Volaris Surges in First Day of Trading After Share SaleBrendan Case and Jonathan Levin
Volaris expects to add 15 U.S. destinations over the next three years, the carrier’s chief executive officer said after completing Mexico’s first initial public offering by an airline since 2011.
The expansion goes along with Volaris’s growth plans in Mexico, where its low fares are helping win customers away from other airlines and bus companies, CEO Enrique Beltranena said today in a telephone interview from New York. The shares surged 15 percent to 17.88 pesos at the close in Mexico City after the IPO raised at least $346 million.
“When you look at per-capita air trips, Mexico is well below the world average, and that’s because of the huge market of bus passengers,” Beltranena said. “We made a business model that would cater to the middle class, offer point-to-point service and cannibalize the bus market.”
Adding U.S. markets would help the Mexico City-based airline, officially known as Controladora Vuela Cia. de Aviacion SAB, build on its Mexican base. Volaris flew 23 percent of domestic passengers this year through July and almost doubled its market share in the past five years, government data show.
The carrier now flies to 11 U.S. cities, including Los Angeles, Denver and Chicago. Beltranena declined to say what U.S. destinations he’s considering in its expansion plan.
In its home market, Volaris is targeting a bus industry that had 74 million passenger trips in its so-called executive and luxury category last year, the airline said in a Sept. 16 prospectus. Domestic air passengers totaled 28.2 million in 2012 as Mexico’s total air traffic climbed at the fastest pace since 2007 to a record 56.8 million, according to the Ministry of Communications and Transportation.
Volaris became Mexico’s second publicly traded carrier, after larger competitor Grupo Aeromexico SAB sold stock in 2011. Airlines in Mexico have expanded into a void left when Cia. Mexicana de Aviacion, then largest based on passenger traffic, sought protection from creditors and ceased operations in 2010.
Interjet, Mexico’s No. 2 airline, is studying a share sale for 2014 or 2015, Executive President Miguel Aleman Magnani said last month. The country’s fourth-largest airline, Aeroenlaces Nacionales SA, known as VivaAerobus, has hired Barclays Plc to help prepare a possible offering, according to three people familiar with the matter.
The Volaris IPO, Mexico’s first since July 23, extends a record pace of stock issuance in the country this year. Not including the Volaris offering, Mexican companies raised a record $9.93 billion in equity markets in 2013, 10 percent more than the $9.02 billion in all of 2012. Grupo Financiero Banorte SAB, Mexico’s third-biggest bank, raised $2.53 billion in a follow-on stock offering in July.
Deutsche Bank AG, Morgan Stanley and UBS AG led the Volaris share sale, data compiled by Bloomberg showed. The airline sold American depositary receipts at $12 each, the bottom of the projected $12 to $14 range the airline gave in a Sept. 16 regulatory filing.
The ADRs climbed 17 percent to $14.01 at the close in New York.
Demand was 2.85 times the total shares offered, Beltranena said. The Mexican shares were priced at 15.51 pesos each.
“For me, what was important was to build a solid portfolio that would attract investors, give them an upside and lead to solid trading as we move ahead,” Beltranena said. “The history of Volaris is one that gives an important potential to the stock.”
The company began operations in 2006 and its fleet includes Airbus SAS single-aisle A319 and A320 jets. Owners include Indigo Partners LLC, Evercore Partners Inc. and Evercore Co-Chairman Pedro Aspe, a former Mexico finance minister, according to the pre-IPO filing.
Volaris has said it has some of the lowest operating expenses among publicly traded carriers in the Americas, with costs per available seat mile, an industry benchmark, at 9.4 cents. Sales for 2012 totaled $887 million, up from $397 million in 2008 based on average exchange rates during the respective years, according to the airline.
The carrier will spend $164 million of the proceeds from the share offering on aircraft pre-delivery payments during the next three years, Beltranena said.
Volaris has firm commitments for 49 Airbus A320s for delivery over next eight years, according to the prospectus. The carrier has no plans to add smaller or larger aircraft to its fleet, Beltranena said.