Volaris: the leading ultra-low-cost airline serving Mexico...
Transcript of Volaris: the leading ultra-low-cost airline serving Mexico...
Volaris: the leading ultra-low-cost airline
serving Mexico, USA and Central America
May 2017
The information ("Confidential Information") contained in this presentation is confidential and is provided by
Controladora Vuela Compañía de Aviación, S.A.B. de C.V., (d/b/a Volaris, the "Company") confidentially to you solely
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This presentation contains statements that constitute forward-looking statements which involve risks and
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Company or its officers with respect to the consolidated results of operations and financial condition, and future
events and plans of the Company. These statements can be recognized by the use of words such as "expects,"
"plans," "will," "estimates," "projects," or words of similar meaning. Such forward-looking statements are not
guarantees of future performance and actual results may differ significantly from those in the forward-looking
statements as a result of various factors and assumptions. You are cautioned not to place undue reliance on these
forward looking statements, which are based on the current view of the management of the Company on future
events. The Company does not undertake to revise forward-looking statements to reflect future events orcircumstances.
Disclaimer
2
Serving 68 destinations throughout Mexico (40), USA (24) and Central America (4)
(1) Converted to USD at an average annual exchange rate
Source: Company data
2008 2016 CAGR
Unit cost
(CASM ex-fuel;
cents, USD)(1)
5.5 4.8 -1.6%
Passenger
demand
(RPMs, bn)
3.2 14.3 20.6%
Aircraft
(End of period)21 69 16.0%
Routes
(End of period)42 162 18.4%
Passengers
(mm)3.5 15.0 20.0%
Operating
revenue
(bn, MXN)
4.4 23.5 23.3%
Adj. EBITDAR
(bn. MXN)0.7 8.9 37.4%
Adj. ROIC (pre-
tax)11% 20% +9 pp.
3
Volaris: snapshot at 30,000 feet
Volaris’ flight path for demand stimulation and
continued growth
Capacity
increase
Cost
reduction
“Clean”,
low
base
fares
More
customers
More
ancillaries(“You decide”)
Resilient ULCC
business model
driving high,
profitable growth
4
Volaris’ consistent execution of its ULCC business
model well positioned for growth
Diversified and resilient point-to-point
network
Successful price unbundling
Strong penetration of Mexican air
travel market
Proven ancillary revenue model
Bus to air substitution
Upside in ancillary revenue
Continue geographic diversification
through international growth
Attractive emerging air travel market in
Mexico
Flexible fleet plan and utilization;
capacity management
Sustained profitability with strong
balance sheet Continue cost reductions
Continue route frequency increase
OpportunitiesAccomplishments
5
Accomplishments
4.9
10.610.0
8.37.7
7.0 6.7 6.5
4.5
8.9
6.1 5.6
10.81.9
2.93.4
2.62.4
2.82.4 2.4
1.7
2.5
2.31.9
2.1
(1) Non-USD data converted to USD at an average exchange rate
(2) DCOMPS= Direct Competitors: Average CASM and CASM ex-fuel; US network carriers include: Delta, American Airlines, Alaska Airlines and United
(3) As of March 31, 2017
Source: Company data, airlines public information
Volaris has a best-in-class unit cost structure
Long-term unit cost advantage
CASM and CASM ex-fuel (LTM March 2017, USD cents) (1) Cost structure
7
• Economies of scale
- Dilute fixed costs
- High seat density
• Young and fuel efficient fleet
- Sharklet rollout
- Average age of 4.4 years (3)
- Low fuel burn
• Productive network
- Point-to-point
- No connections complexity
• High aircraft utilization
- 1Q17 average 12.4 block hours per
