025, and the selected consolidated statements of financial
position data as of December 31, 2024 and 2025, from our audited financial statements included in this annual report. See Item 18: “Financial
Statements.” Our historical results are not necessarily indicative of future performance.
As of and for the Years ended December 31,
2023 2024 2025
(in thousands of U.S. dollars)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1)
Operating revenues:
Passenger revenues:
Fare revenues 1,650,287 1,517,106 1,301,750
Other passenger revenues 1,473,237 1,492,593 1,580,665
Non-passenger revenues:
Other non-passenger revenues 115,424 111,551 134,483
Cargo 20,025 20,626 20,618
3,258,973 3,141,876 3,037,516
Other operating income (54,710) (206,444) (222,256)
Fuel expense 1,165,078 893,987 885,520
Landing, take-off and navigation expenses 503,366 492,507 544,298
Salaries and benefits 386,723 411,253 451,096
Depreciation of right of use assets 362,015 409,935 448,570
Aircraft and engine variable lease expenses 103,845 135,155 196,082
Sales, marketing and distribution expenses 167,341 169,472 144,208
Maintenance expenses (3) 98,445 100,426 129,930
Other operating expenses 169,864 139,248 116,901
Depreciation and amortization (2) 134,296 183,115 208,176
3,036,263 2,728,654 2,902,525
Operating income 222,710 413,222 134,991
Finance income 38,222 49,444 47,841
Finance cost (219,343) (293,639) (314,139)
Foreign exchange (loss) gain, net (34,147) 13,662 13,059
Income (loss) before income tax 7,442 182,689 (118,248)
Income tax benefit (expense) 377 (56,314) 14,376
Net income (loss) 7,819 126,375 (103,872)
Weighted average shares outstanding:
Basic 1,152,609,485 1,150,743,230 1,149,207,934
Diluted 1,165,450,734 1,165,858,647 1,149,207,934
Earnings (loss) per share Basic (4) 0.01 0.11 (0.09)
Earnings (loss) per share Diluted (4) 0.01 0.11 (0.09)
Earnings (loss) per ADS Basic (5) 0.07 1.10 (0.90)
Earnings (loss) per ADS Diluted (5) 0.07 1.08 (0.90)
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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DATA
Cash and cash equivalents 774,154 907,981 753,884
Short-term investments 15,265 45,737 20,208
Accounts receivable, net 250,599 138,810 262,051
Guarantee deposits-current portion 147,836 227,211 277,854
Total current assets (9) 1,247,647 1,382,051 1,393,345
Total assets 5,145,972 5,703,710 5,636,612
Total current liabilities 1,621,583 1,770,258 1,916,239
Total non-current liabilities 3,281,795 3,568,639 3,456,592
Total liabilities 4,903,378 5,338,897 5,372,831
Capital stock 248,278 248,278 248,278
Total equity 242,594 364,813 263,781
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CONSOLIDATED STATEMENT OF CASH FLOW DATA
Net cash flows provided by operating activities 729,825 1,089,729 749,827
Net cash flows used in investing activities (462,044) (472,520) (88,814)
Net cash flows used in financing activities (214,386) (471,570) (818,850)
OPERATING DATA (8)
Aircraft at end of year 129 143 155
Average daily aircraft utilization (block hours) 13.37 13.03 12.76
Average daily aircraft utilization (flight hours) 11.37 11.16 10.93
Average pesos/U.S. dollar exchange rate 17.76 18.30 19.22
End of year pesos/U.S. dollar exchange rate 16.89 20.27 17.97
Airports served at end of year 71 73 73
Departures (6) 201,376 173,209 188,848
Passenger flight segments (thousands) (6) 31,537 27,927 29,481
Booked passengers (thousands) (6) 33,497 29,473 30,995
Revenue passenger miles (RPMs) (thousands) (6) 33,448,937 29,504,673 30,453,201
Available seat miles (ASMs) (thousands) (6) 38,890,127 33,989,693 36,118,110
Load factor (7) 86% 87% 84%
Average fare revenue per booked passenger (7) (11) 49 51 42
Average other passenger revenue per booked passenger (6) (11) 44 51 51
Total ancillary revenue per booked passenger (6) (11) 48 55 56
Total operating revenue per ASM (TRASM) (cents) (6) (11) 8.4 9.2 8.4
Passenger revenue per ASM (RASM) (cents) (6) (11) 4.2 4.5 3.6
Operating expenses per ASM (CASM) (cents) (6) (11) 7.8 8.0 8.0
CASM ex fuel (cents) (6) (11) 4.8 5.4 5.6
Fuel gallons consumed (thousands) 372,195 322,705 339,959
Average economic fuel cost per gallon USD 3.1 2.8 2.6
Average of employees per aircraft at end of year (10) 54 44 44
(1) Total amounts in the table above may not calculate exactly due to rounding.
