Table of Contents
As filed with the Securities and Exchange Commission on April 26, 2022

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F

☐       REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐       SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report
For the transition period from                   to            
Commission file number 001-36059

Controladora Vuela Compañía de Aviación, S.A.B. de C.V.	
(Exact name of Registrant as specified in its charter)	
	
Volaris Aviation Holding Company	
(Translation of Registrant’s name into English)	
	
United Mexican States	
(Jurisdiction of incorporation or organization)	
	
Av. Antonio Dovalí Jaime No. 70, 13 Floor, Tower B	
Colonia Zedec Santa Fe	
United Mexican States, Mexico City, 01210	
(Address of principal executive offices)	
	
Renato Duarte Salomone (ir@volaris.com)
Av. Antonio Dovalí Jaime No. 70, 13 Floor, Tower B, Colonia Zedec Santa Fe United Mexican States, Mexico City, 01210	
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)	

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	    	Trading Symbol(s)	    	Name of each exchange on which registered	
American Depositary Shares (ADSs)		VLRS		New York Stock Exchange	
Ordinary Participation Certificates (Certificados de
 Participación Ordinarios or CPOs)		VLRS		New York Stock Exchange	
Series A shares of common stock, no par value		VOLARA		Mexican Stock Exchange	

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None	
(Title of Class)	

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None	
(Title of Class)	

		
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.	
Ordinary Participation Certificates (Certificados de Participación Ordinarios):	964,200,367	
Series A shares of common stock, no par value per share:	1,108,462,804	

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☒  Yes    ☐  No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
☐  Yes    ☒  No
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Table of Contents
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☒	Accelerated filer  ☐	Non-accelerated filer  ☐	Emerging growth company  ☐	

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.   ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ☐	International Financial Reporting Standards as issued
by the International Accounting Standards Board ☒	Other  ☐	

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐  Item 17   ☐   Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐   Yes    ☒ No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☐   Yes    ☐ No

Table of Contents
TABLE OF CONTENTS

	Page	
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS	1	
INTRODUCTION AND USE OF CERTAIN TERMS	3	
SUMMARY OF RISK FACTORS	4	
GLOSSARY OF AIRLINES AND AIRLINE TERMS	6	
PRESENTATION OF FINANCIAL INFORMATION AND OTHER INFORMATION	9	
PART I.	10	
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	10	
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE	10	
ITEM 3 KEY INFORMATION	10	
ITEM 4 INFORMATION ON THE COMPANY	41	
ITEM 4A UNRESOLVED STAFF COMMENTS	68	
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS	68	
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	98	
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	108	
ITEM 8 FINANCIAL INFORMATION	111	
ITEM 9 THE OFFER AND LISTING	112	
ITEM 10 ADDITIONAL INFORMATION	120	
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	137	
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	140	
PART II.	146	
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	146	
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	146	
ITEM 15 CONTROLS AND PROCEDURES	146	
ITEM 16 [Reserved]	147	
ITEM 16A Audit Committee Financial Expert	147	
ITEM 16B Code of Ethics	147	
ITEM 16C Principal Accountant Fees and Services	148	
ITEM 16D Exemptions from the Listing Standards for Audit Committees	148	
ITEM 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers	148	
ITEM 16F Change in Registrant’s Certifying Accountant	148	
ITEM 16G Corporate Governance	148	
ITEM 16H MINE SAFETY DISCLOSURE	152	
PART III.	152	
ITEM 17 FINANCIAL STATEMENTS	152	
ITEM 18 FINANCIAL STATEMENTS	153	
ITEM 19 EXHIBITS	153	
EXHIBIT INDEX	154	

i

Table of Contents
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This annual report on Form 20-F or our “annual report,” contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company’s expectations, beliefs or projections concerning future events and financial trends affecting the financial condition of our business. When used in this annual report, the words “expects,” “intends,” “estimates,” “predicts,” “plans,” “anticipates,” “indicates,” “believes,” “forecast,” “guidance,” “potential,” “outlook,” “may,” “continue,” “will,” “should,” “seeks,” “targets” and similar expressions are intended to identify forward-looking statements. Similarly, statements that describe the Company’s objectives, plans or goals, or actions the Company may take in the future, are forward-looking statements. Forward-looking statements include, without limitation, statements regarding the Company’s intentions and expectations regarding the delivery schedule of aircraft on order, announced new service routes and customer savings programs. Forward-looking statements should not be read as a guarantee or assurance of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Forward-looking statements are subject to a number of factors that could cause the Company’s actual results to differ materially from the Company’s expectations, including the competitive environment in the airline industry; the Company’s ability to keep costs low; changes in fuel costs; the impact of worldwide economic conditions on customer travel behavior; the Company’s ability to generate non-passenger revenues; and government regulation. Additional information concerning these, and other factors is contained in the Company’s Securities and Exchange Commission filings. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date of this annual report. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Important factors that could cause such differences include, but are not limited to:

	●	the competitive environment in our industry;	

	●	ability to keep costs low;	

	●	changes in our fuel cost, the effectiveness of our fuel cost hedges and our ability to hedge fuel costs;	

	●	the impact of worldwide economic conditions, including the impact of the economic recession on customer travel behavior;	

	●	actual or threatened terrorist attacks, global instability, geopolitical risks and potential U.S. military actions or activities;	

	●	ability to generate non-passenger revenues;	

	●	external conditions, including air traffic congestion, weather conditions and outbreak of disease and pandemics;	

	●	ability to maintain slots in the airports that we operate and service provided by airport operators;	

	●	ability to operate through new airports that match our operative criteria;	

	●	air travel substitutes;	

	●	labor disputes, employee strikes and other labor-related disruptions, including in connection with our negotiations with our union;	

	●	ability to attract and retain qualified personnel;	

	●	loss of key personnel;	
1

Table of Contents

	●	aircraft-related fixed obligations;	

	●	dependence on cash balances and operating cash flows;	

	●	our aircraft utilization rate;	

	●	maintenance costs;	

	●	our reliance on automated systems and the risks associated with changes made to those systems;	

	●	use of personal data;	

	●	lack of marketing alliances;	

	●	government regulation, changes in law and interpretation and supervision of compliance with applicable law;	

	●	maintaining and renewing our permits and concessions;	

	●	our ability to execute our growth strategy;	

	●	operational disruptions;	

	●	our indebtedness;	

	●	currency fluctuations or the devaluation and depreciation of the peso;	

	●	our liquidity;	

	●	our reliance on third-party vendors and partners;	

	●	our reliance on a single fuel provider in Mexico;	

	●	an aircraft accident or incident;	

	●	our aircraft and engine suppliers;	

	●	changes in the Mexican and VFR (passengers who are visiting friends and relatives) markets;	

	●	insurance costs;	

	●	environmental regulations;	

	●	cyber-attacks;	

	●	our ability to respond to global health crises, such as the ongoing COVID-19 pandemic; and	

	●	other risk factors included under “Risk Factors” in this annual report.	

In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this annual report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.
All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date of this annual report. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

2

Table of Contents
INTRODUCTION AND USE OF CERTAIN TERMS
In this annual report, we use the term “Volaris” to refer to Controladora Vuela Compañía de Aviación, S.A.B. de C.V., “Volaris Opco” to refer to Concesionaria Vuela Compañía de Aviación, S.A.P.I. de C.V., “Comercializadora” to refer to Comercializadora Volaris, S.A. de C.V., “Servicios Corporativos” to refer to Servicios Corporativos Volaris, S.A. de C.V., “Servicios Administrativos” to refer to Servicios Administrativos Volaris, S.A. de C.V., “Servicios Earhart” to refer to Servicios Earhart, S.A., “Vuela” to refer to Vuela, S.A. and “Vuela Aviación” to refer to Vuela Aviación, S.A., “Viajes Vuela” to refer to Viajes Vuela, S.A. de C.V., “Comercializadora Frecuenta” to refer to Comercializadora V. Frecuenta, S.A. de C.V., “Vuela El Salvador” to refer to Vuela El Salvador, S.A. de C.V., and “GDS” to refer to Guatemala Dispatch Service, S.A.Volaris Opco, Comercializadora, Servicios Corporativos, Servicios Administrativos, Vuela, Vuela Aviación, Viajes Vuela, Comercializadora Frecuenta and Vuela El Salvador are wholly-owned subsidiaries of Volaris. The terms “we,” “our” and “us” in this annual report refer to Volaris, together with its subsidiaries, and to properties and assets that they own or operate, unless otherwise specified. References to “Series A shares” refer to Series A shares of Volaris.

3

Table of Contents
SUMMARY OF RISK FACTORS
An investment in our securities and ADSs is subject to a number of risks, including risks related to Mexico, risks related to the airline industry, risks related to our business, and risks related to our securities and the ADSs. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.
Risks related to Mexico

	●	Political events and changes in Mexican government policy: The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. In particular, Mexican federal governmental actions and policies concerning air transportation and similar services could have a significant impact on us.	

	●	Adverse economic conditions in Mexico: Decreases in the growth rate of the Mexican economy, or periods of negative growth, or increases in inflation may result in lower demand for our flights, lower fares or a shift to ground transportation options, such as long-distance buses.	

	●	Developments in other countries: Developments in other countries, including the immigration and trade policies imposed by former U.S. President Donald Trump, adversely impacted our financial condition and results of operations. While it is expected that the current administration will reverse these policies, other developments, particularly related to international COVID-19 response measures, may result in lower demand for our flights.	

	●	Currency fluctuations: The value of the peso has been subject to significant fluctuations with respect to the U.S. dollar in the past and may be subject to significant fluctuations in the future. If the peso declines in value against the U.S. dollar our demand would be adversely affected. Please see Item 3: -“ Currency fluctuations or the devaluation and depreciation of the peso could adversely affect our business, results of operations, financial condition, and prospects”.	

	●	Downgrade of IASA rating: The FAA periodically audits the aviation regulatory authorities of other countries and gives an International Aviation Safety Assessment, or IASA, rating to each country. In May 2021, Mexico´s IASA rating was downgraded from Category 1 to Category 2. The AFAC is currently working to address the FAA findings. Consequently, we are unable to add new aircraft, services, or routes to the United States.	

Risks related to the airline industry

	●	Competition: We operate in an extremely competitive industry and face significant competition with respect to routes, fares, services and slots in airports. In addition to other airlines, we compete with bus services on many of our routes. Decisions by our competitors that increase overall industry capacity, or capacity dedicated to a particular region, market or route, could have a material adverse impact on our business.	

	●	Economic Conditions: The airline industry is particularly sensitive to changes in economic conditions. Unfavorable economic conditions, such as the recent economic contraction triggered by the COVID-19 pandemic, could affect our ability to raise prices to counteract increased fuel, labor or other costs, which could result in a material adverse effect on our business, results of operations and financial condition.	

	●	Regulations: The airline industry is heavily regulated, and our financial condition and results of operations could be materially adversely affected if we fail to maintain the required U.S., Mexican, Central American and South American governmental concessions or authorizations necessary for our operations.	

	●	Fixed Costs: The airline industry is characterized by low gross profit margins, high fixed costs and revenues that generally exhibit substantially greater elasticity than costs. As a result, airlines, including us, cannot quickly reduce their costs to respond to shortfalls in expected revenue and a shortfall from expected revenue levels could have a material adverse effect on our results of operations and financial condition.	
4

Table of Contents

	●	Fuel Costs: The airline industry is heavily impacted by the price and availability of fuel. Fuel is our largest cost and continued volatility in fuel costs or significant disruptions in the supply of fuel could have a material adverse effect on our business, results of operations and financial condition. The global fuel markets have reacted negatively to the recent conflict between Russia and Ukraine with fuel prices surging to their highest level since 2008 amid supply concerns. Our ability to pass on any significant increases in fuel costs through fare increases is also limited by our ultra-low-cost business model.	

	●	COVID-19: Public health threats, including COVID-19 and other highly communicable diseases, have and could in the future result in suspension of domestic and international flights, changes to travel behavior and a material adverse effect on the Mexican economy and the other countries in which we operate, airline industry reputation, the price of our shares, our business, results of operations and financial condition. Additional government responses to the ongoing COVID-19 pandemic and its present and future variants remain unknown and depend on future developments, including the scope and duration of the pandemic, the effectiveness and acceptance of the COVID-19 vaccines, which are highly fluid, uncertain and cannot be predicted.	

Risks related to our business

	●	Ultra-Low-Cost Structure: Our ultra-low-cost structure is one of our primary competitive advantages and many factors could affect our ability to control our costs, some of which are not under our control. We rely on maintaining a high daily aircraft utilization rate to implement our ultra-low-cost structure, which makes us especially vulnerable to flight delays or cancellations or aircraft unavailability. We also depend on our non-passenger revenue to remain profitable, and we may not be able to maintain or increase our non-passenger revenue base. If our cost structure increases and we are no longer able to maintain a cost advantage over our competitors, it could have a material adverse effect on our business, results of operations, financial condition, and prospects.	

	●	Maintenance Costs: While we currently have a young fleet, with an average age of 5.4 years as of December 31, 2021, our relatively new aircraft require less maintenance now than they will in the future and our maintenance costs will increase as our fleet ages. Any significant increase in maintenance and repair expenses would have a material adverse effect on our margins and our business, results of operations and financial condition.	

	●	Dependence on Certain Airports: Our business is heavily dependent on our routes to and from the Mexico City, Tijuana, Guadalajara and Cancun airports, which make up a large portion of the balance of our routes. The Mexico City International Airport has been declared saturated and we cannot guarantee that in the future we may obtain additional slots in Mexico City. Any significant increase in competition, redundancy in demand for air transportation or disruption in service or the fuel supply at these airports, could have a material adverse impact on our business, results of operations and financial condition.	

	●	Limited suppliers: We rely on a limited number of suppliers for fuel, aircraft and engines.	

Risks related to our securities and the ADSs

	●	CPO Trust: Non-Mexican investors may not hold our Series A shares directly and must have them held in a CPO trust, which releases CPOs underlying Series A shares, at all times. If the current trust is terminated, a new trust similar to the CPO trust may not be created.	

	●	Voting Rights: Holders of the ADSs and CPOs are not entitled to vote the underlying Series A shares. As a result, holders of the ADSs and CPOs do not have any influence over the decisions made relating to our company’s business or operations, nor are they protected from the results of any such corporate action taken by our holders of Series A shares and Series B shares.	

5

Table of Contents
GLOSSARY OF AIRLINES AND AIRLINE TERMS
Set forth below is a glossary of industry terms used in this annual report:

“Aeroméxico”	means Aerovías de México, S.A. de C.V.	
"AFAC"	means the Mexican Federal Civil Aviation Agency (Agencia Federal de Aviación Civil).	
“AirAsia”	means AirAsia Berhad.	
“Airbus”	means Airbus S.A.S.	
“Alaska Air”	means Alaska Air Group, Inc.	
“Allegiant”	means Allegiant Travel Company.	
“Aeroméxico Connect”	means Aerolitoral, S.A. de C.V.	
“American”	means American Airlines Group.	
“Available seat miles” or “ASMs”	means the number of seats available for passengers multiplied by the number of miles the seats are flown.	
“Average daily aircraft utilization”	means flight hours or block hours, as applicable, divided by number of days in the period divided by average aircraft in the period.	
“Average economic fuel cost per gallon”	means total fuel expense net of hedging effect, divided by the total number of fuel gallons consumed.	
“Average passenger revenue per booked passenger”	means total passenger revenue divided by booked passengers.	
“Average stage length”	means the average number of miles flown per passenger flight segment.	
“Avianca”	means Avianca Holdings S.A.	
“Azul”	means Azul Linhas Aéreas Brasileiras S.A.	
“Block hours”	means the number of hours during which the aircraft is in revenue service, measured from the time it leaves the gate until the time it arrives to the gate at destination.	
“Booked passengers”	means the total number of passengers booked on all flight segments.	
“CASM” or “unit costs”	means total operating expenses, net divided by ASMs.	
“CASM ex fuel”	means total operating expenses, net excluding fuel expense divided by ASMs.	
“CBP”	means U.S. Customs and Border Protection.	
“CEO”	means current engine option.	
“Copa”	means Copa Holding S.A.	
“Delta”	means Delta Air Lines, Inc.	
6

Table of Contents

“DHS”	means the U.S. Department of Homeland Security.	
“DOT”	means the U.S. Department of Transportation.	
“EPA”	means the U.S. Environmental Protection Agency.	
“FAA”	means the U.S. Federal Aviation Administration.	
“FCC” m	eans the U.S. Federal Communications Commission.	
“Flight hours”	means the number of hours during which the aircraft is in revenue service, measured from the time it takes off until the time it lands at the destination.	
“Frontier”	means Frontier Airlines, Inc.	
“Gol”	means Gol Linhas Aéreas Inteligentes, S.A.	
“Grupo Aeroméxico”	means Grupo Aeroméxico, S.A.B. de C.V., which includes Aeroméxico and Aeroméxico Connect.	
“Grupo Mexicana”	means Grupo Mexicana de Aviación, S.A. de C.V., which is the holding company for three airlines, Compañía Mexicana de Aviación, Mexicana Click and Mexicana Link.	
“Grupo TACA”	means Taca International Airlines, S.A.	
“IATA”	means the International Air Transport Association.	
“INEGI”	means the Mexican Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía),	
“Interjet”	means ABC Aerolíneas, S.A. de C.V.	
“JetSMART”	means JetSMART Airlines SpA.	
“LATAM”	means LATAM Airlines Group S.A.	
“Latin America”	means, collectively, Mexico, the Caribbean, Central America and South America.	
“Latin American publicly traded airline carriers”	means, collectively, Grupo Aeroméxico, Avianca, Azul, Copa, Gol and LATAM.	
“Legacy carrier”	means an airline that typically offers scheduled flights to major domestic and international routes (directly or through membership in an alliance) and serves numerous smaller cities, operates mainly through a “hub-and-spoke” network route system and has higher cost structures than low-cost carriers due to higher labor costs, flight crew and aircraft scheduling inefficiencies, concentration of operations in higher cost airports and multiple classes of services.	
“Load factor”	means RPMs divided by ASMs and expressed as a percentage.	
“Low-cost carrier”	means an airline that typically flies direct, point-to-point flights, often serves major markets through secondary, lower cost airports in the same regions as major population centers, provides a single class of service, thereby increasing the number of seats on each flight and avoiding the significant and incremental cost of offering premium-class services, and tends to operate fleets with only one or two aircraft families, in order to maximize the utilization of flight crews across the fleet, improve	
7

Table of Contents

	aircraft scheduling efficiency and flexibility and minimize inventory and aircraft maintenance costs.	
“NEO”	means new engine option.	
“On-time”	means flights arriving within 15 minutes of the scheduled arrival time.	
“Other Latin American publicly traded airlines”	means, collectively, Avianca, Azul, Copa, Gol, Grupo Aeroméxico and LATAM.	
“Passenger flight segments”	means the total number of passengers flown on all flight segments.	
“RASM”	means passenger revenue divided by ASMs.	
“Revenue passenger per miles” or “RPMs”	means the number of seats sold to passengers divided by the number of miles the seats are flown.	
“Ryanair”	means Ryanair Holdings plc.	
“SCT”	means the Mexican Infrastructure, Communications and Transportation Ministry (Secretaría de Infraestructura, Comunicaciones y Transportes).	
“Southwest Airlines”	means Southwest Airlines Co.	
“Spirit”	means Spirit Airlines, Inc.	
“Tiger”	means Tiger Airways Holdings Limited.	
“Total operating revenue per ASM” or “TRASM”	means total revenue divided by ASMs.	
“TSA”	means the U.S. Transportation Security Administration.	
“ULCC”	means an airline that belongs to a subset of low-cost carriers, which distinguishes itself by using a business model with an intense focus on low-cost, efficient asset utilization, unbundled revenue sources aside from the base fares with multiple products and services offered for additional fees. In the United States, Frontier, and Spirit Airlines, Inc. define themselves as ULCCs and Volaris and VivaAerobus follow the ULCC model in Mexico.	
“United”	means United Continental Holdings, Inc.	
“U.S.-based publicly traded target market competitors”	means Alaska Air, Allegiant, American, Delta, Frontier, Spirit, JetBlue, Southwest and United.	
“VFR”	means passengers who are visiting friends and relatives.	
“VivaAerobus”	means Aeroenlaces Nacionales, S.A. de C.V.	
“Wizz”	means Wizz Air Holdings Plc.	

8

Table of Contents
PRESENTATION OF FINANCIAL INFORMATION AND OTHER INFORMATION
This annual report includes our audited consolidated financial statements at December 31, 2020 and 2021, and for each of the three years in the period ended December 31, 2021, which have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.
Unless otherwise specified, all references to “U.S. dollars,” “dollars,” “U.S. $” or “$” are to United States dollars, the legal currency of the United States, and references to “pesos” or “Ps.” are to Mexican Pesos, the legal currency of Mexico. Except as otherwise indicated, peso amounts have been converted to U.S. dollars at the exchange rate of Ps.20.5835 per U.S. $1.00, as reported by the Mexican Central Bank (Banco de México) as the rate for the payment of obligations denominated in foreign currency payable in Mexico (tipo de cambio para solventar obligaciones denominadas en moneda extranjera, pagaderas en México) in effect on December 31, 2021.
Such conversions are for the convenience of the reader and should not be construed as representations that the peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated, or at all. Amounts presented in this annual report may not add up due to rounding.
Industry and Market Data
We obtained the industry and market data used in this annual report from research, surveys or studies conducted by third parties on our behalf, information contained in third-party publications, such as the INEGI, reports from the AFAC, reports from the Mexican Central Bank and other publicly available sources. Third-party publications generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although we believe that this data and information is reliable, we have not independently verified it. Additionally, certain market share data is based on published information available for the Mexican states. There is no comparable data available relating to the particular cities we serve. In presenting market share estimates for these cities, we have estimated the size of the market on the basis of the published information for the state in which the particular city is located. We believe this method is reasonable, but the results have not been verified by any independent source.

9

Table of Contents
PART I.
ITEM  1    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM  2    OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM  3    KEY INFORMATION

A.	Selected Consolidated Financial Data	
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA
The following tables summarize selected financial and operating data for our business for the periods presented. You should read this selected consolidated financial data in conjunction with Item 5: “Operating and Financial Review and Prospects” and our audited consolidated financial statements, including the related notes thereto, all included elsewhere in this annual report. We prepare our consolidated financial statements in accordance with IFRS.
We derived the selected consolidated statements of operations data for the years ended December 31, 2019, 2020 and 2021 and the selected consolidated statements of financial position data as of December 31, 2020 and 2021 from our audited financial statements included in this annual report. The selected consolidated statements of operations data for the years ended December 31, 2017, 2018 and 2019 and the selected consolidated statements of financial position data as of December 31, 2017, 2018 and 2019 were
10

Table of Contents
derived from the audited financial statements for those periods. See Item 18: “Financial Statements.” Our historical results are not necessarily indicative of the results to be expected in the future.
11

Table of Contents

		For the Years ended December 31, 	
	    	2017	    	2018	    	2019	    	2020	    	2021	    	2021	
		Adjusted(1)		Adjusted(1)									
												(in thousands	
												of U.S.	
		(in thousands of pesos, except share and per share data and operating data)		dollars)(2)	
CONSOLIDATED STATEMENTS OF OPERATIONS DATA	    		    		    		    		    		    		
Operating revenues:													
Passenger revenues:	 		 		 		 		 		 		
Fare revenues		17,791,317	 	18,487,858	 	23,129,991	 	12,873,174	 	25,703,144	 	1,248,726	
Other passenger revenues		6,098,504		7,892,497		10,569,208		8,613,398		17,594,223		854,773	
Non-passenger revenues:													
Other non-passenger revenues		727,392		697,357		897,586		882,360		1,558,092		75,696	
Cargo		170,973		227,438		228,836		201,881		241,202		11,718	
Non-derivative financial instruments		—		—		(72,949)		(411,222)		(434,522)		(21,110)	
	 	24,788,186	 	27,305,150		34,752,672	 	22,159,591	 	44,662,139	 	2,169,803	
Other operating income	 	(96,765)	 	(621,973)	 	(327,208)	 	(730,333)	 	(217,838)	 	(10,583)	
Fuel expense, net		7,255,636	 	10,134,982	 	11,626,069	 	6,640,820	 	12,376,263	 	601,271	
Landing, take-off and navigation expenses		4,002,744	 	4,573,319	 	5,108,489	 	4,090,864	 	6,020,681	 	292,500	
Depreciation of right of use assets		3,437,903	 	4,043,691	 	4,702,971	 	5,048,976	 	5,462,625	 	265,389	
Salaries and benefits		2,823,647	 	3,125,393	 	3,600,762	 	3,453,382	 	4,857,083	 	235,970	
Sales, marketing and distribution expenses		1,691,524	 	1,501,203	 	1,447,637	 	1,840,819	 	1,961,936	 	95,316	
Maintenance expenses(3)		1,418,253	 	1,497,989	 	1,488,431	 	1,167,720	 	1,952,202	 	94,843	
Aircraft and engine variable lease expenses		1,429,595	 	956,010	 	961,657	 	1,845,254	 	1,686,875	 	81,953	
Other operating expenses		1,034,258	 	1,059,098	 	1,112,927	 	1,157,240	 	1,336,792	 	64,944	
Depreciation and amortization(4)		548,687	 	500,641	 	675,514	 	898,445	 	1,159,224	 	56,318	
		23,545,482		26,770,353		30,397,249		25,413,187		36,595,843		1,777,921	
Operating income (loss)		1,242,704	 	534,797	 	4,355,423	 	(3,253,596)	 	8,066,296	 	391,882	
Finance income		105,795	 	152,603	 	207,799	 	101,511	 	71,578	 	3,477	
Finance cost		(1,515,281)	 	(1,876,312)	 	(2,269,829)	 	(3,018,484)	 	(2,831,989)	 	(137,585)	
Foreign exchange gain (loss), net		683,039	 	(103,790)	 	1,440,501	 	470,594	 	(2,591,406)	 	(125,897)	
Income (loss) before income tax		516,257	 	(1,292,702)	 	3,733,894	 	(5,699,975)	 	2,714,479	 	131,877	
Income tax (expense) benefit		(237,586)	 	349,820	 	(1,094,831)	 	1,406,184	 	(593,928)	 	(28,855)	
Net income (loss)		278,671	 	(942,882)	 	2,639,063	 	(4,293,791)	 	2,120,551		103,022	
Weighted average shares outstanding Basic and diluted		1,011,876,677		1,011,876,677		1,011,876,677		1,021,560,557		1,165,976,677		1,165,976,677	
12

Table of Contents

Earnings (loss) per share Basic and diluted(5)		0.28	 	(0.93)	 	2.61	 	(4.20)	 	1.82	 	0.09	
Earnings (loss) per ADS Basic and diluted(6)		2.75	 	(9.32)	 	26.08	 	(42.03)	 	18.19	 	0.88	
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DATA (as of December 31,)													
Cash, cash equivalents and restricted cash		6,950,879		5,862,942		7,979,972		10,103,385		15,254,876		741,122	
Accounts receivable, net		1,449,292	 	1,466,690	 	2,320,334	 	2,027,379	 	2,183,562	 	106,083	
Guarantee deposits-current portion		1,352,893		790,635		600,327		1,141,956		1,625,886		78,990	
Total current assets(11)		11,046,071	 	8,922,769	 	12,117,239	 	14,402,310	 	20,150,807	 	978,980	
Total assets		49,952,973		56,724,683		63,295,127		68,189,113		82,016,361		3,984,568	
Total current liabilities		13,555,372	 	14,083,029	 	17,324,216	 	20,965,950	 	25,760,976	 	1,251,534	
Total non-current liabilities		32,572,248		39,936,501		40,441,228		44,426,978		49,809,947		2,419,897	
Total liabilities		46,127,620	 	54,019,530	 	57,765,444	 	65,392,928	 	75,570,923	 	3,671,431	
Capital stock		2,973,559		2,973,559		2,973,559		3,426,406		3,426,406		166,464	
Total equity		3,825,353	 	2,705,153	 	5,529,683	 	2,796,185	 	6,445,438	 	313,137	
CASH FLOW DATA			 		 		 		 		 		
Net cash flows provided by operating activities		6,018,767		6,276,707		9,509,643		4,359,445		15,868,532		770,939	
Net cash flow used in investing activities		(2,260,440)	 	(1,389,395)	 	(1,879,341)	 	(67,757)	 	(2,730,786)	 	(132,669)	
Net cash flow used in financing activities		(3,634,598)	 	(5,946,059)	 	(5,238,840)	 	(3,040,840)	 	(8,828,377)	 	(428,906)	
FINANCIAL DATA			 		 		 		 		 		
Operating income (loss)		1,242,704	 	534,797	 	4,355,423	 	(3,253,596)	 	8,066,296	 	391,882	
Depreciation of right of use assets		3,437,903	 	4,043,691	 	4,702,971	 	5,048,976	 	5,462,625	 	265,389	
Depreciation and amortization		548,687	 	500,641	 	675,514	 	898,445	 	1,159,224	 	56,318	
Aircraft and engine variable lease expenses		1,429,595	 	956,010	 	961,657	 	1,845,254	 	1,686,875	 	81,953	
OPERATING DATA(9) (10)													
Aircraft at end of period		71		77	 	82	 	86	 	101	 	—	
Average daily aircraft utilization (block hours)		12.57		13.21		12.94		11.30		12.53		—	
Average daily aircraft utilization (flight hours)		10.02		10.56	 	10.90	 	9.73	 	10.77	 	—	
Average pesos/U.S. dollar exchange rate		18.93		19.24	 	19.26	 	21.50	 	20.28	 	—	
End of period pesos/U.S. dollar exchange rate		19.74		19.68	 	18.85	 	19.95	 	20.58	 	—	
Airports served at end of period		69		69		65		68		69		—	
13

Table of Contents

Departures(7)		108,060		117,920	 	138,084	 	97,819	 	153,913	 	—	
Passenger flight segments (thousands)(7)		15,670		17,478	 	20,917	 	13,153	 	22,560	 	—	
Booked passengers (thousands)(7)		16,427		18,396	 	21,975	 	14,712	 	24,405	 	—	
Revenue passenger miles (RPMs) (thousands)(7)		15,917,246		17,748,408		21,032,364		14,596,745		23,802,381		—	
Available seat miles (ASMs) (thousands)(7)		18,860,950		21,009,545	 	24,498,893	 	18,274,946	 	28,096,701	 	—	
Load factor(8)		84	%  	85	%  	86	%  	80	%  	85	%  	—	
Average fare revenue per booked passenger(8)		1,086	 	1,006	 	1,054	 	875	 	1,054	 	51	
Average other passenger revenue per booked passenger(7)(9)		371	 	429	 	481	 	585	 	721	 	35	
Total ancillary revenue per booked passenger(7)(9)		426	 	479	 	532	 	659	 	795	 	39	
Total operating revenue per ASM (TRASM) (cents)(7)(9)		131.4	 	130.0	 	142.2	 	123.5	 	160.5	 	7.8	
Passenger revenue per ASM (RASM) (cents)(7)(9)		94.3	 	88.0	 	94.4	 	70.4	 	91.5	 	4.4	
Operating expenses per ASM (CASM) (cents)(7)(9)		124.8	 	127.4	 	124.3	 	141.3	 	130.9	 	6.4	
CASM ex fuel (cents)(7)(9)		86.4	 	79.2	 	76.6	 	102.7	 	86.2	 	4.2	
Fuel gallons consumed (thousands)		210,536	 	227,436	 	251,802	 	176,645	 	273,515	 	—	
Average economic fuel cost per gallon(9)		34.5	 	44.6	 	46.4	 	39.9	 	45.9	 	2.2	
Average of employees per aircraft at end of period		67	 	60	 	60	 	54	 	63	 	—	

(1)	As of January 1, 2019, we adopted IFRS 16 using the full retrospective method of adoption in order to provide comparative results in all periods presented, recognizing the effect in retained earnings as of January 1, 2017. Our financial results as of and for the years ended December 31, 2017 and 2018 were presented in our annual report for the year ended December 31, 2018 filed with the SEC on April 26, 2019 and were adjusted in our Audited Consolidated Financial Statements presented in the annual report to consider this application of IFRS 16.	

(2)	Peso amounts were converted to U.S. dollars solely for the convenience of the reader at the rate of Ps.20.5835 per U.S. $1.00 as the rate for the payment of obligations denominated in foreign currency payable in Mexico in effect on December 31, 2021. Such conversions should not be construed as a representation that the peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated, or at all.	

(3)	Includes routine and ordinary maintenance expenses only. See Item 5: “Operating and Financial Review and Prospects—Operating Results.”	

(4)	Includes, among other things, major maintenance expenses, which are capitalized and subsequently amortized. See Item 5: “Operating and Financial Review and Prospects—Operating Results.”	

(5)	Basic and diluted earnings per share amounts are calculated by dividing the income for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares and unvested shares awarded under the management incentive and long-term incentive plans outstanding during the year, this is because the shares are entitled to a dividend if and when it is declared by the Company.	
14

Table of Contents

(6)	The basis used for the computation of the information is to multiply the earnings per basic and diluted share obtained pursuant to footnote (5) above by ten, which is the number of CPOs represented by each ADS. Each CPO, in turn, represents a financial interest in one Series A share of common stock of Volaris.	

(7)	Includes scheduled and charter.	

(8)	Includes scheduled.	

(9)	Excludes non-derivative financial instruments.	

(10)	See “Glossary of Airlines and Airline Terms” elsewhere in this annual report for definitions of terms used in this table.	

(11)	See detail of other current assets in Item 17: “Financial Statements”.	

a.Key Performance Indicators
The following measures are often provided, and utilized by the Company’s management, analysts, and investors to enhance comparability of year-over-year results, as well as to compare results to other airlines: Revenue passenger miles, or RPMs; Average passenger revenue per booked passenger; Average non-passenger revenue per booked passenger, Total operating revenue per ASM, or TRASM; Passenger Revenue per ASMS, or RASM; Operating expenses per ASM, or CASM; CASM ex fuel, and average economic fuel cost per gallon. Average passenger revenue per booked passenger represents the total passenger revenue divided by booked passengers. The CASM ex fuel represents total operating expenses, net excluding fuel expense divided by ASMs. Average economic fuel cost per gallon represents total fuel expense net of hedging effect, divided by the total number of fuel gallons consumed. We believe this operating data is useful in reporting the operating performance of our business, however, these measures may differ from similarly titled measures reported by other companies and should not be considered in isolation or as a substitute for measures of performance in accordance with IFRS.
B.Capitalization and Indebtedness
Not Applicable.

C.	Reasons for the Offer and Use of Proceeds	
Not Applicable.

D.Risk Factors
You should carefully consider all of the information set forth in this annual report and the risks described below before making an investment decision. Our business, results of operations and financial condition could be materially and adversely affected by any of these risks. The trading price of the ADSs could decline due to any of these risks or other factors, and you may lose all or part of your investment.
The risks described below are those that we currently believe may adversely affect us or the ADSs. In general, investing in the securities of issuers in emerging market countries, such as Mexico, involves risks that are different from the risks associated with investing in the securities of U.S. companies and companies located in other countries with developed capital markets. Any of these risks could materially and adversely affect our business and results of operations.
To the extent that information relates to, or is obtained from sources related to, the Mexican government or Mexican macroeconomic data, the following information has been extracted from official publications of the Mexican government and has not been independently verified by us.
15

Table of Contents
Risks related to Mexico
Political and social events in Mexico as well as changes in Mexican federal governmental policies may have an adverse effect on our business, results of operations, financial condition and prospects.
Our business, results of operations and financial condition are affected by economic, political or social developments in Mexico, including, among others, any political or social instability in Mexico, changes in the rate of economic growth or contraction, changes in the exchange rate between the peso and the U.S. dollar, an increase in inflation or interest rates, changes in Mexican taxation and any amendments to existing Mexican laws, federal governmental policies and regulations.
Adverse social or political developments in or affecting Mexico could negatively affect us and Mexican financial markets generally, thereby affecting our ability to obtain financing. Presidential and federal congressional elections in Mexico were held on July 1, 2018. Mr. Andrés Manuel López Obrador, a member of the National Regeneration Movement (Movimiento Regeneración Nacional), was elected President of Mexico and took office on December 1, 2018. The President’s party and its allies currently hold the majority of the Chamber of Deputies and the Senate. We cannot provide any assurance that the current political situation or any future developments in Mexico will not have a material adverse effect on our business, results of operations, financial condition, or prospects.
In addition, the Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. In particular, Mexican federal governmental actions and policies concerning air transportation and similar services could have a significant impact on us. We cannot assure you that changes in Mexican federal governmental and air transportation policies, such as opening Mexican domestic segments to airlines from other countries, will not adversely affect our business, results of operations, financial condition and prospects or the price of the ADSs.
Adverse economic conditions in Mexico may adversely affect our business, results of operations and financial condition.
Most of our operations are conducted in Mexico and our business is affected by the performance of the Mexican economy. In 2019, 2020 and 2021 the Mexican economy decreased 0.2%, contracted 8.4% and grew 5.1%, respectively, in terms of gross domestic product or GDP, according to the INEGI. Moreover, in the past, Mexico has experienced prolonged periods of economic crises, caused by internal and external factors, over which we have no control. Those periods have been characterized by exchange rate instability, high inflation, high domestic interest rates, economic contraction, a reduction of international capital flows, a reduction of liquidity in the banking sector and high unemployment rates. Decreases in the growth rate of the Mexican economy, or periods of negative growth, or increases in inflation may result in lower demand for our flights, lower fares or a shift to ground transportation options, such as long-distance buses.
We cannot assure you that economic conditions in Mexico will not worsen, or that those conditions will not have an adverse effect on our business, results of operations and financial condition.
If inflation rates in Mexico increase, demand for our services may decrease and our costs may increase.
Mexico has historically experienced levels of inflation that are higher than the annual inflation rates of its main trading partners. The annual rate of inflation, as measured by changes in the Mexican national consumer price index, calculated and published by the Mexican Central Bank and INEGI was 2.83% for 2019, 3.15% for 2020 and 7.36% for 2021. High inflation rates could adversely affect our business and results of operations by reducing consumer purchasing power, thereby adversely affecting consumer demand for our services, increasing our costs beyond levels that we could pass on to our customers and by decreasing the benefit to us of revenues earned to the extent that inflation exceeds growth in our pricing levels.
Currency fluctuations or the devaluation and depreciation of the peso could adversely affect our business, results of operations, financial condition, and prospects.
Foreign currency exchange gains or losses included in our total financing cost resulted primarily from the impact of changes in the U.S. dollar-peso exchange rate on our U.S. dollar-denominated monetary liabilities (such as U.S. dollar-denominated debt, U.S. dollar-denominated aircraft lease payments and accounts payable arising from imports of spare parts and equipment) and assets (such as U.S. dollar-denominated cash, cash equivalents, accounts receivable, security deposits and aircraft maintenance deposits). During
16

Table of Contents
2021, our U.S. dollar-denominated monetary liabilities exceeded our U.S. dollar-denominated assets. As a result, the devaluation and appreciation of the peso resulted in exchange losses and gains, respectively.
The value of the peso has been subject to significant fluctuations with respect to the U.S. dollar in the past and may be subject to significant fluctuations in the future. In 2008, as a consequence of the global economic and financial crisis, the peso depreciated 26.7% against the U.S. dollar in nominal terms. In 2009, 2010 and 2012, the peso appreciated 5.5%, 5.2% and 6.9%, respectively, against the U.S. dollar in nominal terms. However, in 2011 and 2013, the peso depreciated 12.9% and 0.5%, respectively, against the U.S. dollar in nominal terms. This trend in fluctuations has continued as the peso appreciated 4.5%, 0.3% and 4.3% against the U.S. dollar in nominal terms in 2017, 2018 and 2019, respectively.
As of December 31, 2020 and 2021, the peso depreciated 5.8% and 3.2%, respectively, against the U.S. dollar in nominal terms since December 31, 2020.
During the second half of 2021 management identified indicators of changes in the primary economic environment in which its main subsidiary Volaris Opco operates, as follows: (i) increase in the international market transactions during 2021, (ii) change in the determination of rates (iii) most representative costs are determined and denominated in U.S. dollars. As a result, we evaluated the functional currency of its main subsidiary in accordance with the regulatory provisions contained in IAS-21 “Effects of Variations in Foreign Currency Exchange Rates”, concluding that the functional currency has changed from the Mexican peso to the U.S. dollar as of December 31, 2021.
In addition, considering the dependency of our operations related to our subsidiary Volaris Opco, management has evaluated and concluded that its functional currency has also changed from the Mexican peso to U.S. dollar as of December 31, 2021. The change in functional currency is prospectively applied from the date of the change.
Devaluation or depreciation of the peso against the U.S. dollar may adversely affect the U.S. dollar value of an investment in the ADSs, as well as the U.S. dollar value of any dividend or other distributions that we may make.
Fluctuations in the exchange rate between the peso and the U.S. dollar, particularly depreciations in the value of the peso, may adversely affect the U.S. dollar equivalent of the peso price of the Series A shares on the Mexican Stock Exchange. Such peso depreciations will likely affect the market price of the ADSs. Exchange rate fluctuations would also affect the U.S. dollar equivalent value of any dividends and other distributions we may elect to make in the future and may affect the timely payment of any peso cash dividends and other distributions to holders of CPOs that we may elect to pay in the future in respect of the Series A shares.
Developments in other countries could adversely affect the Mexican economy, the market value of our securities, our financial condition and results of operations.
The market value of securities of Mexican companies is affected by economic and market conditions in developed and other emerging market countries. Although economic conditions in those countries may differ significantly from economic conditions in Mexico, investors’ reactions to developments in any of these other countries, may have an adverse effect on the market value of securities of Mexican issuers. In recent years, for example, prices of both Mexican debt and equity securities have sometimes suffered substantial drops as a result of developments in other countries. In 2008-2009, credit issues in the United States related principally to the sale of sub-prime mortgages resulted in significant fluctuations in securities traded in global financial markets, including Mexico.
In addition, the direct correlation between economic conditions in Mexico and the United States has strengthened in recent years because of the North American Free Trade Agreement, or NAFTA, and increased economic activity between the two countries (including increased remittances of U.S. dollars from Mexican workers in the United States to their families in Mexico). On November 30, 2018, Mexico, the United States and Canada signed the USMCA (United States-Mexico-Canada Agreement), which entered into force on July 1, 2020, as a replacement for NAFTA. During his presidency, President Trump implemented immigration policies that have adversely affected United States—Mexico travel behavior, especially in the VFR and leisure markets. President Trump’s immigration policies had a negative impact on our results of operations. In addition, as a result of the COVID-19 pandemic, on April 22, 2020, President Trump signed a Presidential Proclamation entitled: “Suspending Entry of Immigrants Who Present Risk to the U.S. Labor Market During the Economic Recovery Following the COVID-19 Outbreak.” On January 20, 2021, Joseph Biden became the President of the United States. While President Biden reversed many of President Trump’s immigration policies, we can offer no assurance of the extent to which his administration will continue do so. In addition, even if President Biden continues to
17

Table of Contents
reverse President Trump’s immigration policies, subsequent presidential administrations could reimpose them, which could have a material adverse effect on our operations and revenues and affect the market price of our securities, including the ADSs.
Mexican antitrust provisions may affect the fares we are permitted to charge to customers.
The Mexican Aviation Law (Ley de Aviación Civil) provides that in the event that the SCT considers that there is no effective competition among permit and concession holders (required to operate airlines in Mexico), the SCT may request the opinion of the Mexican Antitrust Commission (Comisión Federal de Competencia Económica) and then issue regulations governing the fares that may be charged for air transportation services by airlines operating in Mexico. Such regulations will be maintained only during the existence of the conditions that resulted in their establishment. The imposition of fare regulations by the SCT could materially affect our business, results of operations and financial condition.
Violent crime in Mexico has adversely impacted, and may continue to adversely impact, the Mexican economy and may have a negative effect on our business, results of operations or financial condition.
Mexico has experienced high levels of violent crime over the past few years relating to illegal drug trafficking, particularly in Mexico’s northern states near the U.S. border. This violence has had an adverse impact on the economic activity in Mexico. In addition, violent crime may further affect travel within Mexico and between Mexico and other countries, including the United States, affect the airports or cities in which we operate, including airports or cities in the north of Mexico in which we have significant operations, and increase our insurance and security costs. We cannot assure you that the levels of violent crime in Mexico or their expansion to a larger portion of Mexico, over which we have no control, will not increase or decrease and will have no further adverse effects on the country’s economy and on our business, results of operations or financial condition.
Risks related to the airline industry
We operate in an extremely competitive industry.
We face significant competition with respect to routes, fares, services and slots in airports. Within the airline industry, we compete with legacy carriers, regional airlines and low-cost airlines on many of our routes. The intensity of the competition we face varies from route to route and depends on a number of factors, including the strength of competing airlines. Our competitors may have better brand recognition and greater financial and other resources than we do. In the event our competitors reduce their fares to levels which we are unable to match while sustaining profitable operations or are more successful in the operation of certain routes (as a result of service or otherwise), we may be required to reduce or withdraw services on the relevant routes, which may cause us to incur losses or may impact our growth, financial condition or results of operations. See Item 4: “Information on the Company—Business Overview—Competition.”
The airline industry is particularly susceptible to price discounting, because once a flight is scheduled, airlines incur only nominal additional costs to provide service to passengers occupying otherwise unsold seats. Increased fare or other price competition could adversely affect our results of operations and financial condition. Moreover, other airlines have begun to unbundle services by charging separate fees for services such as baggage transported, food and beverages consumed onboard and advance seat selection. This unbundling and potential reduction of costs could enable competitor airlines to reduce fares on routes that we serve, which may result in an improvement in their ability to attract customers and may affect our results of operations and financial condition.
In addition, airlines increase or decrease capacity in markets based on perceived profitability. Decisions by our competitors that increase overall industry capacity, or capacity dedicated to a particular region, market or route, could have a material adverse impact on our business. Our growth and the success of our ULCC business model could stimulate competition in our markets through our competitors’ development of their own ULCC strategies or new market entrants. Any such competitor may have greater financial resources and access to cheaper sources of capital than we do, which could enable them to operate their business with a lower cost structure than we can. If these competitors adopt and successfully execute a ULCC business model, we could be materially adversely affected, including our business, results of operations and financial condition.
Furthermore, we also face competition from air travel substitutes. On our domestic routes, we face competition from other transportation alternatives, such as bus or automobile. In addition, technology advancements may limit the desire for air travel. For example, video teleconferencing and other methods of electronic communication may reduce the need for in-person communication and add a new dimension of competition to the industry as travelers seek lower cost substitutes for air travel. If we are unable to adjust
18

Table of Contents
rapidly in the event the basis of competition in our markets changes, it could have a material adverse effect on our business, results of operations and financial condition.
The airline industry is heavily impacted by the price and availability of fuel. Continued volatility in fuel costs or significant disruptions in the supply of fuel could have a material adverse effect on our business, results of operations and financial condition.
Fuel is a major cost component for airlines and is our largest operating expense. The cost of fuel accounted for 38%, 26% and 34% (including derivative and non-derivative financial instruments) of our total operating costs in 2019, 2020 and 2021, respectively. As such, our operating results are significantly affected by changes in the cost and availability of fuel. Both the cost and the availability of fuel are subject to economic, social and political factors and other events occurring throughout the world, which we can neither control nor accurately predict. Fuel prices have been subject to high volatility, fluctuating substantially over the past several years. Because Russia is one of the world’s largest oil exporters, we expect recent global developments relating to Russia’s invasion of Ukraine, and resulting export restrictions, will likely lead to decreased global supply and increased fuel prices, which effects could be more acute if the participants of the Organization of the Petroleum Exporting Countries, or OPEC, decide not to, or are unable to, increase their supply production. Due to the large proportion of fuel costs in our total operating cost base, even a relatively small increase in the price of fuel can have a significant negative impact on our operating costs and on our business, results of operations and financial condition See Item 4: “Information on the Company—Business Overview—Fuel.”
Our inability to renew our concession or the revocation by the Mexican government of our concession would materially adversely affect us.
We hold a government concession authorizing us to provide domestic air transportation services of passengers, cargo and mail within Mexico, or our Concession. Our Concession was granted by the Mexican federal government through the SCT on May 9, 2005 initially for a period of five years and was extended by the SCT on February 17, 2010 for an additional period of ten years. On February 21, 2020, our Concession was extended for a 20-year term starting on May 9, 2020. Mexican law provides that concessions may be renewed several times. However, each renewal may not exceed 30 years and requires that the concessionaire (i) has complied with the obligations set forth in the concession title to be renewed, (ii) requests the renewal one year before the expiration of the applicable concession terms, (iii) has made an improvement in the quality of the services during the term of the concession, and (iv) accepts the new conditions established by the SCT according to the Mexican Aviation Law (Ley de Aviación Civil). Failure to renew our Concession would have a material adverse effect on our business, results of operations, financial condition and prospects and would prevent us from continuing to conduct our business.
We are required under the terms of our Concession to comply with certain ongoing obligations. Failure to comply with these obligations could result in penalties against us. In addition, the Mexican government has the right to revoke our Concession and the permits we currently hold for various reasons including: service interruptions; our failure to comply with the terms of our Concession; if we assign or transfer rights under our Concession or permits; if we fail to maintain insurance required under applicable law; if we charge fares different from fares registered with the SCT; if we violate statutory safety conditions; and if we fail to pay statutory indemnification or if we fail to pay to the Mexican government the required compensation. For more information on the potential causes for revocation of our Concession and permits, see Item 4: “Information of the Company—Regulation.” If our Concession or permits are revoked, we will be unable to operate our business as it is currently operated and be precluded from obtaining a new concession or permit for five years from the date of revocation.
Under Mexican law, our assets could be taken or seized by the Mexican government under certain circumstances.
Pursuant to Mexican law and our Concession, the Mexican federal government may take or seize our assets, temporarily or permanently, including the aircraft, in the event of natural disasters, war, serious changes to public order or in the event of imminent danger to the national security, internal peace or the national economy. The Mexican federal government, in all cases, except in the event of international war, must indemnify us by paying the respective losses and damages at market value. In these circumstances, we would not be able to continue with our normal operations. Applicable law is unclear as to how indemnification is determined and the timing of payment thereof. A temporary seizure of our assets is likely to have a material adverse effect on our business, results of operations and financial condition.
19

Table of Contents
The airline industry is particularly sensitive to changes in economic conditions. The recent global economic contraction or a reoccurrence of similar conditions could negatively impact our business, results of operations and financial condition.
Our business and the airline industry in general are affected by changing economic conditions beyond our control, including, among others:

	●	changes and volatility in general economic conditions, including the severity and duration of any downturn in Mexico, the United States or global economy and financial markets;	

	●	changes in consumer preferences, perceptions, spending patterns or demographic trends, including any increased preference for higher-fare carriers offering higher amenity levels, and reduced preferences for low-fare carriers offering more basic transportation, during better economic times or for other reasons;	

	●	higher levels of unemployment and varying levels of disposable or discretionary income;	

	●	health outbreaks, pandemics and concerns with safety;	

	●	depressed housing and stock market prices;	

	●	lower levels of actual or perceived consumer confidence;	

	●	high inflation rates; and	

	●	exchange rate volatility and increased fuel prices, especially in the context of the conflict between Russia and Ukraine.	