day
Latin American carriers US LCCs US network
carriers (2)
Continued cost improvement
potential
In line with best-in-class
ULCCs
6.8
13.5
10.9
10.19.8
9.1 8.9
11.3
8.4
7.5
12.9
6.2
13.4
2
5
%
Volaris’ cost structure enables us to lower base
fares and increase ancillaries
Volaris’ TRASM is below most competitors’ CASM (1)
TRASM and CASM (LTM March 2017 USD cents) (2)
8
Volaris’ resilient ULCC
model
TR
AS
M
CA
SM
CA
SM
CA
SM
CA
SM
CA
SM
CA
SM
CA
SM
CA
SM
CA
SM
CA
SM
(1) Based on CASM and TRASM among the publicly-traded airlines
(2) Non-USD data converted to USD at an average exchange rate
(3) DCOMPS: US network carriers direct competitors include Delta, United, Alaska Airlines and American Airlines
Source: Company data, airlines public information
Overlap:
7.2 7.58.4
8.9 9.19.8 10.1
10.911.3
13.4 13.5
CA
SM
12.9
142
204 211
279
338381 391
2011 2012 2013 2014 2015 2016 LTM Mar2017
20
30
51 52
Volaris Wizz Allegiant Spirit
(1) Mexican legislation does not allow Mexican airlines to charge for the first checked bag on domestic flights
(2) Converted to USD using an average exchange rate for the period
(3) Data as of FY 2016
Source: Company data, airlines public information
Non-ticket revenues continue to grow, with
upside potential
Non-ticket revenue per passenger
Volaris(MXN) per passenger
Best-in class ULCCs, including first bag fee (1)
(1Q 2017, USD per passenger) (2)
2011-2016 CAGR: +21.9%
2.7x
Ancillaries
• Apply revenue management techniques
- Pricing by route, season, day
- Fully dynamic pricing for some products
• Add products
- New products & services
- Enhancements to existing products
• Improve presence
- More touch-points to sell ancillaries throughout
the journey
- Allow customization
• Benefit from network diversification
- More international capacity
• First checked bag
- USA and Puerto Rico
- Costa Rican AOC
Increasing non-ticket revenue allows to
reduce fare further and stimulate
demand
9
(3)
Network enhancement: connecting the dots and
diversifying further
Note: Excludes routes and stations announced to start operations
New routes
Domestic International
Cancun
Guadalajara 6
Mexico City 4
Other 2 4
Tijuana
Costa Rica 1 1
Total 3 15
New stations
USA Central America
Austin San Salvador
Seattle
San Francisco
Miami
Milwaukee
LTM March 2017 Volaris diversified its network by starting operations in 18 routes and 6 stations
Volaris’ LTM March 2017 new routes
10
New International
New Domestic
New Volaris Costa Rica
…supporting strong capacity growth
Joining existing airports
Additional frequencies
New airports
8.9%
3.3%
3.6%
Total ASM growth
1Q 2017 capacity growth contribution (yoy)
16.8%
Our network is well positioned for diversified growth
=
+
+
+
11
Source: Company data
Volaris Costa Rica 1.0%+
Growth opportunities
24
43
18
28
8
13
2010 2011 2012 2013 2014 2015 2016 LTM Mar2017
Domestic USA Other international
Yoy growth 3.3% 4.0% 8.3% 8.3% 8.3% 12.3% 10.4% 10.2%
GDP growth (2) 5.1% 4.0% 4.0% 1.4% 2.3% 2.6% 2.3% 1.5%
GDP multiplier 0.6 1.0 2.1 6.1 3.7 4.7 4.5 6.8
In recent years, Mexico’s volume growth has been
robust despite challenging economic environment
(1) Considers Volaris and VivaAerobus domestic market share 1Q17
(2) Values according to INEGI´s new methodology
(3) Yoy growth for LTM March 2016 vs. LTM March 2017
(4) 2017 GDP expectation from Banxico’s March survey
Source: DGAC-SCT; INEGI; Banco de México
Mexico passenger market volume has increased since 2010
50 52
5761
67
75
Passenger volume (millions)
13
82Main industry
growth drivers
• Strong demand and
increasing middle
class
• LCC gaining market
through low fares
-43% LCC
share(1)
• High improvement