(2) Includes, among other things, major maintenance expenses, which are capitalized and subsequently amortized. See Item 5: “Operating and Financial Review and Prospects—Operating Results.”
(3) Includes routine and ordinary maintenance expenses only. See Item 5: “Operating and Financial Review and Prospects—Operating Results.”
(4) Basic and diluted (loss) earnings per share amounts are calculated by dividing the net earnings (loss), for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares in accordance with IAS 33 “Earnings per share.”
(5) The basis used for the computation of the information is to multiply the earnings (loss) per basic and diluted share obtained pursuant to footnote (3) above by ten, which is the number of CPOs represented by each ADS. Each CPO, in turn, represents a financial interest in one Series A share of common stock of Volaris.
(6) Includes scheduled and charter.
(7) Includes scheduled.
(8) See “Glossary of Airlines and Airline Terms” elsewhere in this annual report for definitions of terms used in this table.
(9) See detail of other current assets in Item 17: “Financial Statements”.
(10) Traffic agents are considered on a 60% FTE (Full-Time Equivalent) basis for this calculation, as they are part-time employees.
(11) Non-IFRS financial measure. For more information on the non-IFRS measures, please refer to Key Performance Indicators.
B. Liquidity
and Capital Resources Liquidity
Our primary source of liquidity
is cash provided by operations, with our primary uses of liquidity being working capital and capital expenditures.
For the years ended December 31,
2023 2024 2025
(In thousands of dollars)
Net cash flows provided by operating activities 729,825 1,089,729 749,827
Net cash flows used in investing activities (462,044) (472,520) (88,814)
Net cash flows used in financing activities (214,386) (471,570) (818,850)
In recent years, we have been
able to meet our working capital requirements through cash from our operations. Our capital expenditure consists primarily of the acquisition
of flight equipment, including pre-delivery payments for aircraft acquisitions. From time to time, we finance pre-delivery payments related
to our aircraft with lines of credit with commercial banks. We have obtained financing for pre-delivery payments in respect to all the
aircraft to be delivered through 2028.
Our cash and cash equivalents
decreased by U.S.$154.1 million, from U.S. $908.0 million on December 31, 2024, to U.S.$753.9 million on December 31, 2025.
As of December 31, 2025, our
credit lines total U.S. $2,045.6 million, of which U.S.$1,447.6 million were related to financial debt (U.S.$273.1 million were undrawn)
and U.S.$598.0 million were related to letters of credit (U.S. $ 241.6 million were undrawn).
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As of December 31, 2025, we
had available lines of credit of U.S.$514.7 million. As of December 31, 2024, our credit lines total U.S.$1,873.4 million, of which U.S.$1,315.4
million were related to financial debt (U.S. $308.6 million were undrawn) and U.S.$558.0 million were related to letters of credit (U.S.
$229.3 million were undrawn).
As of December 31, 2024, we
had available lines of credit of U.S.$537.9 million.