These factors can adversely affect our results of operations and financial condition, our ability to obtain financing on acceptable terms and our liquidity generally. Current unfavorable general economic conditions, such as higher unemployment rates, a constrained credit market, housing-related pressures and increased focus on reducing business operating costs can reduce spending for leisure, VFR and business travel. For many travelers, in particular the leisure and VFR travelers we serve, air transportation is a discretionary purchase that they can eliminate from their spending in difficult economic times. Unfavorable economic conditions could affect our ability to raise prices to counteract increased fuel, labor or other costs, which could result in a material adverse effect on our business, results of operations and financial condition. In addition, we are currently striving to increase demand for our flights among the portion of the population in Mexico that has traditionally used ground transportation for travel due to price constraints, by offering lower fares that compete with bus fares on similar routes. Unfavorable economic conditions could affect our ability to offer these lower fares and could affect this population segment’s discretionary spending in a more adverse manner than other travelers.
Further, in an inflationary environment, such as the current U.S. and Mexico economic environment, depending on airline industry and other economic conditions, we may be unable to manage through the resulting increases in our operating costs. We cannot predict how long the current inflationary period will last or the extent to which high inflation may occur in the economy in the future. As such, we cannot guarantee we will be able to maintain our costs. If our costs increase and we are no longer able to maintain a competitive cost structure, it could have a material adverse effect on our business, results of operations and financial condition.
The airline industry is heavily regulated and our financial condition and results of operations could be materially adversely affected if we fail to maintain the required U.S., Mexican, Central American and South American governmental concessions or authorizations necessary for our operations.
The airline industry is heavily regulated and we are subject to regulation in Mexico and in the United States for the routes we serve between Mexico and the United States. In order to maintain the necessary concessions or authorizations issued by the SCT, acting through the AFAC, the FAA and some of the aviation authorities in the Latin American countries in which we operate, including authorizations to operate our routes, we must continue to comply with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future. We cannot predict which criteria the SCT will apply for awarding rights to landing slots, bi-lateral agreements, and international routes, which may prevent us from obtaining routes that may become available. In addition, international routes are limited by bi-lateral agreements and not obtaining them will limit our expansion plans in the international market. Furthermore, we cannot predict or control any actions that the AFAC, FAA or the aviation authorities in the Latin American countries in which we operate may take in the future, which could include restricting our operations or imposing new and costly regulations. Also, our fares are subject to review by the AFAC, the FAA and some of the
20

Table of Contents
aviation authorities in the Latin American countries in which we operate, either of which may in the future impose restrictions on our fares. Our business, results of operations and financial condition could be materially adversely affected if we fail to maintain the required U.S., Mexican, Central American and South American governmental concessions or authorizations or slots necessary for our operations.
The airline industry is subject to increasingly stringent environmental regulations and non-compliance therewith may adversely affect our financial condition and results of operations.
The airline industry is subject to increasingly stringent federal, state, local and foreign laws, regulations and ordinances relating to the protection of the environment, including those relating to emissions to the air, levels of noise, discharges to surface and subsurface waters, safe drinking water, and the management of hazardous substances, oils and waste materials. Compliance with all environmental laws and regulations can require significant expenditures and any future regulatory developments in Mexico, the United States and other countries could adversely affect operations and increase operating costs in the airline industry. For example, some form of federal regulation may be forthcoming in the United States with respect to greenhouse gas emissions (including carbon dioxide, or CO2, and/or ‘cap and trade’ legislation), compliance with which could result in the creation of substantial additional costs to us. The U.S. Congress is considering climate change legislation and the EPA issued a rule that regulates larger emitters of greenhouse gases. Concerns about climate change and greenhouse gases may result in additional regulation or taxation of emissions, including aircraft emissions, in the United States and Mexico. Future operations and financial results may vary as a result of such regulations in the United States and equivalent regulations adopted by other countries, including Mexico. Compliance with these regulations and new or existing regulations that may be applicable to us in the future could increase our cost base and could have a material adverse effect on our business, results of operations and financial condition.
Furthermore, in 2016 the International Civil Aviation Organization, or ICAO, adopted a resolution creating the Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA, providing a framework for a global market-based measure to stabilize CO2 emissions in international civil aviation (i.e., civil aviation flights that depart in one country and arrive in a different country). CORSIA will be implemented in phases, starting with the participation of ICAO members on a voluntary basis during a pilot phase (from 2021 through 2023), followed by a first phase (from 2024 through 2026) and a second phase (from 2027). Currently, CORSIA focuses on defining standards for monitoring, reporting and verification of emissions from air operators, as well as on defining steps to offset CO2 emissions. To the extent most of the countries in which we operate continue to be ICAO member states, in the future we may be affected by regulations adopted pursuant to the CORSIA framework. In addition, in January 2021, the EPA finalized greenhouse gas emission standards for new aircraft engines designed to implement the ICAO standards on the same timeframe contemplated by the ICAO. Like the ICAO standards, the final EPA standards would not apply to engines on in-service aircraft. The final standards have been challenged by several states and environmental groups, and the Biden administration has announced plans to review these final standards along with others issued by the prior administration. The outcome of the legal challenge and administrative review cannot be predicted at this time. Certain CORSIA details remain to be developed and could potentially be affected by political developments in participating countries or the results of the pilot phase of the program, and thus the impact of CORSIA cannot be predicted at this time. However, CORSIA is expected to increase operating costs for airlines that operate internationally.
Growing recognition among stakeholders of the dangers of climate change and related risks may translate, among others, into financial and reputational risks. Additionally, customers may choose to fly less frequently or fly on an airline they perceive as operating in a manner that is more sustainable to the climate. Customers may choose to use alternatives to travel, such as virtual meetings and workspaces. In addition, the potential acute and chronic physical effects of climate change, such as increased frequency and severity of storms, floods, fires, sea-level rise, excessive heat, longer-term changes in weather patterns and other climate-related events, could affect our operations, infrastructure and financial results. Operational impacts, such as the canceling of flights, could result in loss of revenue. We could also incur significant costs to improve the climate resiliency of our infrastructure and otherwise prepare for, respond to, and mitigate such physical effects of climate change. As of the date of this annual report, we are not able to predict accurately the materiality of any potential losses or costs associated with the physical effects of climate change.
Compliance with airline industry regulations involves significant costs and regulations enacted in Mexico, the United States, Central America and South America may increase our costs significantly in the future.
Airlines are subject to extensive regulatory and legal compliance requirements, both domestically and internationally, that involve significant costs. In the last several years, the U.S. Congress has passed laws, and the DOT, FAA and TSA have issued regulations, relating to the operation of airlines that have required significant expenditures. FAA requirements cover, among other
21

Table of Contents
things, collision avoidance systems, airborne wind shear avoidance systems, noise abatement and other environmental issues, and increased inspections and maintenance procedures to be conducted on older aircraft. We expect to continue to incur expenses in connection with complying with government regulations. Additional laws, regulations, taxes and airport rates and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce the demand for air travel. If adopted, these measures could have the effect of raising ticket prices, reducing revenue and increasing costs. For example, the DOT finalized rules, taking effect on April 29, 2010, requiring new procedures for customer handling during long onboard tarmac delays, as well as additional reporting requirements for airlines that could increase the cost of airline operations or reduce revenues.
The DOT released additional rules, most of which became effective beginning in August 2011, that address, among other things, concerns about how airlines handle interactions with passengers through advertising, the reservations process, at the airport and on board the aircraft, including requirements for disclosure of base fares plus a set of regulatory mandated options and limits on cancellations and change fees. Failure to remain in full compliance with these rules, or new rules as enacted from time to time, may subject us to fines or other enforcement action, which could have a material effect on our business, results of operations and financial condition.
In addition, the TSA mandates the federalization of certain airport security procedures in the United States and imposes additional security requirements on airports and airlines, most of which are funded by a per ticket tax on passengers and a tax on airlines. The U.S. federal government has on several occasions proposed a significant increase in the per ticket tax. The proposed ticket tax increase, if implemented, could negatively impact our business, results of operations and financial condition.
Our ability to operate as an airline in the United States is dependent on maintaining our certifications issued to us by the DOT and the FAA. The FAA has the authority to issue mandatory orders relating to, among other things, the grounding of aircraft, inspection of aircraft, installation of new safety-related items and removal and replacement of aircraft parts that have failed or may fail in the future. A decision by the FAA to ground, or require time consuming inspections of or maintenance on, our aircraft, for any reason, could negatively affect our business, results of operations and financial condition. U.S. federal law requires that air carriers operating large aircraft be continuously ‘fit, willing and able’ to provide the services for which they are licensed. Our “fitness” is monitored by the DOT, which considers factors such as unfair or deceptive competition, advertising, baggage liability and disabled passenger transportation. While the DOT has seldom revoked a carrier’s certification for lack of fitness, such an occurrence would render it impossible for us to continue operating as an airline in the United States. The DOT may also institute investigations or administrative proceedings against airlines for violations of regulations.
On July 26, 2017 amendments to the Mexican Aviation Law (Ley de Aviación Civil) and the Mexican Consumer Protection Law were enacted to provide for additional passenger rights, and this legislation has increased our costs and has reduced our ability to charge for certain ancillary services.
Furthermore, we cannot assure you that airline industry regulations enacted in the future in Mexico, Central America, South America and the United States will not increase our costs significantly.
Airlines are often affected by factors beyond their control, including air traffic congestion at airports, weather conditions, health outbreaks or concerns, pandemics, or increased security measures, any of which could harm our business, results of operations and financial condition.
Like other airlines, we are subject to delays caused by factors beyond our control, including air traffic congestion at airports, air traffic control inefficiencies, adverse weather conditions, health outbreaks or concerns, increased security measures and new travel related taxes. Delays frustrate passengers, reduce aircraft utilization and increase costs, all of which in turn could adversely affect profitability. The federal governments of Mexico, the United States and the countries in Central and South America in which we operate control their respective airspace and airlines are completely dependent on the AFAC, the FAA and the aviation authorities in Central and South America to operate these airspaces in a safe, efficient and affordable manner. The air traffic control system, which is operated by Services to the Navigation in the Mexican Air Space (Servicios a la Navegación en el Espacio Aéreo Mexicano) in Mexico, the FAA in the United States and the Central American Corporation of Aerial Navigation Services (Corporación Centroamericana de Servicios de Navegación Aérea) in Central America, the Air Navigation Services Directorate (Dirección de Servicios a la Navegación Aérea) in Colombia, and the Peruvian Corporation of Airports and Commercial Aviation (Corporación Peruana de Aeropuertos y Aviación Comercial) in Peru faces challenges in managing the growing demand for air travel. U.S. and Mexican air-traffic controllers often rely on outdated technologies that routinely overwhelm the system and compel airlines to fly inefficient, indirect routes resulting in delays. Adverse weather conditions and natural disasters can cause flight cancellations or
22

Table of Contents
significant delays. Cancellations or delays due to weather conditions or natural disasters, air traffic control problems, health outbreaks or concerns, pandemics, breaches in security or other factors and any resulting reduction in airline passenger traffic could have a material adverse effect on our business, results of operations and financial condition.
Airline consolidations and reorganizations could adversely affect the industry.
The airline industry has undergone substantial consolidation throughout the years and recently, and it may undergo additional consolidation in the future. Any consolidation or significant alliance activity within the airline industry could increase the size and resources of our competitors. In particular, the airline industry in Mexico has seen a sharp contraction, with the exit of eight Mexican airlines since 2007, the most recent one being Interjet, our third largest competitor by market share in 2020, which has been unable to resume flights since suspending their operations in December 2020. Interjet’s fleet decreased by 100% in 2021, from three aircraft as of December 31, 2020 to zero as of December 31, 2021, according to information published by the AFAC. According to media reports, on April 26, 2021, Interjet announced that its shareholders had approved the filing of a reorganization process (concurso mercantil) in Mexico. We cannot predict the outcome of Interjet’s future financial condition or whether we will be awarded any of its slots in the Mexico City International Airport, some of which we currently operate.
Because the airline industry is characterized by high fixed costs and relatively elastic revenues, airlines cannot quickly reduce their costs to respond to shortfalls in expected revenue.
The airline industry is characterized by low gross profit margins, high fixed costs and revenues that generally exhibit substantially greater elasticity than costs. The operating costs of each flight do not vary significantly with the number of passengers flown and, therefore, a relatively small change in the number of passengers, fare pricing or traffic mix could have a significant effect on operating and financial results. These fixed costs cannot be adjusted quickly to respond to changes in revenues and a shortfall from expected revenue levels could have a material adverse effect on our results of operations and financial condition.
Increases in insurance costs and/or significant reductions in coverage would harm our business, results of operations and financial condition.
Following the September 11, 2001 terrorist attacks, premiums for insurance against aircraft damage and liability to third parties increased substantially, and insurers could reduce their coverage or increase their premiums even further in the event of additional terrorist attacks, hijackings, wars, seizures/confiscations, airline crashes or other events adversely affecting the airline industry. In the future, certain aviation insurance could become unaffordable, unavailable or available only for reduced amounts of coverage that are insufficient to comply with the levels of insurance coverage required by aircraft lenders and lessors or applicable government regulations.
Governments in other countries have agreed to indemnify airlines for liabilities that they might incur from terrorist attacks or provide low-cost insurance for terrorism risks. In that respect, the Mexican government provided certain loans to help airlines face increases in aircraft insurance right after the 2001 terrorist attacks. However, the Mexican government has not indicated an intention to provide similar benefits to us now or at any time in the future.
A general increase in the cost of insurance coverage, including as a consequence of the COVID-19 pandemic, may result in both higher fares and a decreased demand for air travel generally, which could materially and negatively affect our business, results of operations and financial condition.
Downturns in the airline industry caused by terrorist attacks or war, which may alter travel behavior or increase costs, may adversely affect our business, results of operations and financial condition.
Demand for air transportation may be adversely affected by terrorist attacks, war or political and social instability, natural disasters and other events. Furthermore, these types of situations could have a prolonged effect on air transportation demand and on certain cost items.
The terrorist attacks in the United States on September 11, 2001, for example, have had a severe and lasting adverse impact on the airline industry. Airline traffic in the United States fell dramatically after the attacks and decreased severely throughout Latin America. The repercussions of September 11, including increases in security, insurance and fear of similar attacks, continue to affect us and the airline industry. Since September 11, 2001, the DHS and the TSA in the United States have implemented numerous security
23

Table of Contents
measures that restrict airline operations and increase costs and are likely to implement additional measures in the future. For example, following the widely publicized attempt of an alleged terrorist to detonate plastic explosives hidden underneath his clothes on a Northwest Airlines flight on Christmas Day in 2009, international passengers became subject to enhanced random screening, which may include pat-downs, explosive detection testing or body scans. Enhanced passenger screening, increased regulation governing carry-on baggage and other similar restrictions on passenger travel may further increase passenger inconvenience and reduce the demand for air travel. In addition, increased or enhanced security measures have tended to result in higher governmental fees imposed on airlines, resulting in higher operating costs for airlines. Therefore, any future terrorist attacks or threat of attacks, whether or not involving commercial aircraft, any increase in hostilities relating to reprisals against terrorist organizations, including an escalation of military involvement in the Middle East, or otherwise and any related economic impact, could result in decreased passenger traffic and materially and adversely affect our business, results of operations and financial condition.
Public health threats, such as the H1N1 flu virus, the bird flu, Severe Acute Respiratory Syndrome, or SARS, the Zika virus, COVID-19 and other highly communicable diseases, could affect suspension of domestic and international flights, travel behavior and could have a material adverse effect on the Mexican economy, airline industry reputation, the price of our shares, our business, results of operations and financial condition.
During the second quarter of 2009, passenger traffic was negatively affected as a result of the H1N1 flu crisis, which resulted in lower overall demand for intra-Latin America travel, especially to and from Mexico. In the past, Latin American travel has been negatively affected as a result of the Zika virus. Most recently, the outbreak of COVID-19 that has grown into a global pandemic was first reported on December 31, 2019 in Wuhan, Hubei Province, China. From Wuhan, the disease spread rapidly to other parts of China as well as other countries, including Mexico and the United States. Since the pandemic began, countries around the world have responded by taking various containment measures, including imposing quarantines and medical screenings, restricting domestic and international travel, closing borders, restricting or prohibiting public gatherings and widely suspending previously scheduled activities and events. In addition, concerns related to COVID-19 have drastically reduced demand for air travel and caused major disruptions and volatility in global financial markets, resulting in the fall of stock prices (including the price of our stock), both trends which may continue. There are other broad and continuing concerns related to the potential effects of COVID-19 on international trade (including supply chain disruptions and export levels), travel, restrictions on our ability to access our facilities or aircraft, requirements to collect additional passenger data, employee productivity, employee illness, increased unemployment levels, securities markets, and other economic activities, particularly for airlines, that may have a destabilizing effect on financial markets and economic activity. In addition, our operations could be negatively affected if essential employees are required to be quarantined as the result of an actual or suspected exposure to COVID-19. In the case of a COVID-19-related shutdown involving us or any of our subsidiaries, our contractors, suppliers, customers and other business partners, our business, results of operations and financial condition may also be materially adversely affected. Furthermore, any actions taken by governmental authorities and other third parties in response to the pandemic may negatively impact our business, results of operations and financial condition.
As of the date of this report, COVID-19 continues to be one of the biggest risks not only in public health issues, but also in the economic environment. The governments in the markets in which we operate have implemented, and continue to implement, measures to control COVID-19, such as COVID-19 vaccination programs. These measures have stimulated growth in the tourism sector and the demand for air travel. For the year ended December 31, 2021, our ASMs increased by 53.7% and 14.7% compared to the years ended December 31, 2020 and 2019, respectively. We managed to recover our pre-pandemic capacity despite spikes in COVID-19 cases, especially during the first half of 2021. In addition, we restarted our operations in Costa Rica, Guatemala and El Salvador, as the governments in these countries eased restrictions on air travel.
We can offer no assurance that additional travel restrictions, requirements or border closures will not be enacted or reenacted in the countries where we operate, which could result in reduced passenger demand, revenue, and further capacity reductions. In addition, if governments in the markets in which we operate impose total or partial lockdowns in all or part of their respective jurisdictions or shut down airports in response to the COVID-19 pandemic, it may result in our inability to operate flights, which would have a material adverse effect on our business, results of operation and financial condition.
The growth in the Mexican domestic and international air traffic since the third quarter of 2020 has been led by leisure and VFR travelers, while business travel remains reduced as a large percentage of the workforce continues to work from home. Equity research analysts and other industry executives believe that the positive trends in leisure and VFR travel will continue as the global markets recover from the pandemic and the business markets strengthen its recovery towards normal levels. However, we can offer no assurance that we will benefit from a rebound in travel demand.
24

Table of Contents
Our business and the airline industry have experienced material adverse impacts due to the COVID-19 pandemic. We cannot offer any assurance that these impacts will not intensify to the extent that COVID-19 persists throughout Mexico. Further, additional government COVID-19 response measures remain unknown and depend on future developments with respect to COVID-19, including the scope and duration of the pandemic, which are highly fluid, uncertain and cannot be predicted. It is not yet possible to determine when the adverse effects of COVID-19 will abate and the extent to which they will further decrease demand for air travel, which could continue to materially and negatively affect our business, results of operations and financial condition. Furthermore, although our cash flows from operations and our available capital have been sufficient to meet our obligations and commitments to date, our liquidity has been, and may in the future be, negatively affected by the risk factors discussed herein, including risks related to future results arising from the COVID-19 pandemic. If our liquidity is materially diminished, we might not be able to timely pay our leases and debts or comply with certain operating and financial covenants under our financing agreements or with other material provisions of our contractual obligations.
Furthermore, the COVID-19 pandemic has also resulted in increased volatility in both the local and the international financial markets and economic indicators, such as exchange rates, interest rates, credit spreads and commodity prices. Any shocks or unexpected movements in these market factors could result in financial losses.
For more information about the current status of COVID-19 in Mexico and the impact on us, see “Item 5. Operating and Financial Review and Prospects—Recent Developments” and “Item 5. Operating and Financial Review and Prospects—Trends and Uncertainties Affecting Our Business.”
Risks related to our business
We may not be able to implement our growth strategy.
Our growth strategy includes increasing the flights to markets we currently serve, expanding the number of markets served where we expect our ultra-low-cost structure to be successful and acquiring additional aircraft. Effectively implementing our growth strategy is critical for our business to achieve economies of scale and to sustain or increase our profitability.
We face numerous challenges in implementing our growth strategy, including our ability to:

	●	maintain profitability;	

	●	access airports located in our targeted geographic markets where we can operate routes in a manner that is consistent with our cost strategy;	

	●	maintain our high level of service notwithstanding the number of different ground transportation services and airport companies that we use in the course of our business;	

	●	maintain satisfactory economic arrangements (including benefits) with our executives and our union;	

	●	access sufficient gates, slots and other services at airports we currently serve or may seek to serve;	

	●	obtain authorization of new routes;	

	●	manage through, and have adequate response for, global or local pandemics, such as the COVID-19 pandemic;	

	●	comply with environmental regulations;	

	●	renew or maintain our Concessions;	

	●	gain access to international routes;	

	●	hire, train and retain qualified pilots, flight attendants, maintenance technicians, ground personnel and other personnel; and	

	●	obtain financing to acquire new aircraft and in connection with our operations.	

25

Table of Contents
Our growth depends upon our ability to maintain a safe and secure operation. An inability to hire and retain trained personnel, maintain suitable arrangements with our union, timely secure the required equipment, facilities and airport services in a cost-effective manner, operate our business efficiently or obtain or maintain the necessary regulatory approvals may adversely affect our ability to achieve our growth strategy, which could harm our business. In addition, expansion to new international markets may have other risks due to factors specific to those markets. We may be unable to foresee all of the risks attendant upon entering certain new international markets or respond adequately to these risks, and our growth strategy and our business may suffer as a result. In addition, our competitors may reduce their fares and/or offer special promotions following our entry into a new market. We cannot assure you that we will be able to profitably expand our existing markets or establish new markets.
Our target growth markets are in Mexico, the United States and Latin America, including countries with less developed economies that may be vulnerable to more unstable economic and political conditions, such as significant fluctuations in GDP, interest and currency exchange rates, civil disturbances, government instability, nationalization and expropriation of private assets and the imposition of taxes or other charges by governments. The occurrence of any of these events in markets served by us and the resulting instability may adversely affect our ability to implement our growth strategy.
Expansion of our markets and services may also strain our existing management resources and operational, financial and management information systems to the point that they may no longer be adequate to support our operations, requiring us to make significant expenditures in these areas. We expect that we will need to develop further financial, operational and management controls, reporting systems and procedures to accommodate future growth. We cannot assure you that we will be able to develop these controls, systems or procedures on a timely basis, and the failure to do so could harm our business.
Our ultra-low-cost structure is one of our primary competitive advantages and many factors could affect our ability to control our costs.
Our ultra-low-cost structure is one of our primary competitive advantages. However, we have limited control over many of our costs. For example, we have limited control over the price and availability of fuel, aviation insurance, airport and related infrastructure taxes, the cost of meeting changing regulatory requirements, and our cost to access capital or financing. We cannot guarantee we will be able to maintain a cost advantage over our competitors. If our cost structure increases and we are no longer able to maintain a cost advantage over our competitors, it could have a material adverse effect on our business, results of operations, financial condition and prospects.
Our fuel hedging strategy may not reduce our fuel costs.
Our fuel hedging policy allows us to enter into fuel derivative instruments to hedge against changes in fuel prices when we have excess cash available to support the costs of such hedges. As of December 31, 2021, we did not have hedge positions for our projected fuel requirements.
To the extent the Company decides to start a hedging program to hedge a portion of its future fuel requirements, such hedging program may not be successful in mitigating higher fuel costs and any price protection provided may be limited due to the choice of hedging instruments and market conditions, including breakdown of correlation between hedging instrument and market price of aircraft fuel and failure of hedge counterparties. To the extent that the Company decides to use hedge contracts that have the potential to create an obligation to pay upon settlement if fuel prices decline significantly, such hedge contracts may limit the Company's ability to benefit fully from lower fuel prices in the future. If fuel prices decline significantly from the levels existing at the time the Company enters into a hedge contract, the Company may be required to post collateral (margin) beyond certain thresholds. There can be no assurance that the Company's hedging arrangements, if any, would provide any particular level of protection against rises in fuel prices or that its counterparties will be able to perform under the Company's hedging arrangements. Additionally, deterioration in the Company's financial condition could negatively affect its ability to enter into hedge contracts in the future.
There is no assurance that we will be able to secure new fuel derivative contracts or transactions on terms which are commercially acceptable to us or at all. Furthermore, our ability to react to the cost of fuel is limited since we set the price of tickets in advance of incurring fuel costs. Our ability to pass on any significant increases in fuel costs through fare increases is also limited by our ULCC.
26

Table of Contents
We have a significant amount of fixed obligations that could impair our liquidity and thereby harm our business, results of operations and financial condition.
The airline business is capital intensive and, as a result, many airline companies are highly leveraged. Most of our aircraft and spare engines are leased, and we paid the lessors rent and maintenance deposits aggregating U.S. $452.2 million and U.S. $80.2 million, respectively, in 2021, and have future operating lease obligations aggregating U.S. $2.4 billion over the next 12 years. In addition, we have significant obligations for aircraft and engines that we have ordered from Airbus, IAE International Aero Engines AG, or IAE, and Pratt & Whitney, or P&W, respectively, for delivery over the next eight years. Our ability to pay the fixed costs associated with our contractual obligations will depend on our operating performance and cash flow, which will in turn depend on, among other things, the success of our current business strategy, whether fuel prices continue at current price levels and/or further increase or decrease, further weakening or improvement in the Mexican and U.S. economies, whether financing is available on reasonable terms or at all, as well as general economic and political conditions and other factors that are, to some extent, beyond our control. The amount of our aircraft related fixed obligations could have a material adverse effect on our business, results of operations and financial condition and could:

	●	require a substantial portion of cash flow from our operations for operating lease and maintenance deposit payments, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;	

	●	limit our ability to make required pre-delivery deposit payments to Airbus for our aircraft on order;	

	●	limit our ability to obtain additional financing to support our expansion plans and for working capital and other purposes on acceptable terms or at all;	

	●	make it more difficult for us to pay our other obligations as they become due during adverse general economic and market industry conditions because any related decrease in revenues could cause us to not have sufficient cash flows from operations to make our scheduled payments;	

	●	reduce our flexibility in planning for, or reacting to, changes in our business and the airline industry and, consequently, place us at a competitive disadvantage to our competitors with less fixed payment obligations; and	

	●	cause us to lose access to one or more aircraft and forfeit our rent and purchase deposits if we are unable to make our required aircraft lease rental payments or purchase installments and our lessors exercise their remedies under the lease agreement including under cross default provisions in certain of our leases.	

A failure to pay our operating leases and other fixed cost obligations or a breach of our contractual obligations could result in a variety of adverse consequences, including the exercise of remedies by our creditors and lessors. In such a situation, it is unlikely that we would be able to fulfill our obligations, make required lease payments or otherwise cover our fixed costs, which would have a material adverse effect on our business, results of operations and financial condition.
Inability to obtain lease or debt financing for additional aircraft would impair our growth strategy.
We presently finance our aircraft through operating leases as well as sale and leaseback arrangements. In the future, we may elect to own a portion of our fleet as well as continue to lease aircraft through long-term operating leases. We may not be able to obtain lease or debt financing on terms attractive to us, or at all. To the extent we cannot obtain such financing on acceptable terms or at all, we may be required to modify our aircraft acquisition plans or to incur higher than anticipated financing costs, which would have an adverse impact on the execution of our growth strategy and business.
Furthermore, upon the adoption of Cape Town Treaty, an international treaty intended to standardize transactions for movable property such as aircraft and aircraft engines, Mexico selected the Alternative B insolvency provision, which gives more discretion to debtors and local courts to determine if and when defaults must be cured, or the aircraft returned to its owner or creditor. Mexico’s selection of this insolvency provision may limit our access to, or increase our costs of, financing in the event we elect to own a portion of our fleet. Uncertainty regarding the rights of creditors in a Mexican bankruptcy proceeding and the factors discussed above may inhibit our ability to lease or acquire new aircraft on attractive terms or at all, which may have a material adverse impact on our business, financial condition and results of operations. In addition, if we are unable to obtain the financing necessary to acquire
27

Table of Contents
an aircraft for which we have entered into a binding purchase agreement and fail to cancel the order or delay delivery of the aircraft, we would be in default under the related purchase agreement. Potential liability for damages in the event of such a default could have a material adverse impact on our financial condition and results of operations.
Our limited lines of credit and borrowing facilities make us highly dependent upon our operating cash flows.
We have limited lines of credit and borrowing facilities and rely primarily on operating cash flows to provide working capital. Unless we secure additional lines of credit, borrowing facilities or equity financing, we will be dependent upon our operating cash flows to fund our operations and to make scheduled payments on our debt and other fixed obligations. If we fail to generate sufficient funds from our operations to meet these cash requirements or are unable to secure additional lines of credit, other borrowing facilities or equity financing, we could default on our debt and other fixed obligations. Our inability to meet our obligations as they become due would materially adversely affect our ability to grow and seriously harm our business, results of operations and financial condition.
We are highly dependent on the Mexico City, Tijuana, Guadalajara and Cancun airports for a large portion of our business.
Our business is heavily dependent on our routes to and from the Mexico City, Tijuana, Guadalajara and Cancun airports. Routes through Mexico City, Tijuana, Guadalajara and Cancun make up a large portion of the balance of our routes. The Mexico City International Airport has been declared saturated and we cannot guarantee that in the future we may obtain additional slots in Mexico City. While we were permitted to use additional slots as a result of decreased operations by certain of our competitors facing financial difficulties during the pandemic, we will not be granted historical priority of the slots unless certain conditions are met, including the termination of a waiver of the minimum usage requirement which is currently in place. As such, we can offer no assurance that we will be permitted to continue to use these slots in the future. In addition, we cannot provide any kind of assurance with respect to the changes, risks and costs related to the operation of Mexico City’s Airport System (Sistema Aeroportuario de la Ciudad de México), including having to operate more than one airport in the Mexico City metropolitan area due to the construction and operation of the Felipe Ángeles International Airport, which may have an impact in our business, operation results and financial condition. Any significant increase in competition, redundancy in demand for air transportation or disruption in service or the fuel supply at these airports, could have a material adverse impact on our business, results of operations and financial condition. In addition, conditions affecting services at these airports or our slots, such as adverse changes in local economic or political conditions, negative public perception of these destinations, unfavorable weather conditions, violent crime or drug related activities, could also have a material adverse impact on our business, results of operations and financial condition.
Our maintenance costs will increase as our fleet ages.
As of December 31, 2021, the average age of our 101 aircraft in service was 5.4 years. Our relatively new aircraft require less maintenance now than they will in the future. Our fleet will require more maintenance as it ages and our maintenance and repair expenses for each of our aircraft will be incurred at approximately the same intervals. In addition, the terms of most of our lease agreements require us to pay supplemental rent, also known as maintenance deposits, to be paid to the lessor in advance of the performance of major maintenance, resulting in our recording significant aircraft maintenance deposits on our statements of financial position. We expect scheduled and unscheduled aircraft maintenance expenses to increase as a percentage of our revenue over the next several years. Any significant increase in maintenance and repair expenses would have a material adverse effect on our margins and our business, results of operations and financial condition.
Our business could be harmed by a change in the availability or cost of air transport infrastructure and airport facilities.
The lack of adequate air transport infrastructure can have a direct adverse impact on our business operations, including our future expansion plans. The availability and cost of terminal space, slots and aircraft parking are critical to our operations. Additional ground and maintenance facilities, including gates and hangars and support equipment will be required to operate additional aircraft in line with our expansion plans and may be unavailable in a timely or economic manner in certain airports. Our inability to lease, acquire or access airport facilities on reasonable terms, at preferred times or based upon adequate service, to support our operations and growth could have a material adverse effect on our operations. Further, as old airports become modernized or new airports are constructed, this may lead to increases in the costs of using airport infrastructure and facilities and may also result in an increase in related costs such as landing charges. Such increases may adversely affect our business, results of operations and financial condition.
Our ability to pass on such increased costs to our passengers is limited by several factors, including economic and competitive conditions.
28

Table of Contents
We are exposed to increases in landing charges and other airport access fees and restrictions, and cannot be assured access to adequate facilities and landing rights necessary to achieve our expansion plans.
We must pay fees to airport operators for the use of their facilities. Any substantial increase in airport charges could have a material adverse impact on our results of operations and financial condition. Passenger taxes and airport charges have also increased in recent years, sometimes substantially. We cannot assure you that the airports used by us will not impose, or further increase, passenger taxes and airport charges in the future, and any such increases could have an adverse effect on our results of operations and financial condition.
Certain airports that we serve (or that we plan to serve in the future) are subject to capacity constraints and impose slot restrictions during certain periods of the day. As a result, we cannot assure you that we will be able to obtain a sufficient number of slots, gates and other facilities at airports to maintain or expand our services as we are proposing to do. It is also possible that airports not currently subject to capacity constraints may become so in the future. In addition, an airline must use its slots on a regular and timely basis or risk having those slots reallocated to other airlines. Where slots or other airport resources are not available or their availability is restricted in some way, we may have to amend our schedules, change routes or reduce aircraft utilization, any of which could have an adverse effect on our business, results of operations and financial condition.
In addition, some of the airports we serve impose various restrictions, including limits on aircraft noise levels, limits on the number of average daily departures and curfews on runway use. We cannot assure you that airports at which there are no such restrictions may not implement restrictions in the future or that, where such restrictions exist, they may not become more onerous. Such restrictions may limit our ability to continue to provide or to increase services at such airports.
Our reputation and business could be adversely affected in the event of an emergency, accident or similar incident involving our aircraft.
We are exposed to potential significant losses and material adverse effects on our business in the event that any of our aircraft is subject to an emergency, accident, terrorist incident or other similar incident, and significant costs related to passenger claims, repairs or replacement of a damaged aircraft and its temporary or permanent loss from service. There can be no assurance that we will not be affected by such events, or that the amount of our insurance coverage will be adequate in the event such circumstances arise and any such event could cause a substantial increase in our insurance premiums. See “—Increases in insurance costs and/or significant reductions in coverage would harm our business, results of operations and financial condition.” In addition, any future aircraft emergency, accident or similar incident, even if fully covered by insurance or even if it does not involve our airline, may create a public perception that our airline or the equipment we fly is less safe or reliable than other transportation alternatives, which could have an adverse impact on our reputation and could have a material adverse effect on our business, results of operations and financial condition.
We are exposed to certain risks against which we do not have insurance.
In line with industry practice, we leave some business risks uninsured including business interruption, loss of profit or revenue and consequential business losses arising from mechanical breakdown. To the extent that uninsured risks materialize, we could be materially and adversely affected. There can also be no assurance that our insurance coverage will cover actual losses incurred. To the extent that actual losses incurred by us exceed the amount insured, we may have to bear substantial losses which could have a material adverse effect on our financial condition and results of operations.
A failure to comply with covenants contained in our aircraft or engine lease agreements, or the occurrence of an event of default thereunder, could have a negative impact on us and our financial condition and results of operations.
We have entered into aircraft and engine operating lease agreements and sale and leaseback arrangements with various lessors. These agreements contain certain events of default and also require us to comply with certain covenants, including covenants triggered by a change of control, during the term of each agreement. The lease agreements generally provide for events of default if (i) we fail to obtain or maintain the insurance required, (ii) we breach any covenant or representation and warranty and do not cure it within the agreed time periods, (iii) we do not have unencumbered control or possession of the aircraft or engines, (iv) we discontinue (temporarily or otherwise) business or sell or otherwise dispose of all or substantially all of our assets, (v) we no longer possess the licenses, certificates and permits required for the conduct of our business as a certificated air carrier, (vi) Volaris Opco experiences a change of control, or (vii) we fail to pay when due any airport or navigation charges or any landing fees assessed with respect to the aircraft or any aircraft operated by us which, if unpaid, may give rise to any lien, right of detention, right of sale or other security
29

Table of Contents
interest in relation to the aircraft or parts thereof. The lease agreements also provide for events of default in case of certain insolvency events and if a material adverse change occurs in our financial condition which, in lessor’s reasonable opinion, would materially and adversely affect our ability to perform our obligations under the lease agreements and related documents. Failure to comply with covenants could result in a default under the relevant agreement, and ultimately in a re-possession of the relevant aircraft or engine. Certain of these agreements also contain cross default clauses, as a result of which defaults under one agreement may be treated as defaults under other lease agreements. As such, a failure to comply with the covenants in our aircraft and engine lease agreements, or the occurrence of an event of default thereunder, could have a negative impact on us and, as a result, on our financial condition and results of operations.
We rely on maintaining a high daily aircraft utilization rate to implement our ultra-low-cost structure, which makes us especially vulnerable to flight delays or cancellations or aircraft unavailability.
One of the key elements of our business strategy is to maintain a high daily aircraft utilization rate. Our average daily aircraft utilization was 12.94 block hours in 2019, 11.30 block hours in 2020 and 12.53 block hours in 2021. Aircraft utilization is the average amount of time per day that our aircraft spend carrying passengers. Our revenue per aircraft can be increased by high daily aircraft utilization, which is achieved in part by reducing turnaround times at airports, so we can fly more hours on average in a day. Aircraft utilization is reduced by delays and cancellations arising from various factors, many of which are beyond our control, including air traffic congestion at airports or other air traffic control problems, adverse weather conditions, increased security measures or breaches in security, international or domestic conflicts, terrorist activity, health outbreaks or other changes in business conditions. In addition, pulling aircraft out of service for unscheduled and scheduled maintenance, which will increase as our fleet ages, may materially reduce our average fleet utilization. High aircraft utilization increases the risk that if an aircraft falls behind schedule during the day, it could remain behind schedule during the remainder of that day and potentially into the next day, which can result in disruption in operating performance, leading to passenger dissatisfaction related to delayed or cancelled flights and missed connections. Due to the relatively small size of our fleet and high daily aircraft utilization rate, the unavailability of one or more aircraft and resulting reduced capacity or our failure to operate within time schedules, could have a material adverse effect on our business, results of operations and financial condition.
The growth of our operations to the United States is dependent on continued favorable safety assessment in Mexico and the Central and South American countries in which we operate.
The FAA periodically audits the aviation regulatory authorities of other countries. As a result of their investigation, each country is given an International Aviation Safety Assessment, or IASA, rating. In February 2021, Costa Rica’s, IASA ratings was upgraded back to Category 1 from Category 2, 21 months, after it was downgraded due to alleged deficiencies in the Costa Rican air safety standards. In May 2021, Mexico´s IASA ratings were downgraded from Category 1 to Category 2, currently the AFAC is working to address the FAA findings. Consequently, new services and routes to the United States cannot be added, and we will be unable to add new aircraft to our FAA operations specifications. We cannot assure you that the governments of Mexico, Costa Rica and El Salvador, and the AFAC, the General Directorate of Civil Aviation (Dirección General de Aviación Civil) of Costa Rica and the Civil Aviation Authority (Autoridad de Aviación Civil) of El Salvador in particular, or the aviation authorities in the Central and South American countries in which we operate, will continue to meet international safety standards, and we have no direct control over their compliance with IASA guidelines. If the IASA ratings of Mexico, Costa Rica or the other Central and South American countries in which we operate were to be downgraded in the future, it could restrict our ability to maintain or increase service to the United States and incorporate aircraft registered in the United States into our fleet, which would in turn adversely affect our business, results of operations and financial condition.
We rely heavily on technology and automated systems to operate our business and any failure of these technologies or systems or failure by their operators could harm our business.
We are highly dependent on technology and automated systems to operate our business and achieve low operating costs. These technologies and systems include our computerized airline reservation system, domain names system, flight operations system, financial planning, management and accounting system, telecommunications systems, website, maintenance systems and check-in kiosks. For our operations to work efficiently, our website and reservation system must be able to accommodate a high volume of traffic, maintain secure information and deliver flight information. Substantially all of our tickets are issued to passengers as electronic tickets. We depend on our reservation system, which is hosted and maintained by third-party service providers, to be able to issue, track and accept these electronic tickets. If our reservation system fails or experiences interruptions or denial of service and we are unable to book seats for any period of time, we could lose significant amounts of revenues as customers book seats on competing
30