potential:
-Domestic air
trips per capita
in Mexico 0.25
vs. Brazil 0.45
3-5x GDP multiplier
in recent years
2010-2016 CAGR: +8.6%85
(4)
(3)
6.5% 8.1% 8.8%11.6%
8.0% 8.0%
23.4%
10.3%
19.6%
33.3%
26.9%22.1%
2012 2013 2014 2015 2016 LTM Mar 2017
Market Volaris
10.3%8.6% 7.9%
13.0% 12.8% 12.4%
25.2%23.0%
7.7%
19.7%
24.8%
20.0%
2012 2013 2014 2015 2016 LTM Mar 2017
Market Volaris
Domestic passenger growth (%)
Source: DGAC, Company data
Volaris growth has surpassed market growth in
both domestic and international markets
14
International passenger growth (%)
• Low costs allow Volaris to offer
lower fares and make flying
possible
• Fleet
- Up-gauging: A320neo with
186 seats and A321 with 230
seats
- Young and fuel efficient:
average of 4.4 (1) years; new
generation aircraft
• Productive network with high
utilization
- Around 20 new routes per
year
- Avg. 12.4 block hours/day in
1Q 2017
• High and healthy load factors
- 83.2% in 1Q 2017
• 28% domestic passengers
market share as of Mar. 2017
Volaris has been the leading engine of growth for VFR and
leisure markets in Mexico, becoming the largest domestic
airline
Market
growth
Volaris
growth
2016, Volaris was the source of 46% of the growth among Mexican carriers
(1) Data as of March 2017
Note: Markets not mutually exclusive, contested domestic markets
Source. Company data, airlines public information
Volaris’ main growth driversSegment passenger CAGR Volaris vs. market (2010-2016)
15
Tijuana
Hermosillo
Los CabosCuliacan
Vallarta
Guadalajara
Mexico City
Cancun
Monterrey
10% 12%
5% 17%
10% 28%8% 23%
11% 34%
9% 38%
8% 19%
11% 61%
13% 27%
(1) Minimum stage length of 170 miles
(2) Minimum stage length of 200 miles; CAM stands for Central America; SAM stands for South America
(3) South and northbound leisure routes
(4) Figures calculated as of April 2017
(5) Data from the World Bank
Source: Company data, DGAC and DIIO MI Market Intelligence for the Aviation Industry; ALTA
0
10
20
30
40
50
0
25
50
75
100
USA (VFR) USA (Leisure) CAM, SAM,Canada,
Caribbean
Significant untapped opportunities
Domestic – growth potential of approx. 110
routes (4)
International – growth potential of approx. 135
routes (4)
(3)
Number of routes (1) Number of routes (2)
Routes served Growth potential
16
In terms of air trips per capita Mexico has plenty potential to grow
2015 domestic air trips per capita (5)
2.39
0.810.60 0.49 0.42 0.32 0.30 0.28
0.09
USA Chile Colombia Brazil Peru Mexico Costa Rica Argentina Paraguay
28 42
2940
2012 2016
Domestic
International
2012 2016
First, economy and other
Executive and luxury
ULCC model
First sell
Trial
Ticket giveaway
#Nomáscamión
Strong conversion
rate
Volaris contributed by stimulating demand from
bus to air substitution
Source: Company data, Secretaría de Comunicaciones y Transportes (SCT), 2016
Bus switching programSignificant upside for air travel
Total air travel passengers
in Mexico (mm)
Total bus passengers
in Mexico (mm)
2,758
33
Mass media campaigns
“Tarifa no + camion” positioning
Digital capabilities
Attracting 1st
time flyers
17
Education
2,971
2,683 2,891
74 80
55
82
• The right market
- Costa Rica is top three middle class growth
of LATAM
- Costa Rica GDP growth of 4.2%
accumulated in 2016
- Population of ~45M in Central America
- VFR potential in the region and to the USA,
Costa Rica is the country with the most
immigrants as a % of its population
- Bus switching potential
• The right moment
- No ULCC presence in the region
- Local competitors have 38% of capacity
share while US carriers 46%
- High average fare and yield environment
• The right ULCC model
- Growth sustainable and proved model, easily