As of December 31, 2023, our
credit lines total U.S.$1,388.8 million, of which U.S.$960.9 million were related to financial debt (U.S.$228.4 million were undrawn)
and U.S.$427.9 million were related to letters of credit (U.S.$178.8 million were undrawn). As of December 31, 2023, we had available
lines of credit of U.S.$407.2 million.
We have an investment policy
to optimize the performance and ensure availability of, and minimize the risk associated with, the investment of cash, cash equivalents
and short-term investments. Such policy provides guidelines regarding maximum balance per counterparty, currency mix, instruments, maximum
term, counterparties, and credit risk. As of December 31, 2025, 85% of our cash, cash equivalents and short-term investments were denominated
in U.S. dollars while 11% were denominated in pesos, and 4% were denominated in other currency. See Note 3 to our audited consolidated
financial statements included elsewhere in this annual report.
Net cash flows provided by
operating activities. We primarily rely on cash flows from operating activities to provide working capital for current and future
operations. Net cash flows provided by operating activities amounted to U.S.$749.8million in 2025 and U.S.$1,089.7 million in 2024. The
decrease was primarily attributable to the net loss recorded during 2025, partially offset by positive inflows related to other accounts
receivable and guarantee deposits.
Net cash flows provided by operating activities.
We primarily rely on cash flows from operating activities to provide working capital for current and future operations. Net cash flows
provided by operating activities amounted to U.S. $1,089.7 million in 2024 and U.S. $729.8 million in 2023. This increase was primarily
attributable to higher net income and improved cash flows related to other accounts recoverable, prepaid expenses, guarantee deposits
and liabilities.
Net cash flows used in investing
activities. During 2025, our net cash flows used in investing activities totaled U.S. $88.8 million. This was primarily driven by
the acquisitions of aircraft, engine, rotable spare parts, furniture, and equipment of U.S. $291.6 million, including U.S.$138.3 million
related to aircraft and engine acquisitions, U.S.$89.7 million for major maintenance events, U.S.$23.5 million of rotable spare parts,
and U.S.$40.1 million in aircraft pre-delivery payments. In addition, we invested U.S.$24.3 million in intangible assets. These outflows
were partially offset by U.S.$196.0 million in reimbursements of pre-delivery payments, as well as other proceeds of U.S.$31.1 million.
During 2024, our net cash flows
used in investing activities totaled U.S. $472.5 million. This primarily reflected acquisitions of rotable spare parts, furniture, and
equipment amounting to U.S.$583.1 million, which included investments of U.S.$129.0 million in major maintenance events, U.S.$218.8 million
in rotable spare parts, and U.S.$235.3 million in aircraft pre-delivery payments. Additionally, we invested U.S. $17.6 million in intangible
assets and U.S. $31.8 million in other investments. These outflows were partially offset by U.S.$160.0 million in reimbursements of pre-delivery
payments.
During 2023, our net cash flows
used in investing activities totaled U.S.$462.0 million. This primarily consisted of acquisitions of rotable spare parts, furniture, and
equipment of: (i) U.S.$480.8 million (which included investments of U.S.$147.7 million in major maintenance events, U.S. $102.7 million
in rotable spare parts and U.S.$230.4 million in aircraft pre-delivery payments), (ii) U.S.$10.4 million in intangible assets acquisitions
and (iii) U.S.$17.0 million in other investments. These investments were partially offset by pre-delivery payment reimbursements of U.S.$45.1
million and other minor proceeds of U.S. $1.1 million.
Net cash flows used in financing
activities. During 2025, net cash flows used in financing activities totaled U.S.$818.9 million. This primarily included: (i) lease
liability payments of U.S.$631.0 million for aircraft and engines, (ii) financial debt payments of U.S.$259.7 million, (iii)
interest payments of U.S.$71.1 million, (iv) treasury share purchases of U.S.$4.7 million, and (v) financing expenses of U.S.$1.1 million.
These outflows were partially offset by proceeds from financial debt totaling U.S.$148.8 million.