Table of Contents
airlines. We have experienced short duration reservation system outages from time to time and may experience similar outages in the future. Furthermore, if our flight operations system were to fail, our operations would be materially and adversely affected.
We also rely on third-party service providers of our other automated systems for technical support, telecommunications, network, system maintenance and software upgrades. If our automated systems are not functioning or function partially or if the current providers were to fail to adequately provide updates or technical support for any one of our key existing systems, we could experience service disruptions and delays, which could harm our business and result in the loss of important data, increase our expenses and decrease our revenues. In the event that one or more of our primary technology or systems’ vendors goes into bankruptcy, ceases operations or fails to perform as contemplated in the agreements, replacement services may not be readily available on a timely basis, at competitive rates or at all and any transition time to a new system may be significant.
We retain or some vendors collect personal or biometrical information received from customers and have put in place security measures to protect against unauthorized access to such information. Personal or Biometrical information is further protected under applicable Mexican and United States law. Personal or Biometrical information held both offline and online is highly sensitive and, if third parties were to access such information without the customers’ prior consent or if third parties were to misappropriate that information, our reputation could be adversely affected and customers could bring legal claims against us, any of which could adversely affect our business, results of operations and financial condition. In addition, we may be liable to credit card companies should any credit card information be accessed and misused as a result of lack of sufficient security systems implemented by us or our vendors certified for this purpose.
In addition, our automated systems cannot be completely protected against events that are beyond our control, including natural disasters, computer viruses, cybersecurity incidents or telecommunications failures. Substantial or sustained system failures could cause service delays or failures and result in our customers purchasing tickets from other airlines. We have implemented security measures, back-up procedures and disaster recovery plans; however, we cannot assure you that these measures are adequate to prevent disruptions. Disruption in, changes to or a breach of, these systems could result in the disruption to our business and the loss of important data. These disruptions may also result in adverse economic consequences. Any of the foregoing could result in a material adverse effect on our business, results of operations and financial condition.
We rely on third-party service providers to perform functions integral to our operations.
We have entered into agreements with third-party service providers to furnish certain facilities and services required for our operations, including Lufthansa Technik AG for certain technical services and Aeromantenimiento S.A., or Aeroman, a FAA-approved maintenance provider, for our heavy airframe and engine maintenance, as well as other third-party service providers, including the concessionaries’ of the Mexican airports in which we operate, for ground handling, catering, passenger handling, engineering, refueling and airport facilities as well as administrative and support services. We are likely to enter into similar service agreements in new markets we decide to enter, and there can be no assurance that we will be able to obtain the necessary services at acceptable rates.
Although we seek to monitor the performance of third-party service providers, their efficiency, timeliness and quality of contract performance are often beyond our control, and any failure by any of them to perform their contracts may have an adverse impact on our business and operations. We expect to be dependent on such third-party arrangements for the foreseeable future.
Furthermore, our agreements with third parties are subject to termination upon short notice. The loss or expiration of these contracts or any inability to renew them or negotiate and enter into contracts with other providers at comparable rates could harm our business. Our reliance upon others to provide essential services on our behalf also gives us less control over costs, and the efficiency, timeliness and quality of contract services.
Our processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation.
In the processing of our customer transactions, we receive, process, transmit and store a large volume of identifiable personal data, including financial data such as credit card information. This data is subject to legislation and regulation, intended to protect the privacy of personal data that is collected, processed and transmitted. More generally, we rely on consumer confidence in the security of our system, including our internet site on which we sell the majority of our tickets. Our business, results of operations and financial condition could be adversely affected if we are unable to comply with existing privacy obligations or legislation or regulations are
31

Table of Contents
expanded to require changes in our business practices. Furthermore, lawsuits may be initiated against us and our reputation may be negatively affected if we fail to comply with applicable law and privacy obligations.
We depend on our non-passenger revenue to remain profitable, and we may not be able to maintain or increase our non-passenger revenue base.
Our business strategy significantly relies upon our portfolio of non-passenger revenues, including ancillary products and services and cargo revenue, on which we depend to remain profitable due to our ULCC strategy of low base fares. There can be no assurance that passengers will pay for additional ancillary products and services or that passengers will continue to choose to pay for the ancillary products and services we currently offer. Failure to maintain our non-passenger revenues would have a material adverse effect on our results of operations and financial condition. Furthermore, if we are unable to maintain and grow our non-passenger revenues, we may not be able to execute our strategy to continue to lower base fares in order to stimulate demand for air travel. In addition, our strategy to increase and develop non-passenger revenue by charging for additional ancillary services may be adversely perceived by our customers and negatively affect our business.
Restrictions on or increased taxes applicable to fees or other charges for ancillary products and services paid by airlines passengers could harm our business, results of operations and financial condition.
Our non-passenger revenues are 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 the call center or third-party agencies, advanced seat selection, itinerary changes, charters and passenger charges for no-show tickets. Revenues from non- passenger revenues include commissions charged to third parties for the sale of hotel rooms, trip insurance and rental cars. Additionally, services not directly related to air transportation include Volaris’ sale of V-Club membership and the sale of advertising spaces to third parties.
In April 2011, the DOT published a broad set of final rules relating to, among other things, how airlines handle interactions with passengers through advertising, the reservations process, at the airport and on board the aircraft. The final rules require airlines to publish a full fare for a flight, including mandatory taxes and fees, and to enhance disclosure of the cost of optional products and services, including baggage charges. The rules restrict airlines from increasing ticket prices post-purchase (other than increases resulting from changes in government-imposed fees or taxes) and significantly increasing the amount and scope of compensation payable to passengers involuntarily denied boarding due to over sales. The final rules also extend the applicability of penalties to include international flights and provide that reservations made more than one week prior to flight date may be held at the quoted fare without payment, or cancelled without penalty, for 24 hours. Failure to remain in full compliance with these rules may subject us to fines or other enforcement action, including requirements to modify our passenger reservations system, which could have a material adverse effect on our business. Moreover, we cannot assure you that compliance with these new rules will not have a material adverse effect on our business.
In addition, the U.S. Congress and Federal administrative agencies have undertaken investigations of the airline industry practice of unbundling services, including public hearings held in 2010. If new taxes are imposed on non-passenger revenues, or if other laws or regulations are adopted that make unbundling of services impermissible, or more cumbersome or expensive than the new rules described above, our business, results of operations and financial condition could be materially adversely affected. Congressional and other government agency scrutiny may also change industry practice or public willingness to pay for ancillary services. See also “—Compliance with airline industry regulations involves significant costs and regulations enacted in both Mexico and the United States may increase our costs significantly in the future.”
Changes in how we or others are permitted to operate at airports could have a material adverse effect on our business, results of operations and financial condition.
Our results of operations may be affected by actions taken by the airports’ concessionaires, governmental or other agencies or authorities having jurisdiction over our operations at airports, including, but not limited to:

	·	termination of our airport use agreements, some of which can be terminated by the other party or airport authorities with little notice to us;	
	·	international travel regulations such as customs and immigration;	
32

Table of Contents

	·	increases in taxes;	
	·	allocation of slots;	
	·	changes in the law that affect the services that can be offered by airlines in particular markets and at particular airports;	
	·	strikes and other similar disruptions affecting airports;	
	·	restrictions on competitive practices;	
	·	hire, train and retain qualified pilots, flight attendants, maintenance technicians, ground personnel and other personnel;	
	·	the adoption of statutes or regulations that impact customer service standards, including security and health standards and termination of licenses or concessions to operate airports; and	
	·	the adoption of more restrictive locally-imposed noise regulations or curfews.	
In general, any changes in airport operations could have a material adverse effect on our business, results of operations and financial condition.
We rely on a limited number of suppliers for fuel, aircraft and engines.
We rely on a limited number of suppliers for fuel, aircraft and engines. We purchase fuel from Airports and Auxiliary Services (Aeropuertos y Servicios Auxiliares), or ASA, which also supplies fuel and fills our aircraft tanks in Mexico, where we do most of the fillings. In the United States, we have entered into fuel supply agreements with suppliers such as World Fuel Services, or WFS, BP Products North America, Chevron and Associated Energy Group pursuant to which those companies or their affiliates sell fuel to us at various airports as specified in the agreements. The agreement with ASA expires on December 31, 2023 and may be terminated by us with 30-days prior notice and by ASA only if we do not pay for the fuel provided. If ASA or our other fuel providers offer fuel to one or more of our competitors at a better price or with better terms, it may materially affect our ability to compete against other airlines and may have a material effect on our business. If ASA or our other fuel providers terminate their agreements with us, are unwilling to renew them upon termination or are unable or unwilling to cover our fuel needs, we would have to seek alternative sources of fuel. Currently, no substitute exists for ASA as a fuel supplier in Mexico. We cannot assure you that we will be able to find another fuel provider or, if so, whether we will be able to find one that provides fuel in such a cost-effective a manner as our current agreements with ASA and other fuel providers at all the airports in Mexico where we operate. Failure to renew agreements or to source fuel from alternate sources will materially and adversely affect our business, results of operations and financial condition.
One of the elements of our business strategy is to save costs by operating an aircraft fleet consisting solely of Airbus A319, A320 and A321 aircraft, narrow body aircraft, powered by engines manufactured by International Aero Engines, or IAE, and Pratt & Whitney, or P&W. We currently intend to continue to rely exclusively on these aircraft and engine manufacturers for the foreseeable future. If any of Airbus, IAE or P&W is unable to perform its contractual obligations, or if we are unable to acquire or lease aircraft or engines or spare parts from other owners, operators or lessors on acceptable terms, we would have to find other suppliers for a similar type of aircraft, engine or spare parts. If we have to lease or purchase aircraft from another supplier, we would lose the significant benefits we derive from our current single fleet composition. We may also incur substantial transition costs, including costs associated with retraining our employees, replacing our manuals and adapting our facilities and maintenance programs. Our operations could also be materially affected by the failure or inability of aircraft, engine and parts suppliers to provide sufficient spare parts or related support services on a timely basis.
Any real or perceived problem with the Airbus A320 family aircraft or IAE and P&W engines could adversely affect our operations.
We operate a uniform fleet of Airbus A319, A320 and A321 aircraft, which belong to the Airbus A320 family aircraft. Our aircraft also exclusively use IAE and P&W engines. Our dependence on the Airbus A319, A320 and A321 aircraft and IAE and P&W engines makes us particularly vulnerable to any problems that might be associated with the Airbus A320 family aircraft or engines. If any design defect or mechanical problem is discovered, or if the technology relating to such aircraft should become obsolete, our aircraft may have to be grounded while such defect or problem is corrected, assuming it could be corrected at all. Any such defect or problem may also result in aviation authorities in Mexico and the United States implementing certain airworthiness directives which may require substantial cost to comply with. Further, our operations could be materially adversely affected if passengers avoid flying
33

Table of Contents
with us as a result of an adverse perception of the Airbus A320 family aircraft or IAE and P&W engines due to real or perceived safety concerns or other problems. Since 2017, P&W’s PW1100G-JM engines have experienced technical and production issues worldwide. As a result, several A320neo operators, including us, have reportedly caused their aircraft to be inoperative for long periods of time. This problem has also resulted in the delay of delivery of our A320 and A321neo aircraft. We cannot assure you when such problems will be resolved by P&W.
Cyber-attacks or other cyber-incidents involving network or information technology security, including breaches in data privacy, could have an adverse effect on our business.
Cyber-attacks or other cyber-incidents involving network or information technology security may cause equipment failures or disruptions to our operations. Our inability to operate our networks as a result of such events, even for a limited period of time, may result in significant expenses or loss of market share to other airlines. Cyber-attacks, which include malware, computer viruses, phishing, denial of service and other means of disruption or unauthorized access to companies, have increased in frequency, scope and potential harm in recent years. We take preventive response and virus recovery actions to reduce the risk of cyber incidents and protect our information technology and networks, but there is always a risk that we may suffer a major cyber-attack that we are unable to repel. The costs associated with a major cyber-attack on us could increase our expenditures on cyber security measures, litigation, damage to our reputation, lost revenues from business interruption and the loss of existing customers and business partners. In addition, if we fail to prevent the theft of valuable information such as financial data and sensitive information, or if we fail to protect the privacy of customer and employee confidential data against breaches of network or information technology security, it could result in damage to our reputation, which could adversely impact customer and investor confidence. Any of these occurrences could result in a material adverse effect on our results of operations and financial condition.
In response to these threats there has been heightened legislative and regulatory focus on data privacy and cybersecurity around the globe, particularly with respect to critical infrastructure providers, including those in the transportation sector. As a result, we must comply with a proliferating and fast-evolving set of legal requirements in this area, including substantive cybersecurity standards as well as requirements for notifying regulators and affected individuals in the event of a data security incident. The regulatory environment is increasingly challenging and may present material obligations and risks to our business, including significantly expanded compliance burdens, costs and enforcement risks. Mexico’s Federal Personal Data Protection Law, or LFPDP, the European Union’s General Data Protection Regulation, or GDPR, and the California Consumer Privacy Act, or CCPA, came into effect in July 2011, May 2018 and January 2020, respectively. LFPDP, GDPR and the CCPA impose data privacy and security requirements, imposing significant costs on us and carrying substantial penalties for non-compliance. Similar regulations may be enacted by other countries and states in the future, including in Central and South America.
In addition, many of our commercial partners, including credit card companies, have imposed data security standards that we must meet. While we continue our efforts to meet these standards, new and revised standards may be imposed that may be difficult for us to meet and could increase our costs.
If we are unable to attract and retain qualified personnel or fail to maintain our company culture, our business, results of operations and financial condition could be harmed.
We require large numbers of pilots, flight attendants, maintenance technicians and other personnel, and our growth strategy will require us to hire, train and retain a significant number of new employees in the future. The airline industry has from time to time experienced a shortage of qualified personnel, particularly with respect to pilots and maintenance technicians. This has been particularly acute for Mexico. Retaining and recruiting people with the appropriate skills is particularly challenging as the economy in general, and the airline industry in particular, continue to recover from the COVID-19 pandemic resulting in competition for the human resources necessary to operate our business successfully. We may be required to increase wages and/or benefits or to implement additional training programs in order to attract and retain qualified personnel. If we are unable to hire, train and retain qualified employees, our business could be adversely affected and we may be unable to complete our growth plans. In addition, the airline industry has, from time to time, experienced a shortage of qualified personnel and employee turnover may occur from time to time, which may not always be predictable. When we experience higher turnover, our training costs may be higher due to the significant amount of time required to train each new employee and, in particular, each new pilot. We cannot be certain that we will be able to recruit, train and retain the qualified employees that we need to replace departing employees and continue our current operations. If we are unable to hire, train and retain qualified employees, our business could be adversely affected and we may be unable to successfully complete our growth plans.
34

Table of Contents
In addition, as we hire new employees, it may be increasingly challenging to maintain our company culture. Our company culture, which is one of our competitive strengths, is important to providing high-quality customer service and having a productive, accountable workforce that helps keep our costs low. As our operations and geographic diversity continue to grow, we may be unable to identify, hire or retain enough people who meet the above criteria, including those in management or other key positions. If we fail to maintain the strength of our company culture, our business, results of operations and financial condition could be harmed.
Increased labor costs, union disputes, employee strikes, and other labor-related disruption may adversely affect our operations.
Our business is labor intensive, with labor costs representing 12%, 14% and 13% of our total operating expenses for the fiscal years 2019, 2020 and 2021, respectively. As of December 31, 2021, 81% of our workforce was represented by the general aviation union (Sindicato de Trabajadores de la Industria Aeronaútica, Similares y Conexos de la República Méxicana—STIAS) and thereby covered by substantially the same collective bargaining agreement entered into between us and each of our subsidiaries. The collective bargaining agreements are negotiated every two years in respect of general labor conditions and every year in connection with wages. Our current agreements with this union will expire in February 2023 with respect to salaries and February 2023 with respect to benefits. The terms and conditions of our future collective bargaining agreements may be affected by the results of collective bargaining negotiations at other airlines that may have a greater ability, due to larger scale, greater efficiency or other factors, to bear higher costs than we can. We cannot assure you that our labor costs going forward will remain competitive because in the future our labor agreements may be amended and new agreements could have terms with higher labor costs or more onerous conditions, one or more of our competitors may significantly reduce their labor costs, thereby reducing or eliminating our comparative advantages as to one or more of such competitors, or our labor costs may increase in connection with our growth. Traditionally, the relationship between Mexican legacy carriers and their unions has been complex. We may also become subject to additional collective bargaining agreements in the future as non-unionized workers may unionize or unionized workers may decide to join a different union. If we are unable to reach agreement with any of our unionized work groups on future negotiations regarding the terms of their collective bargaining agreements, we may be subject to work interruptions or stoppages. Any such action or other labor dispute with unionized employees (including negotiation of more onerous conditions), or the deterioration of the relationship between unions and businesses in Mexico, could disrupt our operations, reduce our profitability, or interfere with the ability of our management to focus on executing our business strategies.
Furthermore, changes in labor laws, such as the recent amendment to Mexican labor laws and other related regulations regarding labor subcontracting in Mexico, could adversely affect our business, results of operations and financial condition.
Our business, results of operations and financial condition could be materially adversely affected if we lose the services of our key personnel.
Our success depends to a significant extent upon the efforts and abilities of our senior management team and key financial and operating personnel. Competition for highly qualified personnel is intense, and the loss of any executive officer, senior manager or other key employee without adequate replacement or the inability to attract new qualified personnel could have a material adverse effect on our business, results of operations and financial condition. Experienced executives in the airline industry are difficult to source. We do not maintain key-man life insurance on our management team.
Our results of operations will fluctuate.
The airline industry is by nature cyclical and seasonal, and our operating results can be expected to vary from quarter to quarter. We generally expect demand to be greater during the summer months in the northern hemisphere, in December and around Easter, which can fall either in the first or second quarter, compared to the rest of the year. We generally experience our lowest levels of passenger traffic in February, September and October. Given our high proportion of fixed costs, seasonality can affect our profitability from quarter to quarter. Demand for air travel is also affected by factors such as economic conditions, war or the threat of war, fare levels, security and health concerns and weather conditions.
In addition, we expect our quarterly operating results to fluctuate in the future based on a variety of other factors, including:

	·	the timing and success of our growth plans as we increase flights in existing markets and enter new markets;	
	·	changes in fuel, security, health and insurance costs;	
35

Table of Contents

	·	increases in personnel, marketing, aircraft ownership and other operating expenses to support our anticipated growth; and	
	·	the timing and amount of maintenance expenditures.	
Due to the factors described above and others described in this annual report, quarter-to-quarter comparisons of operating results may not be good indicators of our future performance. In addition, it is possible that in any quarter our operating results could be below the expectations of investors and any published reports or analyses regarding our company. In that event, the price of the ADSs could decline, perhaps substantially.
We do not have a control group.
Since the completion of our initial public offering on September 23, 2013, we have not had a control group and corporate decisions requiring shareholder approval, such as the election of a majority of the board of directors, are made by the majority of our Series A shareholders, which shares are required to be owned by Mexican nationals. We no longer have a control group because holders of ADSs and CPOs do not have voting rights, and the CPOs and ADSs are voted by the CPO trustee in the same manner as the majority of the holders of Series A shares that are not represented by CPOs or ADSs. Thus, there are no large groups holding a large block. Furthermore, it is unlikely that a significant block of shareholders will form in the future because no person or group of persons is permitted to acquire more than 5% of our outstanding capital stock without our board of directors’ consent. As a result, a shareholder or shareholders of a very small number of Series A shares could determine the outcome of any shareholder vote without being a control group.
Volaris is a holding company and does not have any material assets other than the shares of its subsidiaries and its trademarks.
Volaris is a holding company that conducts its operations through a series of operating subsidiaries. We support these operating subsidiaries with technical and administrative services through various other subsidiaries of Volaris. All of the assets we use to perform administrative and technical services and to operate the concessions and authorizations are held at the subsidiary level. As a result, Volaris does not have any material assets other than the shares of its subsidiaries and its trademarks. Dividends or payments that Volaris may be required to make will be subject to the availability of cash provided by its subsidiaries. Transfers of cash from Volaris’ subsidiaries to Volaris may be further limited by corporate and legal requirements, or by the terms of the agreements governing our indebtedness. If a shareholder were to assert a claim against Volaris, the enforcement of any related judgment would be limited to the available assets of Volaris, rather than the assets of Volaris and its combined subsidiaries.
Changes in accounting standards could impact our reported earnings.
The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements.
Any change made to accounting standards can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.
Risks related to our securities and the ADSs
The trading prices for the ADSs and our Series A shares may fluctuate significantly.
Future trading prices of the ADSs or Series A shares may be volatile, and could be subject to wide fluctuations in response to various factors, including:

	·	changes in the market valuation of companies that provide similar services;	
	·	economic, regulatory, political and market conditions in Mexico, the United States and other countries;	
	·	industry conditions or trends;	
	·	availability of routes and airport space;	
36

Table of Contents

	·	the introduction of new services by us or by our competitors;	
	·	real or perceived health and safety standards in air travel and related services;	
	·	our historical and anticipated quarterly and annual operating results;	
	·	variations between our actual or anticipated results and analyst and investor expectations;	
	·	announcements by us or others and developments affecting our business;	
	·	changes in technology affecting our aircraft;	
	·	announcements, results or actions taken by our competitors;	
	·	investors’ perceptions of our company or the services we provide;	
	·	changes in financial or economic estimates by securities analysts;	
	·	our announcement of significant transactions or capital commitments;	
	·	currency devaluations and imposition of capital controls;	
	·	additions or departures of key management;	
	·	future sales of the ADSs and Series A shares;	
	·	strategic actions by us or our competitors, such as acquisitions or restructurings;	
	·	accidents, health concerns, pandemics, and other events affecting airline operations;	
	·	media reports and publications about the safety of our aircraft or the aircraft type we operate;	
	·	changes in the price of fuel;	
	·	announcements concerning the availability of the type of aircraft we use;	
	·	changes in financial estimates or recommendations by securities analysts or failure to meet analysts’ performance expectations; or	
	·	sales of our common stock or other actions by investors with significant shareholdings.	
Many of these factors are beyond our control. Broad market and industry factors could materially and adversely affect the market price of the ADSs and Series A shares, regardless of our actual operating performance.
The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of particular companies. These types of broad market fluctuations may adversely affect the trading price of our Series A shares and ADSs. In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any such litigation against us could result in substantial costs, divert management’s attention and resources, and harm our business or results of operations.
The relatively low liquidity and high volatility of the Mexican securities market may cause trading prices and volumes of our Series A shares and the ADSs to fluctuate significantly.
The Mexican Stock Exchange is one of Latin America’s largest exchanges in terms of aggregate market capitalization of the companies listed therein, but it remains relatively illiquid and volatile compared to other major foreign stock markets. Although the public participates in the trading of securities on the Mexican Stock Exchange, a substantial portion of trading activity on the Mexican Stock Exchange is conducted by or on behalf of large institutional investors. The trading volume for securities issued by emerging market companies, as Mexican companies, tends to be lower than the trading volume of securities issued by companies in more
37

Table of Contents
developed countries. These market characteristics may limit the ability of a holder of our Series A shares to sell its Series A shares and may also adversely affect the market price of the Series A shares and, as a result, the market price of the ADSs.
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
If we issue additional equity securities in the future, shareholders may suffer dilution, and trading prices for our securities may decline.
In connection with our business strategy of expanding through acquisitions, we may finance corporate needs and expenditures, or future transactions, by issuing additional capital stock. Any such issuances of capital stock would result in the dilution of shareholders’ ownership stake. In addition, future issuances of our equity securities or sales by our shareholders or management, or the announcement that we or they intend to make such an issuance or sale, could result in a decrease in the market price of the ADSs and Series A shares.
Provisions of Mexican law and our by-laws make a takeover more difficult, which may impede the ability of holders of Series A shares or ADSs to benefit from a change in control or to change our management and board of directors.
Provisions of Mexican law and our by-laws may make it difficult and costly for a third party to pursue a tender offer or other takeover attempt resulting in a change of control. Holders of ADSs may desire to participate in one of these transactions, but may not have an opportunity to do so. For example, our by-laws contain provisions which, among other things, require board approval prior to any person or group of persons acquiring, directly or indirectly, (i) 5% or more of our shares (whether directly or by acquiring ADSs or CPOs), or (ii) 20% or more of our shares (whether directly or by acquiring ADSs or CPOs) and in the case of this item (ii) if such approval is obtained, require the acquiring person to make a tender offer to purchase 100% of our shares and CPOs (or other securities that represent them) at a substantial premium over the market price of our shares to be determined by the board of directors, based upon the advice of a financial advisor.
These provisions could substantially impede the ability of a third party to control us, and be detrimental to shareholders desiring to benefit from any change of control premium paid on the sale of the company in connection with a tender offer. See Item 10: “Additional Information—Memorandum and Articles of Association—Overview—Change of Control Provisions” and “Additional Information—Memorandum and Articles of Association—Overview—Voting Rights.”
Substantial sales of the ADSs or Series A shares could cause the price of the ADSs or Series A shares to decrease.
We may finance future corporate needs and expenditures by using shares of Series A common stock, to be evidenced by Series A shares, CPOs or ADSs. Any such issuances of such shares could result in a dilution of your ownership stake or a decrease in the market price of the ADSs or the Series A shares. In addition, our principal shareholders are entitled to rights with respect to registration of their shares under the Securities Act, pursuant to the registration rights agreement we have on file with the SEC. Please see Item 7: “Major Shareholders and related Party Transactions—Major Shareholders.” For example, on December 11, 2020 we completed a primary follow-on equity offering in which we offered 134,000,000 CPOs, in the form of ADSs, at a price to the public of U.S. $11.25 per ADS in the United States and other countries outside of Mexico, pursuant to our shelf registration statement filed with the SEC. In connection with that offering, the underwriters exercised their option to purchase up to 20,100,000 additional CPOs in the form of ADSs, for a total offering of 154,100,000 CPOs in the form of ADSs. The securities issued pursuant to the offering are eligible for trading in the public market, which may have an adverse effect on the market price of our Series A shares and ADSs.
Non-Mexican investors may not hold our Series A shares directly and must have them held in a CPO trust, which releases CPOs underlying Series A shares, at all times.
Each ADS represents ten CPOs and each CPO represents a financial interest in one Series A share. Non-Mexican investors in the ADSs may not directly hold the underlying Series A shares, but may hold them only indirectly through CPOs issued and released by a Mexican bank as trustee under the CPO trust or ADSs evidencing CPOs. Upon expiration of the 50-year term of our CPO trust
38

Table of Contents
agreement, the underlying Series A shares must be placed in a new trust similar to the current CPO trust for non-Mexican investors to hold an economic interest (but no voting rights) in such Series A shares, or be sold to third parties or be delivered to non-Mexican holders to the extent then permitted by applicable law (not currently permitted).
We cannot assure you that a new trust similar to the CPO trust will be created if the current CPO trust terminates, or that, if necessary, the Series A shares represented by the CPOs will be sold at an adequate price, or that Mexican law will be amended to permit the transfer of Series A shares to non-Mexican holders in the event that the trust is terminated. In that event, unless Mexican law has changed to permit non-Mexican investors to hold our shares directly, non-Mexican holders may be required to cause all of the Series A shares represented by the CPOs to be sold to a Mexican individual or corporation.
We have obtained authorization from the Mexican Ministry of Economy (Secretaría de Economía) for the issuance up to 90% of our outstanding capital stock in CPOs. Since non-Mexican investors are required to invest in CPOs in order to hold a financial interest in our capital stock, if this 90% threshold were to be met, we would be unable to obtain additional capital contributions from non-Mexican investors.
Holders of the ADSs and CPOs have no voting rights.
Holders of the ADSs and CPOs are not entitled to vote the underlying Series A shares. As a result, holders of the ADSs and CPOs do not have any influence over the decisions made relating to our company’s business or operations, nor are they protected from the results of any such corporate action taken by our holders of Series A shares and Series B shares. Mexican investors determine the outcome of substantially all shareholder matters, subject to the rights of the holders of Series B shares that are required to vote affirmatively to approve certain limited matters. For a more complete description of the circumstances under which holders of our securities may vote, see Item 10: “Additional Information—Memorandum and Articles of Association—Overview.”
Preemptive rights may be unavailable to non-Mexican holders of the ADSs and CPOs and, as a result, such holders may suffer dilution.
Except in certain limited circumstances, under Mexican law, if we issue new shares of common stock for cash as part of a capital increase, we must grant our shareholders the right to subscribe and pay for a sufficient number of shares to maintain their existing ownership percentage in our company. Rights to subscribe and pay for shares in these circumstances are known as preemptive rights. We may not legally be permitted to allow holders of ADSs and CPOs in the United States to exercise any preemptive rights in any future capital increase unless we file a registration statement with the SEC with respect to that future issuance of shares or the offering qualifies for an exemption from the registration requirements of the Securities Act and take certain corporate steps, including the publication of a preemptive rights notice in Mexico. Similar restrictions may apply to holders of ADSs and CPOs in other jurisdictions. We cannot assure you that we will file a registration statement with the SEC, or any other regulatory authority, to allow holders of ADSs and CPOs in the United States, or any other jurisdiction, to participate in a preemptive rights offering. At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement with the SEC and any other factors that we consider important to determine whether we will file such a registration statement. Under Mexican law, sales by the depositary of preemptive rights and distribution of the proceeds from such sales to you, the ADS holders, is not possible.
In addition, additional CPOs may be released only if the CPO deed permits the release of a number of CPOs sufficient to represent the shares to be issued to and held by the CPO trustee upon the exercise of preemptive rights. Because non-Mexican holders of ADSs and CPOs are not entitled to acquire direct ownership of the underlying Series A shares in respect of such ADSs and CPOs, they may not be able to exercise their preemptive rights if the CPO deed will not permit additional CPOs to be delivered in an amount sufficient to represent the shares of common stock to be issued as a result of the exercise of preemptive rights on behalf of non-Mexican ADS or CPO holders, unless the CPO deed is modified, or a new CPO deed is entered into, which permits delivery of the number of CPOs necessary to represent the shares to be subscribed and paid as a result of the exercise of such preemptive rights. Although we expect to take all measures necessary to maintain sufficient CPOs available to permit non-Mexican holders of ADSs and CPOs to exercise preemptive rights, if and when applicable, no assurances can be made that we will be able to do so, particularly because regulatory approvals in Mexico are necessary for the issuance and delivery of CPOs. As a result of the limitations described above, if we issue additional shares in the future in connection with circumstances giving rise to preemptive rights, the equity interests of holders of ADSs and CPOs may be diluted. See Item 10: “Additional Information—Memorandum and Articles of Association—Preemptive Rights.”
39

Table of Contents
We do not intend to pay cash dividends for the foreseeable future, and our revolving line of credit with Banco Santander México and Bancomext may limit our ability to declare and pay dividends.
We have never declared or paid cash dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors, will require the approval of our general shareholders meeting, may only be paid if losses for prior fiscal years have been paid and if shareholders have approved the net income from which the dividends are paid and legal reserves have been created to the required levels, and will depend on our financial condition, results of operations, capital requirements, restrictions contained in current or future financing instruments and such other factors as our board of directors deems relevant.
In addition, our revolving line of credit with Banco Santander México and Bancomext may limit our ability to declare and pay dividends in the event that we fail to comply with the payment terms thereunder. See Item 5: “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Loan Agreements” and Item 8: “Financial Information—Consolidated Statements and Other Financial Information—Dividend Policy.”
Minority shareholders may be less able to enforce their rights against us, our directors, or our controlling shareholders in Mexico.
Under Mexican law, the protections afforded to minority shareholders are different from those afforded to minority shareholders in the United States. For example, because Mexican laws concerning fiduciary duties of directors (i.e., the duty of care and the duty of loyalty, the only duties recognized under Mexican law) have been in existence for a relatively short period and are not as developed as securities laws in other jurisdictions, it is complex for minority shareholders to bring an action against directors for breach of these duties, as would be permitted in some other foreign jurisdictions. Also, such actions may not be initiated as a direct action, but as a shareholder derivative suit (that is for the benefit of our company and not the initiating shareholder). The grounds for shareholder derivative actions under Mexican law are limited. Even though applicable law has been modified to so permit, and procedures for class action lawsuits have been adopted in Mexico, there is very limited experience with regards to class action lawsuits and how procedures for such suits are followed in Mexico. Therefore, it will be much more difficult for minority shareholders to enforce their rights against us, our directors, or our controlling shareholders than it would be for minority shareholders of a U.S. company.
Mexico has different corporate disclosure and accounting standards than those in the United States and other countries.
A principal objective of the securities laws of the United States, Mexico and other countries is to promote full and fair disclosure of all material corporate information, including accounting information. However, there may be different or less publicly available information about issuers of securities in Mexico than is regularly made available by public companies in countries with highly developed capital markets, including the United States.
Our interest rate expense for any particular period will fluctuate based on LIBOR and other variable interest rates.
A portion of our long-term indebtedness/derivative instruments bear interest at fluctuating interest rates, based on the London Interbank Offered Rate, LIBOR, the Secured Overnight Financing Rate, SOFR, and the Tasa de Interés Interbanciaria de Equilibrio, TIIE. LIBOR, tends to fluctuate based on general short-term interest rates, rates set by the U.S. Federal Reserve and other central banks, market the supply of and demand for credit in the London interbank market and general economic conditions. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. TIIE is determined by Banco de Mexico (Mexican Central Bank) based on quotes presented by credit institutions. We have not hedged our interest rate exposure with respect to our floating rate debt, except for TIIE. Accordingly, our interest expense for any period will fluctuate based on LIBOR, SOFR, TIIE and other variable interest rates. To the extent the interest rates applicable to our floating rate debt increase, our expense will increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be adversely affected.
On July 27, 2017, the U.K. Financial Conduct Authority (the authority that regulates LIBOR, or the FCA, announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR. In 2021, the FCA announced that one-week and two-month U.S. dollar-denominated LIBOR settings will no longer be provided or be representative after December 31, 2021, and that all other remaining U.S. dollar-denominated LIBOR settings will no longer be provided or be representative after June 30, 2023. The U.S. Federal Reserve also advised banks to cease entering into new contracts that use U.S. dollar-denominated LIBOR as a reference rate. In the United States, the Alternative Reference Rate Committee, a committee convened by the U.S. Federal Reserve that includes major market participants, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term
40

Table of Contents
repurchase agreements backed by U.S. Treasury securities, as its preferred alternative rate for U.S. dollar-denominated LIBOR. Working groups formed by financial regulators in other jurisdictions, including the U.K., the European Union, Japan and Switzerland, have also recommended alternatives to LIBOR denominated in their local currencies. Although SOFR appears to be the preferred replacement rate for U.S. dollar-denominated LIBOR, it is unclear if other benchmarks may emerge or if other rates will be adopted outside of the United States. At this time, it is not possible to predict how markets will respond to SOFR or other alternative reference rates as the transition away from LIBOR in the coming years, or what effect these changes in views or alternatives may have on financial markets for LIBOR-linked financial instruments. See Item 11: “Quantitative and Qualitative Disclosure about Market Risk—Interest Rates.”
If we are classified as a “passive foreign investment company,” or PFIC, U.S. Holders of our ADSs may realize adverse U.S. federal income tax consequences.
We would be classified as a PFIC for any taxable year if, after the application of certain look-through rules with respect to the income and assets of our subsidiaries, either: (1) 75% or more of our gross income for such taxable year is “passive income” (as defined in the relevant provisions of the Internal Revenue Code of 1986, as amended), or (2) 50% or more of the average quarterly value of our assets (which may be determined in part by our market capitalization, which is subject to change) is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income includes, subject to certain exceptions, dividends, interest, rents, annuities, gains from commodities and securities transactions, net gains from the sale or exchange of property producing such passive income, net foreign currency gains and amounts derived by reason of the temporary investment of funds. Based on the market price of our ADSs and the composition of our income, assets and operations, we do not believe that we were classified as a PFIC for the taxable year ended December 31, 2021. However, this is a factual determination that must be made annually after the close of each taxable year. Therefore, there can be no assurance that we will not be classified as a PFIC for the current taxable year or for any future taxable year. Certain adverse U.S. federal income tax consequences could apply to a U.S. Holder (as discussed in more detail in “Taxation - Material U.S. Federal Income Tax Consequences”) if we are treated as a PFIC for any taxable year during which a U.S. Holder holds our ADSs
ITEM 4   INFORMATION ON THE COMPANY

A.	History and Development of the Company	
We were founded on October 27, 2005 under the name Controladora Vuela Compañía de Aviación, S.A. de C.V. by Blue Sky Investments, S.à r.l., Discovery Air Investments, L.P., Corporativo Vasco de Quiroga, S.A. de C.V. and Sinca Inbursa, S.A. de C.V., Sociedad de Inversión de Capitales.
On July 16, 2010, we became a variable capital investment promotion stock corporation (sociedad anónima promotora de inversión de capital variable). In June 2013, we became a variable capital public stock corporation (sociedad anónima bursátil de capital variable), under the name Controladora Vuela Compañía de Aviación, S.A.B. de C.V. See Item 9: “The Offer and Listing—Markets—The Mexican Stock Market—Mexican Securities Market Law” for a description of the differences between these two forms of legal entities.
On September 23, 2013, we and certain of our shareholders completed a dual-listing initial public offering on NYSE and the Mexican Stock Exchange. The Company raised Ps.2.68 billion (approximately U.S. $207.7 million) of gross proceeds from the global offering of 173,076,910 Series A shares, consisting of (i) an offering of Series A shares in Mexico and (ii) a concurrent international offering of CPOs in the form of ADSs in the United States and other countries outside of Mexico, at a public offering price of Ps.15.51 per share (U.S. $1.20 dollars) or U.S. $12.00 per ADS. Each ADS represents ten CPOs and each CPO represents a financial interest in one of our Series A shares. The Series A shares were listed on the Mexican Stock Exchange under the trading symbol “VOLAR” and the ADSs were listed on NYSE under the trading symbol “VLRS.” The Series A shares and ADSs began trading on September 18, 2013.
On November 16, 2015, certain of our principal shareholders, including affiliates of Discovery Americas, and Blue Sky Investments, exercised registration rights in the form of ADS’s and sold 99,000,000 CPOs in the form of ADSs, at a price to the public of U.S. $16.00 per ADS in the United States and the other countries outside of Mexico, pursuant to our shelf registration statement on Form F-3 filed with the SEC. In connection with that offering, the underwriters also exercised their option in full to purchase 9,900,000 additional CPOs in the form of ADSs to cover over-allotments, for a total offering of 108,900,000 CPOs in the form of ADSs.
41

Table of Contents
On December 11, 2020, pursuant to our shelf registration statement on Form F-3 and the pre-effective Amendment No. 1 to Form F-3 filed with the SEC, we sold 134,000,000 CPOs in the form of ADSs at a price to the public of U.S. $11.25 per ADS in the United States and other countries outside of Mexico. In connection with that offering, the underwriters also exercised their option in full to purchase 20,100,000 additional CPOs in the form of ADSs, for a total offering of 154,100,000 CPOs in the form of ADSs.
Overview
We are a ULCC incorporated under the laws of Mexico. Our primary corporate offices and headquarters are located in Mexico City at Av. Antonio Dovalí Jaime No. 70, 13th Floor, Tower B, Colonia Zedec Santa Fe, México City, México, zip code 01210. Our telephone number is +52-55-5261-6400. Our website is www.volaris.com. The information and contents on our website are not a part of, and are not incorporated by reference into, this Annual Report.
Since we began operations in 2006, we have increased our routes from five to more than 183 and grown our cost-efficient Airbus A320 family aircraft from four to 101 as of December 31, 2021. We currently operate up to 500 average daily flight segments on routes that connect 44 cities in Mexico as well as 22 cities in the United States, four in Central America and two in South America. We have substantial market presence in the top five airports in Mexico, based on number of passengers, comprising Cancun, Guadalajara, Mexico City, Monterrey and Tijuana. The main cities we currently serve are home to some of the most populous Mexican communities in the United States based on data from the Pew Hispanic Research Center. Additionally, our operating subsidiary in Costa Rica, Vuela Aviación, began operations on December 1, 2016, and our operating subsidiary in El Salvador, Vuela El Salvador, began operations on September 15, 2021. We seek to replicate our ultra-low-cost model in Central America and South America by offering low base fares and point-to-point service in the region.
In addition, on January 16, 2018, we signed a codeshare agreement with U.S. ULCC Frontier, which started operations on August 23, 2018. We expect this agreement, one of the first ever between ULCCs, to open additional ultra-low fare travel options between Mexico and the United States. In particular, we currently serve 22 destinations in the U.S. and 44 in Mexico, of which 18 coincide with Frontier destinations in both countries. Currently due to the downgrade of Mexico’s IASA rating we are not able to codeshare our flights with Frontier. However, once the Mexico´s IASA rating is upgraded back to Category 1, we believe that the codeshare agreement will enhance the potential for connecting itineraries.
We are one of the lowest unit cost operators worldwide, based on CASM. In 2021, our CASM was Ps.130.9 cents (U.S. $6.45 cents), compared to an average non-stage-length adjusted CASM of U.S. $12.51 cents for the other Latin American publicly traded airlines. We also have lower costs than our U.S.-based publicly traded target market competitors, including Alaska Air, Frontier, Spirit, American, Delta, JetBlue, Southwest Airlines, Allegiant and United, which had an average non-stage-length adjusted CASM of U.S. $12.87 cents in 2021. With our ULCC business model, we have grown significantly while maintaining a low CASM over the last several years. We have achieved this through our efficient and uniform fleet, high asset utilization, our emphasis on direct sales and distribution and our variable, performance-based compensation structure. We have a relentless focus on low costs as part of our organizational culture, and we believe that we can further lower our CASM by deploying additional Airbus A320neo family aircraft and leveraging our existing infrastructure to drive economies of scale. We believe that our unit cost advantage will allow us to continue to lower base fares, stimulate market demand and increase non-passenger revenue opportunities.
Our ULCC business model and low CASM allow us to compete principally through offering low base fares to stimulate demand. We use our yield management system to set our fares in an effort to achieve appropriate yields and load factors on each route we operate. We use promotional fares to stimulate demand and our base fares are priced to compete with long-distance bus fares in Mexico.
During 2021, our average base fare was Ps. 1,053 (U.S. $51.9) and we regularly offer promotional base fares of down to Ps. 349 (U.S. $44.99) or Ps. 299 (U.S. $34.99) for Vclub members. Since May 2012, we have unbundled certain components of our air travel service as part of a strategy to enable our passengers to select and pay for the products and services they want to use. This unbundling strategy has allowed us to significantly grow our non-passenger revenue and total revenue. We plan to continue to use low base fares to stimulate additional passenger demand, shift bus passengers to air travel and increase our load factor. In 2021, our average load factor was 84.7%, compared to an average load factor of 79.1% for the other Latin American publicly traded airlines and 74.9% for our U.S.-based publicly traded target market competitors. Higher load factors help us generate additional non-passenger revenue and total revenue, which in turn, allow us to further lower base fares and stimulate new demand.
42

Table of Contents
In addition to low fares, we also aim to deliver a suitable and efficient flying experience to our passengers. We strive to deliver on-time performance to our customers, with an 77.3% on-time performance rate in 2021. We believe that we have developed strong brand recognition due to our focus on delivering good value and a positive traveling experience to our customers. We believe that our corporate culture of positive “customer relationship management” has also been a key element of our success.
Principal Capital Expenditures
For the years ended December 31, 2020 and 2021, we incurred capital expenditures of Ps.3.5 billion and Ps.4.0 billion, respectively, which include acquisitions of flight equipment, spare engines, rotable spare parts, furniture and equipment and acquisitions of intangible assets. For a discussion of our capital expenditures and future projections, see Item 5: “Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
Mexican Regulation
Operational Regulation
Air transportation services for passengers provided on a regular basis, as opposed to charter flights and permits, are considered a public service in Mexico. To render regular air transportations services, a concession granted by the Mexican federal government is required. The legal framework of the air transportation industry in Mexico is primarily established by the Mexican Aviation Law (Ley de Aviación Civil) and its regulations, the Mexican Airport Law (Ley de Aeropuertos) and its regulations, the Mexican General Communications Ways Law (Ley de Vias Generales de Comunicación), and applicable Mexican Official Rules (Normas Oficiales Mexicanas). The main regulatory authority overseeing air transportation is the SCT, acting mainly through the AFAC.
Pursuant to the Mexican Aviation Law, the SCT, through the AFAC, is responsible and has the authority, among others, to (i) impose and conduct the policies and programs for the regulation and development of air transportation services; (ii) grant concessions and permits, oversee compliance with, and, if applicable, resolve amendments to or termination of such concessions or permits; (iii) issue the Mexican Official Rules and other administrative provisions; (iv) provide and control the air navigation services; (v) issue and enforce the safety and health rules that must be observed in air transportation services; (vi) issue certificates of registration, certificates of airworthiness, and certificates to air services providers and declare the suspension, cancellation, revalidation or revocation of such certificates; (vii) maintain and operate the Mexican Aeronautical Registry (Registro Aéronautico Mexicano), where aircraft and leases over aircraft are regulated; (viii) participate in the international agencies and in the negotiation of treaties; (ix) promote the development and training of the aeronautical technical staff; (x) issue and, if applicable, revalidate or cancel the licenses of the aeronautical technical staff; (xi) interpret the Mexican Aviation Law and its regulations for administrative purposes; (xii) authorize the verification visits; (xiii) appoint or, if applicable, remove the regional commanding officer and the commanding officers for airports, heliports and civil airdromes in general, and (xiv) approve flight plans.
The AFAC primarily oversees and verifies compliance by the concessionaires, licensees, operators and airline services providers with the Mexican Aviation Law, its regulations, the Mexican Official Rules and any other applicable provisions.
A concession granted by the SCT is required to render domestic and regular air transportation services in Mexico. Any such concession may only be granted to Mexican entities which meet certain technical, financial, legal and administrative requirements that are deemed necessary to adequately provide services with quality, safety, and timeliness.
Other requirements to be met to obtain a concession are (i) the availability of aircraft and aircraft equipment, which is required to comply with technical requirements of safety, airworthiness conditions and environmental conditions; (ii) the availability of hangars, repair shops and infrastructure needed for operations, as well as the availability of technical and administrative staff trained for the operation of the concession; and (iii) experience in the industry. To provide any other air transportation service in Mexico, different from domestic and regular air transportation, a permit from the SCT is required pursuant to the Mexican Aviation Law.
43

