United states securities and exchange commission

Total operating expenses, net increased 13.3% in 2015 primarily as a result of the growth of our operations and other factors described below.

Other Operating Income. Other operating income increased Ps.171.0 million or >100% in 2015, primarily because of higher profit margins from sale and lease back transactions compared to 2014.

Fuel. Fuel expense decreased 12.0% in 2015 as a result of a decrease in the average fuel cost per gallon of 25.7%. This decrease was partially offset by an increase 18.4% in the fuel gallons consumed due to the increase in our fleet.

During the years ended December 31, 2015 and 2014, we entered into fuel swap contracts that gave rise to a loss of Ps.128.3 million and Ps.85.7 million, respectively. These instruments qualify for hedge accounting. Accordingly, the effects of the hedges were presented as part of the cost of the fuel.

Additionally, during the years ended December 31, 2015 and 2014, we entered into Asian call options contracts. These instruments also qualify for hedge accounting. As a result, during 2015, their extrinsic value of Ps.112.7 million was recycled to the cost of fuel.

Aircraft and Engine Rent Expense. Aircraft and engine rent expense increased 39.1%. This increase was primarily driven by: (i) an increase of Ps.246.9 million in rent expense relating to seven new A320 aircraft, (ii) an increase of Ps.279.4 relating to the full year operation of the new A320 aircraft received during the year ended December 31, 2015, (iii) the depreciation of approximately 19.22% of the average exchange rate of the peso against the U.S. dollar, negatively affecting our aircraft rent in peso terms in an amount of Ps.353.6 million, and (iv) an increase in our supplemental and contingent rent of Ps.192.1 million. These increases were partially offset by: (i) a Ps.74.0 million decrease related to the redelivery of one aircraft to the lessors, and (ii) other rent expenses of Ps.7.2 million.

Landing, Take-off and Navigation Expenses. The 25.7% increase in landing, take-off and navigation expenses in 2015 was primarily due to a 15.1% increase in the number of airports served. In addition, our operations as measured by number of departures increased by 17.8%. These increases were partially offset by incentives received from certain airport groups as a result of our increased operations.

Salaries and Benefits. The 20.7% increase in salaries and benefits in 2015 was primarily the result of 17.8% increase in our total employees, which were required for our increased operations and fleet size. Additionally, the variable compensation of our workforce increased also due to the increased operations recorded during 2015. See Item 6: “Directors, Senior Management and Employees—Employees.”

Sales, Marketing and Distribution Expenses. The 33.2% increase in sales, marketing and distribution expenses was primarily due to the increase of 29.5% in operating revenues and additional marketing expenses related to our efforts to promote the new routes.

Maintenance Expenses. The 31.6% increase in maintenance expenses in 2015 was the result of a 12% increase in the size of our fleet due to the addition of six net aircraft in 2015. Additionally, maintenance expenses also increased as a result of the aging of our fleet (4.6 years as of December 31, 2015), which requires more comprehensive work during routine scheduled maintenance, as well as the timing of the maintenance checks performed during 2015 as compared to 2014. During 2015, our maintenance expenses on a peso basis increased due to the depreciation of approximately 19.2% in the average exchange rate of the peso against the U.S. dollar during 2015.

 

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Other Operating Expenses. Other operating expenses increased 42.4%. This increase was primarily the result of (i) additional administrative support expenses related to the expansion of our flight operations and (ii) additional technical and communication support required to the growth of our operations.

Depreciation and Amortization. Depreciation and amortization increased 33.3% in 2015 primarily due to the amortization of major maintenance events associated with the aging of our fleet, the cost of which is accounted for under the deferral method. During 2015 and 2014, we recorded as amortization of major maintenance leasehold improvement costs Ps.352.9 million and Ps.253.4 million, respectively.

Operating Results

2015 compared to 2016

 

		For the years ended December 31,
		2015				2016				Variation
		(In thousands of pesos, except for %)
Operating Results
Total operating revenues			18,179,704				23,512,451				5,332,747				29.3	%
Total operating expenses, net			15,669,371				20,772,760				5,103,389				32.6	%
Operating income			2,510,333				2,739,691				229,358				9.1	%

Operating Income. As a result of the factors outlined above, our operating income was Ps.2.7 billion in 2016, a 9.1% increase compared to our operating income of Ps.2.5 billion in 2015.

2014 compared to 2015

 

		For the years ended December 31,
		2014				2015				Variation
		(In thousands of pesos, except for %)
Operating Results
Total operating revenues			14,036,742				18,179,704				4,142,962				29.5	%
Total operating expenses, net			13,832,639				15,669,371				1,836,732				13.3	%
Operating income			204,103				2,510,333				2,306,230				>100	%