During 2024, net cash flows
used in financing activities totaled U.S.$471.6 million. This primarily included: (i) lease liability payments of U.S. $583.4 million
for aircraft and spare engine rentals, (ii) financial debt payments of U.S.$208.1 million, (iii) interest payments of U.S.$58.4 million,
(iv) treasury share purchases of U.S. $5.1 million, (v) financing expenses of U.S.$1.7 million, and (vi) payments related to other financial
instruments of U.S. $0.1 million. These outflows were partially offset by proceeds from financial debt totaling U.S. $385.2 million.
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During 2023, net cash flows
used in financing activities totaled U.S. $214.4 million, which primarily consisted of : (i) lease liabilities payments of U.S.$529.1
million (aircraft and spare engines rent payments), (ii) financial debt payments of U.S.$97.9 million, (iii) interest expenses of U.S.
$37.2 million, (iv) treasury shares purchase of U.S. $3.0 million, (v) expenses related to the offering of U.S. $2.5 million and (vi)
other financial instruments of U.S. $1.5 million. These outflows were partially offset by proceeds from financial debt under our asset-backed
trust notes (CEBUR) of U.S. $85.1 million and the proceeds from our financial debt of U.S. $371.7 million.
Loan Agreements
A facility agreement with Santander
and Bancomext was signed on June 8, 2022, under which we are a guarantor, to provide financing for pre-delivery payments in connection
with our purchase of A320 family aircraft. This credit facility bears a floating annual interest rate of three-month SOFR plus a spread
of 298 basis points and a five-basis points adjustment linked to sustainability goals. On August 31, 2023, the interest rate increased
by five basis points, with the possibility of reducing the additional rate if the objectives are met in the upcoming years. In August
2024, we increased the facility amount to include additional aircraft and extended the maturity date to December 2028. The interest rate
from the additional aircraft excludes the sustainability adjustment. This credit facility may limit our ability to, among others, declare
and pay dividends in the event that we fail to comply with the payment terms thereunder, dispose of certain assets, incur indebtedness
and create certain liens.
A facility agreement with JSA International U.S. Holdings, LLC, was signed
on April 1, 2022, to provide financing for pre-delivery payments in connection with our purchase of A320 family aircraft. The aggregate
principal amount of this facility was for up to U.S. $53.7 million, with an annual interest of SOFR plus a spread of 300 basis points
along with a SOFR adjustment. The maturity was upon delivery of the last financed aircraft thereunder. For this purpose, we created the
Trust 3866 for JSA International U.S. Holdings, LLC with CIBanco, S.A. Institución de Banca Múltiple, now Banco Multiva,
S.A. Institución de Banca Múltiple. As of December 2025, this credit facility was fully paid and therefore matured.
A facility agreement with GY
Aviation Lease 1714 Co. Limited, was signed on April 1, 2022, to provide financing for pre-delivery payments in connection with our purchase
of A320 family aircraft. The aggregate principal amount of this facility was for up to U.S. $73.6 million with an annual interest of SOFR
plus a spread of 425 basis points, along with a SOFR adjustment. The maturity was upon delivery of the last financed aircraft thereunder.
For this purpose, we created the Trust 3855 for GY Aviation Lease 1714 Co. Limited with Banco Multiva, S.A. Institución de Banca
Múltiple. As of December 2025, this credit facility was fully paid and therefore matured.
A facility agreement with Incline
II B Shannon 18 Limited, was signed on April 13, 2022, to provide financing for pre-delivery payments in connection with our purchase
of the A320 family aircraft. The aggregate principal amount of this facility was for up to U.S. $134.5 million with an annual interest
of SOFR plus a spread of 390 basis points. The maturity was upon delivery of the last financed aircraft thereunder. For this purpose,
we created the Trust 3867 for Incline II B Shannon 18 Limited with Banco Multiva, S.A. Institución de Banca Múltiple. As
of December 2025, this credit facility was fully paid and therefore matured.