Table of Contents
Concession and Permits
Through our subsidiary Volaris Opco, we hold (i) the Concession, which authorizes us to provide domestic regular passenger, cargo and mail air transportation services within Mexico, (ii) a permit for domestic charter air transportation passenger services, and (iii) a permit for international regular passenger and charter passenger air transportation services.
Our Concession was granted by the Mexican federal government through SCT, on May 9, 2005 originally for a period of five years, and was extended by SCT on February 17, 2010 for an additional period of ten years. On February 21, 2020 our Concession was extended for a 20-year term starting on May 9, 2020. The Concession authorizes us the use of certain aircraft and certain routes. Pursuant to the terms of the Mexican Aviation Law, our Concession, together with specific authorizations granted to us by the AFAC, allow us to provide domestic and international regular air transportation services. Pursuant to our Concession, we have to pay to the Mexican federal government certain fees arising from the services we render. The exhibits to the Concession must be updated every time a new aircraft is operated by Volaris Opco, any time new routes are added, or existing routes are modified. For more information regarding our aircraft and routes, see Item 4: “Information on the Company—Business Overview.”
The permit for domestic charter air transportation of passengers was granted by the SCT on April 16, 2007, without a termination date; it authorizes certain aircraft to operate under such permit and specifies, among other terms and conditions, that Volaris Opco is required to request authorization from the AFAC before carrying out any charter flight.
The permit for international charter air transportation of passengers was granted by the AFAC on June 3, 2009 for an unspecified period of time; it authorizes certain aircraft to operate under such permit and indicates, among other terms and conditions, that Volaris Opco is required to request authorization from the AFAC, before carrying out any charter flight.
To operate our aircraft, each aircraft is required to have on board its certificate of registration, its certificate of airworthiness, and its insurance policy. All aircraft must have on board all documents and equipment required by the treaties, the Mexican Aviation Law and all applicable provisions. We believe we hold all necessary operating and airworthiness authorizations, certificates and licenses, and carry all necessary insurance policies and are operating in compliance with applicable law.
The Mexican Aviation Law provides that concessions and permits may be revoked for any of the following principal reasons: (i) failure to exercise rights conferred by the concessions or permits for a period exceeding 180 calendar days from the date that such concessions or permits were granted; (ii) failure to maintain in effect the insurance required pursuant to the Mexican Aviation Law; (iii) change of nationality of the holder of the concession or permit; (iv) assignment, mortgage, transfer or conveyance of concessions, permits or rights thereunder to any foreign government or foreign state; (v) assignment, mortgage, transfer or conveyance of concessions, permits or rights thereunder to any person without the approval of the SCT; (vi) applying fares different from the registered or approved fares, as applicable; (vii) interruption of the services without authorization from the SCT, except in the events of acts of God or force majeure; (viii) rendering services different to those set forth in the respective permit or concession; (ix) failure to comply with safety conditions; (x) failure to indemnify from damages arising from the services rendered and (xi) in general, failure to comply with any obligation or condition set forth in the Mexican Aviation Law, its regulations or the respective concession or permit. In the event our Concession was revoked, for any of the reasons specified above, we will not be entitled to any compensation and we will be unable to continue to conduct our business.
Aircraft
Pursuant to the Mexican Aviation Law and our Concession, all the aircraft used to provide our services must be registered in Mexico before the Mexican Aeronautical Registry and flagged as Mexican aircraft and, if registered in other countries, such aircraft need to be authorized to operate in Mexico. The registration with the Mexican Aeronautical Registry is granted subject to compliance with certain legal and technical requirements. All the aircraft which comprise our fleet as of this date have been authorized by and registered with the AFAC.
We have to maintain our aircraft in airworthiness condition. The maintenance must be provided as specified in the manufacturers’ maintenance manuals and pursuant to a maintenance program approved by the AFAC. The AFAC has authority to inspect our aircraft, their maintenance records and our safety procedures. Based on such inspections, the AFAC may declare our aircraft unfit to fly and in certain cases revoke our Concession.
44

Table of Contents
Routes
Pursuant to the Mexican Aviation Law and our Concession, we may only provide our services on routes approved under our Concession. Any new route or change in the existing routes must be approved by the AFAC. Domestic routes are subject to our Concession and the Mexican Aviation Law. International routes to the United States are subject to our Concession, the international routes authorization permits issued by the AFAC, the Mexican Aviation Law and the USA Mexico Bilateral Air Transport Agreement dated December 18, 2015, pursuant to which we were granted a general exemption from the DOT to allow us to operate any route into the United States. The USA Mexico Bilateral Air Transport Agreement provides a legal framework for the international routes of Mexican and U.S. carriers between the United States and Mexico and vice versa. Under the USA Mexico Bilateral Air Transport Agreement any American or Mexican carrier may request authorization to fly from any city in Mexico to the United States and vice versa.
Fares
According to the Mexican Aviation Law, concessionaries or licensees of air transportation may freely set fares for the services provided by them on terms that permit the rendering of services in satisfactory conditions of quality, competitiveness, safety and consistency. The international fares must be approved by the SCT pursuant to applicable treaties except that fares for routes to and from the United States do not require approval or registration from either the SCT or any other authority. The fares (both domestic and international) must be registered with the SCT and be permanently available to users of the services. The SCT may deny the registration of fares set by the concessionaires or licensees if such fares imply predatory or monopolistic practices, dominance in the market from a competition perspective or disloyal competition which prevents the participation in the market of other concessionaires or licensees. The SCT may also set minimum and maximum levels of fares (restricting, in that case, the ability of concessionaires and holders of licenses to freely determine rates), as applicable, for the corresponding services, to promote competition. The fares will describe clearly and explicitly the restrictions such fares are subject to and will remain valid for the time and under the conditions offered. The Mexican Aviation Law provides that in the event that the SCT considers that there is no competition among concession and permit holders, the SCT may request the opinion of the Mexican Antitrust Commission and then approve regulations governing fares that may be charged for air transportation services, thus limiting the ability of participants to freely determine rates. Such regulations will be maintained only during the existence of the conditions that resulted in the negative competition effects.
Slots
Under Mexican Law, a “slot” is the schedule for the landing and taking off of aircraft. The regulation of the slots is provided by the Mexican Airport Law and its regulations. A slot is assigned to an operator by the airport administrator considering the recommendation of a committee of operations, for the organization and planning of the flights at the relevant airport. According to the regulations to the Mexican Airport Law, the operating rules of each airport in Mexico, must contain the guidelines for the assignment of slots. Therefore, the different airports’ administrations will establish in such guidelines how slots are to be assigned considering (i) the operation schedule of the airport, (ii) safety and efficiency criteria, (iii) capacity of the services providers, (iv) schedule availability, and (v) compliance with the requirements for the assignment of the slots.
Taking or Seizure
Pursuant to Mexican law and our Concession, the Mexican federal government may take or seize our assets temporarily or permanently, in the event of natural disasters, war, serious changes to public order or in the event of imminent danger to the national security, internal peace or the national economy. The Mexican federal government, in all cases, except in the event of international war, must indemnify us by paying the respective losses and damages at market value. See Item 3: “Key Information—Risk Factors—Under Mexican law, our assets could be taken or seized by the Mexican government under certain circumstances.”
Foreign Ownership
The Mexican Foreign Investment Law (Ley de Inversión Extranjera) limits foreign investment in companies rendering domestic air transportation services up to 49% of such companies’ voting stock. This limit applies to Volaris Opco, but not to us as a holding company. We, as a holding company, must remain a Mexican-investor controlled entity, as a means to control Volaris Opco. The acquisition of our Series A shares through the CPOs, that strip-out voting rights but grant any and all economic rights, by foreign investors, is deemed neutral, from a foreign investment perspective, and is not, as a result, counted as foreign investment excluded
45

Table of Contents
from this restriction. For a discussion of the procedures we instituted to ensure compliance with these foreign ownership rules, see Item 10: “Additional Information—Memorandum and Articles of Association—Other Provisions—Foreign Investment Regulations.”
Environmental Regulation
We are subject to regulations relating to the protection of the environment such as the Mexican General Law of Ecological Balance and Environmental Protection (Ley General del Equilibrio Ecológico y la Protección al Ambiente), the regulations of the Mexican General Law of Ecological Balance and Environmental Protection regarding Environmental Impact, Prevention and Control of Air Pollution and of Hazardous Waste (Reglamentos en Materia de Evaluación del Impacto Ambiental, Prevención y Control de Contaminación del Aire y Desperdicios Peligrosos), the Mexican General Law for Prevention and Handling of Wastes (Ley General de Prevención y Gestión Integral de Riesgos) and the Mexican National Waters Law (Ley Nacional de Aguas) and its regulations, official Mexican standards, international treaties, bilateral agreements and specifically by an Official Rule NOM 036 SCT3 2000 which regulates the maximum limits of the aircraft noise emissions as well as the requirements to comply with such limits. Volaris Opco is ISO 14,000 certified.
Civil Liability
The Mexican Aviation Law, the Warsaw Convention, as amended by the Montreal Convention, and the Mexican Federal Civil Code (Código Civil Federal) set forth guidelines related to the liability of an aircraft operator for damages caused to third parties during its air and ground operations, or resulting from persons or things ejected from the aircraft. Mexican courts, however, have occasionally disregarded these limitations provided by the Warsaw Convention and have awarded damages purely based on the Mexican Federal Civil Code and Mexican consumer protection regulations, resulting the awarding of damages higher than those established in the Mexican Aviation Law.
Insurance
Pursuant to Article 74 of the Mexican Aviation Law and ancillary regulations we are required to maintain insurance policies with reputable insurance companies, covering damages and/or losses for passengers, baggage, cargo and mail, as well as general third-party legal liability, for at least certain minimum amounts. Airlines must submit their insurance contracts to the SCT prior to initiating operations. For international air transport, our insurance must comply with the provisions of the applicable international treaties.
Labor Regulation
We are subject to the provisions of the Mexican Labor Law (Ley Federal del Trabajo) and the provisions contained in the collective bargaining agreements with Sindicato de Trabajadores de la Industria Aeronáutica, Similares y Conexos de la República Mexicana-STIAS. For more information on our relationship with such labor union and our labor collective bargaining agreements, see Item 6: “Directors, Senior Management and Employees—Employees.”
U.S. and International Regulation
Operational Regulation
The airline industry is heavily regulated by the U.S. government. Two of the primary regulatory authorities overseeing air transportation in the United States are the DOT and the FAA. The DOT has jurisdiction over economic issues affecting air transportation, such as unfair or deceptive competition, advertising, baggage liability and disabled passenger transportation. The DOT has authority to issue permits required for airlines to provide air transportation. We hold a Foreign Air Carrier Permit issued by the DOT that authorizes us to engage in scheduled air transportation of passengers, property and mail between Mexico and the United States, as well as on routes beyond the United States.
The FAA is responsible for regulating and overseeing matters relating to air carrier flight operations, including airline operating certificates, aircraft certification and maintenance and other matters affecting air safety. The FAA requires each non-U.S. commercial airline to obtain and hold an FAA air carrier certificate and to comply with Federal Aviation Regulations 129 and 145. This certificate, in combination with operations specifications issued to the airline by the FAA, authorizes the airline to operate at specific airports using aircraft approved by the FAA.
46

Table of Contents
As of the date of this annual report, we had FAA airworthiness certificates for 42 of our aircraft (the remainder being registered with the AFAC in Mexico), we had obtained the necessary FAA authority to fly to all of the cities we currently serve, and all of our aircraft had been certified for over-water operations. Pilots operating and mechanics providing maintenance services on “N” or U.S.-registered aircraft require a special license issued by the FAA. We hold all necessary operating and airworthiness authorizations, certificates and licenses and are operating in compliance with applicable DOT and FAA regulations, interpretations and policies.
We are also subject to the regulation of the aviation authorities in the countries of Central and South America in which we currently operate. We hold all necessary operating authorizations, certificates and licenses and are operating in compliance with applicable regulations in Central and South America.
International Regulation
Our service to the U.S. is also subject to CBP (a law enforcement agency that is part of the DHS), immigration and agriculture requirements and the requirements of equivalent foreign governmental agencies. Like other airlines flying international routes, from time to time we may be subject to civil fines and penalties imposed by CBP if un-manifested or illegal cargo, such as illegal narcotics, is found on our aircraft. These fines and penalties, which in the case of narcotics are based upon the retail value of the seizure, may be substantial. We have implemented a comprehensive security program at our airports to reduce the risk of illegal cargo being placed on our aircraft, and we seek to cooperate actively with CBP and other U.S. and foreign law enforcement agencies in investigating incidents or attempts to introduce illegal cargo onto our flights.
Our flight operations are also subject to Animal and Plant Health Inspection Service, or APHIS (an agency of the U.S. Department of Agriculture) requirements. APHIS imposes restrictions on the agricultural products that may be transported to and from the United States, how we cater our flights and how we handle trash generated during flights landing in the United States. APHIS can impose fines and penalties for non-compliance with these requirements. We comply with all APHIS cargo requirements and regulations related to our flights.
Security Regulation
The TSA was created in 2001 with the responsibility and authority to oversee the implementation, and ensure the adequacy, of security measures at airports and other transportation facilities in the United States. Since the creation of the TSA, airport security has seen significant changes including enhancement of flight deck security, the deployment of federal air marshals onboard flights, increased airport perimeter access security, increased airline crew security training, enhanced security screening of passengers, baggage, cargo and employees, training of security screening personnel, increased passenger data to CBP, background checks and restrictions on carry-on baggage. Funding for passenger security is provided in part by a per enplanement ticket tax (passenger security fee) of U.S. $5.60 for air transportation that originates at an airport in the United States. The TSA was granted authority to impose additional fees on air carriers if necessary to cover additional federal aviation security costs. Pursuant to its authority, the TSA may revise the way it assesses this fee, which could result in increased costs for passengers and/or us. We cannot forecast what additional security and safety requirements may be imposed in the future or the costs or revenue impact that would be associated with complying with such requirements.
Environmental Regulation
We are subject to various federal, state and local U.S. laws and regulations relating to the protection of the environment and affecting matters such as aircraft engine emissions, aircraft noise emissions, and the discharge or disposal of materials and chemicals, which laws and regulations are administered by numerous state and federal agencies. The EPA regulates our operations in the United States, including air carrier operations, which affect the quality of air in the United States. We believe the aircraft in our fleet meet all emission standards issued by the EPA. Concern about climate change and greenhouse gas emmissions may result in additional regulation or taxation of aircraft emissions in the United States and abroad.
U.S. law recognizes the right of airport operators with special noise issues to implement local noise abatement procedures so long as those procedures do not interfere unreasonably with interstate and foreign commerce and the national air transportation system. These restrictions can include limiting nighttime operations, directing specific aircraft operational procedures during takeoff and initial climb, and limiting the overall number of flights at an airport. None of the airports we serve currently restricts the number of flights (except New York’s John F. Kennedy Airport, which restricts the number of flights allowed for capacity reasons, not noise
47

Table of Contents
abatement) or hours of operation, although it is possible one or more of such airports may do so in the future with or without advance notice.
Other Regulations
In the United States, we are subject to certain provisions of the Communications Act of 1934, as amended, and are required to obtain an aeronautical radio license from the FCC. To the extent we are subject to FCC requirements, we take all necessary steps to comply with those requirements. We are also subject to state and local laws and regulations at locations where we operate and the regulations of various local authorities that operate the airports we serve.
Concessions and Permits
Through our subsidiaries Vuela Aviación and Vuela El Salvador, we hold concessions, which authorize us to provide regular passenger, cargo and mail air transportation services.
The Exploitation Certificate (Certificado de Explotación) of Vuela Aviación was granted by the government of Costa Rica on November 9, 2016, and remains valid until December 20, 2036. The Operating Permit (Permiso de Operación) of Vuela El Salvador was granted by the government of El Salvador on August 23, 2021, and remains valid until May 30, 2024. For more information regarding our aircraft and routes, see Item 4: “Information on the Company—Business Overview.”
Taking Seizure in El Salvador
In accordance with Salvadoran law and Vuela El Salvador´s concession, the Salvadoran government can take away or seize our assets, temporarily or permanently, can affect the aeronautical service, specifically when they are declared of national interest, being able to modify procedures when it comes to in the event of natural disasters, war, serious disturbances of public order or in the event of imminent danger to national security, internal peace or the national economy; and that the declaration of a state of emergency is derived from it. Furthermore, in all cases, the Salvadoran government must indemnify us following the calculations established by law in the case of expropriation, which an administrative process must follow only in the case of expropriations. Under these circumstances, we would not be able to continue our normal operations. Furthermore, the applicable legislation is unclear about how compensation is determined and when it is paid. Therefore, it is probable that applying the figures mentioned above that modify the free use of our assets will have a material adverse effect on our business, results of operations, and financial situation.
Future Regulations
The Mexican, U.S. and other foreign governments may consider and adopt new laws, regulations, interpretations and policies regarding a wide variety of matters that could directly or indirectly affect our results of operations. We cannot predict what laws, regulations, interpretations and policies might be considered in the future, nor can we judge what impact, if any, the implementation of any of these proposals or changes might have on our business.

B.	Business Overview	
Industry
There are two main categories of passenger airlines that operate in the domestic and international Mexican market: (i) the traditional legacy network carriers, which include Grupo Aeroméxico, and (ii) the low-cost carriers, which include Interjet (which as of the date of this report is not operating) VivaAerobus and Volaris. The ULCC business model is a subset of the low-cost carrier market.
Legacy carriers offer scheduled flights to major domestic and international routes (directly or through membership in an alliance, such as Star Alliance, Oneworld and/or Skyteam) and serve numerous smaller cities. These carriers operate mainly through a “hub-and-spoke” network route system. This system concentrates most of an airline’s operations in a limited number of hub cities, serving other destinations in the system by providing one-stop or connecting service through hub airports to end destinations on the spokes. Such an arrangement permits travelers to fly from a given point of origin to more destinations without switching to another airline. Traditional legacy carriers typically have higher cost structures than low-cost carriers due to higher labor costs, flight crew and
48

Table of Contents
aircraft scheduling inefficiencies, concentration of operations in higher cost airports, and multiple classes of services. Other examples of legacy carriers in the Latin American market include Avianca, Copa, and LATAM.
Low-cost carriers typically fly direct, point-to-point flights, which tends to improve aircraft and crew scheduling efficiency. In addition, low-cost carriers often serve major markets through secondary, lower cost airports in the same regions as major population centers. Many low-cost carriers only provide a single class of service, thereby increasing the number of seats on each flight and avoiding the significant and incremental cost of offering premium-class services. Finally, low-cost carriers tend to operate fleets with only one or two aircraft families at most, in order to maximize the utilization of flight crews across the fleet, improve aircraft scheduling flexibility and minimize inventory and aircraft maintenance costs. The Mexican market, which has a large population of VFR and leisure travelers, has seen demand for these low-cost carriers expand in recent years.
In recent years, many traditional legacy network carriers globally have undergone significant financial restructuring, including ceasing operations or merging and consolidating with one another. These restructurings have allowed legacy carriers to reduce high labor costs, restructure debt, modify or terminate pension plans and generally reduce their cost structure. This has resulted in improved workforce flexibility and reduced costs while simultaneously improving product offerings similar to those of other low-cost carriers. Furthermore, many of the legacy carriers have made these improvements while still maintaining their expansive route networks, alliances and frequent flier programs.
One result of the restructuring of the network carriers is that the difference in the cost structures, and the competitive advantage previously enjoyed by low-cost airlines, has somewhat diminished. We believe that this trend has provided an opportunity for the introduction of the ULCC business model in Mexico as a subset of the more mature group of low-cost carriers.
The ULCC business model involves, among other things, intense focus on low cost, efficient asset utilization, unbundled revenue sources aside from the basic fare with multiple products and services offered for additional fees. Globally, ULCCs with highly successful business models include Allegiant, Frontier and Spirit in the United States, Ryanair and Wizz in Europe, and AirAsia in Asia.
ULCCs are able to achieve low-cost operations due to highly efficient and uniform fleets with high density seating and single aisle configurations. Additionally, ULCCs provide extremely low fares to customers in order to stimulate market demand and generate high aircraft utilization rates. With high aircraft utilization rates, ULCCs are able to generate substantial ancillary revenues through the offering of additional products and services, such as baggage fees, advanced seat selection, extra legroom, ticket change fees, and/or itinerary attachments such as hotels, airport transportation, and rental cars. ULCCs focus on VFR and leisure customers as opposed to business travelers. The ULCC product appeals to the cost-conscious customer because they are offered a low base-fare and are able to choose to pay for only the additional products and services they want to receive.
Economic and Demographic Trends
We believe the Mexican airline industry has strong potential for growth, given the country’s young demographics, the long-term trend for improving macroeconomic base and growing middle class, which will likely facilitate organic expansion of the airline sector. In addition, the national airline industry is relatively underpenetrated when compared to other countries of similar size and demographic characteristics. These elements combine at a time when the industry is under considerable attrition due in part from some of the legacy operators ceasing operations.
In terms of the macroeconomic environment, GDP growth in Mexico is expected to be 2.4% in 2022 and 2.9% in 2023 according to the Mexican Central Bank’s mid-point projections. These estimates are in line with the expected growth of U.S. GDP for 2022 of between 2.1% and 3.3% and are in line with the expected growth of U.S. GDP for 2023 of between 2.0% and 2.9%, according to the U.S. Federal Reserve. The GDP grew from 12.6 million in 2010 to 15.1 million in 2020, according to information derived from the report Cuantificando la Clase Media en México 2010-2020 of the INEGI. As of 2020, according to the Censo de Población y Vivienda 2020 of INEGI intercensal survey, approximately 30% of the Mexican population was under 18 years of age, which we believe benefits Volaris by providing a strong base of young, potential passengers in the future. This contrasts favorably with more mature aviation markets like the United States, where approximately 22.4% of the population is currently under 18 years of age. Additionally, the Mexican aviation market is currently underpenetrated, as evidenced by the number of trips per capita. On a global basis the World Bank estimates that as of 2019, there were, on average 0.6 annual trips per capita, whereas in Mexico the number was roughly a portion of that; this figure decreased form 0.6 in 2019 to 0.3 as of 2020 due to the COVID-19 pandemic.
49

Table of Contents
The Mexican low-cost airline industry competes with ground transportation alternatives, primarily long-distance bus companies. Given the limited passenger rail services in Mexico, travel by bus has traditionally been the only low-cost option for long-distance travel for a significant portion of the Mexican population. In 2020 (the latest year for which date is available as of the date of this annual report), bus companies transported over 1.87 billion passengers in Mexico, of which approximately 50.4 million were executive and luxury passenger segments, as measured in segments which include both long- (five hours or greater) and short-distance travel, according to the Mexican General Direction of Ground Transportation Authority. We believe that just a small shift of bus passengers to air travel would significantly increase the number of airline passengers. We believe that an increased shift in demand from bus to air travel in Mexico presents a significant opportunity as the macroeconomic environment improves and rising demographics take shape across the country. Furthermore, we believe that long-distance bus passengers will continue to shift to airplane travel when certain promotional fares are priced lower than bus fares for similar routes.
In the past the Mexican government has made a substantial investment in developing Mexico’s airport infrastructure. In 1998, the Mexican government created a program to open Mexico’s airports to private investments. Three private airport operators (Grupo Aeroportuario del Pacífico, S.A.B. de C.V., Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. and Aeropuertos del Sureste de Mexico, S.A.B. de C.V.) were incorporated and granted 50-year concessions to operate airports in Mexico. In the first stage of the privatization process, the Mexican government sold a minority stake to strategic partners. The privatization process culminated in mid-2006, when the Mexican government sold the balance of its holdings to the public via initial public offerings.
The Mexican government still manages and operates the Mexico City International Airport, which it considers strategic, as well as other minor airports in the country. We believe that strong foundational infrastructure, and continued investment and development will result in significant growth potential for the Mexican airline market. In September 2014, the Mexican government announced the construction of a new international airport for Mexico City to replace the current international airport. In January 2019, the Mexican government announced the cancellation of the construction of the new Mexico City International Airport and introduced plans to invest in the expansion of the existing airport and is building a new airport in the Mexico City metropolitan area. In March 2022, the first fase of Felipe Angeles International Airport was finished and started operations.
Boeing estimates that passenger traffic growth for Latin America and the Caribbean will average 5.1% per year for the next 20 years. The fastest growth is expected to occur within intra-regional flows, supported by the continued growth of low-cost carrier networks. Continued growth of the middle class as well as rising income levels is expected to continue to drive long-term economic expansion in Latin America. Traffic between Central America and the Caribbean and North America is expected to remain strong, as North and Latin American LCCs continue to grow their service in this flow.
The Mexican aviation industry has undergone a significant transformation due to the emergence of low-cost carriers, including us and VivaAerobus, and the exit of eight carriers. Changes in the Mexican airline competitive environment have resulted in an important increase in the domestic market load factor for the remaining carriers. While load factor in Mexico has historically lagged more than that of developed markets, this positive trend will likely drive greater profitability among the remaining airlines in Mexico.
Market Environment
The airline industry is highly competitive. The principal competitive factors in the airline industry include fare pricing, total ticket price, flight schedules, aircraft type, passenger amenities, number of routes/destinations served from a city, customer service, safety record and reputation, code-sharing relationships, frequent flier programs and redemption opportunities. The airline industry is particularly susceptible to price discounting because once a flight is scheduled, airlines incur only nominal incremental costs to provide service to passengers occupying otherwise unsold seats. The expenses of a scheduled aircraft flight do not vary significantly with the number of passengers carried, and, as a result, a relatively small change in the number of passengers or in pricing can have a disproportionate effect on an airline’s operating and financial results. Price competition occurs on a market-by-market basis through price discounts, changes in pricing structures, fare matching, targeted promotions and frequent flier initiatives. Airlines typically use discount fares and other promotions to stimulate traffic during normally slower travel periods to generate cash flow and to maximize revenue per ASM. The prevalence of discount fares can be particularly acute when an airline has excess capacity and is under financial pressure to sell tickets.
In Mexico, the United States, Central America and South America, the scheduled passenger service market consists of three principal groups of travelers: business travelers, leisure travelers, and travelers visiting friends and relatives, or VFR. Leisure travelers and VFR travelers typically place most of their emphasis on lower fares, whereas business travelers typically place a high emphasis on
50

Table of Contents
flight frequency, scheduling flexibility, breadth of network and service enhancements, including loyalty programs and airport lounges, as well as price.
VFR and leisure passengers travel for a number of reasons, including social visits and vacation travel. We believe that VFR and leisure traffic are the most important components of the traffic in the markets we target and serve and are important contributors to our non-passenger revenue production. We believe that VFR and leisure passengers represent a significant percentage of our total passenger volume. As part of our route development strategy, we target markets that will likely appeal to VFR and leisure travels at price points that were previously not available. This strategy allows us to stimulate demand in new markets by encouraging travel by VFR and leisure travelers.
Domestic passenger volumes have grown in Mexico by a CAGR of 3.3% and international volumes have increased by a CAGR of 1.8% from 2007 to 2021 according to the AFAC. The following table sets forth the historical passenger volumes on international and domestic routes in Mexico from 2007 to 2021:

Passenger Volumes(1)		2007		2008		2009		2010		2011	    	2012	    	2013	    	2014	    	2015	    	2016	    	2017	    	2018	    	2019	    	2020	    	2021		
(millions of segment passengers)	    																															
International	 	27.2		27.9		24.2		25.8		26.8	    	28.5		30.9		33.6		37.5		40.5		45.0		47.6		48.8		20.1		35.8		
% growth increased)	 	(0.5)	%  	2.5	%  	(13.2)	%  	6.3	%  	4.1	%  	6.5	%  	8.1	%  	8.8	%  	11.7	%  	7.9	%  	11.1	%  	5.8	%  	2.4	%  	(58.8)	%  	78.2	%	
Domestic	 	27.4		27.6		24.4		24.5		25.6		28.2		30.6		33.0		37.3		41.9		45.4		49.7		53.7		28.3		44.4		
% growth increased)	 	23.6	%  	0.9	%  	(11.6)	%  	0.3	%  	3.9	%  	10.2	%  	8.6	%  	7.7	%  	13.0	%  	12.5	%  	8.2	%  	9.5	%  	8.1	%  	(47.4)	%  	57.2	%	
Total	 	54.6		55.5		48.6		50.3		52.4		56.7		61.5		66.6		74.8		82.4		90.4		97.3		102.5		48.4		80.2		
% growth increased)	 	10.3	%  	1.8	%  	(12.4)	%  	3.5	%  	4.0	%  	8.3	%  	8.3	%  	8.3	%  	12.3	%  	10.2	%  	9.6	%  	7.7	%  	5.3	%  	(52.8)	%  	65.9	%	

Source: AFAC
Our international growth strategy has focused on targeting markets in the United States with large Mexican and Latin-American communities in order to stimulate VFR demand and leisure traffic in those markets. Approximately 82% of international passengers in Mexico fly to the United States, making the United States the largest international destination for air passengers in Mexico. All of the major U.S. legacy carriers fly to and from Mexico, but at a higher cost than low-cost carriers. We have learned that many Mexicans in the United States purchase airline tickets for family members living in Mexico to fly to the United States to visit. For this reason, we focus our international routes on U.S. cities with significant Mexican and Mexican-American communities. These cities are generally located in and near to counties with Hispanic populations of over one million as of 2020; including Los Angeles (Los Angeles County, 4.9 million), Houston (Harris County, 2.0 million), Miami (Miami-Dade County, 1.9 million), Phoenix (Maricopa County, 1.4 million), Chicago (Cook County, 1.4 million); Ontario, California (Riverside County, 1.2 million) and Dallas (Dallas County, 1.0 million), according to PEW Research Hispanic Center based on U.S. Census Bureau data. In recent years, we have also been growing our operations in Central and South America.
In 2021, the Mexican ULCCs (VivaAerobus and Volaris) together maintained 69.5% of the domestic market, based on passenger flight segments, according to the AFAC. The following table sets forth the historical market shares on domestic routes, based on passenger flight segments, of each major market participant for each of the periods indicated:

Market Share(1)																																
Domestic	    	2007		2008		2009		2010		2011	    	2012	    	2013	    	2014	    	2015	    	2016	    	2017	    	2018	    	2019	    	2020	    	2021		
Volaris	 	7.94	%  	12.16	%  	12.82	%  	14.79	%  	17.96	%  	20.39	%  	23.04	%  	23.23	%  	24.67	%  	27.42	%  	27.40	%  	28.31	%  	31.23	%  	38.34	%  	41.22	%	
Grupo Aeroméxico	 	28.58	%  	28.01	%  	32.28	%  	36.20	%  	40.17	%  	37.78	%  	35.77	%  	36.04	%  	33.74	%  	31.13	%  	28.98	%  	27.59	%  	24.21	%  	25.31	%  	27.48	%	
Grupo Mexicana(2)	 	24.07	%  	24.05	%  	27.16	%  	18.55	%  	—		—		—		—		—		—		—		—		—		—		—		
Interjet(3)	 	7.04	%  	10.83	%  	12.71	%  	16.35	%  	24.78	%  	23.83	%  	24.37	%  	23.69	%  	24.53	%  	21.62	%  	21.18	%  	20.48	%  	19.69	%  	8.75	%  	—		
Viva Aerobus	 	4.44	%  	4.83	%  	5.83	%  	8.85	%  	11.49	%  	12.49	%  	12.19	%  	11.81	%  	11.70	%  	14.26	%  	16.87	%  	18.35	%  	20.12	%  	24.41	%  	28.31	%	

Source: AFAC

(1)	Market share is obtained by dividing each airline’s number of passengers by the total number of passengers for all airlines for the period indicated.	
(2)	Ceased operations in August 2010.	
(3)	Suspended operations in December 2020.	

The airline industry in Mexico has seen sharp attrition, with the exit of eight airlines since 2007, including the bankruptcy of Grupo Mexicana in April 2014 and the suspension of operations of Interjet since 2020. This allowed us to further expand our international service offering in a very short timeframe.
51

Table of Contents
The following table sets forth the historical market shares on international routes between Mexico, the United States and other countries, based on passenger flight segments, of key Mexican industry participants for each of the periods indicated:

Market Share(1)																																
International	    	2007		2008		2009		2010		2011	    	2012	    	2013	    	2014	    	2015	    	2016	    	2017	    	2018	    	2019	    	2020	    	2021	 	
Volaris	 	—		—		2.92	%  	9.38	%  	21.11	%  	21.45	%  	20.42	%  	21.24	%  	22.75	%  	24.70	%  	22.80	%  	19.63	%  	21.83	%  	35.96	%  	39.20	%	
Grupo Aeroméxico	 	34.05	%  	31.73	%  	31.06	%  	39.83	%  	75.73	%  	67.24	%  	64.63	%  	66.05	%  	61.67	%  	56.82	%  	55.65	%  	53.20	%  	45.58	%  	37.28	%  	41.59	%	
Grupo Mexicana(2)	 	63.85	%  	66.08	%  	65.36	%  	49.94	%  	—		—		—		—		—		—	    	—		—		—		—		—		
Interjet(3)	 	0.10	%  	0.28	%  	—		—		1.51	%  	8.80	%  	13.42	%  	11.09	%  	13.69	%  	17.60	%  	20.72	%  	24.57	%  	28.65	%  	17.93	%  	—		
Viva Aerobus	 	—		0.85	%  	0.43	%  	0.84	%  	1.54	%  	2.13	%  	0.81	%  	0.91	%  	1.52	%  	0.55	%  	0.64	%  	2.46	%  	3.60	%  	8.08	%  	18.11	%	

Source: AFAC

(1)	Market share is obtained by dividing each Mexican airline’s number of passengers by the total number of passengers for all Mexican airlines for the period indicated.	
(2)	Ceased operation in August 2010.	
(3)	Suspended operations in December 2020.	

We have been able to grow our international market share substantially over the past five years even with significant competition from leading U.S. carriers including United, American, Alaska Air, and Delta. As of December 31, 2021, we were the fourth largest international carrier in terms of passenger flight segments out of all airlines flying internationally to and from Mexico. We have been able to grow our international market share and our strategy to target and stimulate markets in the United States with large Mexican and Mexican-American communities.
In terms of both domestic and international ticketed passengers, our total passenger volume increased at a CAGR of 22.91 % from 2006 to 2021, with approximately 0.9 million booked passengers in 2006 and 24.4 million booked passengers in 2021.
Our Business Model
Our business model is based on that of other ULCCs operating elsewhere in the world, such as Allegiant, Frontier and Spirit in the United States, Ryanair and Wizz in Europe and AirAsia in Asia. We utilize our ULCC business model and efficient operations to offer low base fares and to stimulate demand while aiming to provide suitable and efficient customer service. Our unbundled pricing strategy allows us to provide low base fares and enables our passengers to select and pay for a range of optional products and services for additional fees. We target VFR, cost-conscious business people and leisure travelers in Mexico and to select destinations in the United States, Central and South America.
Since May 2012, we have unbundled certain components of our air travel service as part of a strategy to enable our passengers to select and pay for the products and services they want to use. This unbundling strategy has allowed us to significantly grow our non-passenger and total revenue. We plan to continue to use low base fares to stimulate additional passenger demand, shift bus passengers to air travel and increase our load factor. We believe a small percentage shift of bus passengers to air travel would dramatically increase the number of airline passengers. Higher load factors help us generate additional non-passenger and total revenue, which in turn, allow us to further lower base fares and stimulate new demand.
We have a relentless focus on low costs as part of our organizational culture. We are the lowest cost airline carrier in Latin America, based on CASM, compared to the other Latin American publicly traded companies. We are also one of the lowest cost carrier in our target markets in Mexico and the United States, compared to our target market competitors, according to public information available from such competitors. We are able to keep our costs low due to our efficient and uniform fleet, high asset utilization, our emphasis on direct sales and distribution and our variable, performance-based compensation structure.
We were established and are operated to achieve the following goals: (i) to create a profitable and sustainable business model; (ii) to successfully compete by creating structural advantages over other carriers serving Mexico through our ULCC business model; (iii) to provide affordable air travel with a suitable and efficient experience for our customers; and (iv) to create a dynamic, cost conscious and entrepreneurial working culture for our employees. We believe that our strengths are:
Lowest Cost Structure. We believe that in 2021 we had the lowest cost structure of any of the other Latin American publicly traded airlines, with CASM of Ps. 130.9 cents (U.S. $6.45 cents), compared to Azul at U.S. $9.44 cents, Copa at U.S. $9.10 cents, Gol at U.S. $12.39 cents, Grupo Aeroméxico at U.S. $13.31 cents and LATAM at U.S. $14.83 cents. We also have lower costs than our U.S.-based publicly traded target market competitors, including Alaska Air at U.S. $10.47 cents, American at U.S. $14.42 cents, Delta
52

Table of Contents
at U.S. $14.40 cents, Jet Blue at U.S. $11.30 cents, Southwest Airlines at U.S. $10.66 cents, Frontier at U.S. $8.10 cents, Spirit at U.S. $8.07 cents, Allegiant at U.S. $8.26 cents and United at U.S. $14.36 cents in 2021, according to publicly available financial information. We achieve our low operating costs in large part due to:
Efficient and Uniform Fleet. We operate a uniform and efficient fleet of Airbus A320 family aircraft, which is one of the youngest fleet in the Americas, with an average aircraft age of 5.4 years as of December 31, 2021.

	●	High Asset Utilization. Our fleet has a uniform, high density seat configuration and we had one of the highest worldwide average aircraft utilization rates of 12.53 block hours per day in 2021.	

	●	Direct Sales Distribution. We encourage our customers to purchase tickets via our website, mobile app, call center or airport service desks as these distribution channels are the lowest cost to us. We sell 82.7% of our tickets through these channels. We do not use global distribution system, or GDS.	

	●	Variable, Performance-Based Compensation Structure. We compensate our employees on the basis of their performance, and we reward them for the contribution they make to the success of the company rather than their seniority.	

Ancillary Revenue Generation. We have been able to grow our non-passenger revenue by allowing our passengers to choose what additional products and services they purchase and use. Thanks to our “You Decide” (“Tú Decides”) strategy, we have increased average non-passenger revenue per passenger flight segment from approximately U.S. $9.61 in 2010 to U.S.$39.20 in 2021 by, among other things:

	●	charging for excess baggage;	

	●	utilizing our excess aircraft belly space to transport cargo;	

	●	passing through all distribution-related expenses;	

	●	charging for advance seat selection, extra legroom, and carriage of sports equipment;	

	●	consistently enforcing revenue policies, including change fees;	

	●	generating subscription fees from our ultra-low-fare subscription service, V-Club;	

	●	deriving brand-based fees from proprietary services, such as our Volaris affinity credit card program;	

	●	selling itinerary attachments, such as hotel and car rental reservations and airport parking, and making available trip interruption insurance commercialized by third parties, through our website; and	

	●	selling onboard advertising.	

Core Focus on VFR, Cost-conscious Business People and Leisure Travelers in High Growth Markets. We primarily target VFR, cost-conscious business people and leisure travelers in Mexico and the United States. We believe this demographic represents the highest potential for growth in our target markets. By offering low promotional fares, we stimulate demand for VFR and leisure travel, and attract new customers, including those who previously may have only traveled by bus. We use our yield management system to set prices based on the time of booking.
We regularly manage yield and load factor, including through targeted promotional fares that can be as low as Ps.349 (U.S.$44.99) or Ps.299 (U.S.$34.99) for Vclub members. We have found that many Mexicans and Mexican Americans living in the United States buy airline tickets for themselves and their family members in Mexico. In addition, we have over 93,000 points of payment throughout Mexico, the United States, Guatemala, El Salvador, Costa Rica, Peru and Colombia that allow travelers, particularly in Mexico, who do not have credit cards, or are reluctant to provide credit card information over the web or call center, to reserve seats using the web or call center and pay with cash the next day. Furthermore, we offer night flights, which appeal to our domestic and international customer base that seek to save on lodging expenses.
53

Table of Contents
Disciplined Approach to Market and Route Selection. We select target markets and routes where we believe we can achieve profitability within a reasonable timeframe, and we only continue operating on routes where we can achieve and maintain our target level of profitability. When developing our route network, we focus on gaining market share on routes that have been underserved or are served primarily by higher cost airlines where we have a competitive cost advantage. We thereby stimulate new demand with low base fares and attempt to shift market share from incumbent operators. We have developed a profitable route network, on an annual basis based on the results of our most recently completed fiscal year and built a leading market share in several of our markets. As of December 31, 2021, we had more than 50% passenger market share in 117 of our 183 routes. As of December 31, 2021 we faced no competition from any other carrier on over 40% of our routes. In 2021, 32.3% of our passenger revenues derived from our U.S. routes and 26.9% of our ASMs were attributed to U.S. routes.
Market Leading Efficiency and Performance. We believe we are one of the most efficient airline carriers in Latin America. In 2021, we achieved an average passenger load factor of 84.7% and an average aircraft utilization rate of 12.53 block hours per day with a standard turnaround time between flights of approximately 64 minutes. For our fleet type, our average aircraft utilization rate of 10.85 flight hours per day was among the highest worldwide and was 53% higher than the industry average of 5.66 flight hours per day for all Airbus A319 aircraft, 75% higher than the 6.33 flight hours per day for all Airbus A320 aircraft and 50% higher than the 6.8 flight hours per day for all Airbus A321 aircraft, according to information for the year ended December 31, 2021 available from Airbus. The high-density, single-class seating configurations on our aircraft allow us to increase ASMs and reduce fixed costs per seat as compared to a lower density configuration flown by certain of our competitors. In addition, we strive for market-leading operational performance, with a 77.3% on-time performance rate, 97.5% flight completion rate and a mishandled baggage rate of only 0.5 bags per 1,000 passengers in 2021.
Brand Recognition with a Fast Growing Fan Base. We believe that we have developed strong brand recognition due to our focus on delivering good value and a positive traveling experience to our customers. As of December 31, 2021, we had approximately 4.4 million fans on Facebook and 2.0 million followers on Twitter, both of which we primarily use for marketing, customer service and promotion. Our social media reach has been a very low cost, yet effective, marketing tool for us and has afforded us the capability to develop highly effective, targeted marketing promotions on a very short notice. We have also established various programs to make air travel more inviting for first time travelers and other passengers who may desire extra services, such as an unaccompanied senior program. On April 16, 2021, we received the Famous Brand Declaration from the Mexican Institute of Industrial Property, or IMPI, for the “Volaris” brand.
Balance Sheet Positioned for Growth. We have a low level of financial debt, since we have principally financed our operations through equity and operating cash flows, and we have only used operating leases for our aircraft. We believe that our strong financial position enables us to prudently finance the emerging growth opportunities in our markets and to defend our existing network from our competitors. As of December 31, 2021, we had a balance of Ps.15.1 billion in unrestricted cash and cash equivalents, representing 34% of our last twelve months operating revenues. As of December 31, 2021, our cash, cash equivalents and restricted cash were Ps.15.2 billion. Additionally, at December 31, 2021, our credit lines totaled Ps.9.9 billion, of which Ps.6.9 billion (Ps.0.2 million were undrawn) were related to financial debt and Ps.3.0 billion were related to letters of credit (of which Ps.0.5 billion were undrawn).
Strong Company Culture, Experienced Management Team and Principal Shareholders. We have developed a strong company culture among our employees that is focused on safety, meritocracy, efficiency and profitability, with a significant component of performance-based variable compensation. Our management team has been assembled with experienced executives in their respective fields, including in the aviation, sales and marketing, finance or IT industries in Latin America. In addition, our principal shareholders have extensive prior experience in funding, establishing and leading airline carriers around the world. Their expertise has helped us develop our ULCC business model and allowed us to benefit from their procurement power and relationships with key vendors.
Our Growth Strategy
Our goal is to continue to grow profitability on an annual basis and maintain our leadership position in the Mexican aviation market by operating our ULCC business model and focusing on VFR, cost-conscious business people and leisure travelers. The key elements of our growth strategy include:
Remain the ULCC of Choice. We believe that by deploying additional cost-efficient Airbus A320neo and A321neo aircraft with higher seat density, spreading our low fixed cost infrastructure over a larger scale of operations, outsourcing operating functions
54

Table of Contents
and keeping sales and marketing overhead low, we can continue to improve operating efficiencies while maintaining low costs. Our ULCC business model enables us to operate profitably, on an annual basis based on the results of our most recently completed fiscal year, at low fare levels, and we intend to continue to maintain low fares to stimulate demand. We also make flying easy and strive to remain the low-cost carrier of choice for our existing and new customers as we continue to focus on providing an affordable suitable and efficient travel experience to our customers across our expanding operations in Mexico, the United States, Central America and South America.
Grow Non-passenger Revenue while Maintaining Low Base Fare to Stimulate Demand. We intend to increase our non-passenger revenues by further unbundling our fare structure and by offering our passengers new and innovative products and services. Through our multiple points of interaction with our customers during each stage of their travel, from ticket purchase through flight and post-trip, we have the opportunity to offer third party products, such as hotel rooms, car rentals and trip interruption insurance, on which we receive commissions. In addition, we sell in-flight products and we plan to introduce and expand upon products and services that are unrelated to passenger travel. We provide a membership-based ultra-low-fare subscription service called V-Club which had approximately 654,000 members as of December 31, 2021. The number of V-Club members increased by 65% in 2021 compared to 2020. In 2021 we introduced a duo membership of U.S. 49.99 and an exclusive V-Club page where the customer can purchase any of these memberships on a subscription basis and choose whether they want an automatic monthly or annual fee according to their preferences. We also continue to expand the cargo transportation services we provide on our aircraft. As we broaden our ancillary products and services and increase our non-passenger revenue, we believe that we will be able to further lower base fares and continue to stimulate demand.
Gain Additional Market Share by Stimulating Demand in our Existing Markets. We plan to continue to grow our existing markets by adding routes that connect cities in which we currently have operations and by adding capacity on existing routes where we believe we can continue to stimulate demand. We also intend to continue to aggressively target long-distance bus passengers who we believe may shift to air travel. We set certain promotional fares at prices lower than bus fares for similar routes, and we believe this will encourage bus travelers to switch to air travel.
Continue our Disciplined Fleet Growth. As of the date of this annual report, we have firm commitments for 136 Airbus A320 family aircraft equipped with sharklet technology that will be delivered over the next eight years, 132 from the Company´s purchase agreement with Airbus and four from lessors order book, including 35 of the next generation Airbus A320neo and 101 of the next generation Airbus A321neo, the delivery of which commenced in 2016 and 2018, respectively. During 2021, we incorporated 15 A320neo into our fleet. In December 2017, we entered into an agreement with Airbus to purchase 80 aircraft, which we are committed to receive from 2022 to 2026. The new order includes 46 A320neo and 34 A321neo. Under such agreement and prior to the delivery of each aircraft, we agreed to make pre-delivery payments, which shall be calculated based on the reference price of each aircraft, and following a formula established for such purpose in the agreement. In November 2018, we amended the agreement with Airbus to reschedule the remaining 26 aircraft deliveries between 2019 and 2022. In July 2020, we amended the agreement with Airbus to reschedule the delivery of 80 aircraft between 2023 and 2028. In October 2020, we amended the agreement with Airbus to reschedule 18 aircraft deliveries between 2020 and 2022. In November 2021, the Company entered into a new amendment to the purchase agreement with Airbus to purchase 39 additional A320 family NEO aircraft which we are committed to receive between 2023 and 2029, under this amendment we have the option to purchase 25 additional A320 family NEO aircraft.
Our fleet have reached 105 aircraft as of the date of this annual report. We believe that a disciplined ramp-up in young and efficient aircraft as our market share expands reduces our exposure to market conditions. We intend to maintain our commitment to a common fleet type because we believe it is the most efficient option for our markets and operations.
Grow Passenger Volume by Profitably Establishing New Routes. We believe our focus on low fares and customer service will stimulate growth in overpriced, underserved and inefficient new markets. We will continue our disciplined approach to domestic and international market entry by using our rigorous selection process where we identify and survey possible target markets that have the potential to be profitable within our business model.
For example, in 2021, we added 6 new routes, including one domestic route (Cancun - Mexicali) and 5 international routes (Bogota - Mexico, Bogota - Cancun, Mexico City – San Salvador, Cancun – San Salvador and San Salvador – San Pedro Sula). As part of our continuous monitoring of routes and markets for profitability, we have a proven track record of withdrawing routes that do not meet our profitability expectations. For our future growth opportunities, we have identified approximately 209 routes within Mexico serving markets in excess of 250,000 inhabitants and other leisure destinations, and that have stage lengths of at least 180 miles, and approximately 117 routes internationally that have stage lengths of at least 410 miles.
55

Table of Contents
Our Operations
Passenger Revenues
Passenger revenues accounted for Ps.43.3 billion or 97% of our total operating revenues in 2021. VFR traffic makes up the largest component of our customers, and we believe our VFR customers are the most cost-conscious and time/schedule flexible of all of our travelers. Our VFR market tends to complement our leisure-driven market from both a seasonal and week-day perspective. VFR traffic is strongest during the summer, Christmas and New Year season, followed by Easter. Leisure traffic makes up the second largest component of our customers. This segment responds well to demand stimulation based on low fares. Leisure traffic tends to coincide with holidays, school schedules and cultural events with peaks in July and August and again in December and January. Cost-conscious business people make up the third largest component of our customers. Although business travel can be cyclical with the economy, this segment tends to travel steadily throughout the year regardless of the season. We do not operate a frequent flier program.
Our passenger revenues include income generated from: (i) fare revenues and (ii) other passenger revenues. Other passenger 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, V-Club memberships and charters. They are recognized as revenue when the obligation of passenger transportation service is provided by us or when the non-refundable ticket expires at the date of the scheduled travel.
We generate fees from V-Club, our individual annual membership subscription service, by charging U.S. $29.99 or a group annual membership of U.S. $149.99. V-Club subscriptions accounted for 0.5% of our other passenger revenues in 2021.
Members of the V-Club have exclusive access to the lowest fares and promotions through our website and mobile app. We also generate revenues from our affinity credit card from multiple revenue streams including electronic credit redemptions earned through credit card purchases. Revenue from the Volaris affinity credit card accounted for 2.0% of our non-passenger revenues as of December 31, 2021. As of December 31, 2021, we had approximately 654,000 V-Club members and 366,000 affinity credit card holders.
Non-Passenger Revenues
Our non-passenger revenues include income generated from (i) other non-passenger revenues and (ii) cargo services. In 2021, we derived Ps.1.4 billion, or 3% of our total operating revenues from these sources.
Revenues from other non-passenger services mainly include but are not limited to commissions charged to third parties for the sale of hotel reservations, trip insurance, rental cars and advertising spaces to third parties. They are recognized as revenue at the time the service is provided.
Revenues from cargo services are recognized when the cargo transportation is provided (upon delivery of the cargo to the destination).
The typical fees for advance seat selection, extra legroom, carriage of sports equipment, pets and ticket changes are approximately U.S. $3.99 to U.S. $29.99, U.S. $13.99 to U.S. $49.99, U.S. $90.00 to U.S. $210.00, U.S. $100.00 to U.S. $190.00 and U.S. $85.00 to U.S. $110.00, respectively and we generate such fees in Mexico, the United States, Central and South America. We also make available trip insurance commercialized by third parties through our website.
We make efficient use of extra capacity in our aircraft by carrying cargo on our passenger flights. We offer cargo transportation services on all domestic routes. We outsourced all ground cargo handling services, including storage, to several third-party providers and the related cost of such services are paid by our cargo customers. We offer competitive rates and our service includes reception, check-in, shipping and delivery to the final destination.
We also offer charter services, which do not represent a significant part of our total operating revenues.
56

Table of Contents
Route Network
We currently serve 72 cities throughout Mexico, the United States, Central and South America and operate up to 500 average daily segments on routes that connect 44 cities in Mexico, including highly demanded destinations such as Cancun, Guadalajara, Mexico City, Monterrey and Tijuana, and 28 cities in the United States, Central and South America, including: Charlotte, Chicago, Dallas, Denver, Fresno, Houston, Las Vegas, Los Angeles, Miami, New York, Oakland, Ontario, Orlando, Phoenix, Portland, Reno, Sacramento, San Antonio, San Jose (California), Seattle, Washington D.C.,  San Jose (Costa Rica), Guatemala City (Guatemala), San Salvador (El Salvador), San Pedro Sula (Honduras), Bogota (Colombia) and Lima (Peru). Our route network is designed to provide service within Mexico and between Mexico and cities in the United States with large Mexican and Mexican American communities, primarily in California.
As part of our point-to-point strategy and route network, we generally offer direct flights between cities with high traffic volumes. We believe this model of scheduling allows us to more frequently serve a greater number of cities and to generate higher load factors, enabling us to increase aircraft utilization and providing us with greater flexibility in our scheduling options.
We schedule flights timed to arrive at each destination and depart a short time later in order to minimize turnaround times. Many of our evening flights are intended to provide red-eye travel for the longer routes we cover and to appeal to customers who want to save on lodging expenses. Our day flights allow us to maximize our fleet utilization and utilize the employees at our airports efficiently.
The map below sets forth the destinations we currently serve.

