Mexico’s Volaris Mounts New Offensive as Rival Airlines Struggle

(Bloomberg) -- Mexico’s biggest airline plans to use proceeds from a $173 million stock sale to pounce on struggling rivals as it rebounds from an unprecedented travel collapse.

Volaris is restoring seating capacity this month to 100% of last year’s levels and targeting a return to profitability by the second quarter of 2021, said Chief Executive Officer Enrique Beltranena. The carrier has also identified a dozen or so Mexican destinations and almost twice as many abroad where it will invest in grabbing market share as demand returns and Covid-19 vaccines take hold.

“This was an offensive move,” Beltranena said of the share offering. “There was also a market effect from vaccine news, and a weakened dollar means we’ll be able to maximize those pesos.”

The moves herald Volaris’s return to the attack after the coronavirus pandemic gutted travel demand. Unlike their U.S. counterparts, Mexican airlines didn’t receive any government aid. But Volaris slashed fares 30% to coax people onto planes and benefited from a route network geared to the leisure market. That contrasted with the fate of Grupo Aeromexico SAB, which filed for Chapter 11 bankruptcy as its business-travel markets evaporated.

Equity Window

Controladora Vuela Cia. de Aviacion SAB, as Volaris is officially known, had expected to raise cash over the next 12 months. But a recovery in its share price and the outlook for vaccines opened a window for a U.S. equity offering now, Beltranena said.

The $173 million in proceeds works out to 3.4 billion pesos -- roughly in line with the goal of raising 3.5 billion pesos that the company announced in September. The offering price of $11.25 per American depositary receipt represented a 6.25% discount to the previous day’s close. Morgan Stanley, Evercore ISI, Banco Santander SA, Citigroup Inc. and Bank of America Corp. managed the deal.

While Volaris’s shares took a hit after the stock offering, the company’s ADRs were still up 9.4% this year through Wednesday. That’s the sharpest share gain in the Americas for a carrier with a market value of at least $500 million, according to data compiled by Bloomberg.

The ADRs advanced 2.5% to $11.69 at 10:56 a.m in New York.

Mapping Recovery

Volaris has a six-step road map that, in addition to restoring capacity and returning to profitability, calls for grabbing what struggling competitors have left behind, Beltranena said.

While Aeromexico works its way through Chapter 11, another Mexican rival, Interjet, is only flying four planes after its others aircraft were repossessed.

In addition to encroaching on more markets in Mexico and the U.S., Volaris will also focus next year on increasing flights in Central America. Avianca Holdings SA, a Colombian competitor active in the region, also filed for bankruptcy under Chapter 11. earlier this year.

“We’re in a solid position to start this process and move forward,” Beltranena said. “We’re a great business case.”

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