A facility agreement with Oriental
Leasing 6 Company Limited, was signed on July 27, 2022, to provide financing for pre-delivery payments in connection with our purchase
of the A320 family aircraft. The aggregate principal amount of this facility is for up to U.S. $123.0 million with an annual interest
of SOFR plus a spread of 200 basis points, along with a SOFR adjustment. The maturity is upon delivery of the last financed aircraft thereunder.
For this purpose, we created the Trust 3921 for Oriental Leasing 6 Company Limited with Banco Multiva, S.A. Institución de Banca
Múltiple.
A pre-delivery payment facility with Runway Eleven LLC, was signed on December
19, 2024, to provide financing for pre-delivery payments in connection with our purchase of A320 family aircraft. For purposes of financing
these pre-delivery payments, we assigned our rights and obligations under the purchase agreement with Airbus, including the obligation
to make pre-delivery payments to a private company limited by shares incorporated in Ireland. The Runway Eleven LLC pre-delivery payments
facility does not include financial covenants or similar obligations.
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In December 2021, we renewed
the working capital facility with Banco Sabadell S.A., Institución de Banca Multiple (“Sabadell”) in Mexican pesos
with an annual interest rate of TIIE 28 days plus a spread of 240 basis points. As of December 2023, this facility has expired.
In December 2022, we signed
a working capital facility with Actinver (“Actinver”) in Mexican pesos, with an annual interest rate of TIIE 28 days plus
a spread of 250 basis points. As of December 2024, this facility has expired.
On June 20, 2019, our subsidiary
Volaris Opco issued 15,000,000 asset-backed trust notes under the ticker VOLARCB 19 in the amount of Ps.1.5 billion (U.S. $83.5 million
as of December 31, 2025, based on an exchange rate of Ps. 17.97 to U.S. $1) through Irrevocable Trust number CIB/3249 created by Volaris
Opco. This issuance was part of a program approved by the CNBV for an amount of up to Ps.3.0 billion (U.S. $166.9 million based on an
exchange rate of Ps.17.97 to U.S.$1 on December 31, 2025). The asset-backed trust notes had a five-year maturity with annual principal
amortization of Ps.250.0 million, Ps.500.0 million, Ps.500.0 million and Ps.250.0 million (U.S. $13.9 million, U.S. $27.8 million, U.S.
$27.8 million and U.S. $13.9 million based on an exchange rate of Ps.17.97 to U.S. $1 on December 31, 2025), in 2021, 2022, 2023, and
2024, respectively, with a floating coupon rate of TIIE 28 plus 175 basis points. The asset backed trust notes under the ticker VOLARCB
19 were fully amortized on June 20, 2024.
On October 13, 2021, our subsidiary
Volaris Opco issued 15,000,000 asset-backed trust notes under the ticker VOLARCB 21L in the amount of Ps.1.5 billion (U.S. $83.5 million
as of December 31,2025 based on an exchange rate of Ps.17.97 to U.S. $1) through Irrevocable Trust number CIB/3249 created by Volaris
Opco. The issuance amount is part of a program approved by the CNBV for an amount of up to Ps.3.0 billion (U.S. $166.9 million as of December
31, 2025 based on an exchange rate of Ps.17.97 to U.S. $1). With this second issuance the total amount approved for the program has been
reached. The asset backed trust notes have a five-year maturity, with annual principal amortizations of Ps.83.3 million, Ps.500.0 million,
Ps.500.0 million and Ps.416.7 million (U.S. $4.6 million, U.S. $27.8 million, U.S. $27.8 million and U.S. $23.2 million as of December
31, 2025, based on an exchange rate of Ps.17.97 to U.S. $1) in 2023, 2024, 2025 and 2026, respectively, and bear annual interest at TIIE
28 days plus 200 basis points, and adjustment of twenty-five (25) basis points starting on September 20, 2023. The notes started amortizing
at the end of the second year.