57

Table of Contents
Sales, Distribution, Marketing and Advertising
Sales and Distribution. We currently sell our product through four primary distribution channels: our website, our mobile app, our call center, airports and third parties such as travel agents. We use our website as the primary platform for ticket sales. After our website and mobile app, our distribution sources are our outsourced call center, third-party travel agents and airport counter sales. The following table sets forth the approximate percentage of our ticket sales in 2021 per distribution source and applicable fees:

Distribution Source	    	% of tickets Sold in 2021		    	Fee in pesos(1)	
Website and mobile app	 	78.1	%  	$	0	
Call center	 	3.3	%  	$	300	
Third-party travel agents	 	17.3	%  	$	169	
Airport counters	 	1.3	%  	$	0	

(1)	Standard fee charged per customer.	

Sales through our website and mobile app represent our lowest cost distribution channel, and it is the channel through which we offer our lowest fares. For all other channels, we pass the additional costs associated with them through to our customers.
Our passengers may pay for their tickets at the time of booking on our website or through our call center by credit or debit card, or within 24 hours in cash at one of the various points of payment, located at several different businesses vendors we have made available. Approximately 93.3% of our sales are paid by credit and debit card and 6.7% by cash and other forms of payment. We have entered into agreements with Cadena Comercial OXXO, S.A. de C.V., and certain banks in Mexico, the United States, Guatemala, El Salvador, Costa Rica, Peru and Colombia to provide our customers with the possibility to pay in cash for their tickets at over 93,000 points of payment. These agreements are generally entered into for one- or two-year periods, are subject to termination upon short notice and are renewable by mutual agreement. In 2021, we expensed an aggregate of Ps.926 million in commissions, a portion of the cost of which was transferred to the customers using this service.
We have entered into an agreement with One Link, S.A. de C.V., or One Link, for the services of call center. Pursuant to this agreement, One Link receives calls from our customers to provide them with information about our fares, schedules and availability among others. The agreement with One Link expires in August 2025.
We have signed agreements with Navitaire LLC and Jeppessen Systems AB, major suppliers of IT solutions in the global airline industry. Through these agreements we are provided with technology systems that allow us to conduct our operations.
Pursuant to our agreement with Navitaire LLC, they provide us with hosted reservation services, including reservations, revenue accounting, and operations management and recovery, as well as certain services related thereto. This agreement has an initial term of ten years and has been extended until March 2025, unless it is terminated with prior notice subject to certain conditions.
The foregoing description of the terms of the agreement with Navitaire LLC is intended as a summary only and is qualified in its entirety by reference to the copy filed as an exhibit to this annual report.
Marketing and Advertising. Our marketing and advertising activities include the use of the Internet, television, radio and billboards. We focus on direct consumer marketing for our markets, by offering promotional fares and maintaining a strong presence in digital media, such as Facebook, Twitter, Google, Instagram and YouTube. As of December 31, 2021, we had approximately 4.4 million fans on Facebook and 2.0 million followers on Twitter, which we primarily use for marketing and promotion.
We reach our customers directly by holding promotional events that build brand recognition. We also advertise on billboards, in venues that our core consumers frequently attend, radio, television and shopping malls. We have Internet promotions directed at current customers, who can register on our website. In addition, we send emails with promotions and advertisement to approximately 1.7 million e-mail addresses on a weekly basis. We strive to have the highest marketing impact at the lowest cost. We recently launched a new marketing campaign, denominated “Te queremos volando” that was designed to focus on the middle to high income traveler and “Agárrale el modo a volar” that was designed to focus on the low to middle income traveler, with efforts allocated in new channels and to accelerate the substitution of long-distance bus travel to air travel.
58

Table of Contents
We have a membership-based ultra-low-fare subscription service called V-Club which had approximately 654,000 members as of December 31, 2021. The V-Club is an annual subscription-based service that allows members exclusive access to the lowest fares on offer and discounted baggage fees. V-Club members pay a small annual fee for first access to offerings of low fares. The membership provides benefits such as guaranteed exclusive, member-only fare sales (at least once every six weeks) and private offers on hotels, rental cars and other travel necessities. The number of V-Club members increased by 65% in 2021 compared to 2020.
The Volaris affinity credit card, Volaris INVEX, provides holders with cash back on Volaris-related purchases and grants priority boarding, additional baggage, allowances, deferred payment on purchases with no interest, a 15% discount on the purchase of on-board menu items, access to the MasterCard Elite lounge at the Mexico City International Airport. We receive a fee from all purchases made with the card. In March 2015, we launched the Volaris INVEX 2.0 credit card with additional benefits, such as an individual V-Club and LoungeKey membership. In October 2017, we launched the Volaris INVEX 0 credit card, which has no annual fee.
Pricing and Yield Management
Our emphasis on keeping our operating costs low has allowed us to set low base fares and ancillary revenues while achieving and increasing profitability. We have designed our fare structure to balance our load factors and yields in a way that we believe will generate the highest revenue per block hour on our flights. Most of our seats are sold in the low and mid fare ranges. With the exception of special offers and promotions, we do not have advance purchase restrictions, minimum stays or any other fare restrictions, such as required Saturday night stays. For some of our flights, we set very low discounted base fares based upon the fares charged by bus lines for travel to the same destinations in order to increase our customer base by adding customers who have previously used other forms of transportation.
On the international market, our base fare (“basic”) only includes one personal item, and the possibility of adding luggage and other services with a charge. In the case of the domestic market, our base fare (“basic”) includes 2 carry ons, and the possibility of adding extra weight and other services with a charge. Additions can be made directly by choosing other types of fares (“classic,” “plus”) or adding a-la-carte services. Our fares are non-refundable and subject to change fees. In addition to our base fare, customers can choose a variety of additional products and services to customize their travel experience. These include options like pre-selecting a higher baggage allowance or preferred seating, as well as purchasing food, beverages and other products on board. Additional products and services can be purchased at different points in time, including at the time of purchase, before the flight and at the airport. We increase the prices of these products and services the closer the customer purchases them to the departure date.
We use yield management in an effort to maximize revenues per flight, which is also linked to our route and schedule planning and our sales and distribution methods. Yield management is an integrated set of business procedures and mathematical models that provide us with the ability to understand markets, anticipate customer behavior and respond quickly to opportunities. The number of seats we offer at each fare class in each market is based on a continuous process of analysis and forecasting. Past booking history, seasonality, the effects of competition and current booking trends are used to forecast demand. Current fares and knowledge of upcoming events at destinations we serve that we believe will affect traffic volumes are also included in our forecasting model to arrive at an optimal seat allocation for our fares on specific routes. We use a combination of approaches, taking into account yields and flight load factors, depending on the characteristics of the markets served, to design a strategy to achieve the best possible TRASM by balancing the average fare charged and ancillary services sold against the corresponding effect on our load factors.
Customer Service
We are committed to providing our customers with value for their money and on-time and reliable performance. We believe that our low fares initially attract customers and that our exceptional service strengthens customer loyalty and enhances our brand recognition through word-of-mouth as our customers tell others about their experience.
We hire employees who we believe will treat customers in a courteous and friendly manner, and emphasize customer service during their training and as a general part of our company culture. We call our employees ambassadors. We also focus on other details that can improve the travel experience, including on-line check-in and seat assignment options, e-ticket travel, single-class seating, modern aircraft interiors and discounted shuttle services between certain airports and drop-off zones on certain routes. We provide personalized in-cabin support for customers who need it and the option of special assistance for unaccompanied minors and seniors. We believe our customer relationship management has been a key element of our success.
59

Table of Contents
We are committed to compensating our employees on the basis of their performance, rewarding them for the contribution that they make to our success instead of seniority. We base part of our employee compensation on customer service, which is measured through a net promoter score obtained from customer interviews. In 2021, we conducted Net Promoter Score (NPS) surveys during the first and fourth quarters with an average of 38,019 monthly responses; as we expand our operations, this number will likely increase.
We understand that efficient and punctual operations are important to our customers, and we intend to continue to excel in operational performance. The following table sets forth certain performance-related customer service measures for the years ended 2019, 2020 and 2021:

	    	2019	    	2020	    	2021		
On-time performance(1)	 	79.2	%  	87.9	%  	77.3	%	
Completion factor(2)	 	97.6	%  	94.6	%  	97.5	%	
Mishandled baggage(3)	 	1.0		0.6		0.5		

(1)	Percentage of our scheduled flights that were operated by us and that arrived on time (within 15 minutes of the scheduled arrival time).	

(2)	Percentage of our scheduled flights that were operated by us, whether or not delayed (i.e., not cancelled).	

(3)	Our incidence of delayed, mishandled or lost baggage per 1,000 passengers.	

Competition
The airline industry is highly competitive. The principal competitive factors in the airline industry are fare pricing, total price (including ancillary services), flight schedules, aircraft type, passenger amenities, number of routes served from a city, customer service, safety record and reputation, code sharing relationships, and frequent flier programs and redemption opportunities. Our current and potential competitors include traditional network airlines, low-cost carriers, regional airlines and new entrant airlines. We typically compete in markets served by legacy carriers and other low-cost carriers, and, to a lesser extent, regional airlines. Some of our current or future competitors may have greater liquidity and access to capital, and serve more routes than we do.
Our principal competitive advantages are our low base fares and our focus on VFR travelers, leisure travelers and cost-conscious business people. These low base fares are facilitated by our low CASM, which is the lowest among the other Latin American publicly traded airlines. In 2021, our CASM was Ps.130.9 cents (U.S. $6.45 cents), compared to an average CASM of U.S. $12.51 cents for the other Latin American publicly traded airlines (Azul, Copa, Gol, Grupo Aeroméxico and LATAM). We also have lower costs than our U.S.-based publicly traded target market competitors, including Alaska Air, American, Delta, Jet Blue, Southwest Airlines, Frontier, Spirit, Allegiant and United, which had an average CASM of U.S. $12.87 cents in 2021.
Our principal competitors in Mexico are Grupo Aeroméxico and VivaAerobus. Internationally, we compete with Grupo Aeroméxico, Viva Aerobus and many U.S.-based carriers, including Alaska Air, American, Delta and United. In the Mexico — Central America market our principal competitors are Grupo Aeroméxico and Avianca, while in the Central America — U.S. market our principal competitors are Avianca and Delta. For the Mexico — South America market our principal competitors are Grupo Aeroméxico, Viva Aerobus and LATAM. Our competitors and the Mexican airline industry as a whole have also been significantly impacted by the COVID-19 pandemic.
In 2021, the Mexican low-cost carriers (including us) combined had 69.5% of the domestic market based on passenger flight segments. We had 41.2% of the domestic market which placed us first, according to AFAC. As of December 31, 2021, the number of commercial aircraft in service in Mexico increased to 310, as compared to 275 as of December 31, 2020, according to AFAC. This 13% increase was comprised mainly of narrow body aircraft, including 79 Airbus A320s, 51 Boeing 737s, and 16 Airbus A321s. On June 30, 2020, Grupo Aeroméxico, our largest competitor by domestic and international market share in 2019, announced that it was filing for Chapter 11 bankruptcy protection in the United States. On March 17, 2022 Grupo Aeromexico announced that it had concluded its restructuring process. As of December 31, 2021, AFAC reports indicate that Grupo Aeroméxico’s subsidiaries Aeroméxico and Aeroméxico Connect had fleets of 79 and 42 aircraft, respectively, as compared to 58 and 44, respectively, as of December 31, 2020. In addition, Interjet, our second largest competitor by international market share in 2019, has been unable to resume international flights since suspending the routes in March 2020. Interjet’s fleet decreased by 100% in 2021, from three aircraft as of December 31, 2020 to zero as of December 31, 2021, according to information published by the AFAC. Interjet has not operated any domestic flights since December 2020. According to media reports, on April 26, 2021, Interjet announced that its shareholders approved the filing of a reorganization process (concurso mercantil) in Mexico. VivaAerobus, our second largest competitor by
60

Table of Contents
domestic market share in 2020, has increased their fleet from 43 as of December 31, 2020 to 55 as of December 31, 2021. In addition to these changes in fleet size, our market share has also increased. As of December 2021, our domestic market share had increased 3.24 percentage points to 39% and our international market share had decreased 3 percentage points to 11%, in each case as compared to our market shares as of December 2020.
Fleet
Since we began operations in March 2006, we have increased our fleet from four to 101 aircraft as of December 31, 2021.
As of December 31, 2021, we flew only Airbus A320 family aircraft, which provides us with significant operational and cost advantages compared to airlines that operate multiple fleet types. The Airbus A320 family is based on a common aircraft type with the same cabin cross-section, and virtually the same systems, cockpit controls, operating and maintenance procedures, and pilot type rating. The Airbus A320 family aircraft are fuel efficient and allow flight crews to be interchangeable across all of our aircraft while decreasing training, maintenance, spare parts inventory and other operational costs. Due to the commonality among the Airbus A320 family, we can retain the benefits of a fleet comprised of a single type of aircraft while still having the flexibility to match the capacity and range of the aircraft to the demands of each of our routes.
In December 2017, we entered into an agreement with Airbus to purchase 80 aircraft, which we are committed to receive from 2022 to 2026. The new order includes 46 A320neo and 34 A321neo. Under such agreement and prior to the delivery of each aircraft, we agreed to make pre-delivery payments, which shall be calculated based on the reference price of each aircraft, and following a formula established for such purpose in the agreement.
In November 2018, we amended the agreement with Airbus to reschedule the remaining 26 aircraft deliveries between 2019 and 2022.
In July 2020, we amended the agreement with Airbus to reschedule the delivery of 80 aircraft between 2023 and 2028. In October 2020, we amended the agreement with Airbus to reschedule 18 aircraft deliveries between 2020 and 2022.
In November 2021, the Company entered into a new amendment to the agreement with Airbus to purchase 39 additional A320 NEO family aircraft which we are committed to receive between 2023 and 2029. The new order includes 39 A321NEO. Under such agreement and prior to the delivery of each aircraft, we agreed to make pre-delivery payments, which shall be calculated based on the reference price of each aircraft, and following a formula established for such purpose in the agreement.
Also, in this agreement the Company exercised its right under the agreement with Airbus to convert twenty A320neo aircraft into A321neo aircraft.
As of December 31, 2021, our fleet of 101 Airbus narrow-body aircraft consisted of six Airbus A319s (including one owned), 79 A320s (39 of them are NEO) and 16 A321s (six of them are NEO). We have a young fleet with the average age of our fleet being 5.4 years as of December 31, 2021, as compared to an average of 8.0 years for the other Mexican airlines according to the AFAC. A young fleet leads to better reliability in terms of the performance of our aircraft, greater fuel efficiency and lower maintenance costs.
Consistent with our ULCC business model, each of our aircraft is configured with a single-class high density seating configuration. Our Airbus A319s accommodate up to 144 passengers, our Airbus A320s accommodate up to 186 passengers and our Airbus A321s accommodate up to 239 passengers. Each of our Airbus A320 family aircraft is equipped with IAE or P&W engines. We have taken delivery of 22 spare engines (20 of them leased and two owned) for service replacement and for periodic rotation through our fleet.
61

Table of Contents
The following table shows the historical development of our fleet from the start of our operations in March 2006 through December 31, 2021:

Fleet additions																																	
(Returns)		2006		2007		2008		2009		2010	    	2011	    	2012	    	2013	    	2014	    	2015	    	2016	    	2017	    	2018	    	2019	    	2020	    	2021	
A319		6		8		5		—		5		—		—		(4)		(2)		—		(3)		(3)		(4)		—		(2)		—	
A320		—		—		2		—		—		8		7		7		8		4		8		5		6		3		6		15	
A321		—	    	—		—		—		—	    	—	    	—		—		—		2		8		—		4		2		—		—	
Total fleet		6		14		21		21		26		34		41		44		50		56		69		71		77		82		86		101	

The following table shows the expected development of our fleet from 2022 to 2025 pursuant to our current contracts:

Fleet additions (Returns)		2022E	    	2023E	    	2024E	    	2025E	
A319	 	(2)		(1)		(2)		(1)	
A320	 	9		(3)		3		(5)	
A321	 	7		4		9		9	
Total fleet	 	115		115		125		128	

We have financed the acquisition of our aircraft through a combination of pre-delivery payment financing (including: (i) the revolving line of credit with Banco Santander México and Banco Nacional de Comercio Exterior, S.N.C., or Bancomext, under which we act as a guarantor and (ii) financing provided by certain lessors in respect of 18 aircraft to be delivered between 2023 and 2024), purchase and leaseback transactions and direct lease agreements, all of which meet the conditions for consideration as operating leases. With respect to purchase and leaseback transactions, we have entered into agreements to purchase aircraft from Airbus which are sold to lessors and are simultaneously leased back through leaseback agreements. We have obtained financing for the pre-delivery payments in respect of all the aircraft to be delivered through 2022. Additionally, we have obtained financing for the pre-delivery payments with certain lessors in respect of 18 aircraft to be delivered in the years 2023 and 2024. As of December 31, 2021, we had 100 aircraft leased pursuant to long-term lease agreements for an average term of 12.14 years each. The operating leases for these aircraft expire between 2022 and 2033. We make monthly rent payments and are not required to make termination payments at the end of the lease unless there is an event of default or total loss of the aircraft. Our aircraft leases provide for fixed rent payments. We are required to make certain non-refundable monthly maintenance payments and to return the aircraft in the agreed upon condition at the end of the lease term. We are responsible for the maintenance, servicing, insurance, repair and overhaul of the aircraft during the term of the lease.
As of December 31, 2021, the purchase agreement with Airbus requires us to accept delivery of 132 Airbus A320 family aircraft in the next eight years (from January 2022 to October 2029). The agreement provides for the addition of 132 aircraft to our fleet as follows: 13 in 2022, five in 2023, 17 in 2024, 16 in 2025, 27 in 2026, 21 in 2027, 19 in 2028 and 14 in 2029. The basic price for each of the firm-order aircraft to be delivered pursuant to our contracts may be adjusted for changes in economic conditions as published by the United States Department of Labor. We must make pre-delivery payments at specific dates prior to the scheduled delivery. Although the purchase agreement with Airbus does not include the option to have fewer aircraft delivered, we cannot guarantee that our fleet will increase as indicated in the table above.
Additionally, during December 2017, we entered into an agreement with Airbus to purchase 80 aircraft, which we are committed to receive from 2022 to 2026. The new order includes 46 A320neo and 34 A321neo. Under such agreement and prior to the delivery of each aircraft, we agreed to make pre-delivery payments, which shall be calculated based on the reference price of each aircraft, and following a formula established for such purpose in the agreement. In November 2018, we amended the agreement with Airbus to reschedule the remaining 26 aircraft deliveries between 2019 and 2022. In July 2020, we amended the agreement with Airbus to reschedule 80 aircraft deliveries between 2023 and 2028. In October 2020, we amended the previous agreement with Airbus to reschedule 18 aircraft deliveries between 2020 and 2022. In November 2021 the Company entered into a new amendment to the referred agreement to purchase 39 additional aircraft which we are committed to receive between 2023 and 2029. Additionally, the Company exercised its right under the agreement with Airbus to convert twenty A320neo aircraft into A321neo aircraft.
We have six scheduled A319 aircraft returns in the next four years: two in 2022, one in 2023, two in 2024 and one in 2025. Additionally, we have 20 A320 aircraft returns in the next four years: four in 2023, four in 2024 and twelve in 2025. We also have three A321 aircraft in the next four years, two in 2023 and one in 2024. However, if necessary, we believe we can negotiate extensions under our lease agreements as we have done in the past, which increases our fleet flexibility. In addition, we have been able to lease
62

Table of Contents
aircraft from lessors and have the flexibility to do so again in the future. For certain risks related to our lease agreements, see Item 3: “Key Information—Risk Factors—A failure to comply with covenants contained in our aircraft or engine lease agreements, or the occurrence of an event of default thereunder, could have a negative impact on us and our financial condition and results of operations.”
Maintenance
We have mandated and approved maintenance programs required by the applicable aviation authorities, administered by our maintenance and planning engineering department. Our maintenance technicians undergo extensive initial and ongoing training (as applicable by the aviation regulations) to ensure the safety of operations. Line maintenance is performed by our qualified technicians, under our repair station certificates issued by the FAA and AFAC and by maintenance providers which hold the necessary certifications.
Aircraft maintenance and repair consists of routine and non-routine maintenance, and the work performed is divided into three general categories: routine maintenance (including line maintenance), heavy or major maintenance and component service. Line maintenance consists of routine daily and weekly scheduled maintenance checks on our aircraft, including pre-flight, daily, weekly and overnight checks, any diagnostics and routine repairs and any unscheduled items on an as needed basis. Line maintenance events are currently serviced by in-house mechanics and supplemented by contract labor and are primarily completed at the airports we currently serve. Routine maintenance also includes scheduled tasks that can take from seven to 14 days to complete and are required approximately every 24 to 36 months.
Heavy airframe maintenance checks consist of a series of more complex tasks that can take up to six weeks to complete. Heavy engine maintenance is performed approximately every five to six years and includes a more complex work scope, performed at specialized shops. Due to our fleet size and projected fleet growth, we believe outsourcing all of our major maintenance, such as engine servicing and major part repairs, is more efficient. We have entered into a long-term flight hour agreement with IAE and P&W for our engine overhaul services and Lufthansa Technik AG on a power-by-hour basis for component services. We contract with Lufthansa Technik AG for certain technical services and Aeroman for our heavy airframe maintenance. Aeroman is an FAA-approved maintenance provider.
Our recent maintenance expenses have been lower than what we expect to incur in the future because of the relatively young age of our aircraft fleet. Our maintenance costs are expected to increase as the frequency of repair increases with our aircraft’s age. As our aircraft age, scheduled scope work and frequency of unscheduled maintenance events are likely to increase as with any mature fleet.
Safety
We are committed to the safety and security of our passengers and employees. Some of the safety and security measures we have taken include (i) aircraft security and surveillance, (ii) positive bag matching procedures, (iii) enhanced passenger and baggage screening and search procedures, and (iv) secured cockpit doors. We strive to comply with or exceed health and safety regulation standards. In pursuing these goals, we maintain an active aviation safety program and all of our personnel are expected to participate in the program and take an active role in the identification, reduction and elimination of hazards.
Our ongoing focus on safety relies on training our employees to use the proper safety equipment and take the proper safety measures by providing them with the tools and equipment they require to perform their job functions in a safe and efficient manner. Safety in the workplace targets several areas of our operation including flight operations, maintenance, in-flight, dispatch and station operations. We have received the IOSA (IATA’s Operational Safety Audit) certification.
The TSA is charged with aviation security for both airlines and airports in the United States. We maintain active, open lines of communication with the TSA at all of our locations to ensure proper standards for the security of our personnel, customers, equipment and facilities are exercised throughout our operation. In Mexico, the Mexican Civil Aeronautic Authority through the Assistant General Aviation Authority (Dirección General Adjunta de Aviación) is in charge of air traffic safety and has the authority to establish or modify the operations condition of air traffic and to coordinate and control the airports. See Item 4: “Information of the Company—History and Development of the Company.”
63

Table of Contents
Fuel
Fuel is a major cost component for airlines and is our largest operating expense. Fuel accounted for 38%, 26% and 34% (including derivative and non-derivative financial instruments) of our total operating expenses in 2019, 2020 and 2021, respectively. We purchase fuel from ASA which also supplies fuel and fills our aircraft tanks in Mexico. Under our agreement with ASA, the price of fuel is determined by the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público) and this agreement may be terminated by either party upon short notice. As of December 31, 2021, we purchased our domestic fuel under the ASA fuel service contract, and international fuel under the WFS, Shell, Uno Petrol, Uno El Salvador, BP Products North America, Chevron and Associated Energy Group fuel service contracts. See Item 3: “Key Information—Risk Factors—We rely on a number of single suppliers for our fuel, aircraft and engines.”
Historically, the fuel costs experienced substantial variances, which cannot be predicted with any degree of certainty since it is subject to many global and geopolitical factors. Fuel prices are dependent on crude oil prices, which are quoted in U.S. dollars. If the value of the U.S. dollar rises against the peso, our fuel costs, expressed in pesos, may increase even absent any increase in the U.S. dollar price of crude oil. Our fuel hedging policy is to enter into fuel derivative contracts to hedge against changes in fuel prices up to 18 months forward subject to certain financing controls. See Item 3: “Key Information—Risk Factors—Our fuel hedging strategy may not reduce our fuel costs.”
Insurance
We maintain insurance policies we believe are of the types customary in the airline industry and as required by the Mexican and U.S. aviation authorities. In connection with our operations, we carry insurance coverage against loss and damages, including war and terrorist risks, for our entire fleet of aircraft, spares and equipment. We carry passenger and third-party liability insurance coverage at levels that we believe are adequate and consistent with general industry standards. We also hold non-aviation insurance coverage that includes directors’ and officers’ liability, vehicles value and liability and life and major medical expenses insurance for our employees.
Sustainability
In 2021 we continue to make efforts in incorporating our corporate sustainability strategy into the business practices. The program is comprised of three focus areas, the Economic and Corporate Governance Focus, the Planet Care Focus, and the People Care Focus. The program is also aligned to our ESG criteria, which are aimed at allowing the efforts of the business to be directed toward sustainable future growth while simultaneously creating long-term value for our stakeholders.
Our Economic and Corporate Governance Focus encompasses policies aimed at cost-reduction, the optimization of resources, and maintenance of operational efficiency and reliability. Through this focus, we also aim to influence the creation of public policies consistent with our corporate sustainability strategy, manage our corporate reputation, and develop clear communication channels with our stakeholders. Moreover, our business values, ethics, and legality are influenced through our anti-corruption and anti-bribery practices, as well as through risk and crisis management systems, as we aim to protect information, and personal data, and transparency in all our processes. In 2021, we received an award from 50/50 Women on Boards and Women Corporate Directors. We are one of the few public companies in Mexico having two women as independent directors.
The Planet Care Focus is defined by our environmental protection policy, through which we aim to achieve aviation’s commitments and respond to regulatory requirements, to protect the planet and reduce polluting emissions. We have taken the following initiatives:
Fuel Efficiency Management Program: As part of this initiative, we aim to maximize fuel efficiency. The focus of this objective is reducing our jet fuel consumption. Our primary effort in reducing jet fuel consumption is directed through the acquisition of a young fleet and continued investment in the best available and cost-efficient technology as well as an array of additional fuel-saving techniques. In 2021, we finished the year with a fleet of 101 aircraft, of which 45 are NEO, which are more fuel-efficient and release fewer CO₂ emissions per ASM. Moreover, we implement operational initiatives such as optimal fuel planned arrival, flight techniques, reduction of auxiliary power unit usage, and reduction of cabin weight through reconfiguration of lighter seats and trolleys.
64

Table of Contents
We also have initiatives to reduce paper and electricity consumption, minimize waste, promote recycling, and promote efforts for biodiversity protection, and these initiatives implicate both our practices and those of our third-party partners. Some of our environmental programs have received accreditation certificates such as ISO 14001 and 9001. Volaris aims to engage with our key stakeholders and build collaborations with third parties to help drive down the costs of the development and implementation of new technologies. We have joined aviation industry coalition of IATA Fly Net Zero to accelerate our climate goals and influence climate and sustainability policy development.
The People Care Focus aims to strengthen our commitment to people. This includes our employees, customers, and the communities in which we operate. Our labor practices are designed to support solid labor relationships and the well-being of our employees through the Volaris Culture, which is comprised of: (i) Our vision: transcending by creating and materializing the best travel experiences, (ii) Our mission: with the best people and at low cost we enable more people to travel... Well!, (iii) Our behaviors: credibility, respect, impartiality, camaraderie, and pride, and (iv) Our pillars: safety, customer service, and sustained profitability.
We seek to attract, develop, and retain the talent of competent and professional people, the driving desire behind our competitive benefits plan that exceeds applicable legal requirements. We are also committed to maintaining the occupational safety and health of our employees. To that end, we have a series of initiatives that are focused on promoting a workplace free of violence and harassment, fostering the conditions necessary for equal opportunities, and providing appropriate eand frequent training to assure the sustained well-being of our employees. In 2021, we added approximately 1,800 new employees to the Volaris Family.
Additionally, our corporate volunteer program aims to promote a culture of volunteering and a sense of belonging at the Company among our employees.
Relations with the communities in which we operate are integral to our People Care Focus. We seek to generate value for society through two programs: 1) Volaris Aid Aircraft and 2) Human Rights Protection Program. The Volaris Aid Aircraft program aims to help those experiencing vulnerable situations, such as medical emergencies and emergencies due to natural disasters, through strategic alliances. Through the Human Rights Protection program and strategic alliances, we seek to promote the protection of the rights of young girls and boys who travel with Volaris, in order to safeguard them from potential human trafficking and commercial sexual exploitation in the context of travel and tourism.
The People Care Focus also prioritized the well-being, safety, health, and protection of our customers’ rights. We strive to strictly comply with the highest safety standards as well as domestic and international regulations. In a year of growth for our Company, as 2021 was, we focused on operational safety; we obtained the IOSA certification, and we were rated as one of the safest airlines worldwide by Airlineraitings.com. Moreover, 99% of our employees are vaccinated. We are also making an effort to maintain high-quality medical attention to face the pandemic.
Our efforts to maintain our workforce and their families and our customers safe include:

	·	investing in 24-hour medical attention;	
	·	providing free COVID-19 tests for our employees; and	
	·	providing free flights to our employees and their families as transportation to vaccination sites.	
In 2020, these efforts culminated in our current membership in the S&P Dow Jones Sustainability Index. We are one of only five airlines in the world included in this index. We are also the only airline included in the MILA Pacific Alliance Index.
65

Table of Contents
Organizational Structure
The following is an organizational chart showing Volaris and its subsidiaries as well as Volaris’ ownership and voting percentage in each as of the date of this annual report:

Volaris Opco is our airline operating subsidiary in Mexico and the United States. Comercializadora is primarily engaged in marketing, advertising and other commercial matters. Volaris Opco and Servicios Corporativos employs some of our employees. Servicios Corporativos renders specialized services to its affiliates. Viajes Vuela performs travel agency services. Comercializadora Frecuenta has not started operations and may be engaged in providing air travel-related ancillary services. These subsidiaries are incorporated in Mexico. Vuela is our operating subsidiary in Guatemala and Servicios Earhart employ some of our employees in Guatemala. Vuela, Servicios Earhart and GDS are incorporated in Guatemala. Vuela Aviación is our operating subsidiary in Costa Rica and is incorporated there. Vuela El Salvador is incorporated in El Salvador. See Exhibit 21.1 to this annual report for a complete list of our subsidiaries.
On July 14, 2021, Volaris Opco and Servicios Administrativos agreed to a merger, with Volaris Opco as the surviving company. The merger took full legal, accounting and tax effect on August 31, 2021 and the accounts of assets, liabilities, and equity of these companies were merged.
On October 5, 2021, we entered into a share transfer agreement to acquire all the capital stock of GDS through our subsidiaries Vuela and Servicios Earhart. Vuela acquired four shares that represent 80% of the subscribed and paid capital of GDS, while Servicios Earhart acquired one share that represents 20% of the subscribed and paid capital of GDS. GDS holds a Certificate of Aeronautical Technical Services Operator and a Certificate / Exploitation Contract, issued by the General Directorate of Civil Aeronautics of Guatemala, which expires on July 26, 2026.
66

Table of Contents
Additionally, under IFRS 10 Consolidated Financial Statements, we exercise control over other trusts as described below.

	●	Pre-delivery payments financing trusts: We have assigned our rights and obligations under our purchase agreement with Airbus with respect to certain aircraft, including our guaranteed obligation to make pre-delivery payments under such agreement to certain Mexican trusts for purposes of financing such pre-delivery payments. These trusts are as follows:	

								
						% Equity interest		
Name	    	Principal Activities	    	Country	    	2021		
CIBanco, S.A., Institución de Banca Múltiple, Fidecomiso 1710		Pre-delivery payments financing		Mexico	    	100.00	%  	
CIBanco, S.A., Institución de Banca Múltiple, Fidecomiso 1711		Pre-delivery payments financing	    	Mexico		100.00	%  	

	·	Trust for the first issuance of asset backed securities: On June 20, 2019, our subsidiary Volaris Opco issued 15,000,000 asset backed trust notes under the ticker VOLARCB 19 in the amount of Ps.1.5 billion through Fideicomiso Irrevocable de Administración número CIB/3249 created by Volaris Opco. This issuance is part of a program approved by the CNBV for an amount of up to Ps.3.0 billion.	
	·	Trust for the second issuance of asset backed securities: On October 13, 2021, our subsidiary Volaris Opco issued 15,000,000 asset backed trust notes under the ticker VOLARCB 21L in the amount of Ps.1.5 billion through Irrevocable Trust number CIB/3249 created by Volaris Opco. This issuance is part of a program approved by the CNBV for an amount of up to Ps.3.0 billion.	
								
						% Equity		
Name	    	Principal Activities	    	Country	    	 Interest 2021	 	
Fideicomiso Irrevocable de Administración número CIB/3249 “Administrative Trust”	 	Issuance of asset backed securities	 	Mexico	 	100.00	%	
	·	Share-based payment trusts: We have formed the following share-based payment trusts:	
								
						% Equity 	 	
Name	    	Principal Activities	    	Country	    	Interest 2021	 	
Fideicomiso Irrevocable de Administración número F/307750 “Administrative Trust”	 	Share administration trust	 	Mexico	 	100.00	%	
Fideicomiso Irrevocable de Administración número F/745291 “Administrative Trust”	 	Share administration trust	 	Mexico	 	100.00	%	
Fideicomiso de Administración número CIB/3081 “Administrative Trust”	 	Share administration trust	 	Mexico	 	100.00	%	

C.Property, Plants and Equipment
We lease all of our facilities at each of the airports we serve. Our leases for our terminal passenger service facilities, which include ticket counter and gate space, operations support area and baggage service offices, generally have terms ranging from one to three years and contain provisions for periodic adjustments of lease rates. We expect to either renew these leases or find alternative space that would permit us to continue providing our services. We also are responsible for maintenance, insurance and other facility-related expenses and services. We have also entered into use agreements at each of the airports we serve that provide for the non-exclusive use of runways, taxiways and other facilities. Landing fees under these agreements are based on the number of landings and weight of the aircraft.
67

Table of Contents
Our primary corporate offices and headquarters are located in Mexico City at Av. Antonio Dovalí Jaime No.70, 13th Floor, Tower B, Colonia Zedec Santa Fe, México City, zip code 01210, where we lease 6,656 square meters under a lease that expires in June 2031. In addition, we sublease a hangar facility at the Tijuana airport, such sublease expires on July 15, 2022.
ITEM  4A    UNRESOLVED STAFF COMMENTS
None.

ITEM 5    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A.Operating Results
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
Passenger Revenues
Our passenger revenue includes income generated from: (i) fare revenue and (ii) other passenger revenue.
We derive our operating revenues primarily from transporting passengers on our aircraft and some tickets sold by other airlines such as Frontier. The 58% of our total operating revenues were derived from passenger fares in 2021. Passenger revenues are based upon our capacity, load factor and the average passenger 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 passenger revenue per booked passenger represents the total passenger revenue divided by booked passengers.
Other passenger revenues 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, V-Club memberships and charters. They are recognized as revenue when the obligation of passenger transportation service is provided by us or when the non-refundable ticket expires at the date of the scheduled travel. The 39% of our total operating revenues were derived from other passenger revenues in 2021.
Non-Passenger Revenues
Our non-passenger revenues include income generated from (i) other non-passenger revenues and (ii) cargo services. In 2021, we derived Ps.1.4 billion, or 3% of our total operating revenues from these sources.
Revenues from other non-passenger services mainly include but are not limited to commissions charged to third parties for the sale of hotel reservations, trip insurance, rental cars and advertising spaces to third parties. They are recognized as revenue at the time the service is provided.
Revenues from cargo services are recognized when the cargo transportation is provided (upon delivery of the cargo to the destination).
68

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, 		
	    	2019	    	2020	    	2021		
Operating revenues:								
Passenger revenues:								
Fare revenues		67	%  	58	%  	58	%	
Other passenger revenues		30	%  	39	%  	39	%	
Non-passenger revenues:								
Other non-passenger revenues		3	%  	4	%  	3	%	
Cargo		0	%  	1	%  	1	%	
Non-derivative financial instruments:		0	%  	(2)	%  	(1)	%	
Total operating revenues		100	%  	100	%  	100	%	
Other operating income		(1)	%  	(3)	%  	0	%  	
Fuel expense, net		33	%  	30	%  	28	%	
Landing, take-off and navigation expenses		15	%  	18	%  	13	%	
Depreciation of right of use assets		14	%  	23	%  	12	%	
Salaries and benefits		10	%  	16	%  	11	%	
Maintenance expenses		4	%  	5	%  	4	%	
Sales, marketing and distribution expenses		4	%  	8	%  	4	%	
Aircraft and engine variable lease expenses		3	%  	8	%  	4	%	
Other operating expenses		3	%  	5	%  	3	%	
Depreciation and amortization		2	%  	4	%  	3	%	
Total operating expenses, net		87	%  	115	%  	82	%	
Operating income (loss)		13	%  	(15)	%  	18	%	
Finance income		1	%  	0	%  	0	%  	
Finance cost		(7)	%  	(14)	%  	(6)	%  	
Foreign exchange gain (loss), net		4	%  	2	%  	(6)	%  	
Income (loss) before income tax		11	%  	(26)	%  	6	%  	
Income tax (expenses) benefit		(3)	%  	6	%  	(1)	%  	
Net income (loss)		8	%  	(19)	%  	5	%  	

During 2021, revenues from our international operations increased 89% as compared to 2020.
Revenue Recognition

Passenger revenues
Revenues from the air transportation of passengers 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 contract liabilities under the caption “unearned transportation revenue” and, once we provide the transportation service or when the non-refundable ticket expires at the date of the scheduled travel, the earned revenue is recognized as fare revenue and the unearned transportation revenue is reduced by the same amount. All of our tickets are non-refundable and are subject to change upon a payment of a fee. Additionally, the Company does not operate a frequent flier program.
Passenger revenues includes income generated from: (i) fare revenues and (ii) other passenger revenues. Other passenger services include but are not limited to fees charged for excess baggage, bookings through the call center or third-party agencies, advanced seat selection, itinerary changes and charters. They are recognized as revenue when the obligation of passenger transportation service is provided by the Company or when the non-refundable ticket expires at the date of the scheduled travel.
69

Table of Contents
We also classify “V-Club” and other similar services, which are recognized as revenue over time when the service is provided, as other passenger revenue.
Code-share tickets can be purchased directly from the Volaris’ website. The airline that provides the transportation recognizes the revenue when the service is provided.
We sell certain tickets with connecting flights with one or more segments operated by other airline partners. For segments operated by other airline partners, we have determined that we are acting as an agent on behalf of the other airlines as they are responsible for their portion of the contract (i.e., transportation of the passenger). We, as the agent, recognize revenue within other operating revenue at the time of the travel for the net amount retained by us for any segments flown by other airlines.
Our tickets are non-refundable. However, if we cancel a flight for causes attributable to us, including as a result of the COVID-19 pandemic, then the passenger is entitled to either reschedule their flight at no cost or receive a refund or a voucher. No revenue is recognized until either the voucher is redeemed and the associated flight occurs, or the voucher expires. When vouchers issued exceed the original amount paid by the passenger, the excess is recorded as a decrease of operating revenues. All our revenues related to future services are rendered through a period of approximately 12 months.
Non-passenger revenues
Non-passenger revenues include revenues generated from: (i) other non-passenger revenues and (ii) cargo services.
Revenues from other non-passenger services mainly include but are not limited to commissions charged to third parties for the sale of hotel reservations, trip insurance, rental cars and advertising spaces to third parties. They are recognized as revenue at the time the service is provided.
We concluded that the timing of satisfaction of revenue from advertising spaces is to be recognized over time because the customer simultaneously receives and consumes the benefits we provide.
Additionally, we recognize as revenue the air transportation facility charges for no-show passengers, when the non-refundable ticket expires at the date of the scheduled travel.
We also evaluated principal versus agent considerations as they relate to certain non-air travel services arrangements with third party providers. No changes were identified under this analysis as we are the agent for those services provided by third parties.
We are also required to collect certain taxes and fees from customers on behalf of government agencies and airports and remit these back to the applicable governmental entity or airport on a periodic basis. These taxes and fees include value added tax, federal transportation taxes, federal security charges, airport passenger facility charges, and foreign arrival and departure taxes. These items are collected from customers at the time they purchase their tickets, but are not included in passenger revenue. We record a liability upon collection from the customer and discharge the liability when payments are remitted to the applicable governmental entity or airport.
Operating Expenses, net
Our operating expenses consist of the following line items.
Other Operating Income. Other operating income primarily includes the gains from sale and lease back operations of our aircraft and engines.
Fuel expense, net. Fuel expense is our single largest operating expense. It includes the cost of fuel, related taxes, fueling into-plane fees and transportation fees. It also includes realized gains and losses that arise from any fuel price derivative activity qualifying for hedge accounting and gains and losses that arise from non-derivative financial instruments.
Landing, Take-off and Navigation Expenses. Landing, take-off and navigation expenses include airport fees, handling charges, and other rents, which are fixed and variable facilities’ expenses, such as the fees charged by airports for the use or lease of airport facilities, as well as costs associated with ground handling services that we outsource at certain airports. This expense also
70

Table of Contents
includes route charges, which are the costs of using a country’s or territory’s airspace and are levied depending on the distance flown over such airspace.
Depreciation of right–of–use assets. Depreciation of right-of-use assets includes the depreciation of all aircraft and engine leases and some land and building leases that qualify under IFRS 16.
With respect to this line item, IFRS 16 was issued in January 2016 replaced IAS 17 “Leases,” IFRIC 4 “Determining Whether an Arrangement Contains a Lease,” SIC-15 “Operating Leases-Incentives” and SIC-27 “Evaluating the Substance of Transactions Involving the Legal Form of a Lease.” IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model. Under IFRS 16, at the commencement date of a lease, a lessee recognizes a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees are required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees are also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term or a change in future lease payments). The lessee generally recognizes the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. In addition, for leases denominated in a foreign currency other than our functional currency the lease liability will be remeasured at each reporting date, using the foreign exchange of the period. We adopted IFRS 16 on the mandatory date, January 1, 2019, through the full retrospective method recognizing the effect on our statement of financial position as of January 1, 2017. This led to Ps.23.5 billion of right-of-use assets and Ps.32.7 billion as lease liabilities as of January 1, 2017. Our financial results as of and for the years ended December 31, 2017 and 2018 as presented in our annual report for the year ended December 31, 2018 filed with the SEC on April 26, 2019 have been adjusted in our Audited Consolidated Financial Statements presented in this annual report to take into account this application of IFRS 16.
Salaries and Benefits. Salaries and benefits expense includes the salaries, hourly wages, employee health insurance coverage and variable compensation that are provided to employees for their services, as well as the related expenses associated with employee benefit plans and employer payroll taxes.
Maintenance Expenses. Maintenance expenses includes all parts, materials, repairs and fees for repairs performed by third party vendors directly required to maintain our fleet. It excludes the direct labor cost of our own mechanics, which is included under salaries and benefits and includes only routine and ordinary maintenance expenses. Major maintenance expenses are capitalized and subsequently amortized as described in “—Depreciation and Amortization—” below.
Sales, Marketing and Distribution Expenses. Sales, marketing and distribution expenses consist of advertising and promotional expenses directly related to our services, including the cost of web support, our outsourced call center, travel agent commissions, and credit card discount fees that are associated with the sale of tickets and other products and services.
Aircraft and Engine Variable Lease Expenses. Aircraft and engine variable expenses consist of the maintenance deposits we pay to the lessor as maintenance deposits when we determine that we will not recover such deposits in whole or in part. In these cases, we record these amounts in the results of operations as additional aircraft rent (supplemental rent) from the time we make the determination over the remaining term of the lease. Aircraft and engine variable lease expense also includes the estimated return costs of our fleet, which in no case are related to scheduled major maintenance. The return costs are recognized on a straight-line basis as a component of supplemental rent.
Other Operating Expenses. Other operating expenses include (i) administrative support such as travel expenses, stationery, administrative training, monthly rent paid for our headquarters’ facility, professional fees and all other administrative and operational overhead expenses; (ii) costs for technological support, communication systems, cell phones, and internal and operational telephone lines; (iii) premiums and all expenses related to the aviation insurance policy (hull and liability); and (iv) outsourced ground services and the cost of snacks and beverages that we serve on board to our passengers.
Depreciation and Amortization. Depreciation and amortization expense includes the depreciation of all flight equipment, furniture and equipment we own and leasehold improvements to flight equipment. It also includes the amortization of major maintenance expenses we defer under the deferral method of accounting for major maintenance events associated with the aging of our fleet and recognize over the shorter period of the next major maintenance event or the remaining lease term.
71

Table of Contents
A common measure of per unit costs in the airline industry is cost per available seat mile (CASM). The following table shows the breakdown of CASM for the periods indicated:

		For the years ended December 31, 	
	    	2019	    	2020	    	2021	    	2021	
	 						 	(In U.S. $	
		(In Ps.cents)	 	cents)(1)	
Other operating income		(1.3)	 	(4.0)	 	(0.8)	 	—	
Fuel expense, net		47.7	 	36.3	 	44.0	 	2.1	
Landing, take-off and navigation expenses		20.9	 	22.4	 	21.4	 	1.0	
Depreciation of right of use assets		19.2	 	27.6	 	19.4	 	0.9	
Salaries and benefits		14.7	 	18.9	 	17.3	 	0.8	
Maintenance expenses		6.0	 	6.4	 	6.9	 	0.3	
Sales, marketing and distribution expenses		5.9	 	10.1	 	7.0	 	0.3	
Aircraft and engine variable lease expenses		3.9	 	10.1	 	6.0	 	0.3	
Other operating expenses		4.5	 	6.3	 	4.8	 	0.2	
Depreciation and amortization		2.8	 	4.9	 	4.1	 	0.2	
Total operating expenses, net		124.3		139.0		130.1		6.1	

(1)	Peso amounts were converted to U.S. dollars solely for the convenience of the reader at the rate of Ps.20.5835 per U.S. $1.00 as the rate for the payment of obligations denominated in foreign currency payable in Mexico in effect on December 31, 2021. Such conversions should not be construed as a representation that the peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated, or at all.	