translatable to Central America
- Ancillary revenue potential
- USD denominated revenue contributing to
FX natural hedge
Volaris’ Costa Rican AOC provides growth
potential in Central America
(1) Subject to authorization from the corresponding authorities
Source: World Bank, ALTA, MI-DIIO, CEPAL, Infare
Potential markets (1)Central America key insights
18
Volaris’ Central American operation full potential of 18-22 aircraft
ChicagoNew York
Los Angeles
Dallas
HoustonSan Antonio Orlando
Miami
GuadalajaraMexico City
Cancun
Guatemala
San José, CR
Managua
MedellinBogota
Cartagena
Quito
Guayaquil
Lima
La Paz
San Salvador
La Habana
Santo Domingo
Puerto Rico
New routes Date
San Jose, CR - Guatemala Dec/16
San Jose, CR - San Salvador Feb/17
San Jose, CR – Managua Apr/17
Guatemala – San Salvador Jun/17
Managua – San Salvador Jun/17
Drivers of continued profitable growth
Uniquely positioned to capture growth in underpenetrated Mexican aviation market
Reduce unit costs
Fleet growth
Expand network
Increase total revenues
• Deepen footprint in
markets with high
demand stimulation
• Grow ancillary revenue to
world class ULCC
benchmarks
• 45 additional aircraft to be
delivered
• Up-gauge fleet from
A319 to A320/A321
• Higher seat density
configuration
• Expand network
geographically
Source: Company data
• Neo incorporation
- Fuel efficiency
19
• Price, product,
presence
Fleet and financials
15 125
1515
15
2828
28
1 715
1010 10
0
16
2016 2017E 2018E
A319 A320
A320 w/sharklets A320 NEO w/sharklets
A321 w/sharklets A321 NEO w/sharklets
Volaris’ fleet plan supports its strategy to drive
lower unit costs
Note: NEO stands for the Airbus new engine option; CEO stands for the Airbus current engine option
(1) Net fleet after additions and returns
(2) Source: Airbus
(3) Figure calculated as of May 1, 2017
69 73
79• A321 (CEO and NEO)
- 230 seats (up-gauge)
- ~10% CASM dilution(2)
• A320 NEO
- Combined fuel consumption
reduction by approx. 15-16% per
seat(2)
• A320 CEO with sharklets
- Fuel consumption reduction by
approx. 3%(2)
• All PDP requirements fully
financed
21
Contractual fleet obligations (number of aircraft)(1)
Backlog of 45 Aircraft to support growth (3)
1.2
2.5 2.8 3.1
6.5
8.9
7.7
0.0
5.0
10.0
2011 2012 2013 2014 2015 2016 LTMMar2017
(MX
Nbn)
22%20%
17% 16%
11% 10%9%
4%2%
32% 32%28%
26% 25%
22% 21% 20% 19%
8.9
11.713.0
14.0
18.2
23.5 24.0
5
15
25
2011 2012 2013 2014 2015 2016 LTMMar2017
(MX
Nbn)
(MX
Nbn)
(1) CAGR for 2012-2016
Source: Company data, airlines public information
Revenue CAGR 2011 - 2016
High growth and solid financial performance
Revenues
22
2011 – 2016 CAGR: +21.5%
Adj. EBITDAR
LTM March 2017 Adj. EBITDAR margin
2011 – 2016 CAGR: +48.3%
76% 74% 73% 69% 67%
24% 26% 27% 31% 33%
0%
25%
50%
75%
100%
2012 2013 2014 2015 2016
Domestic International
Increasing international operation brings higher USD revenues
Volaris’ international expansion has been key in constructing a
better hedge for FX volatility
23
Volaris’ revenues breakdown, MXN billion (International revenues priced in USD)
11.7 13.0 14.0 18.2 23.5
2.0x
4.9x 5.3x 5.4x 5.4x 5.5x6.0x
7.2x
9.4x
37%
29% 27%
16% 15%11% 9%
7% 7%
Strong balance sheet and liquidity, well funded
for continued growth
24(1) Figures converted to USD at March 2017 end of the period spot exchange rate $18.81 for convenience purposes only
Source: Company data, airlines public information
• Unrestricted cash of $6.8 billion pesos (US$
364 million(1)) as of March 31, 2017.
• Net cash position of $4.8 billion pesos (US$
255 million(1)) as of March 31, 2017.
• Adjusted net debt to EBITDAR of 4.9x as of
March 31, 2017.
• Fully financed pre-delivery payments.