The asset backed trust notes
issued in 2021 comply with the Sustainability-Linked Bond Principles of 2020, developed by the International Capital Market Association
(“ICMA”). The notes have Sustainability Objectives (“SPT”), for the KPI, to reduce carbon dioxide emissions measured
as grams of CO2 emissions per revenue passenger/kilometer (gCO2 / RPK) by 21.54%, 24.08% and 25.53% by 2022, 2023 and 2024, respectively,
compared to 2015 levels. This offering will help us accomplish our long-term sustainable goals, among which are to reduce CO2 emissions
by 35.42% by 2030, compared to 2015 levels. A feature of the asset backed trust notes is that they will pay an additional 25 basis points
to the interest rate if the sustainability goals are not met for 2022, with the possibility of reducing the additional rate if the 2023
or 2024 targets are met. On September 20, 2023, the interest rate increased by twenty-five (25) basis points, with the possibility of
mitigating the additional rate if goals are met for the incoming years.
On September 28, 2023, the CNBV
approved an increase amount of the actual program up to Ps. 5.0 billion (US$278.2 million, based on an exchange rate of Ps. 17.97 to US$1
on December 31, 2025) with this authorization, our subsidiary Volaris Opco issued 15,000,000 asset backed trust notes under the ticker
VOLARCB23 for Ps.1.5 billion (US$83.5 million, as of December 31, 2025 based on an exchange rate of Ps.17.97 to U.S.$1) through Irrevocable
Trust number CIB/3249 created by Volaris Opco. The asset backed trust notes have a five-year maturity with annual principal reduction
of Ps.187.5 million, Ps.750.0 million and Ps.562.5 million (U.S.$10.4 million, U.S.$41.7 million and U.S.$31.3 million, as of December
31, 2025 based on an exchange rate of Ps.17.97 to U.S.$1) in 2026, 2027 and 2028, respectively, with a floating one-month coupon rate
referenced to TIIE 28 plus a 215 basis points spread. The asset-backed trust notes will start amortizing at the end of the third year.
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Other financing agreements
In August 2025, we entered into financing agreements with
BOC Aviation (Ireland) Limited for the acquisition of aircraft. These agreements bear an annual interest rate of 6.52% and mature in 2029.
We entered into several agreements that qualified as field
sale and leaseback transactions. Consequently, these agreements were accounted for as financing transactions. The details of these agreements
are presented as follows:
In September 2023, we entered
into financing agreements with Tarquin Limited for the acquisition of engines, bearing an annual interest of 6.20% and mature in 2028.
In September 2023, we entered
into financing agreements with NBB-V11218 Lease Partnership and with NBB-V11951 Lease Partnership, for the acquisition of engines, bearing
an annual interest of 6.20% and mature in 2028.
In September and October 2023,
we entered into financing agreements with Wilmington Trust SP Services (Dublin) Limited (not in its individual capacity but solely as
Owner Trustee) for the acquisition of engines, bearing an annual interest of 7.16% and mature in 2028.
In November 2023, we entered
into financing agreements with NBB Pintail Co Ltd for the acquisition of engines, bearing an annual interest of 6.99% and mature in 2028.
In August, September,
November and December 2024, we entered into financing agreements with Bank of Utah Corporate Trust, for the acquisition of engines. These
agreements bear an annual interest rate of 6.20% and mature in 2029.
In October and November 2024,
we entered into financing agreements with BOC Aviation (Ireland) Limited for the acquisition of engines. These agreements bear an annual
interest rate of 6.86% and mature in 2029.
In November 2024, we
entered into new financing agreements with RRPF Engine Leasing Limited for the acquisition of engines. These agreements bear an annual
interest rate of 6.80% and mature in 2032.
In September 2025, we entered
into a new financing agreement with Credit Agricole Corporate and Investment Bank for the acquisition of engines. This agreement bears
an annual interest rate of SOFR plus a spread of 200 basis points and matures in 2032.
C. Research
and Development, Patents and Licenses, Etc.