Recent Developments
Our business and the airline industry have experienced material adverse impacts due to COVID-19. particularly in terms of passenger traffic. The following chart sets forth passenger traffic for the Mexican airline industry by Mexican carriers in each of the four quarters of 2021 as compared to the each of the four quarters of 2020, as reported by AFAC:

	    	2020	    	2021	    	Variation	 	
	
		(In thousands, except for %)	 	
First Quarter		15,229.4		9,443.6		(38)	%	
Second Quarter	 	1,868.5	 	13,701.2	 	633	%	
Third Quarter	 	6,983.7	 	15,007.0	 	115	%	
Fourth Quarter	 	10,232.3	 	16,260.4	 	59	%	
Total	 	34,313.9	 	54,412.2	 	59	%	

For additional information see “—Trends and Uncertainties Affecting Our Business—Impact of COVID-19— Conflict between Russia and Ukraine” below.
Trends and Uncertainties Affecting Our Business
We believe our operating and business performance is driven by various factors that affect airlines and their markets, trends affecting the broader travel industry, and trends affecting the specific markets and customer base that we target. The following key factors may affect our future performance.
Impact of COVID-19. COVID-19 drastically reduced demand for air travel and caused major disruptions and volatility in global financial markets.There have been other broad and continuing concerns related to the COVID-19 effects on international trade (including supply chain disruptions and export levels), travel, restrictions on our ability to access our facilities or aircraft, requirements to collect additional passenger data, employee productivity, employee illness, increased unemployment levels, securities markets, and other economic activities, particularly for airlines, that had a destabilizing effect on financial markets and economic activity. Nonetheless, we saw an important improvement in Mexico´s demand for air travel from the second quarter of 2021, due to fewer sanitary restrictions, greater willingness of the people to travel and a gradual recovery of domestic economic activity.
72

Table of Contents
Despite the gradual recovery we saw in ASMs and route operation during 2021, the ongoing COVID-19 pandemic may continue to have a negative impact on our financial condition and results of operations, as a result of the following indicators:

	·	a resurgence of COVID-19 infection rates could lead Mexico and the countries in which we operate to return to partial or total lockdowns, which would most likely result in a decrease in demand for our flights (which in turn may require reductions to our ASMs at levels similar to the early months of the pandemic) and aircraft utilization rate and consequently a decrease in our total operating revenues;	
	·	any further volatility in the international capital markets could result in (i) the fall of stock prices, including the price of our stock and (ii) financial losses associated with our financial portfolio, which may cause a deterioration of our financial condition or limitations on our ability to meet our liabilities;	
	·	if our revenues decrease for a significant portion of time, we may have less cash available to meet our obligations under our aircraft and engine lease agreements and additional sources of financing may be difficult to obtain at favorable rates;	
	·	even after the COVID-19 pandemic eases, there is a risk that we will experience reduced demand in the near to mid-term due to the potential economic impact of the pandemic on the travel industry (business and leisure) and on our customers, as well as customer health concerns about the safety of air travel.	
Conflict between Russia and Ukraine. Following the recent geopolitical crisis in Eastern Europe, as of February 21, 2022, the Russian Federation recognized the independence of the Ukrainian separatist regions of Donetsk and Luhansk in the Donbas region. On the day after, the Federal Council of Russia authorized use of military force abroad, which triggered an invasion of Ukraine by the Russian Armed Forces on February 24, 2022.
The invasion was widely condemned internationally with several sanctions being imposed against Russia and Belarus. As a result, the global markets reacted negatively, with fuel prices surging to their highest level since 2008 amid supply concerns.
The airline industry is impacted by the price and availability of fuel. Fuel is our largest cost, representing approximately 34% of our total operating cost in 2021, and continued volatility in fuel costs or significant disruptions in the supply of fuel could have a material adverse effect on our business, results of operations and financial condition.
The sensitivity analysis provided below presents the impact of a change of U.S.$0.01 per gallon in fuel market spot price in the Company´s financial performance. Considering these figures, an increase of U.S.$0.01 per gallon in the fuel prices during 2020 and 2021 would have impacted Volaris’ operating expenses in U.S.$1,762 thousands and U.S.$2,731 thousands, respectively.

	    	For the years ended December 31,	
		2020		2021	
		Operating costs		Operating costs	
	
	 	(In thousands of U.S. dollars)	
+ U.S. $0.01 per gallon	 	1,762	 	2,731	
- U.S. $0.01 per gallon	 	(1,762)	 	(2,731)	

The Company has been proactively trying to mitigate this impact over our business through revenue management and a continued effort towards a reduced fuel consumption. Nonetheless, our ability to pass on any significant increases in fuel costs through fare increases is also limited by our ultra-low-cost business model and market high elasticity to price.
The Company can not assure that this macroeconomic disruption would not adversely affect our financial performance, since Volaris can neither control nor accurately predict the performance of the fuel prices in the global markets or its availability in the airports in which we operate. Due to the large proportion of fuel costs in our total operating cost base, even a relatively small increase in the price of fuel can have a significant negative impact on our operating expenses and on our business, results of operations and financial condition.
Along the cost pressure due to the higher fuel price, this major disruption in the global economy has also raised concerns regarding inflationary pressures and the global economy growth rate. Such disruption in inflation indexes could affect the Company’s
73

Table of Contents
cost the near future, as several contracts are subject to annual adjustments based on historical inflation ratios. A reduction in the economy’s growth pace could also adversely impact demand for air transport services, potentially affecting our financial performance.
Economic Conditions in Mexico. Mexico’s GDP is expected to grow by 2.0% per year for the next ten years according to the Mexican Central Bank, which is in line with the expected annual growth for the United States during the same period as reported by the U.S. Federal Reserve. See “Key Information—Risk Factors—Risks Related to the Airline Industry—Public health threats, such as the H1N1 flu virus, the bird flu, Severe Acute Respiratory Syndrome (SARS), the Zika virus, COVID-19 and other highly communicable diseases, could affect suspension of domestic and international flights, travel behavior and could have a material adverse effect on the Mexican economy, airline industry reputation, the price of our shares, our business, results of operations and financial condition” for more recent information on the impact of COVID-19 on Mexico’s future macroeconomic condition.
Regarding population dynamics as of 2020, according to the INEGI intercensal survey, around 34% of the Mexican population was under 20 years of age, which benefits us by providing a strong base of potential customer growth. Inflation in Mexico during 2021 was 7.26% according to the INEGI. As of December 31, 2021, international reserves in Mexico were at U.S. $202.4 billion.
Competition. The airline industry is highly competitive. The principal competitive factors in the airline industry are fare pricing, total price, flight schedules, aircraft type, passenger amenities and related services, number of routes served from a city, customer service, safety record and reputation, code-sharing relationships and frequent flier programs and redemption opportunities. Our current and potential competitors include traditional network airlines, low-cost carriers, regional airlines and new entrant airlines. We typically compete in markets served by legacy carriers and other low-cost carriers, and, to a lesser extent, regional airlines. Some of our current or future competitors may have greater liquidity and access to capital and may serve more routes than we do.
Our principal competitive advantages are our low base fares and our focus on VFR travelers, leisure travelers and cost-conscious business people. These low base fares are facilitated by our low CASM, which at Ps. 130.9 cents (U.S. $6.45 cents) we believe was the lowest CASM in Latin America in 2021, compared to Azul at U.S. $9.44 cents, Copa at U.S. 9.10 cents, Gol at U.S. $12.39 cents, Grupo Aeroméxico at U.S. $13.31 cents and LATAM at U.S. $14.83 cents. We also have lower costs than our publicly traded target market competitors in the United States, including Alaska Air at U.S. $10.47 cents, Delta at U.S. $14.40, Jet Blue at U.S. $11.30 cents, Southwest Airlines at U.S. $10.66 cents, Frontier at U.S. $8.10 cents, Spirit at U.S. $8.07 cents, Allegiant at U.S. $8.26 and United at U.S. $14.36 cents.
Our competitors and the Mexican airline industry as a whole have also been significantly impacted by the COVID-19 pandemic. Our principal competitors in Mexico are Grupo Aeroméxico and VivaAerobus. Internationally, we compete with Grupo Aeroméxico, Viva Aerobus and many U.S.-based carriers, including Alaska Air, American, Delta and United. In the Mexico — Central America market our principal competitors are Grupo Aeroméxico and Avianca, while in the Central America — U.S. market our principal competitors are Avianca and Delta. For the Mexico — South America market our principal competitors are Grupo Aeroméxico, Viva Aerobus and LATAM.
In 2021, the Mexican low-cost carriers (including us) combined had 69.5% of the domestic market based on passenger flight segments. We had 41.2% of the domestic market which placed us first, according to AFAC. As of December 31, 2021, the number of commercial aircraft in service in Mexico increased to 310, as compared to 275 as of December 31, 2020, according to AFAC. This 13% increase was comprised mainly of narrow body aircraft, including 79 Airbus A320s, 51 Boeing 737s, and 16 Airbus A321s. On June 30, 2020, Grupo Aeroméxico, our largest competitor by domestic and international market share in 2019, announced that it was filing for Chapter 11 bankruptcy protection in the United States. On March 17, 2022 Grupo Aeromexico announced that it had concluded its restructuring process. As of December 31, 2021, AFAC reports indicate that Grupo Aeroméxico’s subsidiaries Aeroméxico and Aeroméxico Connect had fleets of 79 and 42 aircraft, respectively, as compared to 58 and 44, respectively, as of December 31, 2020. In addition, Interjet, our second largest competitor by international market share in 2019, has been unable to resume international flights since suspending the routes in March 2020. Interjet’s fleet decreased by 100% in 2021, from three aircraft as of December 31, 2020 to zero as of December 31, 2021, according to information published by the AFAC. Interjet has not operated any domestic flights since December 2020. According to media reports, on April 26, 2021, Interjet announced that its shareholders approved the filing of a reorganization process (concurso mercantil) in Mexico. VivaAerobus, our second largest competitor by domestic market share in 2020, has increased their fleet from 43 as of December 31, 2020 to 55 as of December 31, 2022. In addition to these changes in fleet size, our market share has also increased. As of December 2021, our domestic market share had increased 3.24 percentage points to 39% and our international market share decreased 3 percentage points to 11%, in each case as compared to our market shares as of December 2020.
74

Table of Contents
We also face domestic competition from ground transportation alternatives, primarily long-distance bus companies. There are limited passenger rail services in Mexico. There is a large bus industry in Mexico, with total passenger segments of approximately 1.87 billion in 2020 (the latest year for which data is available as of the date of this annual report), of which approximately 50.4 million were executive and luxury passenger segments, according to the Mexican Authority of Ground Transportation (Dirección General de Autotransporte Federal) and which could include both long- and short-distance travel. We set certain of our promotional fares at prices lower than bus fares for similar routes in order to stimulate demand for air travel among passengers who in the past have traveled long distances primarily by bus. We believe a small shift of bus passengers to air travel would dramatically increase the number of airline passengers and bring the air trips per capita figures in Mexico closer to those of other countries in the Americas.
Our principal competitors for the international routes between Mexico and the United States are Grupo Aeroméxico, Alaska Air, American, Delta and United. We reached 38.1% market share on the routes that we operate and 11.4% market share considering all routes between Mexico and the United States in 2021, according to the AFAC.
Seasonality and Volatility. Our results of operations for any interim period are not necessarily indicative of those for the entire year because our business is subject to seasonal fluctuations. We generally expect demand to be greater during the summer in the northern hemisphere, in December and around Easter, which can fall either in the first or second quarter, compared to the rest of the year. Our business is also volatile and highly affected by economic cycles and trends. Consumer confidence and discretionary spending, fear of terrorism or war, health outbreaks, weakening economic conditions, fare initiatives, fluctuations in fuel prices, labor actions, weather and other factors have resulted in significant fluctuations in our revenues and results of operations in the past. Particularly, in 2008, the demand for air transportation services was significantly adversely affected by both the severe economic recession and the record high fuel prices. We believe, however, that demand for business travel historically has been more sensitive to economic pressures than demand for low-price leisure and VFR travel, which are the primary markets we serve.
Donald Trump became president of the United States on January 20, 2017 and implemented a number of immigration policies that have adversely affected the United States—Mexico travel behavior, especially in the VFR and leisure markets. President Trump was not elected to a second term, and on January 20, 2021, Joseph Biden became the president of the United States. While President Biden has reversed many of President Trump’s immigration policies, we can offer no assurance of the extent to which his administration will continue to do so. President Trump’s immigration policies had a negative impact on our results of operations during 2019 and 2020 and this negative impact continued to some extent in 2021 although many of these immigration policies have been reversed by the new U.S. presidential administration.
Fuel. Fuel costs represent the single largest operating expense for most airlines, including ours, accounted for 38%, 26% and 34% (including derivative and non-derivative financial instruments) of our total operating expenses for 2019, 2020 and 2021, respectively. Fuel availability and pricing are also subject to refining capacity, periods of market surplus and shortage, and demand for heating oil, gasoline and other petroleum products, as well as economic, social and political factors and other events occurring throughout the world, which we can neither control nor accurately predict. We source a significant portion of our fuel from refining sources located in Mexico. Largely as a result of the conflict between Russia and Ukraine, we expect jet fuel prices in 2022 to remain higher than in 2021.
During the year ended December 31, 2021, we did not enter into new hedging positions for Jet Fuel.
During the year ended December 31, 2020, we entered into US Gulf Coast Jet Fuel 54 Asian call options designated to hedge 23,967 thousand gallons of fuel. Such hedges represented a portion of our projected consumption for second and third quarter 2020 and the first quarter of 2021. Additionally, during the same period, we entered into US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options designated to hedge 81,646 thousand gallons of fuel. The latter hedges represented a portion of our projected consumption for the second quarter and half of 2020 and second quarter of 2021.
During the year ended December 31, 2019, we entered into US Gulf Coast Jet Fuel 54 Asian call options designated to hedge 13,492 thousand gallons of fuel. Such hedges represented a portion of our fourth quarter 2019 projected consumption. Additionally, during the same period, we entered into US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options designated to hedge 70,136 thousand gallons of fuel. The latter hedges represented a portion of our projected third quarter 2019 and our 2020 consumption.
Our fuel cost is referenced to US Gulf Coast Jet Fuel 54 and US West Coast Jet Fuel, which are the crudes utilized to determine the cost of the fuel provided by our suppliers. Based on our 2021 annual fuel consumption, a 5% increase in the average price per gallon of those reference prices would have increased our fuel expense for 2021 by approximately Ps.523 million.
75

Table of Contents
As of December 31, 2021, we purchased our domestic fuel under the ASA fuel service contract, and international fuel under the WFS, Shell, Uno Petrol, Uno El Salvador, BP Products North America, Chevron and Associated Energy Group fuel service contracts. The cost and future availability of fuel cannot be predicted with any degree of certainty.
Currency fluctuations. The value of the peso has been subject to significant fluctuations with respect to the U.S. dollar in the past and may be subject to significant fluctuations in the future. If the peso declines in value against the U.S. dollar, our operating demand would be adversely affected.
We manage our foreign exchange risk exposure by a policy of matching, to the extent possible, receipts and local payments in each individual currency. Most of the surplus funds are converted into U.S. dollars. However, we are exposed to fluctuations in exchange rates between the peso and the U.S. dollar.
As of December 31, 2019, 2020 and 2021, our net monetary liability position denominated in U.S. dollars was U.S. $1.7 billion, U.S. $1.7 billion and U.S. $1.6 billion, respectively. As a result of either the appreciation or depreciation of the peso against the U.S. dollar in 2019, 2020 and 2021, and our net U.S. dollar liability position, we recorded a foreign exchange gain (loss), net of Ps.1.4 billion, Ps.0.5 billion and Ps.(2.6) billion, respectively. In order to mitigate the foreign exchange risk, we also entered into hedge relationships through non-derivative financial instruments.
As of December 31, 2021, as a result of the change in functional currency from the Mexican peso to the U.S. dollar, we concluded that these hedging strategies will no longer be effective and accounted for the discontinuation of the hedge relationships. Accordingly, the cash flow hedge reserve in other comprehensive income at the date of the change of Ps.2,251.4 million or U.S.$109 million was reclassified to the income statement, which represented a loss within the foreign exchange (loss) gain, net caption. Please see Item 3: --“ Currency fluctuations or the devaluation and depreciation of the peso could adversely affect our business, results of operations, financial condition, and prospects”.
Maintenance Expenses. We are required to conduct varying levels of aircraft and engine maintenance, which involve significantly different labor and materials inputs. Maintenance requirements depend on the age and type of aircraft and the route network over which they operate (flight duration and frequency of flights). Fleet maintenance requirements may involve short cycle maintenance checks, for example, daily checks, weekly checks, component checks, monthly checks, annual airframe checks and periodic major maintenance and engine checks. Aircraft maintenance and repair costs for routine and non-routine maintenance are divided into three general categories:
(i)Routine maintenance requirements (including line maintenance) consist of scheduled maintenance checks on our aircraft, including pre-flight, daily, weekly and checks, performed during the aircraft overnights, diagnostic and routine repairs and any necessary unscheduled tasks performed. These types of line maintenance are currently serviced by our mechanics and are primarily completed at the main airports that we currently serve.
Certain maintenance activities, due to limited internal capabilities or capacity, are sub-contracted to qualified maintenance, repair and overhaul organizations. Routine maintenance also includes scheduled tasks that require a hangar to be completed and can take from seven to 14 days to accomplish and are required approximately every 24 or 36 months, such as 24-month checks and C checks All routine maintenance costs are expensed as incurred.
(ii)Heavy or major maintenance to the airframe (structural checks) consists of a series of more complex tasks that can take from four to six weeks to accomplish and are generally required approximately every six years. Major maintenance is accounted for under the deferral method, whereby the cost of major maintenance and major overhaul and repair is capitalized as improvements to leased assets and amortized over the shorter period of the next major maintenance event or the remaining lease term.
(iii)Engine services are provided pursuant to an engine flight hour agreement that guarantees a cost performance restoration, provides miscellaneous engine coverage, contributes to the cost of foreign objects damage events, ensures protection from annual escalations for engine repair services. We also have a power-by-hour agreement for component maintenance, which guarantees the availability of most of the aircraft parts for our fleet when they are required and provides support for aircraft components to meet redelivery conditions of the leasing contract with a capped cost at the time of redelivery. The costs associated with the miscellaneous engine coverage and the component services agreements are recorded in the consolidated statements of operations.
76

Table of Contents
Due to the young age of our fleet 5.4 years on average as of December 31, 2021, maintenance expense in 2019, 2020 and 2021 remained relatively low. For the years ended December 31, 2019, 2020 and 2021 we capitalized major maintenance events as part of leasehold improvements to the flight equipment in the amount of Ps.659.1 million, Ps.646.2 million and Ps.1,742.9 million, respectively. For the years ended December 31, 2019, 2020 and 2021 the amortization of these deferred major maintenance expenses was Ps.450.4 million, Ps.652.1 million and Ps.838.4 million, respectively. The amortization of deferred maintenance expenses is included in depreciation and amortization rather than total maintenance costs as described in “—Other Accounting Polices and Estimates.” In 2019, 2020 and 2021, total maintenance costs amounted to Ps.1.5 billion, Ps.1.2 billion and Ps.2.0 billion, respectively. As the fleet ages, we expect that maintenance costs will increase in absolute terms. The amount of total maintenance costs and related amortization of heavy maintenance expense is subject to many variables such as future utilization rates, average stage length, the size and makeup of the fleet in future periods and the level of unscheduled maintenance events and their actual costs. Accordingly, we cannot reliably quantify future maintenance expenses for any significant period. However, we estimate that based on our scheduled maintenance events, current major maintenance expense and maintenance-related amortization expense will be approximately U.S. $269.2 million and U.S. $86.3 million, respectively, in 2022.
Aircraft Maintenance Deposits Paid to Lessors. The terms of our aircraft lease agreements require us to pay maintenance deposits to lessors to be held as collateral for the performance of major maintenance activities, resulting in our recording significant prepaid deposits on our consolidated statements of financial position. As a result, the cash costs of scheduled major maintenance events are paid well in advance of the recognition of the maintenance event in our results of operations. Please see Item 5:—“Other Accounting Policies and Estimates.”
Ramp-up Period for New Routes. During 2019 we opened 30 new routes, added 13 more in 2020 and six more in 2021. As we continue to grow, we would expect to continue to experience a lag between when new routes are put into service and when they reach their full profit potential. See Item 3: “Key Information—Risk Factors—Airline consolidations and reorganizations could adversely affect the industry.”
Critical Accounting Policies and Estimates
The following discussion and analysis of our consolidated financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with IFRS. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of supplemental assets and liabilities at the date of our consolidated financial statements. Note 1 to our consolidated financial statements included herein provides a detailed discussion of our significant accounting policies.
Critical accounting policies are defined as those policies that reflect significant judgments or estimates about matters that are both inherently uncertain and material to our financial condition or results of operations.
Return obligations. The aircraft and engine lease agreements also require that the aircraft and engines be returned to lessors under specific conditions of maintenance. The costs of return, which in most cases are related to scheduled major maintenance, are estimated, and recognized ratably as a provision from the time it becomes likely such costs will be incurred and can be estimated reliably. These return costs are recognized on a straight-line basis as a component of variable rent expenses and the provision is included as part of other liabilities, through the remaining lease term. We estimate the provision related to airframe, engine overhaul and limited life parts using certain assumptions including the projected usage of the aircraft and the expected costs of maintenance tasks to be performed. For the years ended December 31, 2019, 2020 and 2021, the Company expensed as variable rent Ps.681.0 million, Ps.1,428.2 million and Ps.1,131.1 million, respectively.
Other Accounting Policies and Estimates
Other accounting policies and estimates used in the preparation of our Consolidated Statement Financial Position and Consolidated Statement of Operations are presented as follows:
Aircraft Maintenance Deposits Paid to Lessors. Our lease agreements provide that we pay maintenance deposits or supplement rent to aircraft lessors to be held as collateral in advance of our performance of major maintenance activities. Maintenance deposits are held as collateral in cash. These lease agreements provide that maintenance deposits are reimbursable to us upon completion of the maintenance event in an amount equal to the lesser of (i) the amount of the maintenance deposits held by the lessor associated with the specific maintenance event or (ii) the qualifying costs related to the specific maintenance event. Substantially all of
77

Table of Contents
these maintenance deposits are calculated based on a utilization measure, such as flight hours or cycles, and are used solely to collateralize the lessor for maintenance time run off the aircraft until the completion of the maintenance of the aircraft and engines. We paid Ps.64.6 million, Ps.702 million and Ps.1,619.4 million in maintenance deposits, net of reimbursements, to our lessors for the years ended December 31, 2019, 2020 and 2021, respectively.
At lease inception and at each consolidated statement of financial position date, we assess whether the maintenance deposit payments required by the lease agreements are substantively and contractually related to the maintenance of the leased asset. Maintenance deposit payments that are substantively and contractually related to the maintenance of the leased asset are accounted for as maintenance deposits. Maintenance deposits expected to be recovered from lessors are reflected as guarantee deposits in the accompanying consolidated statement of financial position.
The portion of prepaid maintenance deposits that are deemed unlikely to be recovered, primarily relate to the rate differential between the maintenance deposits payments and the expected cost for the next related maintenance event that the deposits serve to collateralize is recognized as supplemental rent.
Thus, any excess of the required deposit over the expected cost of the major maintenance event is recognized as supplemental rent starting from the period the determination is made. When it is not probable that we will recover amounts currently on deposit with a lessor, such amounts are expensed as supplemental rent. We expensed Ps.295.7 million in 2019, Ps.421.0 million in 2020 and Ps.775.6 million in 2021 of maintenance deposits as supplemental rent.
As of December 31, 2019, 2020 and 2021 we had prepaid maintenance deposits of Ps.6.4 billion, Ps.7.1 billion and Ps.8.8 billion, respectively, recorded in our consolidated statements of financial position. We currently expect that these prepaid maintenance deposits are likely to be recovered primarily because there is no rate differential between the maintenance deposit payments and the expected cost for the related next maintenance event that the deposits serve to collateralize.
During the year ended December 31, 2019, the Company extended the lease period, through lease agreements, of one aircraft. Additionally, the Company extended the lease period for a spare engine in 2019. During the year ended December 31, 2020, the Company did not extend the period of lease contracts for aircraft and engines. During the year ended December 31, 2021, the Company extended the lease period for aircraft and engines, through lease agreements for fifteen aircraft and three engines.
During the year ended December 31, 2021, we added 15 new net aircraft to our fleet. The lease agreements of some of these aircraft do not require the obligation to pay maintenance deposits to lessors in advance in order to ensure major maintenance activities, so we do not record guarantee deposits regarding these aircraft. However, some of these agreements provide the obligation to make a maintenance adjustment payment to the lessors at the end of the contract period. This adjustment covers maintenance events that are not expected to be made before the termination of the contract. We recognize this cost as supplemental rent during the lease term of the related aircraft, in the consolidated statements of operations.
Aircraft and Engine Maintenance. We account for major maintenance under the deferral method. Under the deferral method, the cost of major maintenance is capitalized (leasehold improvements to flight equipment) and amortized as a component of depreciation and amortization expense until the next major maintenance event or during the remaining contractual lease term, whichever occurs first. The next major maintenance event is estimated based on assumptions including estimated usage maintenance intervals mandated by the FAA in the United States and the AFAC in Mexico and average removal times suggested by the manufacturer. These assumptions may change based on changes in the utilization of aircraft, changes in government regulations and changes in suggested manufacturer maintenance intervals. In addition, these assumptions can be affected by unplanned incidents that could damage an airframe, engine, or major component to a level that would require a major maintenance event prior to a scheduled maintenance event. To the extent the planned usage increases, the estimated useful life would decrease before the next maintenance event, resulting in additional amortization expense over a shorter period.
In 2019, 2020 and 2021, we capitalized costs of major maintenance events of Ps.659.1 million, Ps.646.2 million and Ps.1,742.9 million, respectively and we recognized amortization expenses of Ps.450.4 million, Ps.652.1 million and Ps.838.4 million, respectively. The amortization of deferred maintenance expenses is included under the caption depreciation and amortization expense in our consolidated statements of operations. If the amortization of major maintenance expenditures were classified as maintenance expense, they would amount to Ps.1.9 billion, Ps.1.8 billion and Ps.2.8 billion for the years ended December 31, 2019, 2020 and 2021, respectively.
78

Table of Contents
In August 2012, we entered into a total support agreement with Lufthansa Technik AG, or LHT, as amended in December 2016, that expires June 30, 2023, which includes a total component support agreement (power-by-hour) and ensures the availability of aircraft components for our fleet when they are required. The cost of the total component support agreement is applied monthly to the results of operations. As part of this total support agreement, we received credit notes of Ps.46.5 million and of Ps.28.1 million, which were deferred on the consolidated statements of financial position and are being amortized on a straight - line basis, prospectively during the term of the agreement.
During 2019, 2020 and 2021, we amortized a corresponding benefit from these credit notes of, Ps.5.2 million, Ps.5.2 million and Ps.5.2 million, respectively, which is recognized in the consolidated statements of operations as a reduction of maintenance expenses.
Fair Value. The fair value of our financial assets and financial liabilities recorded in the consolidated statements of financial position cannot be derived from active markets. They are determined using valuation techniques such as the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and expected volatility. Changes in assumptions regarding these factors could affect the reported fair value of financial instruments.
Gains and Losses on Sale and Leaseback. We enter into sale and leaseback agreements whereby an aircraft or engine is sold to a lessor upon delivery and the lessor agrees to lease such aircraft or engine back to us.
Starting January 1, 2019, we measure the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained by the seller-lessee. Accordingly, we recognize in the Statement of Operations only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor. If the fair value of the consideration for the sale of an asset does not equal the fair value of the asset, or if the payments for the lease are not at market rates, then the Company adjusts the difference to measure the sale proceeds at fair value and accounts for any below-market terms as a prepayment of lease payments an any above market terms as additional financing provided by the buyer-lessor to the seller-lessee.
During the year ended December 31, 2019, 2020 and 2021, we sold and transferred aircraft and engines to third parties, giving rise to a gain of Ps.284.8 million, Ps.710.5 million and Ps.195.6 million, respectively, that was recorded as other operating income in the consolidated statements of operations.
During the year ended December 31, 2011, we entered into aircraft and spare engine sale and leaseback transactions, which resulted in a loss of Ps.30.7 million. This loss was deferred on the consolidated statements of financial position and is being amortized over the contractual lease term. For the years ended December 31, 2019, 2020 and 2021, we amortized a loss of Ps.3.0 million, Ps.3.0 million and Ps.2.2 million, respectively, as additional aircraft rental expense.
Equity-settled Transactions
Equity-settled transactions are measured at fair value at the date the equity benefits are conditionally granted to employees. Our Equity-settled Transactions include long-term retention plans comprised of: (i) a management incentive plan; (ii) long-term incentive plan; and (iii) a board of directors incentive plan.
Long-Term Retention Plans
Management Incentive Plan
Certain key employees received additional benefits through a Management Incentive Plan, which was classified as an equity-settled. As of the grant date the fair value of the transaction is fixed and is not adjusted by subsequent changes in the fair value of capital instruments. The total cost of the management incentive plan was Ps.2.7 million. This amount was expensed over the vesting period, which commenced retroactively upon consummation of our initial public offering and ended on December 31, 2015.
The factors considered in the valuation model for the management incentive plan included a volatility assumption estimated from historical returns on common stock of comparable companies and other inputs obtained from independent and observable
79

Table of Contents
sources, such as Bloomberg. The share spot price fair value was determined using the market approach valuation methodology, with the following assumptions:

	    	2012		
Dividend yield (%)	 	0.00	%	
Volatility (%)	 	37.00	%	
Risk—free interest rate (%)	 	5.96	%	
Expected life of share options (years)	 	8.80		
Exercise share price (in Mexican pesos Ps.)	 	5.31		
Exercise multiple	 	1.10		
Fair value of the stock at grant date	 	1.73		

The dividend yield was set at zero because at the time the management incentive plan was valued and as of the date of this annual report, we do not have any plans to pay a dividend.
The volatility was determined based on average historical volatilities. Such volatilities were calculated according to a database including up to 18 months of historical stock price returns of U.S. and Latin American publicly traded airlines. The expected volatility reflects the assumption that the historical volatility of comparable companies is indicative of future trends, which may not necessarily be the actual outcome.
The risk-free interest rate is the interbank interest rate in Mexico, continuously expressed, accordingly to the corresponding term.
The expected life of the share options is an output of the valuation model and represents the average time the option is expected to remain viable, assuming the employee does not leave during the vesting period.
The management incentive plan explicitly incorporates expectations of the employee’s early exercise behavior by assuming that early exercise happens when the stock price is a certain multiple, M, of the exercise price. The exercise multiple M, of 1.1x incorporates the assumption that the employee’s exercise of the options can occur when the share prices are 1.1 times the exercise price, i.e., 10% above the exercise price.
During 2019, the key employees participating in the management incentive plan exercised 2,780,000 Series A shares. The key employees paid Ps.14.8 million to the Management Trust corresponding to the exercised shares. Thereafter, we received from the Management Trust the payment related to the exercised shares by the key employees as a repayment of the loan between the Company and the Management Trust.
During 2020, the key employees participating in the management incentive plan did not exercise any Series A shares. Thus, the key employees did not pay any amounts to the Management Trust corresponding to any exercised shares.
During 2021, the key employees participating in the management incentive plan exercised 7,653,981 Series A shares. As a result, the key employees paid Ps.40.7 million to the Management Trust corresponding to the shares exercised. Thereafter, we received from the Management Trust the payment related to the exercised shares by the key employees as a repayment of the loan between the Company and the Management Trust.
At December 31, 2019, 2020 and 2021, the shares held in trust to satisfy the management options were considered treasury shares. At December 31, 2019 and 2020, 7,653,981 and 7,653,981 share options pending to be exercised were considered as treasury shares, respectively. At December 31, 2021 all share options were exercised.
Movements during the year
The following table illustrates the number of share options and fixed exercise prices during the year:
80

Table of Contents

					Exercise price			Total in thousands	
	    	Number	    		in pesos	    		of pesos	
Outstanding as of January 1, 2019	 	10,433,981		Ps.	5.31		Ps.	55,441	
Granted during the year	 	—			—			—	
Forfeited during the year	 	—			—			—	
Exercised during the year	 	(2,780,000)			5.31			(14,773)	
Outstanding as of December 31, 2019	 	7,653,981		Ps.	5.31		Ps.	40,668	
									
Granted during the year	 	—			—			—	
Forfeited during the year	 	—			—			—	
Exercised during the year	 	—			—			—	
Outstanding as of December 31, 2020	 	7,653,981		Ps.	5.31		Ps.	40,668	
Granted during the year	 	—			—			—	
Forfeited during the year	 	—			—			—	
Exercised during the year	 	(7,653,981)			5.31			(40,668)	
Outstanding as of December 31, 2021	 	—		Ps.	—		Ps.	—	

Long-term Incentive Plan (equity-settled)
In November 2014, we established an equity-settled long-term incentive plan pursuant to which certain of our key executives were granted a special bonus equal to a fair value of Ps.10.8 million to be used to purchase our shares. On April 21, 2016, an amendment to this plan was approved at our annual ordinary shareholders’ meeting. The key components of the plan are as follows:

	(i)	Servicios Corporativos granted a bonus to each key executive.	
	(ii)	Pursuant to the instructions of such key executives, on November 11, 2014, an amount equal to Ps.7.1 million (the fair value of the bonus net of withheld taxes) was transferred to an administrative trust for the acquisition of our Series A shares through an intermediary authorized by the Mexican stock market, based on the instructions of the administration trust’s technical committee. An amount equal to Ps.7.5 million (the fair value of the bonus net of withheld taxes) was approved in April 2016 as an extension of this plan for the acquisition of our Series A shares, following the same mechanism.	
	(iii)	Subject to the terms and conditions set forth in the administrative trust agreement signed in connection thereto, the acquired shares are to be held in escrow in the administrative trust until the applicable vesting period date for each key executive, which is the date as of which each such key executive can fully dispose of the shares as desired.	
	(iv)	If the terms and conditions set forth therein are not meet by the applicable vesting period date, then the shares will be sold in the BMV and Servicios Corporativos will be entitled to receive the proceeds from such sale.	
	(v)	Each key executive’s account balance will be administered by the administrative trustee, whose objective is to manage the shares granted to each key executive based on instructions set forth by the administrative trust’s technical committee.	
The total cost of this plan is Ps.10.8 million. This valuation is the result of multiplying the total number of our Series A shares deposited in the administrative trust and the price per share, plus the balance in cash deposited in the administrative trust. This amount was expensed over the vesting period, which commenced on November 11, 2014 and ended in November 2019.
In November 2019, 2020 and 2021, extensions to this plan were approved by our board of directors. The total cost of each of the extensions approved was Ps.86.8 million (or Ps.56.4 million, net of withheld taxes), Ps.92.1 million (or Ps.59.9 million, net of withheld taxes) and Ps.104.7 (Ps.68.1 net of withheld taxes), respectively. Under these extensions, certain of our key employees received granted a special bonus that was transferred to the administrative trust for the acquisition of our Series A shares.
During 2019, 2020 and 2021, we recognized Ps.49.7 million, Ps.75.0 million and Ps.89.5 million, respectively, as compensation expense associated with the long-term incentive plan in our consolidated statements of operations.
81

Table of Contents
Movements during the year
The following table illustrates the number of shares associated with our long-term incentive plan during the year:

		Number of	
	    	Series A shares	
Outstanding as of January 1st, 2019		3,553,295	
Purchased during the year		2,694,600	
Granted during the year		—	
Exercised/vested during the year		(959,614)	
Forfeited during the year		(173,090)	
Outstanding as of December 31, 2019		*5,115,191	
Purchased during the year		3,159,763	
Granted during the year		—	
Exercised/vested during the year		(2,142,426)	
Forfeited during the year		(327,217)	
Outstanding as of December 31, 2020		*5,805,311	
Purchased during the year		1,849,417	
Granted during the year		—	
Exercised during the year		(2,612,575)	
Forfeited during the year		(551,732)	
Outstanding as of December 31, 2021		*4,490,421	

*	These shares were presented as treasury shares in the consolidated statements of financial position as of December 31, 2019, 2020 and 2021, all are considered outstanding for basic and diluted earnings per share purposes because the holders are entitled to dividends if and when distributed.	
The vesting period of the shares granted under the Company’s equity-settled long-term incentive plan is as follows:

Number of Series A shares	    	Vesting period	
2,408,277		November 2021-2022	
1,485,802		November 2022-2023	
596,342		November 2023-2024	
4,490,421			

During the year ended December 31, 2021, some key employees left the Company; therefore, the vesting conditions were not fulfilled. In accordance with the plan, Servicios Corporativos is entitled to receive the proceeds of the sale of such shares. During the year ended December 31, 2019, 2020 and 2021, shares were (173,090), (327,217) and (551,732).

Board of Directors Incentive Plan (BoDIP)
In April 2018, our shareholders at the annual shareholders meeting authorized a stock plan for the benefit of certain independent members of our board of directors, or the BoDIP. The BoDIP was implemented through the execution of: (i) trust agreement number CIB/3081 created by us, as trustor, and CIBanco, S.A., Institucion de Banco Multiple, as trustee, on August 29, 2018; and (ii) a stock purchase agreement between each plan participant and the trustee, under which a plan participant has a period of five years to exercise his/her option to pay a fixed purchase price, with the title to the shares transferring to the plan participant upon payment of such purchase price by the plan participant. The number of shares held by the trustee as of December 31, 2020 was 5,233,693, of which 3,161,349 shares were priced at Ps.9.74; 968,706 shares were priced at Ps. 16.80; 977,105 shares were priced at 16.12 and 126,533 shares were priced at Ps.26.29. As of December 31, 2020, there were no exercises under the BoDIP. The number of shares held by the trustee as of December 31, 2021 was 4,589,726, of which 610,848 shares were priced at Ps.32.23; 2,458,827 shares were priced at Ps.9.74; 807,255 shares were priced at Ps.16.80; 586,263 shares were priced at Ps.16.12 and 126,533 shares were priced at Ps.26.29.
During 2021, the key employees participating in BoDIP exercised 1,254,815 Series A shares. As a result, the key employees paid Ps.15.9 million to the Management Trust corresponding to the shares exercised. Thereafter, we received from the Management Trust the payment related to the exercised shares by the key employees as a repayment of the loan between the Company and the Management Trust.
82

Table of Contents
Cash-settled Transactions
Cash-settled transactions include share appreciation rights, or SARs. Our cash-settled transactions include long-term retention plans comprised of: (i) management incentive plan II and (ii) a cash-settled long-term incentive plan.
Long-term Retention Plans
Management Incentive Plan II
On November 6, 2016, our board of directors approved an extension of the management incentive plan to certain key employees, known as MIP II. Under MIP II, 13,536,960 share appreciation rights, or SARs, of our Series A shares were granted to be settled annually in cash in a period of five years in accordance with the established service conditions. In addition, a five-year extension to the period in which the executives can exercise MIP II once the SARs are vested was also approved.
The fair value of these SARs is estimated at the grant date and at each reporting date using the Black-Scholes option pricing model, which takes into account the terms and conditions on which the SARs were granted. The amount of the cash payment is determined based on the increase in our share price between the grant date and the settlement date.
The carrying amount of the liability relating to these SARs as of December 31, 2019, 2020 and 2021 was Ps.70.6 million, Ps.177.8 million and Ps.115.5 million, respectively. The compensation benefit is recognized in our consolidated statements of operations under the caption salaries and benefits over the service period. During the years ended December 31, 2019, 2020 and 2021 we recorded an expense (benefit) of Ps.37.8 million, Ps.107.2 million and Ps.(62.3) million, respectively, associated with these SARs in our consolidated statements of operations. No SARs were exercised during 2021 and 2020.
Cash-settled Long-term Incentive Plan
During 2010, we adopted an employee long-term incentive plan, the purpose of which is to retain high-performing employees within the organization by paying incentives depending on our performance. Incentives under this plan were payable in three annual installments, following the provisions for other long-term benefits under IAS 19. During the year ended December 31, 2013 and 2012 we expensed Ps.6.3 million and Ps.6.5 million respectively, as bonuses as part of the caption salaries and benefits. During 2014, this plan was structured as a long-term incentive plan, which consists of a long-term incentive plan (equity-settled) and long-term incentive plan (cash-settled).
On November 6, 2014 we granted 4,315,264 Series A SARs to key executives. The SARs vest during a three-year period as long as the employee completes the required service period and entitle them to a cash payment. As of the grant date the number of SARs granted under this plan totaled Ps.10.8 million.
Under the plan extensions described above, no SARs were granted to any of our key executives for the years ended December 31, 2019, 2020 and 2021.
The fair value of these SARs is estimated at the grant date and at each reporting date using the Black-Scholes option pricing model, which takes into account the terms and conditions on which the SARs were granted. The amount of the cash payment is determined based on the increase in our share price between the grant date and the settlement date.
The carrying amount of the liability relating to the SARs as of December 31, 2019 was Ps.1.9 million. The compensation cost is recognized in our consolidated statements of operations under the caption of salaries and benefits over the service period. During the years ended December 31, 2019, 2020 and 2021, we recorded an expense (benefit) of Ps.3.0 million, Ps.(1.9) million and Ps.0 million, respectively, in respect of these SARs in our consolidated statements of operations. The retention plan granted in previous periods expired in November 2020.
Derivative Financial Instruments and Hedge Accounting. We mitigate certain financial risks, such as volatility in the price of jet fuel, adverse changes in interest rates and exchange rate fluctuations, through a controlled risk management policy that includes the use of derivative financial instruments. The derivative financial instruments are recognized in the consolidated statement of financial position at fair value. The effective portion of a cash flow hedge’s unrecognized gain or loss is recognized in “Accumulated other comprehensive income (loss) items,” while the ineffective portion is recognized in current year earnings. The realized gain or loss of derivative financial instruments that qualify as hedging is recorded in the same statements of operations as the realized gain or loss of
83

Table of Contents
the hedged item. Derivative financial instruments that are not designated as or not effective as a hedge are recognized at fair value with changes in fair value recorded in current year earnings. Outstanding derivative financial instruments may require collateral to guarantee a portion of the unsettled loss prior to maturity. The amount of collateral delivered in guarantee, which is presented as part of “Guarantee deposits,” is reviewed and adjusted on a daily basis, based on the fair value of the derivative position. As of December 31, 2021, we did not have any collateral recorded as a guarantee deposits.