• Expected 2017 net CAPEX (US$ 120 to -
140 million):
• PDPs: from US$ 60 to 65 million, net
of PDP reimbursements
• Major maintenance: US$ 50 to 60
million
• Other: from US$ 10 to 15 million
Adj. net debt/EBITDAR
Liquidity-cash and equivalents as a % of LTM Op. Revenue
Appendix
Fuel price protection
26
(1) Approximate percentage of gallons hedged as of May 1, 2017
Period Total % hedged(1) Avg. price (gal/USD$) Instrument
2Q17 55% $1.61 Call
3Q17 55% $1.44 Call
4Q17 55% $1.40 Call
1Q18 50% $1.63 Call
2Q18 50% $1.74 Call
3Q18 35% $1.79 Call
4Q18 25% $1.89 Call
(1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.6640 for convenience purposes only
(2) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $18.8092 for convenience purposes only
(3) Audited financial information 2014A – 2016A
Source: Company data
Consolidated statements of operations summary
MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A (1) 1Q 2017 1Q 2017(2)
% of total
operating
revenues
(USD
millions)
(USD
millions)
Passenger 11,303 14,130 17,790 861 4,025 214 71.2
Non-ticket 2,733 4,049 5,722 277 1,631 87 28.8
Total operating revenues 14,037 18,180 23,512 1,138 5,656 301 100
Other operating income (22) (193) (497) (24) (1) - -
Fuel 5,364 4,721 5,741 278 1,892 101 33.5
Aircraft and engine rent expenses 2,535 3,525 5,590 271 1,699 90 30.0
Landing, take off and navigation expenses 2,066 2,595 3,272 158 1,035 55 18.3
Salaries and benefits 1,577 1,903 2,420 117 696 37 12.3
Sales, marketing and distribution expenses 817 1,089 1,413 68 358 19 6.3
Maintenance expenses 665 875 1,344 65 351 19 6.2
Other operating expenses 490 698 952 46 269 14 4.8
Depreciation and amortization 343 457 537 26 128 7 2.3
Total operating expenses 13,833 15,669 20,773 1,005 6,428 342 113.7 6
EBIT 204 2,510 2,740 133 (772) (41) (13.7)
Operating margin (%) 1.5 13.8 11.7 11.7 (13.7) (13.7)
Finance income 23 47 103 5 21 1 0.4
Finance cost (32) (22) (35) (2) (21) (1) (0.4)
Exchange gain (loss), net 449 967 2,170 105 (1,145) (61) (20.2)
Income tax (expense) benefit (39) (1,038) (1,457) (71) 556 30 9.8
Net income (loss) 605 2,464 3,519 170 (1,361) (72) (24.1)
Net margin (%) 4.3 13.6 15.0 15.0 (24.1) (24.1)
Adjusted EBITDAR 3,081 6,492 8,866 429 1,055 56 18.7
Adj. EBITDAR margin (%) 22.0 35.7 37.7 37.7 18.7 18.7
EPS Basic and Diluted (Pesos) 0.60 2.43 3.48 0.17 (1.34) (0.07)
EPADS Basic and Diluted (Pesos) 5.98 24.35 34.78 1.68 (13.45) (0.71)
27
Consolidated statements of financial position
summary
(1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.6640 for convenience purposes only
(2) Net debt = financial debt - cash and cash equivalents
(3) Adjusted debt = (LTM aircraft rent expense x 7) + financial debt
(4) Adjusted net debt = adjusted debt - cash and cash equivalents
(5) Audited financial information 2014A – 2016A
(6) Certain amounts related to prepaid income tax and guarantee deposits, presented in the consolidated statement of financial position have been reclassified in 2015A, in order to
be comparative with the classification between current and non-current assets presented during 2016A
(7) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $18.8092, respectively, for convenience purposes only
Source: Company data
MXN millions unless otherwise
stated (5) 2014A 2015A(6) 2016A 2016A (1) 1Q 2017 1Q 2017(7)
(USD
millions)
(USD
millions)
Cash and cash equivalents 2,265 5,157 7,071 342 6,839 364
Current guarantee deposits 545 873 1,167 56 1,067 57
Other current assets 879 1,193 3,313 160 3,039 162
Total current assets 3,689 7,224 11,551 559 10,945 582
Rotable spare parts, furniture and
equipment, net2,223 2,550 2,525 122 2,751 146