We have registered the trademark
“Volaris” and several additional trademarks and slogans with the trademark offices in Mexico, the United States and in the
Central and South American countries in which we operate. Our most important trademark is “Volaris,” as it is the trademark
under which the passenger air transportation services we provide are offered and advertised. On April 15, 2021, the Mexican authorities
declared the trademark “Volaris” a famous brand, being the first trademark in the Mexican aviation industry to receive such
recognition, and in April 2026 said Mexican authorities granted an extension of the famous brand.
We own approximately 321 registrations of word mark, unnamed and mixed
trademarks, as well as slogans including “Volaris,” “Volaris (y Diseño),” “Innominada (Diseño
de Estrella),” “Your name on a plane,” “Precios que te hacen viajar,” “Wanna Save,” “Wanna
Travel,” “Want it all,” “Want to Save,” “Want to Travel,” “Quiero Ahorrar,” “Quiero
todo,” “Quiero viajar, “Volaris carga,” “Volaris TV,” “Volaris cargo,” “Familia
de tarifas Volaris,” “Fare Families Volaris,” “Viajes Volaris,” “www.volaris.com.mx,” “V
de Volaris,” “Volaris vive viajando,” “Volaris ponle tu nombre a un avión,” “V con todo,”
“La Aerolínea Ecológica,” “El lado V de Volaris,” “Tú Decides,” “Volemos
juntos,” “V Fundación,” “Tarifa Limpia,” “Volaris por un Cielo azul,” “#CielitoLimpio,”
“Volaris#CielitoLimpio,” “Con Volaris tú pones las promos,” “V. Pass,” “Volemos diferente,”
“Hot Tickets,” “Avión Ayuda Volaris,” “Entre Nubes,” “Menú Entre Nubes,”
“Volaris Cargo,” “Deja volar tu antojo,” “Para vivir viajando,” “To live traveling,” “Ya
Vas/Volaris,” “Gran venta de aniversario 17 años Volaris,” “Annual Pass,” “Pase Anual,”
“Pase Anual de Volaris,” “Annual Pass by Volaris,” “Con Volaris Alcanza Más,” “Zero v.Club,”
“Zero viaja a nuestro precio más bajo,” “Básica la más comprada,” “Plus viaja sin preocupaciones,”
“Zero travel at our lowest Price,” “Basic best value,” “Plus worry free,” “Viaja todo lo que
puedas,” “Fly as much as you can,” “#AvioncitoVolarisChallehge,” “Volaris Express,” “AVOLARIS,”
“Shuttle Volaris,” “Seguro de Viaje Volaris,” “Volaris los más puntuales de México,”
“El día del viajero Volaris,” “Garantía Volaris de Equipaje,” “Garantías Volaris,”
“Garantía Volaris de Puntualidad,” “VLRS,” “Tú decides lo que necesitas,” “Ahorra
siempre viajando más,” “La forma más barata de volar,” “V.Shop Volaris Official Store,” “Volar
sí,” “Volar ahora es volar sí,” “Temporada de volada Volaris,” “Marzo regalazo Volaris,”
“La temporada de ofertas más grande de Volaris,” “Llegaron los preciosísimos Volaris,” “Marzoventa
Volaris,” “V.Club,” “Volaris Menú Entre Nubes,” “Entre Nubes de Volaris,” “#VPonleTuApodoAUnAvión,”
“Ponle tu nombre a un avión,” “Corro, Vuelo y Celebro”, “Volaris tus vacaciones con YaVas”
“Volaris AVSEC”, “AVSEC Volaris”, “Volaris 5,000 FT”, “Volaris 10,000 FT”. “Volaris
30,000 FT”, “altitude by Volaris”. We have registered the trademark “Volaris” with the trademark office
in Mexico, the United States and in the countries in which we operate in Central and South America. The validity of the aforementioned
trademarks have expiration dates ranging from 2026 to 2036.
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For the development of the issuer
our most important trademark is “Volaris,” as it is the trademark under which the passenger air transportation services we
provide are offered and advertised.
