Volaris banks on new ancillary revenue scheme

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Mexican low cost carrier Volaris aims to leverage ancillary revenue in an effort to achieve margin expansion during 2014 as the carrier braces for a slow recovery in Mexicoʼs economy that resulted in paltry GDP growth of just over 1% in 2013.

The anemic conditions created challenges for Volaris and other Mexican carriers to gain pricing traction near the end of 2013, which contributed to a nearly 15% drop in Volarisʼ yields during the fourth quarter. The carrier posted a $4 million loss during the last three months of 2013.

Volarisʼ total unit revenue per passenger (TRASM), which includes ancillary sales, fell 16.7% year-on-year during the fourth quarter and 5.6% for the full year in 2013. But the carrier believes it will achieve positive TRASM beginning in the second quarter of 2014 once a raft of new initiatives it introduced near the end of 2013 start to gain some momentum.

In October 2013 Volaris migrated to the Navitaire reservations systems, and believes the new platform expands its ability to develop non-ticket sales. The carrier also introduced a new baggage policy that includes charges for certain carry-on items that exceed the measurement compartments located at Volarisʼ airports.

After the launch of the new reservations platform Volaris in December 2013 introduced food for sale onboard its aircraft encompassing sandwiches, snacks and beverages. Volaris also sells a relaxation package and its “Diversion entre nubes” (Childrenʼs kit) in- flight.

Recently Volarisʼ management explained that it took some time for passengers to get used to the new booking system and for the carrier to stabilise its ancillary revenue scheme. But as the airline moves through the beginning of 2014, it expects to capture benefits from is new onboard sales.

At the moment Mexicoʼs GDP for 2014 is forecasted to reach roughly 3.5%. Beltranena predicts an economic recovery will be more weighted to the second half of 2014, and believes Volaris does have the potential for margin expansion largely from non-ticket revenues and cost control.

The carrierʼs unit cost excluding fuel fell 7% in the fourth quarter and 2% for the full- year. One major project Volaris has planned to further drive down its unit cost is adding five seats to its Airbus A320 narrowbodies for a total of 179. Once the project is complete Volaris believes its unit costs will fall an additional 2.7%. In comparison, ultra low-cost carrier Spirit Airlines operates its A320s in a 178-seat configuration, so Volaris stands to have one of the densest narrowbody configurations in the Americas.

Volaris also bills itself as an ultra low cost carrier, and has some similarities to Spirit. Its strategy entails capturing a still-high number of Mexicans that still travel by bus. While

The carrier endures some lingering effects from Mexicoʼs rough economic climate, Beltranena confidently declares that “the Volaris ultra low cost carrier model was developed with both our long term opportunity and Mexicoʼs short term volatility in mind”.

(Photo credit: Eduardo Garcia)

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