Volaris said its US flying was profitable during the first quarter of 2023, as it eagerly awaits a safety upgrade by the Federal Aviation Administration so that it can expand its transborder business by the end of the year.
Revenue at the Mexico City-based discount carrier rose 29% to $731 million during the quarter, with costs also rising 27% to $762 million, the company said on 24 April. It reported a net loss of $71 million for the three-month period that ended on 31 March.
“During the first quarter, demand in all segments and regions remained strong for our company,” says chief executive Enrique Beltranena. “Volaris has continued to grow profitably in the United States, driven by our strength in US transborder and Central America regions. Going forward, the strength of our network coupled with our strict cost control are expected to provide us with a widening competitive advantage in our markets.”
The company transported 8.2 million passengers in the quarter, an increase of 17%. Domestic- and international-booked passengers increased 13% and 33%, respectively, while total capacity, in terms of available seat miles (ASMs), rose 18% to 9.5 billion, the company says. Load factor climbed to 85%.
Executives at Volaris have been eagerly anticipating the FAA’s safety upgrade to Category 1 for more than a year, and now say that “good progress” has been made in the past weeks. But even if the process goes smoothly, the earliest the airline could reap the benefits would be in the fourth quarter, they say.
CATEGORY 1 STATUS
The FAA had downgraded Mexico’s safety status to Category 2, from Category 1, in May 2021. The US aviation regulator said at the time that the country and its civil aviation authority AFAC no longer met ICAO safety standards. Shifting Mexico to Category 2 meant the FAA was unsatisfied with a country’s laws or regulations, or that the country’s civil aviation authority had a poor record with technical expertise, trained personnel, record keeping, inspection procedures or resolution of safety concerns.
While the FAA permitted existing air service between the countries to continue, the Category 2 designation restricts Mexican carriers from introducing new US routes and hinders US airlines’ ability to market and sell tickets on Mexican carriers via codeshare partnerships.
The process to restore Category 1 status will take several months, and the company hopes to reap the benefits by the end of the year, Beltranena says now.
Mexico’s lower house of congress last week approved amendments to the country’s aviation law addressing the issues, which now go to the upper house for ratification. Once that is complete and published in the national gazette, likely later this week, the changes and amendments will be audited by IATA, he adds. This process could be complete by the end of May or early June.
After that, the FAA will probably take until July or August to approve the audit, and restore the Category 1 rating. Volaris will then request new routes, frequencies and itineraries, the approval of which will take about another month, Beltranena says.
“Obviously we will then need a couple of months to sell those routes and we think we will be able to start operating some of those routes at the end of the fourth quarter,” he adds.
The airline will add “about 30 aircraft” – which it had brought into the fleet since the downgrade – to the company’s operations specifications with the FAA, Volaris’ executive vice-president Holger Blankenstein adds. In this way it can “maximise efficiencies on longer routes” and “realign our capacity”, he says.
Volaris ended the first quarter with 120 aircraft in its active fleet, up from 104 at the end of the first quarter of 2022, and three more than it had at the end of the year. The company hopes to end the year with 125 aircraft.