	(i)	Aircraft Fuel Price Risk. We account for derivative financial instruments at fair value and recognize them in the consolidated statements of financial position as an asset or liability. The cost of aircraft fuel consumed in 2019, 2020 and 2021 represented 38%, 26% and 34% (including derivative and non-derivative financial instruments) of our operating expenses, respectively. To manage aircraft fuel price risk, we periodically enter into derivatives financial instruments.	
During the year ended December 31, 2021, we did not enter into new hedging positions for Jet Fuel.
During the year ended December 31, 2020, we entered into US Gulf Coast Jet Fuel 54 Asian call options designated to hedge 23,967 thousand gallons of fuel. Such hedges represented a portion of our projected consumption for the second and thirth quarter of 2020 and first quarter of 2021. Additionally, during the year ended December 31, 2020, we entered into US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options designated to hedge 81,646 thousand gallons of fuel. The latter hedges represented a portion of our projected consumption for the second quarter of 2020, second quarter and half of 2020 and second quarter of 2021.
During the year ended December 31, 2019, we entered into US Gulf Coast Jet Fuel 54 Asian call options designated to hedge 13,492 thousand gallons of fuel. Such hedges represented a portion of our fourth quarter 2019 projected consumption. Additionally, during the year ended December 31, 2020, we entered into US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options designated to hedge 70,136 thousand gallons of fuel. The latter hedges represented a portion of our projected third quarter 2019 and our 2020 consumption.
Our fuel cost is referenced to US Gulf Coast Jet Fuel 54 and US West Coast Jet Fuel, which are the crudes utilized to determine the cost of the fuel provided by our suppliers. Based on our 2021 annual fuel consumption, a 5% increase in the average price per gallon of those reference prices would have increased our fuel expense for 2021 by approximately Ps.523 million.
During the year ended December 31, 2021, the Company did not enter into derivative financial instruments to hedge US Gulf Coast Jet Fuel 54 Asian call options and US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options. During the year ended December 31, 2020, the US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options were designated to hedge approximately 3% of our 2021 fuel consumption, as well as US Gulf Coast fuel 54 Asian call options to hedge approximately 3% of projected fuel consumption for 2021. During the year ended December 31, 2019, we entered into US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options designated to hedge approximately 20% of our 2020 fuel consumption, as well as US Gulf Coast fuel 54 Asian call options that expired by the end of 2019 to hedge approximately 5% of projected fuel consumption for 2019.
We apply IFRS 9, which comprises aspects related to classifications and measurement of financial assets and financial liabilities, as well as hedge accounting treatment. Paragraph 6.2.4 (a) of IFRS 9 allows us to separate the intrinsic value and time value of an option contract and to designate as the hedging instrument only the change in the intrinsic value of the option. As further required in paragraph 6.5.15 therein, because the external value (time value) of the Jet fuel 54 Asian call options are related to a “transaction related hedged item,” it is required to be segregated and accounted for as a “cost of hedging” in other comprehensive income, or OCI, and accrued as a separate component of stockholders’ equity until the related hedged item affects profit and loss.
Since monthly forecasted jet fuel consumption is considered the hedged item of the “related to a transaction” type, then the time value included as accrued changes on external value in capital is considered as a “cost of hedging” under IFRS 9. The hedged item (jet fuel consumption) of the Jet fuel 54 Asian call options contracted by us represent a non-financial asset (energy commodity), which is not in our inventory. Instead, it is directly consumed by our aircraft at different airport terminals. Therefore, although a non-financial asset is involved, its initial recognition does not generate a book adjustment in our inventories. Rather, it is initially accounted for in our OCI and a reclassification adjustment is made from OCI toward the profit and loss and recognized in the same period or
84

Table of Contents
periods during which the hedged item is expected to be allocated to profit and loss (in accordance with IFRS 9.6.5.15, B6.5.29 (a), B6.5.34 (a) and B6.5.39). As of January 2015, we began to reclassify these amounts (previously recognized as a component of equity) to our statement of operations in the same period in which our expected jet fuel volume consumed affects our jet fuel purchase line item therein.
All the Company’s Asian calls matured throughout the first quarter of 2021. The Zero-Cost Collars matured throughout the second quarter of 2021, leaving no outstanding fuel position going forward as of December 31, 2021.
As of December 31, 2019 and 2020 the fair value of our outstanding US Gulf Coast Jet Fuel 54 Asian call options was Ps.0.0 million and Ps.0.2 million, respectively. During the years ended December 31, 2019, 2020 and 2021, the net negative (positive) cost of these options recycled to our fuel cost totaled Ps.61.1 million, Ps.20.6 million and Ps.12.6 million, respectively.
As of December 31, 2020, the fair value of our outstanding US Gulf Coast Jet Fuel 54 Zero-Cost collar options was Ps.(9.7) million, and these were presented as part of the financial assets and financial liabilities line items in our consolidated statements of financial position. During the years ended December 31, 2020, the net cost of these options recycled to our fuel cost totaled Ps.835.9 million, respectively. During the year ended December 31, 2021, there was no cash flow to recycle for the Zero-Cost collar position.
As of December 31, 2019, the amount of (benefit) hedge was Ps.(133.6), and was recycled to the fuel cost in 2021, as these options were expired on a monthly basis and the jet fuel was consumed. The cost of hedging derived from the extrinsic value changes of the jet fuel hedged position as of December 31, 2020 recognized in other comprehensive income totals Ps.21.7 million, respectively. During the year ended December 31, 2021, all the derivative financial instruments were effective.
For the period ended December 31, 2021, there was no cost of hedging as all the derivatives position matured all through second quarter of 2021.

	(ii)	Foreign Currency Risk. Foreign currency risk is the risk that the fair value of future cash flows will fluctuate because of changes in foreign exchange rates. Our exposure to the risk of changes in foreign exchange rates relates primarily to our operating activities (when revenue or expense is denominated in a different currency than pesos). Exchange exposure relates to amounts payable arising from U.S. dollar-denominated and U.S. dollar-linked expenses and payments. To mitigate this risk, we may use foreign exchange derivative financial instruments and non-derivative financial instruments.	
During the year ended December 31, 2018, the Company entered into foreign currency forward contracts in U.S. dollars to hedge approximately 20% of its next 12 months of aircraft rental expenses. A portion of the Company’s foreign currency forwards matured during the fourth quarter of 2018 (November and December), and the remainder of the Company’s outstanding position matured during the first quarter of 2019 (January).
During the year ended December 31, 2020 and 2021, the Company did not enter into foreign currency forward contracts.
Our foreign exchange exposure as of December 31, 2019, 2020 and 2021 was a net liability position of U.S. $1.7 billion, U.S. $1.7 billion and U.S. $1.6 billion, respectively.
Hedging relationships with non-derivative financial instruments.
We mitigate certain financial risks, such as volatility in the price of jet fuel, adverse changes in interest rates and exchange rate fluctuations, through risk management that includes the use of derivative financial instruments and non-derivative financial instruments.
In accordance with IFRS 9, derivative financial instruments and non-derivative financial instruments are recognized in the consolidated statement of financial position at fair value. At the inception of a hedge relationship, we formally designate and document the hedge relationship to which we wish to apply hedge accounting, as well as the risk management objective and strategy for undertaking the hedge. The documentation includes the hedging strategy and objective, identification of the hedging instrument, the hedged item or transaction, the nature of the risks being
85

Table of Contents
hedged and how we will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risks.
Only if such hedges (i) are expected to be effective in achieving offsetting changes in fair value or cash flows of the hedge items and (ii) are assessed on an ongoing basis to determine that they have been effective throughout the financial reporting periods for which they were designated, can hedge accounting treatment be used.
Under the cash flow hedge, or CFH, accounting model, the effective portion of the hedging instrument’s changes in fair value is recognized in OCI, while the ineffective portion is recognized in current year earnings in the statement of profit or loss. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item. The amounts recognized in OCI are transferred to earnings in the period in which the hedged transaction affects earnings. As of December 31,2020, the Company recorded the ineffective portion of Ps.448.6 million, with respect to derivative financial instruments. During the year ended December 31, 2019, there was no ineffectiveness with respect to derivative financial instruments.
The realized gain or loss of derivative financial instruments and non-derivative financial instruments that qualify as CFH are recorded in the same caption as the hedged item in the consolidated statement of operations.
As of December 31, 2021, as a result of the change in functional currency from the Mexican peso to the U.S. dollar, we concluded that these hedging strategies will no longer be effective, for which reason it accounted for the discontinuation of the hedge relationships. Accordingly, the cash flow hedge reserve in other comprehensive income at the date of the change of Ps.2,251.4 million or U.S.$109 million was reclassified to the income statement, which represented a loss within the foreign exchange gain (loss), net caption.
Please see Item 3: --“ Currency fluctuations or the devaluation and depreciation of the peso could adversely affect our business, results of operations, financial condition, and prospects”.
(iii)Interest Rate Risk. Interest rate risk is the risk that the fair value of future cash flows will fluctuate because of changes in market interest rates. Our exposure to the risk of changes in market interest rates relates primarily to our long-term debt obligations and lease obligations with floating interest rates. As of December 31, 2019, we had an outstanding hedging contract in the form of an interest rate cap with a notional amount of Ps.1.5 billion and a fair value of Ps.2.7 million. As of December 31, 2020, we had an outstanding hedging contract in the form of an interest rate cap with a notional amount of Ps.1.5 billion and a fair value of Ps.0.3 million. As of December 31, 2021, we had an outstanding hedging contract in the form of an interest rate cap with a notional amount of Ps.2.8 billion and a fair value of Ps.28.8 million. These instruments are included as assets in our consolidated statements of financial position.
The table below presents the payments required by our financial liabilities:

		Within one		One to five			
		Year		Years		Total	
Interest-bearing borrowings:							
Pre-delivery payment facilities		3,535,649	 		 	3,535,649	
Asset backed trust note		500,000	 	2,250,000	 	2,750,000	
Total		4,035,649		2,250,000		6,285,649	

Deferred Taxes. Deferred taxes are recorded based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carry-forwards. In assessing our ability to realize deferred tax assets, our management considers whether it is more likely than not that some or all of the deferred tax assets will be realized. In evaluating our ability to utilize our deferred tax assets, we consider all available evidence, both positive and negative, in determining future taxable income on a jurisdiction-by-jurisdiction basis. At December 31, 2019, 2020 and 2021, we had tax loss carry-forwards amounting to Ps.1.3 billion, Ps.1.9 billion and Ps.0.3 billion, respectively. These losses relate to our and our subsidiaries’ operations on a stand-alone basis, which in conformity with current Mexican Income Tax Law may be carried forward against taxable income generated in the succeeding years in each country and may not be used to offset taxable income elsewhere in our consolidated group. During the year ended December 31, 2019, we used tax-loss carry-forwards of Ps.214.5 million. During the year ended December 31, 2020, we
86

Table of Contents
did not use any tax-loss carry-forwards. During the year ended December 31, 2021, we used tax-loss carry-forwards of Ps.1,944.9 million.
Central America (Guatemala, Costa Rica and El Salvador)
According to Guatemala corporate income tax law, under the regime on profits from business activities net operating losses cannot offset taxable income in prior or future years. For the years ended December 31, 2019, 2020 and 2021, we generated a net operating loss of Ps.1.1 million, Ps.1.8 million and Ps.0.6 million, respectively.
According to Costa Rica corporate income tax law, the tax is based on the net income earned from traffic whose origin or final destination is Costa Rica and net operating losses can offset taxable income in a term of three years. For the years ended December 31, 2019, 2020 and 2021, we generated net operating losses of Ps.50.2 million, Ps.55.8 million and Ps.122.4 million, respectively, which have not been recognized as deferred tax assets.
According to El Salvador corporate income tax law, under the regime on profits from business activities, net operating losses cannot offset taxable income in prior or future years. For the years ended December 31, 2019, 2020 and 2021, we generated a net operating loss of Ps.32.5 million, Ps.16.6 million and Ps.53.6 million, respectively.
Impairment of Long-Lived Assets. The carrying value of flight equipment, furniture and equipment and right of use assets is reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable and the cumulative impairment losses are shown as a reduction in the carrying value of flight equipment, furniture and equipment and right of use assets.
We record impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired or when the carrying amount of a long-lived asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less cost to sell and its value in use.
The value in use calculation is based on a discounted cash flow model, using our projections of operating results for the near future. The recoverable amount of long-lived assets is sensitive to the uncertainties inherent in the preparation of projections and the discount rate used in the calculation.
For the years ended December 31, 2019, 2020 and 2021, no impairment charges were recorded in respect of our long-lived assets.
Allowance for Expected Credit Losses. An allowance for expected credit losses is established using the life-time expected credit loss approach, based on objective evidence that we will not be able to collect all amounts due according to the original terms of the receivables. At December 31, 2019, 2020 and 2021, the allowance for credit losses was Ps.40.3 million, Ps.32.7 million and Ps.12.7 million, respectively.
87

Table of Contents
Operating Revenues
2020 compared to 2021

	    	For the years ended December 31, 	 	
	    	2020	    	2021	    	Variation	 	
	
	 	(In thousands of pesos, except for % and operating data)		
Operating Revenues										
Passenger revenues:	 		 		 		 			
Fare revenues		12,873,174		25,703,144		12,829,970		99.7	%	
Other passenger revenues		8,613,398		17,594,223		8,980,825		>100.0	%	
Non-passenger revenues:	 		 		 		 			
Other non-passenger revenues		882,360		1,558,092		675,732		76.6	%	
Cargo		201,881		241,202		39,321		19.5	%	
Non-derivative financial instruments		(411,222)		(434,522)		(23,300)		5.7	%	
Total operating revenues	 	22,159,591	 	44,662,139	 	22,502,548	 	>100.0	%	
Operating Data										
Capacity (in ASMs in thousands)	 	18,274,946	 	28,096,701	 	9,821,755	 	53.7	%	
%Load factor booked	 	80	%  	85	%  	5	pp			
Booked passengers (in thousands)	 	14,712	 	24,405	 	9,675	 	65.9	%	
Average passenger revenue per booked passenger		875		1,054		179		20.4	%	
Average other passenger revenue per booked passenger	 	585	 	721	 	136	 	23.3	%	
Average total ancillary revenue per booked passenger	 	659	 	795	 	136	 	20.6	%	
Revenue passenger miles (RPMs in thousands)	 	14,596,745	 	23,802,381	 	9,205,636	 	63.1	%	

Fare revenues. The increase in fare revenues in 2021 was primarily due to growth in our ASM capacity by 53.7% resulting from recovery of passenger demand in our markets, as well as our disciplined growth strategy. Additionally, our booked passengers increased 65.9%, and our average passenger revenue per booked passenger increased 20.4% year over year.
Other passenger revenues. The increase in other passenger revenues in 2021 was primarily due to higher volume of passengers electing to purchase additional services as a result of a substantial increase in customer demand.
Other non-passenger revenues. The increase in other non-passenger revenues in 2021 was primarily due to higher other services, as advertising spaces to third parties and trip insurance revenues from airport incentives recorded during 2021.
Cargo. The increase in cargo revenues in 2021 was primarily due to a higher volume of cargo operations recorded during 2021.
88

Table of Contents
2019 compared to 2020

	    	For the years ended December 31, 	 	
	    	2019	    	2020	    	Variation	 	
	
		(In thousands of pesos, except for % and operating data)	 	
Operating Revenues										
Passenger revenues:	 		 		 		 			
Fare revenues		23,129,991		12,873,174		(10,256,817)		(44.3)	%	
Other passenger revenues		10,569,208		8,613,398		(1,955,810)		(18.5)	%	
Non-passenger revenues:	 		 		 		 			
Other non-passenger revenues		897,586		882,360		(15,226)		(1.7)	%	
Cargo		228,836		201,881		(26,955)		(11.8)	%	
Non-derivative financial instruments		(72,949)		(411,222)		(338,273)		>100.0	%	
Total operating revenues	 	34,752,672	 	22,159,591	 	(12,593,081)	 	(36.2)	%	
Operating Data										
Capacity (in ASMs in thousands)	 	24,498,893	 	18,274,946	 	(6,223,947)	 	(25.4)	%	
%Load factor booked	 	86	%  	80	%  	(6)	pp	—		
Booked passengers (in thousands)	 	21,975	 	14,712	 	(7,263)	 	(33.1)	%	
Average passenger revenue per booked passenger		1,054		875		(179)		(17.0)	%	
Average other passenger revenue per booked passenger	 	481	 	585	 	104	 	21.7	%	
Average total ancillary revenue per booked passenger	 	532	 	659	 	127	 	23.9	%	
Revenue passenger miles (RPMs in thousands)	 	21,032,364	 	14,596,745	 	(6,435,619)	 	(30.6)	%	

Fare revenues. The decrease in fare revenues in 2020 was primarily due to the significant reduction in our ASM capacity by 25.4% resulting from a substantial decrease in customer demand as a result of the impact of the COVID-19 pandemic. As a consequence, our booked passengers also decreased 33.1%, and our average passenger revenue per booked passenger decreased 17.0% year over year.
Other passenger revenues. The decrease in other passenger revenues in 2020 was primarily due to lower volume of passengers electing to purchase additional services as a result of a substantial decrease in customer demand, which in turn was a result of the impact of the COVID-19 pandemic.
Other non-passenger revenues. The decrease in other non-passenger revenues was primarily due to lower revenues from airport incentives recorded during 2020.
Cargo. The decrease in cargo revenues in 2020 was primarily due to a lower volume of cargo operations recorded during 2020.

89

Table of Contents
Operating Expenses, net
2020 compared to 2021

		For the years ended December 31, 	 	
	    	2020	    	2021	    	Variation	 	
	
	 	(In thousands of pesos, except for %)		
Other operating income	 	(730,333)	 	(217,838)	 	512,495	 	(70.2)	%	
Fuel expense, net	 	6,640,820	 	12,376,263	 	5,735,443	 	86.4	%	
Landing, take-off and navigation expenses	 	4,090,864	 	6,020,681	 	1,929,817	 	47.2	%	
Depreciation of right of use assets		5,048,976		5,462,625		413,649		8.2	%	
Salaries and benefits	 	3,453,382	 	4,857,083	 	1,403,701	 	40.7	%	
Sales, marketing and distribution expenses	 	1,840,819	 	1,961,936	 	121,117	 	6.6	%	
Maintenance expenses	 	1,167,720	 	1,952,202	 	784,482	 	67.2	%	
Aircraft and engine variable lease expenses	 	1,845,254	 	1,686,875	 	(158,379)	 	(8.6)	%	
Other operating expenses	 	1,157,240	 	1,336,792	 	179,552	 	15.5	%	
Depreciation and amortization	 	898,445	 	1,159,224	 	260,779	 	29.0	%	
Total operating expenses, net	 	25,413,187	 	36,595,843	 	11,182,656	 	44.0	%	

Total operating expenses, net increased 44.0% in 2021 primarily as a result of growth of operations and other factors described below.
Other Operating Income. Other operating income decrease Ps.512.5 million or 70.2% in 2021, primarily due to lower sale and leaseback transactions recorded during 2021 compared to the previous year.
Fuel expense, net. The 86.4% increase in fuel expense was primarily due to increase in the average fuel cost per gallon and the fuel gallons consume of 15.0%, and 54.8%, respectively.
During the year ended December 31, 2021, the Company did not enter into new derivative financial instruments to hedge US Gulf Coast Jet Fuel 54 Asian call options and US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options, also, for the period ended December 31, 2021, there was no cost of hedging as all the derivatives position matured all through the second quarter of 2021.
Landing, Take-off and Navigation Expenses. The 47.2% increase in landing, take-off and navigation expenses in 2021 was primarily due to an increase in our departures of 57.3% and an increase in the number of airports which we operated during the year.
Depreciation of right of use assets. The 8.2% increase in depreciation of right of use assets was primarily due to the increase in our fleet size. During 2021 as we incorporated fifteen new aircraft and two spare engines to our fleet.
Salaries and Benefits. The 40.7% increase in salaries and benefits in 2021 was primarily driven of 38.5% increase in the total number of employees, higher variables compensation of our workforce due to higher operation recorded during 2021 and the annual salary increase during the year. See Item 6: “Directors, Senior Management and Employees—Employees.”.
Sales, Marketing and Distribution Expenses. The 6.6% increase was mainly due to higher marketing and distribution expenses incurred in order to growth our operating revenues.
Maintenance Expenses. The 67.2% increase in maintenance expenses in 2021 was driven by an increase in our maintenance activities resulting from the age of our fleet, which was partially offset by the appreciation of 5.6% in the average exchange rate of the peso against the U.S. dollar during 2021. Most of the maintenance expenses are denominated in U.S. dollars.
Aircraft and engine variable lease expenses. The 8.6% decrease in aircraft and engine variable expenses in 2021 was primarily due to lower supplemental rents recorded during the period. In addition we recorded an apreciation of 5.6% in the average exchange rate of the peso against the U.S. dollar. Most of these expenses are denominated in U.S. dollars.
Other Operating Expenses. The 15.5% increase in other operating expenses in 2021 was primarily the result of an increase in passenger services administrative expenses and other technology and communications expenses.
90

Table of Contents
Depreciation and Amortization. The 29.0% increase in depreciation and amortization in 2021 was primarily due to higher amortization of major maintenance events associated with the age our fleet. The cost of the major maintenance events is accounted for under the deferral method. During 2020 and 2021, we recorded amortization of major maintenance lease hold improvements of Ps.652.1 million and Ps.838.4 million, respectively.
2019 compared to 2020

	    	For the years ended December 31, 	 	
	    	2019	    	2020	    	Variation	 	
	
	 	(In thousands of pesos, except for) %)		
Other operating income	 	(327,208)	 	(730,333)	 	(403,125)	 	>100.0	%	
Fuel expense, net	 	11,626,069	 	6,640,820	 	(4,985,249)	 	(42.9)	%	
Landing, take-off and navigation expenses	 	5,108,489	 	4,090,864	 	(1,017,625)	 	(19.9)	%	
Depreciation of right of use assets		4,702,971		5,048,976		346,005		7.4	%	
Salaries and benefits	 	3,600,762	 	3,453,382	 	(147,380)	 	(4.1)	%	
Sales, marketing and distribution expenses	 	1,447,637	 	1,840,819	 	393,182	 	27.2	%	
Maintenance expenses	 	1,488,431	 	1,167,720	 	(320,711)	 	(21.5)	%	
Aircraft and engine variable lease expenses	 	961,657	 	1,845,254	 	883,597	 	91.9	%	
Other operating expenses	 	1,112,927	 	1,157,240	 	44,313	 	4.0	%	
Depreciation and amortization	 	675,514	 	898,445	 	222,931	 	33.0	%	
Total operating expenses, net	 	30,397,249	 	25,413,187	 	(4,984,062)	 	(16.4)	%	

Total operating expenses, net decreased 16.4% in 2020 primarily as a result of decrease of operations and other factors described below.
Other Operating Income. Other operating income increased Ps.403.1 million or more than 100.0% in 2020, primarily due to higher sale and leaseback gains recorded during 2020 compared to the previous year as a result of the adoption of IFRS 16.
Fuel expense, net. The 42.9% decrease in fuel expense was primarily as a result of a decrease in the average fuel cost per gallon of 14.0% and a decrease in fuel gallons consumed of 29.8% which, in turn, was primarily due to the significant 29.2% decrease in departures as a result of the substantial decrease in customer demand due to the impact of the COVID-19 pandemic.
During the years ended December 31, 2019 and 2020, we entered into US Gulf Coast Jet Fuel 54 Asian Zero Cost collar options and Asian call options contracts. These instruments also qualify for hedge accounting. As a result, during 2020, their intrinsic value loss of Ps.856.5 million was recycled to the cost of fuel.
Landing, Take-off and Navigation Expenses. The 19.9% decrease in landing, take-off and navigation expenses in 2020 was primarily due to a decrease in our operations as measured by number of departures by 29.2%, as a result of the substantial decrease in customer demand, which in turn was a result of the impact of the COVID-19 pandemic.
Depreciation of right of use assets. The 7.4% increase in depreciation of right of use assets in 2020 was primarily due to an increase in our fleet (lease agreements), as we incorporated four new net aircraft leases and eight new net engine leases during 2020.
Salaries and Benefits. The 4.1% decrease in salaries and benefits in 2020 was primarily the result of a decrease in employee salaries as result of reduced flight operations and cost-cutting measures in response to the COVID-19 pandemic. Additionally, the variable compensation of our workforce decreased also due to lower operations recorded during 2020, as well as the accounting accrual impact related to our management retention plans. See Item 6: “Directors, Senior Management and Employees—Employees.”
Sales, Marketing and Distribution Expenses. The 27.2% increase in sales, marketing and distribution expenses was mainly due to a one-time VAT expense of Ps.746 million resulting from an adjustment on the northern border VAT rate, which was partially offset by a decrease in our marketing and distribution expenses as a result of the COVID-19 pandemic and the related decrease in customer demand.
91

Table of Contents
Maintenance Expenses. The 21.5% decrease in maintenance expenses in 2020 was mainly due to lower maintenance expenses as result of reduced operations due to the COVID-19 pandemic, which was partially offset by the depreciation of 11.6% in the average exchange rate of the peso against the U.S. dollar during 2020 since some of these maintenance expenses are denominated in U.S. dollars.
Aircraft and engine variable lease expenses. The 91.9% increase in aircraft and engine variable expenses in 2020 was primarily due to an increase in redelivery expenses and the depreciation of 11.6% in the average exchange rate of the peso against the U.S. dollar, since the majority of these expenses are denominated in U.S. dollars.
Other Operating Expenses. The 4.0% increase in other operating expenses in 2020 was primarily the result of our purchase of additional insurance to cover flight equipment. Additionally, during 2020, other operating expenses on a dollar basis increased due to the depreciation of 11.6% in the average exchange rate of the peso against the U.S. dollar during 2020, since some of these expenses are denominated in U.S. dollars.
Depreciation and Amortization. The 33.0% increase in depreciation and amortization in 2020 was primarily due to higher amortization of major maintenance events associated with the aging of our fleet. The cost of the major maintenance events is accounted for under the deferral method. During 2019 and 2020, we recorded amortization of major maintenance leasehold improvements of Ps.450.4 million and Ps.652.1 million, respectively.
Operating Results
2020 compared to 2021

	    	For the years ended December 31, 		
	    	2020	    	2021	    	Variation		
	
		(In thousands of pesos, except for %)		
Operating Results										
Total operating revenues		22,159,591		44,662,139		22,502,548		>100.0	%	
Total operating expenses, net		25,413,187		36,595,843		11,182,656		44.0	%	
Operating (loss) income		(3,253,596)		8,066,296		11,319,892		n/a		

Operating (Loss) income. As a result of the factors outlined above, our operating income was Ps.8,066 million in 2021, as compared to our operating loss of Ps.(3,254) million in 2020.
2019 compared to 2020

	    	For the years ended December 31, 	 	
	    	2019	    	2020	    	Variation	 	
	
	 	(In thousands of pesos, except for %)		
Operating Results										
Total operating revenues	 	34,752,672	 	22,159,591	 	(12,593,081)	 	36.2	%	
Total operating expenses, net	 	30,397,249	 	25,413,187	 	(4,984,062)	 	(16.4)	%	
Operating income (loss)	 	4,355,423	 	(3,253,596)	 	(7,609,019)	 	(100)	%	

Operating Income (loss). As a result of the factors outlined above, our operating loss was Ps.(3,254) million in 2020, as compared to our operating income of Ps.4,355 million in 2019.
92

Table of Contents
Financial Results
2020 compared to 2021

	    	For the years ended December 31, 	 	
	    	2020	    	2021	    	Variation	 	
	
	 	(In thousands of pesos, except for %)		
Financing Results										
Finance income	 	101,511	 	71,578	 	(29,933)	 	(29.5)	%	
Finance cost	 	(3,018,484)	 	(2,831,989)	 	186,495	 	(6.2)	%	
Exchange gain (loss), net	 	470,594	 	(2,591,406)	 	(3,062,000)	 	n/a		
Total financing results	 	(2,446,379)	 	(5,351,817)	 	(2,905,438)	 	>100.00	%	

Total Financing Results. The 100% increase in our total financing loss in 2021 was primarily due to the loss effect resulting from the discontinuation of the non-derivative financial instruments by an amount of Ps.2.3 billion.
Additionally, as of December 31, 2020 and 2021, our net monetary liability position denominated in U.S. dollars was U.S. $1.7 billion and U.S. $1.6 billion, respectively. As a result of either the appreciation or depreciation of the peso against the U.S. dollar in 2020 and 2021, as the case may be, and our net U.S. dollar liability position, we recorded a foreign exchange gain (loss), net of Ps.0.5 billion and Ps. (2.6) billion, respectively.
2019 compared to 2020

	    	For the years ended December 31, 	 	
	    	2019	    	2020	    	Variation	 	
	
	 	(In thousands of pesos, except for %)		
Financing Results										
Finance income	 	207,799	 	101,511	 	(106,288)	 	(51.1)	%	
Finance cost	 	(2,269,829)	 	(3,018,484)	 	(748,655)	 	(33.0)	%	
Exchange gain, net	 	1,440,501	 	470,594	 	(969,907)	 	(67.3)	%	
Total financing results	 	(621,529)	 	(2,446,379)	 	(1,824,850)	 	>100	%	

Total Financing Results. The greater than 100% increase in our total financing loss in 2020 was primarily due to the increase in our finance cost, year over year.
During 2020, we recorded a net exchange loss of Ps.(1.1) billion, which resulted from the 5.8% depreciation of the peso against the U.S. dollar at year-end, since we maintained a net monetary liability position of U.S. $1.7 billion in 2020. Our U.S. dollar net monetary liability position mainly resulted from the value of our lease liabilities and financial debt. This net exchange loss was partially offset by the Ps.1.6 billion gain on our non-derivative financial instruments recorded during 2020. Additionally, our finance income decreased by Ps.106.3 million, mainly due to a decrease in our short-term investments. Our finance cost increased by Ps.748.7 million, mainly due to our lease finance costs and interest paid on our asset backed trust notes.
Income Tax Expense and Net Income
2020 compared to 2021

		For the years ended December 31, 	
	    	2020	    	2021	    	Variation	
	
	 	(In thousands of pesos, except for %)	
Net (loss) income									
(Loss) income before income tax		(5,699,975)	 	2,714,479	 	8,414,454	 	n/a	
Income tax benefit (expense)		1,406,184	 	(593,928)	 	(2,000,112)	 	n/a	
Net (loss) income		(4,293,791)	 	2,120,551	 	6,414,342	 	n/a	

93

Table of Contents
During the years ended December 31, 2021 and 2020, we recorded a tax (expense) benefit of Ps. (0.6) billion and Ps.1.4 billion, respectively. At December 31, 2021, our tax loss carry-forwards amounted to Ps.0.3 billion (Ps.1.9 billion of December 31, 2020).
During the year ended December 31, 2021, we utilized Ps.1,944.9 million in available tax loss carry-forwards, whereas during the year ended December 31, 2020, we did not use any available tax loss carry-forwards. The effective tax rate during 2020 and 2021 was of 24.7% and 21.9%, respectively.
2019 compared to 2020

		For the years ended December 31, 	
	    	2019	    	2020	    	Variation	
	
	 	(In thousands of pesos, except for %)	
Net income (loss)									
Income (loss) before income tax		3,733,894	 	(5,699,975)	 	(9,433,869)	 	n/a	
Income tax benefit (expense)		(1,094,831)	 	1,406,184	 	2,501,015	 	n/a	
Net income (loss)		2,639,063	 	(4,293,791)	 	(6,932,854)	 	n/a	

We recorded a net loss of Ps.4.3 billion in 2020 compared to a net income of Ps.2.6 billion in 2019. During the years ended December 31, 2020 and 2019, we recorded a tax benefit (expense) of Ps.1.4 billion and Ps.(1.1 billion), respectively. At December 31, 2020, our tax loss carry-forwards amounted to Ps.1.9 billion (Ps.1.3 billion of December 31, 2019).
During the year ended December 31, 2020, we did not use any available tax loss carry-forwards, whereas during the year ended December 31, 2019, we used Ps.214.5 million in available tax loss carry-forwards. The effective tax rate during 2019 and 2020 was of 29.3% and 24.7%, respectively.
B.Liquidity and Capital Resources
Liquidity
Our primary source of liquidity is cash provided by operations, with our primary uses of liquidity being working capital and capital expenditures.

		For the years ended December 31, 	
	    	2019	    	2020	    	2021	
	
		(In thousands of pesos)	
Net cash flows provided by operating activities		9,509,643	 	4,359,445	 	15,868,532	
Net cash flows used in investing activities		(1,879,341)	 	(67,757)	 	(2,730,786)	
Net cash flows used in financing activities		(5,238,840)	 	(3,040,840)	 	(8,828,377)	

In recent years, we have been able to meet our working capital requirements through cash from our operations. Our capital expenditures consist primarily of the acquisition of flight equipment, including pre-delivery payments for aircraft acquisitions. From time to time, we finance pre-delivery payments related to our aircraft with revolving lines of credit with the commercial banks. We have obtained financing for pre-delivery payments in respect to all the aircraft to be delivered through 2022. Additionally, we have obtained financing for pre-delivery payments in respect to 18 aircraft to be delivered in the years 2023 and 2024.
Our cash, cash equivalents and restricted cash increased by Ps.5.2 billion, from Ps.10.1 billion at December 31, 2020 to Ps.15.2 billion at December 31, 2021. At December 31, 2021, our signed credit lines total Ps.9.9 billion, of which Ps.6.9 billion were related to financial debt (Ps.200 million were undrawn) and Ps.3.0 billion were related to letters of credit (Ps.477 million were undrawn). At December 31, 2020, our credit lines totaled Ps.9.3 billion, of which Ps.6.9 billion were related to financial debt of which Ps.0.2 billion were undrawn and Ps.2.4 billion were related to letters of credit (and of which Ps.0.2 billion were undisbursed).
We have an investment policy to optimize the performance and ensure availability of, and minimize the risk associated with, the investment of cash, cash equivalents and short-term investments. Such policy provides for guidelines regarding minimum balance, currency mix, instruments, deadlines, counterparties and credit risk. At December 31, 2021, 95% of our cash, cash equivalents and
94

Table of Contents
short-term investments were denominated in U.S. dollars and 5% were denominated in pesos. See note 3 b) to our audited consolidated financial statements included elsewhere in this annual report.
Net cash flows provided by operating activities. We rely primarily on cash flows from operating activities to provide working capital for current and future operations. Net cash flows provided by operating activities totaled Ps.4.4 billion and Ps.15.9 billion in 2020 and 2021, respectively. Our net operating cash flows increased primarily due to an increase in income before income tax, major depreciation and amortization, foreign exchange gain, recoverable and prepaid taxes, accrued liabilities and other liabilities.
Net cash flows provided by operating activities totaled Ps.9.5 billion and Ps.4.4 billion in 2019 and 2020, respectively. Our net operating cash flows decreased primarily due to the negative impact of the COVID-19 pandemic on our operating activities as described above.
Net cash flows used in investing activities. During 2021, net cash flow used in investing activities totaled Ps.2.7 billion, Ps.3.8 billion consisted primarily of acquisitions of rotable spare parts, furniture and equipment and is integrated as follows: i) acquisitions of rotable spare parts and major maintenance cost by an amount of Ps.2.7 billion, and ii) aircraft predelivery payments of Ps.1.1 billion. Additionally, we acquired intangible assets of Ps.0.2 billion. These acquisitions were partially offset by pre-delivery payments reimbursements of Ps.0.9 billion and other proceeds of Ps.0.4 billion.
During 2020, net cash flow used in investing activities totaled Ps.0.1 billion, which consisted primarily of pre-delivery payments for aircraft and engine acquisitions totaling Ps.2.2 billion, partially offset by pre-delivery payments reimbursements totaling Ps.1.7 billion. Additionally, we recorded other capital expenditures relating to engine, aircraft parts and rotable spare parts acquisitions, intangible assets and major maintenance costs, which were offset by the receipt of net proceeds from disposals. The net amount of proceeds was Ps.0.4 billion.
During 2019, net cash flow used in investing activities totaled Ps.1.9 billion, which consisted primarily of pre-delivery payments for aircraft and engine acquisitions, partially offset by pre-delivery payments reimbursements totaling Ps.0.7 billion. Additionally, we recorded other capital expenditures relating to aircraft parts and rotable spare parts acquisitions, intangible assets and major maintenance costs, net of disposals of Ps.1.2 billion.
Net cash flow used in financing activities. During 2021, net cash flows used in financing activities totaled Ps.8.8 billion, which consisted primarily in payments of lease liabilities of Ps.9.3 billion (aircraft and spare engine rent payment), payments of financial debt of Ps.1.6 billion, payments of interest expenses of Ps.0.2 and treasury shares purchase of Ps.0.1 billion; which were partially offset by proceeds from financial debt from working capital under our asset backed trust notes (CEBUR) of Ps.1.5 billion and the proceeds from our financial debt of Ps.0.9 billion related to our revolving credit facility with Banco Santander and Bancomext.
During 2020, net cash flows used in financing activities totaled Ps.3.0 billion, which consisted primarily of payments of the principal portion of lease liabilities of Ps.6.1 billion (aircraft and spare engine rent payment), payments of financial debt related to the aircraft financing pre-delivery payments for a net amount of Ps.1.9 billion, payments of working capital credit lines of Ps.0.2 billion, payments of treasury shares of Ps.0.1 billion and interest paid of Ps.0.3 billion, which were partially offset by proceeds from our SEC-registered follow-on equity offering of Ps.3.3 billion, proceeds from disbursements under our revolving credit facility with Banco Santander and Bancomext of Ps.2.1 billion and proceeds from additional short-term working capital facilities with Banco Sabadell, S.A. of Ps.0.2 billion.
During 2019, net cash flows used in financing activities totaled Ps.5.2 billion, which consisted primarily of payments of the principal portion of lease liabilities of Ps.6.4 billion (aircraft and spare engine rent payment), payments of financial debt related to the aircraft financing pre-delivery payments for a net amount of Ps.0.7 billion, payments of working capital credit lines of Ps.0.5 billion and interest paid of Ps.0.3 billion, which were partially offset by proceeds from disbursements under our revolving credit facility with Banco Santander and Bancomext of Ps.1.1 billion, proceeds from our asset backed trust notes (CEBUR) of Ps.1.4 billion, which take into account amortized transaction costs, and proceeds from additional short-term working capital facilities with Banco Sabadell, S.A. of Ps.0.2 billion.
Loan Agreements
The revolving credit facility with Banco Santander México and Bancomext, dated July 27, 2011 as amended and restated on August 1, 2013 and as further amended on February 28, 2014 and November 27, 2014, under which we are a guarantor, provides
95

Table of Contents
financing for pre-delivery payments in connection with our purchase of nineteen A320 aircraft. On August 25, 2015, we entered into an additional amendment to such loan agreement to finance pre-delivery payments of eight additional A320 aircraft. In November 2016, we entered into an additional amendment to such loan agreement to finance the pre-delivery payments for the twenty-two remaining A320 aircraft under the Airbus purchase agreement. In December 2017, we entered an additional amendment to extend the term of the loan agreement to November 2021. In November 2018, we entered an amendment to extend the term of the loan agreement to May 2022. Finally, we entered into one further amendment to this loan agreement in October 2020 to extend the term to October 2022.
The aggregate principal amount of this revolving line is for up to U.S. $183.0 million, of which U.S. $103.7 million is provided by Banco Santander México and U.S. $79.3 million by Bancomext. This revolving credit facility bears annual interest at three-month LIBOR plus 260 basis points. The maturity is on October 31, 2022, but it could be extended to November 2022. This revolving line of credit may limit our ability to, among others, declare and pay dividends in the event that we fail to comply with the payment terms thereunder, dispose of certain assets, incur indebtedness and create certain liens.
On June 20, 2019, our subsidiary Volaris Opco issued 15,000,000 asset backed trust notes under the ticker VOLARCB 19 in the amount of Ps.1.5 billion through Irrevocable Trust number CIB/3249 created by Volaris Opco. This issuance is part of a program approved by the Mexican Banking and Securities Commission (Comision Nacional Bancaria y de Valores), or CNBV, for an amount of up to Ps.3.0 billion. The notes mature in five years, have principal amortizations of Ps.250,000, Ps.500,000, Ps.500,000 and Ps.250,000 in 2021, 2022, 2023 and 2024, respectively, and bear annual interest at TIIE 28 days plus 175 basis points.
In December 2019, we entered into a short-term working capital facility with Banco Sabadell, S.A., Institución de Banca Multiple, or Sabadell, with Concesionaria as our obligor in the amount of Ps.200 million and bearing annual interest at TIIE 28 days plus 300 basis points. As of December 31, 2020, we were current with principal and interest payments as well as in compliance with the covenants under our revolving credit facility and short-term working capital facilities. In December 2021, the Company renewed the working capital facility with Sabadell, bearing annual interest rate at TIIE 28 days plus a 240 basis points. As of December 31, 2021, the Company paid the disbursements made during the year, therefore, it does not have a balance pending settlement.
On October 13, 2021, our subsidiary Volaris Opco issued 15,000,000 asset backed trust notes under the ticker VOLARCB 21L in the amount of Ps.1.5 billion through Irrevocable Trust number CIB/3249 created by Volaris Opco. This issuance is part of a program approved by the CNBV for an amount of up to Ps.3.0 billion. The asset backed trust notes mature in five years, have principal amortizations of Ps.83,333, Ps.500,000, Ps.500,000 and Ps.416,667 in 2023, 2024, 2025 and 2026, respectively, and bear annual interest at TIIE 28 days plus 200 basis points.
The asset backed trust notes issued in 2021 comply with the Sustainability-Linked Bond Principles 2020, developed by the International Capital Market Association, or ICMA. The notes have Sustainability Objectives, or SPT, for the KPI, to reduce carbon dioxide emissions measured as grams of CO2 emissions per revenue passenger/kilometer (gCO2 / RPK) by 21.54%, 24.08% and 25.53% by 2022, 2023 and 2024, respectively, compared to 2015 levels. This offering will help the Company to accomplish its long-term sustainable goals, among which are to reduce CO2 emissions by 35.42% by 2030.A feature of the asset backed trust notes is that they will pay an additional 25 basis points to the interest rate if the sustainability goals are not met, with the possibility of mitigating the additional rate if the 2023 or 2024 targets are met.
The facility agreement with JSA International U.S. Holdings, LLC, dated April 1, 2022, provides financing for pre-delivery payments in connection with our purchase of four A320 family aircraft. The aggregate principal amount of this line is for up to U.S. $53.7 million, which bears annual interest at SOFR plus 300 basis points. The maturity is upon delivery of the last financed aircraft thereunder.
C.          Research and Development, Patents and Licenses, Etc.
We have registered the trademark “Volaris” with the trademark office in Mexico, the United States and in the countries in which operate in Central and South America.
The company approximately has 249 registrations of word mark, unnamed and mixed trademarks, as well as slogans including “Volaris”, “Volaris (y Diseño)”, “Innominada (Diseño de Estrella)”, “Volaris carga”, “Volaris TV”, “Volaris cargo”, “Familia de tarifas Volaris”, “Fare Families Volaris”, “Viajes Volaris”, “www.volaris.com.mx”, “V de Volaris”, “Volaris vive viajando”, “Volaris ponle tu nombre a un avión”, “V con todo”, “La Aerolínea Ecológica”, “El lado V de Volaris”, “Tú Decides”,
96

Table of Contents
“Volemos juntos”, “V Fundación”, “Volaris negocios”, “Tarifa Limpia”, “Volaris por un Cielo azul”, “#CielitoLimpio”, “Volaris#CielitoLimpio”, Con Volaris tú pones las promos”, “V. Pass”, “Volemos diferente”, “Hot Tickets”, “Pásate a modo Avión”, “Avión Ayuda Volaris”, “Con Volaris seguro vuelas barato + limpio flexible”, “Con Volaris seguro vuelas flexible”, “Con Volaris seguro vuelas barato”, “Con Volaris seguro vuelas barato + limpio”, “Con Volaris seguro vuelas”.
We have registered the trademark “Volaris” with the trademark office in Mexico, the United States and in the countries in which we operate in Central and South America. We have also registered several additional trademarks and slogans with the trademark office in Mexico, the United States and in the countries in which we operate in Central and South America. For the development of the issuer our most important trademark is "Volaris", as it is the trademark under which the passenger air transportation services we provide are offered and advertised.
The validity of the aforementioned trademarks have expiration dates ranging from 2025 to 2031.
For the development of the issuer our most important trademark is "Volaris", as it is the trademark under which the passenger air transportation services we provide are offered and advertised.
On April 16, 2021, the Mexican authorities recognized the trademark “Volaris” in the category of famous brand, being the first trademark in the Mexican aviation industry to be declared a famous brand. We operate software products under licenses from our vendors, including Jeppesen Systems AB, Navitaire LLC and Juniper Technologies Corporation. Under our agreements with Airbus, we use Airbus’ proprietary information to maintain our aircraft.

D.	Trend Information	
See Item 5: “Operating and Financial Review and Prospects—Operating Results—Trends and Uncertainties Affecting our Business.”