Non-current guarantee deposits 3,541 4,693 6,560 317 5,992 319
Other non-current assets 452 765 1,146 55 1,011 54
Total assets 9,905 15,232 21,782 1,054 20,698 1,100
Unearned transportation revenue 1,421 1,957 2,154 104 2,987 159
Short-term financial debt 823 1,371 1,051 51 1,150 61
Other short-term liabilities 2,524 3,745 4,683 227 4,938 263
Total short-term liabilities 4,768 7,073 7,888 382 9,075 482
Long-term financial debt 425 220 943 46 885 47
Other long-term liabilities 242 1,113 2,157 104 1,516 81
Total liabilities 5,435 8,407 10,988 532 11,476 610
Total equity 4,470 6,825 10,794 522 9,222 490
Total liabilities and equity 9,905 15,232 21,782 1,054 20,698 1,100
Net debt (2) (1,017) (3,566) (5,077) (246) (4,804) (255)
Adjusted debt (3) 18,990 26,268 41,125 1,990 44,523 2,367
Adjusted net debt (4) 16,725 21,111 34,053 1,648 37,685 2,004
28
Consolidated statements of cash flows summary
(1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.6640 for convenience purposes only
(2) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $18.8092 for convenience purposes only
(3) Audited financial information 2014A – 2016A
Source: Company data
MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A (1) 1Q 2017 1Q 2017(2)
(USD
millions)
(USD
millions)
Cash flow from operating activities
Income (loss) before income tax 644 3,502 4,977 241 (1,916) (102)
Depreciation and amortization 343 457 537 26 128 7
Guarantee deposits (695) (1,165) (1,957) (95) 380 20
Unearned transportation revenue 27 536 196 10 834 44
Changes in working capital and provisions 14 (261) (2,773) (134) 1,043 56
Net cash flows provided by operating activities 334 3,070 979 47 469 25
Cash flow from investing activities
Acquisitions of rotable spare parts, furniture, equipment and
intangible assets (1,603) (1,456) (2,259) (109) (444) (24)
Pre-delivery payments reimbursements 396 670 1,733 84 - -
Proceeds from disposals of rotable spare parts, furniture
and equipment 22 185 498 24 101 5
Net cash flows used in investing activities (1,185) (601) (28) (1) (342) (18)
Cash flow from financing activities
Treasury shares purchase (7) - (17) (1) - -
Proceeds from exercised stock options - 23 20 1 - -
Interest paid (23) (42) (39) (2) (20) (1)
Other finance costs (11) (40) (138) (7) - -
Payments of financial debt (400) (801) (1,531) (74) (287) (15)
Proceeds from financial debt 966 925 1,716 83 481 26
Net cash flows provided by financing activities 525 65 11 1 174 9
(Decrease) increase in cash and cash equivalents (326) 2,533 962 47 300 16
Net foreign exchange differences 141 359 952 46 (533) (28)
Cash and cash equivalents at beginning of period 2,451 2,265 5,157 250 7,071 376
Cash and cash equivalents at end of period 2,265 5,157 7,071 342 6,839 364
29
Adj. EBITDA and Adj. EBITDAR reconciliation
(1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.6640 for convenience purposes only
(2) 1Q 2017 figures converted to USD at March end of the period spot exchange rate $18.8092 for convenience purposes only
(3) Audited financial information 2014A – 2016A
Source: Company data
MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A(1) 1Q 2017 1Q 2017(2)
(USD
millions)
(USD
millions)
Net income (loss) 605 2,464 3,519 170 (1,361) (72)
Plus (minus):
Finance costs 32 22 35 2 21 1
Finance income (23) (47) (103) (5) (21) (1)
(Benefit)/provision for income taxes 39 1,038 1,457 71 (556) (30)
Depreciation and amortization 343 457 537 26 128 7
EBITDA 995 3,934 5,446 264 (1,789) (95)
Exchange (gain) loss, net (449) (967) (2,170) (105) 1,145 61
Adjusted EBITDA 547 2,967 3,276 159 (644) (34)
Aircraft and engine rent expense 2,535 3,525 5,590 271 1,699 90
Adjusted EBITDAR 3,081 6,492 8,866 429 1,055 56
30