We operate software products
under licenses from our vendors, including Jeppesen Systems AB, Navitaire LLC, Juniper Technologies Corporation, Despegar.com México,
S.A. de C.V. and Loyalty Juggernaut. Inc. Under our agreements with Airbus, we use Airbus’ proprietary information to maintain our
aircraft.
D. Trend
Information
See Item 5: “Operating
and Financial Review and Prospects—Operating Results—Trends and Uncertainties Affecting our Business.”
E. Tabular
Disclosure of Contractual Obligations
The following table sets forth
certain contractual obligations as of December 31, 2025:
Contractual Obligations*
Payments due by Period
Less than 1 More than
Total Year 1 to 3 years 3 to 5 years 5 years
(In thousands of dollars)
Debt(1) 706,374 262,912 286,137 95,723 61,602
Lease liabilities(2) 4,678,133 693,477 1,650,234 995,467 1,338,955
Future lease liabilities(3) 285,934 15,876 47,656 47,656 174,746
Flight equipment, spare engines and spare parts purchase obligations(4) 6,376,803 355,253 1,730,813 3,008,755 1,281,982
Total future payments on contractual obligations 12,047,244 1,327,518 3,714,840 4,147,601 2,857,285
(1) Includes scheduled interest payments.
(2) Does not include maintenance deposit payments because they depend on the utilization of the aircraft.
(3) These refer to upcoming lease payments in connection with our committed sale and lease back agreements as of December 31, 2025.
(4) Our contractual purchase obligations consist primarily of aircraft and engine acquisitions through manufacturers and aircraft leasing companies. In December 2017, we signed an amendment to our purchase agreement with Airbus to purchase 80 aircraft which Airbus committed to deliver between 2022 and 2026. In July 2020, we amended the agreement with Airbus to reschedule the delivery of 80 aircraft between 2023 and 2028.In November 2021, we entered into a new amendment to the agreement with Airbus to purchase 39 additional aircraft which Airbus committed to deliver between 2023 and 2029. Additionally, we exercised our right under the agreement with Airbus to convert 20 A320neo aircraft into A321neo aircraft, four of which has been delivered as of the date of this annual report. In October 2022 we entered into a new agreement with Airbus to purchase 25 additional aircraft which Airbus committed to deliver in 2030. In November 2024, we entered into an amendment to the existing purchase agreement with Airbus to reschedule the deliveries for the 131 pending aircraft between 2025 and 2031.On February 24, 2026, we entered into an amendment to the existing purchase agreement with Airbus to reschedule 10 of the pending aircraft delivering in 2027 and 2028 to 2032.
* Disclosure of contractual obligations does not include obligations relating to our post-employment benefits which totaled U.S. $15 million on December 31, 2025.
In 2026, we expect our capital expenditures, net
of financed pre-delivery payments, to be U.S. $350 million, consisting primarily of aircraft parts and rotable spare parts, construction
and improvements to leased assets, and major maintenance costs (leasehold improvements to flight equipment recorded into rotable spare
parts furniture and equipment, net).
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F. SUPPLEMENTAL
INFORMATION ON NON-GAAP MEASURES
We evaluate our financial performance
by using various financial measures that are not performance measures under International Financial Reporting Standards (“non-IFRS
measures”). These non-IFRS measures include CASM and CASM ex-fuel.
These non-IFRS measures are
provided as supplemental information to the financial information presented in this annual report that is calculated and presented in
accordance with IFRS because we believe that they, in conjunction with the IFRS financial information, provide useful information to management’s,
analysts and investors overall understanding of our operating performance.
Because non-IFRS measures are
not calculated in accordance with IFRS, they should not be considered superior to and are not intended to be considered in isolation or
as a substitute for the related IFRS measures presented in this release and may not be the same as or comparable to similarly titled measures
presented by other companies due to possible differences in the method of calculation and the items being adjusted.
We encourage investors to review
our financial statements and other filings with the SEC in their entirety for additional information regarding the Company and not to
rely on any single financial measure.