Ancillary revenues bright spot in Volaris' Q2 loss

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Record ancillary revenues were the bright spot in Volaris' second quarter performance, as the airline says it is cautiously optimistic on the second half of 2014 in a still sluggish Mexican economy.

Non-ticket revenues rose 26% in the quarter to $21 per passenger, reports the airline. The carrier expects growth in ancillary revenues to keep up, and for this metric to be "well and beyond $20 in the future", says chief commercial officer Holger Blankenstein in an earnings call today.

The higher ancillary revenues follow Volaris' move to a new reservations system in October 2013, supplied by Navitaire. The airline rolled out a new baggage policy in October 2013, and started charging for carry-on bags. It also began selling food and drinks on board. Volaris also saw a good uptake on seat assignment charges as well as participation in its fare membership club, notes Blankenstein.

"The goal of Navitaire was to be able to sell more ancillary products. This decision is paying off," he says, indicating that more ancillary offerings will be rolled out in the future.

The airline reported an operating loss of Ps95 million ($7 million) in the second quarter, falling into the red from the Ps102 million operating profit it reported in the same period in 2013. Volaris attributes the performance to higher income taxes in Mexico, higher airport fees and a challenging fare environment.

While Volaris chief executive Enrique Beltranena says the demand environment has shown "early signs of recovery" after a tough year so far, he cautions that the environment was "still fragile".

The carrier declines to commit to an improvement in unit revenues for the third quarter. Its second quarter passenger revenue per available seat mile fell 10.7% to 7 cents.

Volaris chief financial officer Fernando Suarez says he is "cautiously optimistic" about unit revenues going ahead but is quick to add: "It is too early to say if we will have growth in the third quarter."

Beltranena says that while "July is going very well" for the airline, the carrier does not plan to give any guidance for its third quarter performance until it has more clarity on bookings in September.