United states securities and exchange commission

You should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report, particularly in “Risk Factors.”

Description of Our Principal Line Items

Operating Revenues

Passenger Revenue. We derive our operating revenues primarily from transporting passengers on our aircraft. Approximately 76% of our total operating revenues were derived from passenger fares in 2016. Passenger revenues are based upon our capacity, load factor and the average ticket revenue per booked passenger. Our capacity is measured in terms of ASMs, which represents the number of seats we make available on our aircraft multiplied by the number of miles the seats are flown. Load factor, or the percentage of our capacity that is actually used by paying customers, is calculated by dividing RPMs by ASMs. The average ticket revenue per booked passenger represents the total passenger revenue divided by booked passengers.

Non-ticket Revenue. We derived approximately 24% of our total operating revenues in 2016 from non-ticket revenue. The most significant non-ticket revenues include revenues generated from (i) air travel-related services (ii) revenues from non-air-travel related services and (iii) cargo services.

Air travel-related services include, but are not limited to, fees charged for excess baggage, bookings through our call center or third-party agencies, advanced seat selection, itinerary changes, charters and passenger charges for no-show tickets. They are recognized as revenue when the related service is provided.

Non-air-travel-related services include commissions charged to third parties for the sale of hotel rooms, trip insurance and rental cars. They are recognized as revenue at the time the service is provided. Additionally, services not directly related to air transportation include Volaris’ sale of VClub membership and the sale of advertising spaces to third parties. VClub membership fees are recognized as revenues over the life of the membership. Revenue from the sale of advertising spaces is recognized over the period in which the space is provided.

Revenues from cargo services are recognized when the cargo transportation is provided (upon delivery of the cargo to the destination).

 

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Table of Contents

The following table shows each of the line items in our consolidated statements of operations for the periods indicated as a percentage of our total operating revenues for that period:

 

		For the Years ended December 31,
		2014				2015				2016
Operating revenues:
Passenger			81	%			78	%			76	%
Non-ticket			19	%			22	%			24	%
Total operating revenues			100	%			100	%			100	%
Other operating income			0	%			(1	%)			(2	%)
Fuel			38	%			26	%			24	%
Aircraft and engine rent expense			18	%			19	%			24	%
Landing, take-off and navigation expenses			15	%			14	%			14	%
Salaries and benefits			11	%			10	%			10	%
Sales, marketing and distribution expenses			6	%			6	%			6	%
Maintenance expenses			5	%			5	%			6	%
Other operating expenses			3	%			4	%			4	%
Depreciation and amortization			2	%			3	%			2	%
Total operating expenses, net			99	%			86	%			88	%
Operating income			1	%			14	%			12	%
Finance income			0	%			0	%			0	%
Finance cost			0	%			0	%			0	%
Exchange gain, net			3	%			5	%			9	%
Income before income tax			5	%			19	%			21	%
Income tax expense			0	%			(6	%)			(6	%)
Net income			4	%			14	%			15	%

Revenues from our international operations represented 27.2%, 30.8% and 33.1% of our total revenues in 2014, 2015 and 2016, respectively, and revenues from our domestic operations represented 72.8%, 69.2% and 66.9% of our total revenues in 2014, 2015 and 2016, respectively.

Revenue Recognition. Revenues from the air transportation of passengers and commissions from ground transportation services are recognized at the earlier of when the service is provided or when the non-refundable ticket expires at the date of the scheduled travel. Ticket sales for future flights are initially recognized as liabilities under the caption unearned transportation revenue and, upon provision of the corresponding transportation service or expiration of the ticket, the earned revenue is credited to operations as revenues and the liability account is reduced by the same amount. All of our tickets are non-refundable, and subject to change upon the payment of a fee. Additionally, we do not operate a frequent flier program. Our most significant non-ticket revenues include revenues generated from (i) air travel-related services, (ii) non-air-travel related services, and (iii) cargo services:

 

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Air travel-related services include, but are not limited to, fees charged for excess baggage, bookings through our call center or third-party agencies, advanced seat selection, itinerary changes, charters and passenger charges for no-show tickets. They are recognized as revenue when the related service is provided.