E.	Tabular Disclosure of Contractual Obligations	
The following table sets forth certain contractual obligations as of December 31, 2021:

		Contractual Obligations*	
		Payments due by Period	
	    		    	Less than 1	    		    		    	More than	
		Total		year		1 to 3 years		3 to 5 years		5 years	
	
		(In thousands of pesos)	
Debt(1)		6,308,088	 	4,058,088	 	1,333,333	 	916,667	 	—	
Lease liabilities(2)		49,650,239	 	5,842,492	 	11,934,203	 	10,598,396	 	21,275,148	
Future lease liabilities(3)		19,573,324	 	835,464	 	3,176,899	 	3,262,238	 	12,298,723	
Flight equipment, spare engines and spare parts purchase obligations(4)		137,449,430		2,358,108		25,079,666		50,150,860		59,860,796	
Total future payments on contractual obligations		212,981,081	 	13,094,152	 	41,524,101	 	64,928,161	 	93,434,667	

(1)	Includes scheduled interest payments.	

(2)	Does not include maintenance deposit payments because they depend on the utilization of the aircraft.	

(3)	Our sale and leaseback agreements consist primarily of future lease payments with the lessors.	

(4)	Our contractual purchase obligations consist primarily of aircraft and engine acquisitions through manufacturers and aircraft leasing companies. In December 2017, we signed an amendment to our purchase agreement with Airbus to purchase 80 aircraft which we are committed to receive from 2022 to 2026. In July 2020, we amended the agreement with Airbus to reschedule the delivery of 80 aircraft between 2023 and 2028. In October 2020, we amended the agreement with Airbus to reschedule 18 fleet deliveries between 2020 and 2022, In November 2021, the Company entered into a new amendment to the agreement with Airbus to purchase 39 additional aircraft which we are committed to receive between 2023 and 2029. Additionally, the Company exercised its right under the agreement with Airbus to convert twenty A320neo aircraft into A321neo aircraft.	

*Disclosure of contractual obligations does not include obligations relating to our post-employment benefits which totaled Ps.81.7 million at December 31, 2021.
97

Table of Contents
In 2022, we expect our capital expenditures, including estimated amounts for contractual prices escalations and pre-delivery payments, to be Ps.137.4 billion, consisting primarily of aircraft parts and rotable spare parts, construction and improvements to leased assets, and major maintenance costs (leasehold improvements to flight equipment recorded into rotable spare parts furniture and equipment, net).
F.    Safe Harbor
Not applicable.
ITEM 6    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.    Directors and Senior Management
Board of Directors
Our by-laws provide that the board of directors be comprised of no more than 21 members and their corresponding alternates, in which at least 25% of the members and their corresponding alternates are required to be independent pursuant to the Mexican Securities Market Law. A determination about independence must be made by our shareholders and it may be challenged by the CNBV. As of the date of this annual report, our board of directors is comprised of 14 members, of which 64% are independent.
Under our by-laws and the Mexican Securities Market Law, any shareholder or group of shareholders representing 10% of Volaris’ outstanding capital stock, have the right to appoint one director for each such 10% ownership stake.
Set forth below are the name, age, position and biographical description of each of our directors as of the date of this annual report. The business address of our directors is that of our principal office.

Name	    	Age	    	Title	    	Alternate*	
Brian H. Franke	 	58	 	Chairman		Andrew Broderick	
William A. Franke	 	85	 	Director	 	Andrew Broderick	
Harry F. Krensky	 	58	 	Director	 		
Marco Baldocchi Kriete	 	48	 	Director	 	Rodrigo Antonio Escobar Nottebohm	
Alfonso González Migoya	 	77	 	Independent Director	 		
Stanley L. Pace	 	68	 	Independent Director			
William Dean Donovan	 	60	 	Independent Director	 		
Enrique Javier Beltranena Mejicano	 	59	 	President, Chief Executive Officer and Director	 		
José Luis Fernández Fernández	 	62	 	Independent Director	 	José Carlos Silva Sánchez-Gavito	
Joaquín Alberto Palomo Déneke	 	71	 	Independent Director	 	José Carlos Silva Sánchez-Gavito	
John A. Slowik		71		Independent Director		José Carlos Silva Sánchez-Gavito	
Ricardo Maldonado Yañez		54		Independent Director		Eugenio Macouzet de León	
Guadalupe Phillips Margain		51		Independent Director			
Mónica Aspe Bernal	 	44	 	Independent Director	 		

*	Alternate directors are authorized to act on behalf of their respective directors in the event of such directors’ inability to attend board meetings.	
Brian H. Franke has served as a member of our board of directors since 2010 and as Chairman of our board of directors since 2020. He is currently a principal specializing in aviation investments with Indigo Partners LLC, a private equity firm based in the United States. Mr. Franke is also a member of the board of directors of Frontier, JetSMART (Chile), APiJET (USA) and Cebu Pacific. He previously served on the board of directors of Tiger Airways Holdings (Singapore) from 2008 to 2010 and Tiger Airways Australia from 2009 to 2010. Prior to that, Mr. Franke was vice president of Franke & Company Inc., a boutique private equity firm focused on small and medium enterprises investments. He was also a director in marketing for Anderson Company, a U.S. real estate developer, from 1989 to 1992 and a consumer marketing manager for United Brands Inc., a U.S. distribution and licensing company for consumer goods, from 1987 to 1989. Mr. Franke holds a B.S. in Business from the University of Arizona and a M.A. in International Management from Thunderbird School of Global Management. He also serves on the University of Arizona Foundation Board and participates on its Investment Committee. He is William A. Franke’s son.
98

Table of Contents
William A. Franke has served as a member of our board of directors since 2010. He is also a member of the board of directors of Wizz Air Holdings Plc (Hungary). He is currently the managing member of Indigo Partners LLC (since 2002), which is a private equity firm. Mr. Franke is chairman of the board of directors of Frontier, JetSMART (Chile), Lynx Air (Canada) and APiJET (USA) and was the founding chairman of Tiger Airways Holdings (Singapore), a member of the board of directors of Spirit and the chief executive officer and chairman of America West Airlines from 1993 to 2001. He is also a member of the board of directors of Falcon Acquisitions Group, Inc. Mr. Franke holds a B.A. in History from Stanford University and an LL.B. from Stanford Law School. He also holds an honorary doctorate from Northern Arizona University awarded in 2008 and the University of Montana awarded in 2020. He is Brian H. Franke’s father.
Harry F. Krensky has served as a member of our board of directors since our founding in 2005. He is also a member of the board of directors of Traxion, H+, MasAir, Merited and Kidzania. Mr. Krensky is managing partner of the private equity firms Discovery Americas and Discovery Air. Previously, he was a founder of emerging market hedge fund managers Discovery Capital Management and Atlas Capital Management, and a founder of Deutsche Bank’s emerging market hedge fund. He has been an assistant professor in the subject of international business in NYU Stern Business School and was a member of the Board of Trustees of Colby College. Mr. Krensky holds a B.A. in Government from Colby College, a MSc from the London School of Economics and Political Science and a M.B.A. from the Columbia University Graduate School of Business.
Marco Baldocchi Kriete has served as a member of our board of directors since 2020. He previouslyserved as an interim director from 2019 to 2020 and as an alternate director from 2010 to 2019. He is the chief executive officer of Central American Comercial, S.A. de C.V, a retail company in Latin America. He was a founder member of Transactel Inc. He is currently a member of the board of directors of Aeromantenimiento (MRO Holdings, Inc.). He has previously served on the board of directors of Onelink Holdings, Avianca-Taca and Banco Agricola. Mr. Baldocchi holds a B.A. in Arts from Vanderbilt University and a M.B.A. from the Kellogg School of Management at Northwestern University.
Alfonso González Migoya has served as a member of our board of directors since 2014. He previously served as Chairman of our board of directors from 2014 to 2020. He is also a member of the board of directors of FEMSA, Coca Cola FEMSA, Bolsa Mexicana de Valores and Business School of the Instituto Tecnologico y de Estudios Superiores de Monterrey, among others. Mr. Gonzalez previously served as chief executive officer and chairman of the board of directors of Grupo Industrial Saltillo, as chief executive officer of Servicios Interpuerto Monterrey and as executive vice president and chief financial officer of Grupo Financiero BBVA Bancomer. He has also held various senior roles in Grupo ALFA. Mr. González holds a B.S. in Electromechanical Engineering from Instituto Tecnologico y de Estudios Superiores de Monterrey and a M.B.A. from Stanford University Graduate School of Business.
Stanley L. Pace has served as a member of our board of directors since 2017. He is a senior partner at Bain & Company where he has served as a member and chairman of most of the company’s key governance board of directors. Mr. Pace was the founder of the transformation and airline practices at Bain & Company and has led many of the company’s largest and most successful relationships and transformations. Mr. Pace served as the chief executive officer of ATA from 1996 to 1997, at that time, ATA was the largest charter airline in the world. Mr. Pace holds a B.A. in Accounting and Finance from Brigham Young University, where he graduated as valedictorian, and a M.B.A. from Harvard Business School, where he graduated with high distinction.
William Dean Donavan has served as a member of our board of directors since 2017. He previously served as an alternate director from 2010 to 2017. Mr. Donovan serves as Managing Director of Diamond Stream Partners Venture Fund focused on advanced aerial mobility. Mr. Donovan is a member of the board of directors of Prophet Brand Strategy, a marketing consultancy, and was a member of the board of directors of the Metropolitan Bank. He co-founded Volaris in 2005. Mr. Donovan worked with Bain & Company from 1989 to 2003. He was Managing Director of Bain Africa from 1999 to 2002 and head of Bain’s airline practice and auto practice at various times. He also is a consultant for Stellar Labs, a software company focused on fleet optimization and revenue management in the private aviation space. Mr. Donovan co-founded Casino Marketing Alliance, a provider of marketing and analytics services to the casino industry. Mr. Donovan has served as chief operating officer of Nimblefish Technologies, a specialized micromarketing agency and as chief executive officer of SearchForce, a paid search workflow management and optimization platform. Mr. Donovan holds a B.A. in both Economics and Rhetoric from the University of California Berkeley, where he graduated Phi Beta Kappa and Summa Cum Laude, and a M.B.A. from the Wharton School of the University of Pennsylvania.
Enrique Beltranena has served as our Chief Executive Officer since 2006 and as a member of our board of directors since 2016. He previously worked as Grupo TACA’s chief operating officer, human resources and institutional relations vice president, cargo vice president and commercial director for Mexico and Central America. He also held the position of general director
99

Table of Contents
of Aviateca in Guatemala. Mr. Beltranena started his career in the aerospace industry in 1988. During the 1990s, he was responsible for the commercial merger of Aviateca, Sahsa, Nica, Lacsa and TACA Peru, which consolidated them into a single management entity called Grupo TACA. While at Grupo TACA, Mr. Beltranena also led the development of single operating codeshare and the negotiation of open skies bilateral agreements among each of the Central American countries and the United States. In 2001, Mr. Beltranena led Grupo TACA’s complete restructuring as its chief operating officer. In 2017, Mr. Beltranena participated in one of the biggest joint negotiations for the purchase of single aisle aircraft with Airbus. In 2009, Mr. Beltranena was awarded the Federico Bloch Award by the Latin American & Caribbean Air Transport Association. Mr. Beltranena was named to the Ernst & Young’s Entrepreneur of The Year Hall of Fame in 2012 after winning the 2011 Mexico Entrepreneur of the Year award. He also received the National Order of Merit (Knight’s Badge) from the President of France in 2014.
José Luis Fernández Fernández has served as a member of our board of directors and as chairman of our audit and corporate governance committee since 2012. He is also a member of the audit committees of various companies, including Grupo Televisa, S.A.B., Grupo Financiero Banamex and Banco Nacional de México S.A., and an alternate member of the board of directors of Arca Continental, S.A.B. de C.V. Mr. Fernández is a non-managing limited partner at Chevez Ruiz Zamarripa. Mr. Fernández holds a Public Accounting Degree (Licenciatura en Contaduría) from Universidad Iberoamericana and a certification issued by the Mexican Institute of Public Accountants.
Joaquín Alberto Palomo Déneke has served as a member of our board of directors since 2005 and as a member of our audit and corporate governance committee since 2012. He is also a member of the board of directors of Aeroman. Mr. Palomo has over two decades of experience in the financial air transportation and commercial aerospace sectors, where he created and implemented the first organization for Grupo TACA. He also actively participated in the planning, purchasing negotiations, closing, organization and final merger of AVIATECA, Tan/Sahsa, TACA de Honduras, Nica, Lacsa, Isleña de Inversiones, La Costeña, Aeroperlas and Trans American Airlines to form Grupo TACA. Mr. Palomo has negotiated the financing of more than $1 billion in aircraft leases, sales and leasebacks. Mr. Palomo holds a B.S. in Agricultural Economics from Texas A&M University.
John A. Slowik has served as a member of our board of directors and as a member of our audit and corporate governance committee since 2012. He has over three decades of experience in the air transportation and commercial aerospace sectors as a banker at Citi (and its predecessors) and Credit Suisse, where he managed its America’s Airline Industry investment banking practice. His extensive experience includes corporate and investment banking, where his activities involved public and private capital raising, structured debt issuance, aircraft leasing, principal investment and mergers and acquisitions advisory work. Mr. Slowik is also a member of the board of directors of Fan Engine Securitization, Ltd. and Turbine USA LLC, private commercial jet engine leasing companies operating out of Ireland and the United States, respectively. He is also an alternate director of Rotor Engine Securitization Ltd., a private commercial jet engine leasing company operating out of Ireland. Mr. Slowik is a member of the board of directors and chairman of the audit committee of Quintillion Subsea Holdings, LLC, a privately held company operating a subsea fiber optic cable system connecting Nome to Prudhoe Bay, with four landing stations in between, and a terrestrial fiber optic cable system connecting Prudhoe Bay to Fairbanks, Alaska. Mr. Slowik serves as a senior advisor to Volofin Capital Management Ltd., a specialty finance company focused on delivering innovative financing solutions for the commercial aviation market. Mr. Slowik has a B.S. in Mechanical Engineering from Marquette University and a M.B.A. from the Kellogg School of Management at Northwestern University.
Ricardo Maldonado Yañez has served as a member of our board of directors since 2018. He is a partner at Mijares, Angoitia, Cortés y Fuentes, S.C. since 1999. Mr. Maldonado has 25 years of experience providing advice and counseling to Mexican and foreign companies and clients on domestic and cross-border merger and acquisition transactions, joint ventures and strategic alliances. He also represents issuers and financial institutions in public and private debt and equity offerings, and advises clients in the negotiation, structuring and drafting of commercial loans, in complex financings and in infrastructure projects. Mr. Maldonado also focuses part of his practice on corporate governance matters advising family-owned and publicly listed companies. Mr. Maldonado serves as member of the board of directors of Grupo Aeroportuario del Centro Norte (OMA) and ICA Tenedora, S.A. de C.V. He is a member of the National Association of Corporate Directors (NCD) and of the International Corporate Governance Network (ICGN). Mr. Maldonado holds a Law Degree (Licenciatura en Derecho) from the Universidad Nacional Autónoma de México, a certificate in Corporate Law from the Instituto Tecnologico Autónomo de México and a LL.M. from University of Chicago Law School.
Guadalupe Phillips Margain has served as a member of our board of directors since 2020. She is the Chief Executive Officer of Empresas ICA Tenedora, S.A. de C.V. She previously worked in Grupo Televisa where she was Vice-president of Finance and Risk and served in other positions. Ms. Phillips serves as member of the board of directors of several companies including Grupo Televisa, Grupo Financiero Banorte, Innova, Grupo Axo and Grupo Aeroportuario del Centro Norte (OMA). Ms. Phillips holds a Law
100

Table of Contents
Degree (Licenciatura en Derecho) from the Instituto Tecnológico Autónomo de México a M.A.L.D. (Master of Arts in Law and Diplomacy) and a Ph.D. from The Fletcher School of Law and Diplomacy, Tufts University.
Mónica Aspe Bernal has served as a member of our board of directors since April 2020. She is the Chief Executive Officer of AT&T, Mexico. She previously was Mexico´s ambassador in the OSD. She served as Vice-Minister of Communications of the Ministry of Communications and Transportation. Ms. Aspe holds a Political Science Degree (Licenciatura en Ciencias Politicas) from the Instituto Tecnológico Autónomo de México and a M.A. in Political Science from Columbia University.
Senior Management
Our executive officers are appointed by our board of directors, pursuant to a proposal made by our compensation committee, for an indefinite term and may be removed by our board of directors at will, provided the corresponding severance payments are made, if applicable, in accordance with Mexican labor law and the applicable labor contract.
Set forth below are the name, age, position and a description of the business experience of each of our executive officers not described above, as of the date of this annual report. The business address of our executive officers is that of our principal office.

Name	    	Age	    	Title	
Enrique Beltranena	 	59	 	President, Chief Executive Officer and Director	
Holger Blankenstein	 	47	 	Executive Vice President Airline Commercial and Operations	
Jaime E. Pous	 	52	 	Senior Vice President Chief Financial Officer	
José Luis Suárez	 	54	 	Senior Vice President Chief Operating Officer	
José Alejandro de Iturbide	 	55	 	Vice President and Chief Legal Officer	
Jimmy Zadigue	 	49	 	Internal Audit Director	

Holger Blankenstein has served as our Executive Vice President Airline Commercial and Operations since 2018, in charge of the commercial, digital, operations, customer service and maintenance areas of the company. Prior to his current role, Blankenstein served as Chief Commercial Officer from 2009 2017, leading the areas of sales, marketing, planning, itineraries, revenue management and cargo and leading the IT department. Blankenstein has been with the Company since our founding in 2005 and was part of the team that took the Company public in 2013. Before 2005, he was Director of Strategic Development at TACA International Airlines in El Salvador, from 2003 to 2005, where he led many key projects such as the integrated airline systems migration, TACA’s maintenance business growth strategy and the business plan for Volaris. He began his career as a consultant for Bain & Company in 1998 in the Munich office. Blankenstein transferred to the Sydney office in 2000. He was involved with assignments in financial services, automotive and retail industries. Blankenstein holds a B.S. in Business and Economics from Goethe University and a M.B.A. from the University of Iowa.
Jaime E. Pous has served as our Chief Financial Officer since 2021. He previously served as our interim Chief Financial Officer from June 2020, he joined the Company in 2013 as General Counsel and served as our Chief Legal Officer and Corporate Affairs Senior Vice President from 2016 to 2020. Additionally, he served as secretary of our board of directors from 2018 to 2022 and as secretary of our audit and corporate governance committee from 2013 to 2022. Prior to joining us, he worked at Grupo Televisa, where he was legal director from 1999 to 2012. Mr. Pous holds a licenciatura in law from the Instituto Tecnológico Autónomo de México and a LL.M. from The University of Texas at Austin, School of Law.
José Luis Suárez has served as our Chief Operating Officer since 2015. He joined Volaris in 2006 as sales director and served as Retail and Customer Director from 2011 to 2015, where he supervised the airport operations, ramp management, flight attendants and customer solutions. In his current role, he is responsible for flight operations, maintenance, pilots and flight attendants and airport operations. Prior to joining us, Mr. Suárez worked at Sabre Holdings from 1996 to 2006. Mr. Suárez holds a licenciatura in Industrial Engineering from the Universidad Iberoamericana, a Degree in Executive Management from IPADE Business School, a M.S. in Industrial Engineering and a M.B.A. from the University of Missouri, Columbia.
José Alejandro de Iturbide has served as our Vice President Chief Legal Officer since 2021 and as Secretary of our board of directors since April 2022. Mr. Iturbide served as General Counsel, Managing Director and Secretary of the board of directors of Grupo Financiero Citibanamex, having also served as General Counsel in Mexico at General Electric and Barclays Capital, among others. Mr. Iturbide received and holds a licenciatura in law from the Universidad Nacional Autónoma de México and an LL.M. from the University of Notre Dame, School of Law (Program in London, England).
101

Table of Contents
Jimmy Zadigue has served as our Internal Audit Director since 2020. He previously served as our Internal Audit Director from 2011 to 2019. Mr. Zadigue worked as the internal audit director of Sempra Mexico (IEnova), the director of operations, finance and administration at Swarovski in Mexico and as the director of finance and business control at Bombardier North America. Mr. Zadigue is also a Chartered Public Accountant in Canada. Mr. Zadigue holds a B.B.A. from HEC-Montreal and a M.S. in Accounting Sciences from the Université du Québec.
Activities of Senior Management
Our chief executive officer and members of our senior management (directivos relevantes) are required to focus their activities on creating value for the company and will be liable for damages to the corporation for: (i) favoring a shareholder or group of shareholders, (ii) approving transactions between the company (or its subsidiaries) with related persons without satisfying legal requirements, such as obtaining a fairness opinion and the approval of our board of directors, on a case-by-case basis, (iii) using (or authorizing a third party to use) our assets in a manner that is against our policies, (iv) making inappropriate use of our non-public information, (v) taking advantage of corporate opportunities or consulting a third party to take advantage of corporate opportunities without approval from our board of directors, (vi) knowingly disclosing or revealing false or misleading information or omitting the disclosure of material information, (vii) ordering that transactions undertaken be omitted from registration, (viii) destroying or modifying company results or information and (ix) filing false or misleading information with the CNBV.
Our chief executive officer is required, primarily, to (i) implement the instructions established at our shareholders’ meeting and that of our board of directors, (ii) submit to the board of directors for approval the principal strategies for the business, (iii) submit to the audit and corporate governance committee proposals for our internal control system, (iv) disclose all material information to the public, (v) comply with applicable law in connection with share repurchases and subsequent purchases, (vi) initiate actions in respect of liabilities caused by us, (vii) comply with applicable law in respect of dividend payments, and (viii) maintain adequate accounting and registration internal control systems and mechanisms.
B.         Compensation
Director and Executive Compensation
In 2021, the senior manager positions listed in this annual report received an aggregate compensation of Ps.227.9 million In 2019 and 2020, the senior manager positions listed in this annual report received an aggregate compensation of approximately Ps. 154.9 million and Ps. 142.6 million, respectively.
In 2021, the chairman and the independent members of our board of directors received a net compensation of Ps.12.6 million and the rest of the directors received a net compensation of Ps.3.6 million.
In 2019 and 2020, the independent members of our board of directors received an aggregate compensation of Ps. 8.1 million and Ps.5.8 million, respectively, and the rest of the directors received an aggregate compensation of Ps. 4.4 million and Ps.3.7 million, respectively.
Our directors or executive officers are not entitled to any benefits upon termination, except for indemnification payments provided under the Mexican Federal Labor Law (Ley Federal del Trabajo), if any.
Long-term Retention Plans
Management Incentive Plan
During 2019, the key employees participating in the management incentive plan exercised 2,780,000 Series A shares. The key employees paid Ps. 14.8 million to the Management Trust corresponding to the exercised shares. Thereafter, we received from the Management Trust the payment related to the exercised shares by the key employees as a repayment of the loan between the Company and the Management Trust.
During 2020, the key employees participating in the management incentive plan did not exercise any Series A shares. Thus, the key employees did not pay any amounts to the Management Trust corresponding to any exercised shares.
102

Table of Contents
At December 31,2019 and 2020, the shares held in trust to satisfy the management options were considered as treasury shares. As of December 31, 2019 and 2020, 7,653,981 and 7,653,981 share options were vested, respectively.
During 2021, the key employees participating in the management incentive plan exercised 7,653,981 Series A shares. As a result, the key employees paid Ps.40.7 million to the Management Trust corresponding to the shares exercised. Thereafter, we received from the Management Trust the payment related to the exercised shares by the key employees as a repayment of the loan between the Company and the Management Trust.
As of December 31, 2021 all the share options were exercised.
Management Incentive Plan II
The carrying amount of the liability relating to these SARs as of December 31, 2019 and 2020 was Ps.70.6 million and Ps.177.8 million. The compensation cost or (benefit) is recognized in our consolidated statements of operations under the caption salaries and benefits over the service period. During the years ended December 31, 2019 and 2020, of Ps.37.8 million and Ps.107.2 million, respectively, associated with these SARs in our consolidated statements of operations. No SARs were exercised during 2020.
As of December 31, 2021, the carrying amount of the liability relating to the SARs under MIP II was Ps.115.5 million. The compensation benefit is recognized in our consolidated statements of operations under the caption salaries and benefits over the service period. During the year ended December 31, 2021 we recorded a benefit of Ps.62.3 million, associated with these SARs in our consolidated statements of operations. No SARs were exercised during 2021.
Board of Directors Incentive Plan (BoDIP)
The number of shares held by the trustee as of December 31, 2020 was 5,233,693, of which 3,161,349 shares were priced at Ps.9.74; 968,706 shares were priced at Ps. 16.80; 977,105 shares were priced at 16.12 and 126,533 shares were priced at Ps.26.29. As of December 31, 2020, there were no exercises under the BoDIP.
The number of shares held by the trustee as of December 31, 2021 was 4,589,726, of which 610,848 shares were priced at Ps.32.23; 2,458,827 shares were priced at Ps.9.74; 807,255 shares were priced at Ps.16.80; 586,263 shares were priced at Ps.16.12 and 126,533 shares were priced at Ps.26.29.
Long-term Incentive Plan
During 2010, we adopted an employee long-term incentive plan, the purpose of which is to retain high-performing employees within the organization by paying incentives depending on our performance. During the year ended December 31, 2013 and 2012 we expensed Ps.6.3 million and Ps.6.5 million respectively, as bonuses as part of the caption salaries and benefits. During 2014, this plan was structured as a long-term incentive plan, which consists of a long-term incentive plan (equity-settled) and share appreciation rights plan (cash-settled), each as further described below.
Share Purchase Plan (Equity-Settled)
Under the share purchase plan (equity- settled), in November 2014 certain key employees of the Company were granted with a special bonus by an amount of Ps.10.8, to purchase Company’s shares. The plan consisted in:

i.		Servicios Corporativos granted a bonus to each key executive;	

ii.		The bonus amount by Ps.7.1, net of withheld taxes, was transferred on November 11, 2014, as per the written instructions of each key employees, to the Administrative Trust for the acquisition of Series A shares of the Company through an intermediary authorized by the BMV based on the Administration Trust’s Technical Committee instructions;	

iii.		Subject to specified terms and conditions set forth in the Administrative Trust, the acquired shares were in escrow under the Administrative Trust for its administration until the vesting period date for each key executive, date as of which the key executive can fully dispose of the shares and instruct as desired.	
103

Table of Contents

iv.		The share purchase plan provides that if the terms and conditions are not met by the vesting period date, then the shares would be sold in the BMV, and Servicios Corporativos would be entitled to receive the proceeds of the sale of shares.	

v.		The key employees’ account balance will be tracked by the Administrative Trust. The Administrative Trust’s objectives are to acquire Series A shares on behalf of the key employees and to manage the shares granted to such key executive based on instructions set forth by the Technical Committee.	

As the Administrative Trust is controlled and therefore consolidated by Controladora, shares purchased in the market and held within the Administrative Trust are presented for accounting purposes as treasury stock in the consolidated statement of changes in equity.
In November 2019 and 2020 extensions to this plan were approved by our board of directors. The total cost of the extensions approved was Ps.86.8 million (or Ps.56.4 million net of withheld taxes) and Ps.92.1 million (or Ps.59.9 million net of withheld taxes). Under these extensions, certain of ourkey employees were granted a special bonus that was transferred to the administrative trust for the acquisition of our Series A shares.
In November 2021, an extension to the long term settled equity plan was approved by our board of directors. The total cost of the extension approved was Ps.104.7 (Ps.68.1 net of withheld taxes). Under this extension certain of our key employees were granted a special bonus that was transferred to the administrative trust for the acquisition of our Series A shares.
In November 2021, an extension to the long term settled equity plan was approved by our board of directors. The total cost of the extension approved was Ps.104.7 (Ps.68.1 net of withheld taxes). Under this extension certain of our key employees were granted a special bonus that was transferred to the administrative trust for the acquisition of our Series A shares.
During 2019 and 2020, we recognized Ps.49.7 million and Ps.75.0 million, respectively, as compensation expense associated with the long-term incentive plan in our consolidated statements of operations.
During 2021, we recognized Ps.89.5 million, as compensation expense associated with the long-term incentive plan in our consolidated statements of operations.
During the years ended December 31 2019 and 2020, some key employees left the Company; therefore, these employees did not fulfill the vesting conditions. In accordance withthe plan, Servicios Corporativos is entitled to receive the proceeds of the sale of such shares. As of December 31, 2020, 327,217 shares were forfeited.
During the years ended December 31, 2021, some key employees left the Company; therefore, these employees did not fulfill the vesting conditions. In accordance with the plan, Servicios Corporativos is entitled to receive the proceeds of the sale of such shares. As of December 31, 2021, 551,732 shares were forfeited.
At December 31, 2020, 5,805,311 shares were held in trust under this plan as all shares granted remained unvested. Such shares were considered as treasury shares and considered outstanding for diluted earnings per share purposes because the holders are entitled to dividends if and when distributed.
At December 31, 2021, 4,490,421 shares were held in trust under this plan as all shares granted remained unvested. Such shares were considered as treasury shares and considered outstanding for diluted earnings per share purposes because the holders are entitled to dividends if and when distributed.
SARs (Cash-Settled)
On November 6, 2014, we granted 4,315,264 SARs to key employees that entitle such employees to a cash payment and vest as long as the employee continues to be employed by us atthe end of each anniversary during a three-year period. The total amount of the appreciation rights granted under this plan was Ps.10.8 million at the grant date.
During 2019 and 2020, we did not grant SARs to key executives. The SARs vest during a three-year period as long as the employee completes the required service period and entitle them to a cash payment. As of the grant date, the valuation of the SARs granted under this plan totaled Ps.0.0 million.
104

Table of Contents
During 2019 and 2020, we made a cash payment to key employees related to the SARs plan of Ps.2.4 million and Ps.0.0 million, respectively.
These amounts were determined based on the increase in the share price of the Company between the grant date and the exercisable date of November 2019 and 2020, respectively.
During 2021, we did not grant SARs to key executives. The SARs vest during a three-year period as long as the employee completes the required service period and entitle them to a cash payment. During the year ended December 31, 2021 and 2020, we did not made a cash payment to key employees related to the SARs plan. This plan expired.
C.          Board Practices
Board Practices
The members of our board of directors are elected annually at our ordinary general meeting of shareholders. All board members hold their positions for one year and may be reelected. The current members of the board of directors were reelected or selected pursuant to the unanimous resolutions adopted by our shareholders prior to the offering referred to herein.
Authority of the Board of Directors
For a description of the authority of our directors, see Item 10: “Additional Information—Memorandum and Articles of Association—Provisions of Our By-laws and Mexican Law Relating to Directors.”
Duty of Care and Duty of Loyalty
The Mexican Securities Market Law imposes duties of care and of loyalty on directors.
For a description of the duties of care and loyalty of our directors, see Item 10: “Additional Information—Memorandum and Articles of Association—Provisions of Our By-laws and Mexican Law Relating to Directors.”
Audit and Corporate Governance Committee
The Mexican Securities Market Law requires us to have an audit and corporate governance committee, which must be comprised of at least three independent members. We established an audit and corporate governance committee pursuant to the unanimous resolutions adopted by our shareholders outside of a general shareholders meeting in June 2013. We believe that all of the members of the audit and corporate governance committee are independent under the Mexican Securities Market Law and Exchange Act Rule 10A-3.
The audit and corporate governance committee’s principal duties are (i) supervising and evaluating our external auditors and analyzing their reports (including their opinion of our annual report), (ii) analyzing and supervising the preparation of our financial statements and making a recommendation to the board of directors on their approval, (iii) informing the board of directors of the status of our internal controls, our internal audit and their adequacy, (iv) supervising the execution of related party transactions and transactions representing 20% or more of consolidated assets being undertaken pursuant to applicable law, (v) requesting reports from our executive officers or independent experts whenever it deems appropriate, (vi) investigating and informing the board of directors of any irregularities that it may encounter, (vii) receiving and analyzing recommendations and observations made by the shareholders, members of the board of directors, executive officers or any third party and taking the necessary actions, (viii) calling shareholders’ meetings, (ix) supervising compliance by our chief executive officer of instructions provided by our board or shareholders, (x) providing an annual report to the board in respect of accounting policies, their sufficiency and adequacy, and consistency, (xi) rendering opinions to the board of directors in connection with the designation of our chief executive officer, his compensation and removal and policies for the description and comprehensive remuneration of other executive officers, (xii) supervising and reporting on the performance of our key officers, (xiii) rendering its opinion to the board of directors in connection with transactions with related parties, (xiv) requesting opinions from independent third party experts, (xv) calling shareholders’ meetings, (xvi) providing assistance to the board of directors in the preparation of reports for the annual shareholders’ meeting and (xvii) hiring or recommending auditors to shareholders and approving them.
105

Table of Contents
As of the date of this annual report, the audit and corporate governance committee has at least one financial expert, José Luis Fernández Fernández, and is composed of three members.
The current members of our audit and corporate governance committee are:

Name	    	Title	
José Luis Fernández Fernández	 	Chairman of the Audit and Corporate Governance Committee, Independent Director	
Joaquín Alberto Palomo Déneke	 	Independent Director	
John A. Slowik	 	Independent Director	

Mr. José Carlos Silva Sanchez-Gavito is the alternate member of the Audit and Corporate Governance Committee.
Compensation and Nominations Committee
Our board of directors has created a compensation and nominations committee, which is comprised by four non-independent members, as determined by our board of directors from time to time, appointed by our board of directors. We established a compensation and nominations committee pursuant to the unanimous resolutions adopted by our shareholders in June 2013.
The compensation and nominations committee is responsible for, among other things, (i) submitting proposals to the board of directors and to the audit and corporate governance committee relating to the removal of officers within the first two corporate levels, (ii) proposing the to the board of directors and to the audit and corporate governance committee creation, amendment or termination of any incentive plan for officers, (iii) consulting with third-party experts in connection with any issues related to compensation, organizational development, and other related matters, (iv) proposing to board of directors and to the audit and corporate governance committee the compensation packages for officers within the first four corporate levels, (v) proposing to our board of directors the entering into, amendment or termination of any collective bargaining agreements, (vi) informing our board of directors of any material contingencies, (vii) the assessment of the performance of all relevant executive officers and reporting such assessments to the board of directors and to the audit and corporate governance committee, and (viii) submitting periodic reports to our board of directors.
As of the date of this annual report, the current members of the compensation and nominations committee are:

Name	    	Title	
Marco Baldocchi Kriete	 	Chairman	
Brian H. Franke	 	Member	
Harry F. Krensky	 	Member	

Mr. Rodrigo Escobar Nottebohm is the alternate of Mr. Marco Baldocchi Kriete.

D.Employees
We believe that having well-trained and driven employees impacts our growth potential and the quality of the service we provide. We therefore expend significant effort on selecting and training individuals who we believe are the best qualified for our company and will fit well within our corporate culture of customer service, meritocracy and efficient operations.
As of December 31, 2021, we had 6,714 employees, which consisted of 1,453 pilots, 2,690 flight attendants, 109 ramp operations personnel, 874 airport and customer service personnel, 427 maintenance personnel and 1,161 management and administrative personnel. 5,464 of our employees (81%) are part of the Union of Workers of the Aeronautic, Similar or Connected Industries (Sindicato de Trabajadores de la Indústria Aeronaútica, Similares y Conexos de la República Méxicana), or STIAS, and the remaining 17% of our employees are not part of any union. Volaris Opco entered into a collective bargaining agreement with our pilots and flight attendants on February 15, 2021 for a term of two years for benefits and on February 15, 2022 for a term of one year for salaries. Salaries under these collective bargaining agreements are negotiated yearly, whereas other benefits are negotiated every two years. We believe we have a good relationship with our employees and have never had labor strikes or work stoppages.
106

Table of Contents
The following table sets forth the number of our employees per category and average employees per aircraft for the periods indicated below:

		For the Years ended December 31, 	
Employees	    	2019	    	2020	    	2021	
Pilots	 	926	 	907	 	1,453	
Flight attendants	 	1,864	 	1,824	 	2,690	
Ramp operations personnel	 	91	 	89	 	109	
Airport and customer service personnel	 	804	 	764	 	874	
Maintenance personnel	 	352	 	353	 	427	
Management and administrative personnel	 	913	 	909	 	1,161	
Total	 	4,950	 	4,846	 	6,714	
							
Average employees per aircraft		60	 	54	 	63	

We provide extensive training to our pilots, flight attendants, technical staff and customer service representatives, which complies with Mexican and international standards. We have implemented employee accountability initiatives both at the time of hiring and on an ongoing basis in order to maintain the quality of our crew and customer service.
Our compensation strategy is meant to retain talented and motivated employees and is designed to align the interests of our employees with our own. All of our employees, including pilots, flight attendants, ground employees and management, are subject to variable compensation employment arrangements, which are intended to promote efficiency, operating performance and profitable results. In addition, there is no seniority pay escalation among our pilots in order to encourage meritocracy.

E.	Share Ownership	
As of the date of this annual report, our directors and officers owned shares as follows:

Name	    	Title	    	Number of shares	 	
Harry F. Krensky		Director	 	6,012,590	*	
Brian H. Franke		Chairman of the Board	 	2,610,000	*	
John A. Slowik		Independent Director	 	67,500	*	
William Dean Donovan		Independent Director	 	3,208,080	*	
Alfonso González Migoya		Independent Director	 	107,971		
Marco Baldocchi		Director	 	1,870,500	*	
Enrique Beltranena		Director, President and Chief Executive Officer	 	8,579,793		
Holger Blankenstein		Executive Vice President Airline Commercial and Operations	 	4,030,000	*	
Jaime E. Pous		Senior Vice President and Chief Financial Officer	 	945,418		
José Luis Suárez		Senior Vice President and Chief Operating Officer	 	408,485		
Jimmy Zadigue		Internal Audit Director	 	12,949	*	

*	Shares owned through CPOs or ADSs.	
This share ownership represents less than 2.4% of our shares. No other director or member of senior management owns any of our capital stock as of the date of this annual report. Except for the management incentive plan disclosed in this annual report, we have no arrangements for the issuing or granting of our options, shares or securities to our employees, nor do we have any other arrangement for involving our employees in our capital.
107

Table of Contents
ITEM  7    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.    Major Shareholders
Our Principal Shareholders
Our shareholders are Mexican investors, international investors, investment funds managed by Blue Sky Investments, and investment funds managed by Indigo Partners LLC, or Indigo. Our shareholders have a long history of investing in Mexico and some of them have experience in the airline industry by having formed, or by holding interests in, Avianca, Frontier, JetSMART, Spirit, Tiger and Wizz.
Major Shareholders and Share Ownership
The following table sets forth information as of the date of this annual report with respect to beneficial ownership of our capital stock:

	●	each person that is a beneficial owner of 5% or more of our outstanding shares of capital stock;	

	●	each of our executive officers;	

	●	each of our directors; and	

	●	all of our executive officers and directors as a group.	

										
		Common Stock	 	
		Number		Percentage	 	
Shareholders		Series A	    	Series B	    	Series A	    	Series B		
5% Shareholders:	    									
Blue Sky Investments, S.à. r.l.(1)		85,739,880	 	14,319,124	 	7.95	%	24.90	%	
Funds managed by Indigo(2)		169,380,930	 	43,194,749	 	15.28	%	75.10	%	
Teewinot Capital Advisers LLC(3)		61,288,820	 	0	 	5.53	%	0.00	%	
Named Executive Officers and Directors:			 		 		 			
William A. Franke(2)		1,108,462,804	 	57,513,873	 	15.28	%	75.10	%	

(1)	Consists of 14,319,124 Series B shares and 85,739,880 Series A shares deposited in the CPO trust held by Blue Sky Investments, S.à r.l. Rodrigo Antonio Escobar Nottebohm and Rémy Cornet are the managers of Blue Sky Investments, S.à r.l. and share voting and investment power over the shares held by Blue Sky Investments, S.à r.l. Messrs. Escobar Nottebohm and Cornet disclaim beneficial ownership of the shares held by Blue Sky Investments, S.à r.l. except to the extent of their respective individual pecuniary interests in these shares. Blue Sky Investments, S.à r.l. has a principal business address at: 7, rue Robert Stümper, L-2557 Luxembourg.	

(2)	Consists of 135,974,070 Series A shares (deposited in the CPO trust) held by Indigo LatAm LP., 1,000,649 Series B shares and 3,228,640 Series A shares (deposited in the CPO trust) held by Long Bar LatAm, LLC, 178,220 Series A shares (deposited in the CPO trust) held by Long Bar LatAm II LP, 30,000,000 Series A shares (deposited in the CPO trust) held by Indigo Mexico LLC and 42,194,100 Series B shares held by Indigo Mexico Cöoperatief U.A. William A. Franke is the managing member of a fund that is the general partner of Indigo Mexico Cöoperatief U.A, and is manager of the funds of Long Bar LatAm, LLC, Indigo LatAm LP, Long Bar LatAm II LP and Indigo Mexico LLC, and as such, has voting and dispositive power over these shares. Mr. Franke disclaims beneficial ownership of the shares held by these entities except to the extent of any pecuniary interest therein. Indigo Mexico Coöperatief U.A. has a principal business address at: Herikerbergweg 88, 1101 CM Amsterdam, Netherlands. All other entities listed herein, whose shares are beneficially owned by Indigo, have a principal business address at: 2525 East Camelback Road, Phoenix, Arizona 85016.	

(3)	Teewinot Capital Advisers, LLC has a principal business address at: 101 Park Avenue, 48th Floor, New York, New York 10178.	

Securities Held in Host Country
As of December 31, 2021, 86,762,618 ADSs (equivalent to 867,626,180 shares, or 74.4% of the total outstanding shares of our common stock) were outstanding and held of record by 17 registered shareholders of depositary receipts. We are aware that many ADSs are held of record by brokers and other nominees, and accordingly the above numbers are not necessarily representative of the actual number of U.S. persons who are beneficial holders of ADSs or the number of ADSs beneficially held by such persons.
108

Table of Contents
Registration Rights
We have granted the registration rights described below to our principal shareholders, to register shares of capital stock (and/or CPOs having such shares as underlying securities) owned by each of them after our initial public offering with SEC under the Securities Act, pursuant to the terms of a registration rights agreement filed as Exhibit 4.7 to our registration statement on Form F-1 field with the SEC on September 16, 2013, or the Registration Rights Agreement. No registration rights were granted to our principal shareholders in respect of the registration of our shares with the RNV maintained by the CNBV, because all of our Series A shares were registered thereat concurrently with our initial public offering, and such registration will be updated, from time to time, as required under applicable Mexican law.
The following description of the terms of the Registration Rights Agreement is intended as a summary only and is qualified in its entirety by reference to the copy filed as Exhibit 4.7 to our registration statement on Form F-1 field with the SEC on September 16, 2013.
Demand and Short-Form Registration Rights
Since the completion of our initial public offering, our principal shareholders are entitled to certain demand and short-form registration rights. The holders of at least a majority of the shares (and/or CPOs having such shares as underlying securities) subject to the registration rights can, on not more than two occasions, request that we register all or a portion of their shares (and/or CPOs having such shares as underlying securities) under the Securities Act.
In addition, since our initial public offering, these holders became entitled to certain short-form registration rights. The holders of shares (and/or CPOs having such shares as underlying securities) with a proposed aggregate offering price of at least U.S. $20 million at the time of the request may make a written request that we register their shares (and/or CPOs having such shares as underlying securities) on a short form registration, if we are eligible to file a registration statement on Form F-3. These holders may make an unlimited number of requests for registration on Form F-3. However, we will not be required to effect a demand or short-form registration within 90 days after the effective date of a previous demand or short-form registration.
Moreover, once every 12 months, we may postpone for up to six months the filing or the effectiveness of a registration statement for a demand or a short-form registration, if our board of directors determines that such registration would have a material adverse effect on any of our proposals or plans to engage in any acquisitions of assets, merger, consolidation, tender offer or any other material transaction.
Piggyback Registration Rights
In the event that we propose to register any of our securities under the Securities Act, our principal shareholders will be entitled to certain “piggyback” registration rights allowing the holder to include their shares (and/or CPOs having such shares as underlying securities) in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act (pursuant to a demand or short-form registration, or pursuant to a registration on Form F-4 or F-8 or any successor or similar forms), our current principal shareholders holding these shares (and/or CPOs having such shares as underlying securities) are entitled to notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares (and/or CPOs having such shares as underlying securities) included in the registration, to include their shares (and/or CPOs having such shares as underlying securities) in the registration.
Expenses of Registration, Restriction and Indemnification
We will pay all registration expenses, including the legal fees of one counsel for all holders under the Registration Rights Agreement. In addition, we will reimburse such holders for the reasonable fees and disbursements of each additional counsel retained for the purpose of rendering any legal opinion if and to the extent required by underwriters or us.
The demand, short-form and piggyback registration rights are subject to customary restrictions such as blackout periods and any limitations on the number of shares (and/or CPOs having such shares as underlying securities) to be included in the underwritten offering imposed by any lead underwriter. The Registration Rights Agreement also contains indemnification provisions that we believe are customary for similar transactions.
109

Table of Contents
Significant Changes in Share Ownership
None.
Differences in Voting Rights
See Item 10: “Additional Information—Memorandum and Articles of Association—Overview—Voting Rights.”
B.           Related Party Transactions
We have engaged in a number of transactions with related parties.
Servprot
Servprot S.A. de C.V., or Servprot, is a related party because Enrique Beltranena, our Company’s President and Chief Executive Officer and director, is a shareholder of such company. Servprot provides security services for Mr. Beltranena and his family. As of December 31, 2019, 2020 and 2021, we accrued an expense of Ps.3.1 million, Ps.3.5 million and Ps.3.5 million, respectively, in connection with these services.
Aeroman
Aeroman is a related party because Marco Baldocchi, a member of the board of directors of the Company’s board of directors is an alternate director of Aeroman. On January 1, 2017, we entered into an aircraft repair and maintenance service agreement with Aeroman. This agreement provides that we must exclusively use Aeroman for aircraft repair and maintenance services, subject to availability. Under this agreement, Aeroman provides inspection, maintenance, repair and overhaul services for aircraft. The payments under this agreement depend on the services performed. This agreement is for a five - year term. As of December 31, 2019, 2020 and 2021, the balances due under the agreement with Aeroman were Ps.1.5 million, Ps.39.3 million and Ps.8.3 million, respectively. During 2019, 2020 and 2021, we incurred expenses in aircraft and engine maintenance and technical support under this agreement amounting to Ps.207.4 million, Ps.243.1 million and Ps.163.5 million, respectively.
One Link, S.A. de C.V.
OneLink S.A. de C.V., or Onelink, was a related party until December 31, 2017, because Marco Baldocchi, a member of the board of directors, was a director of Onelink. As of October 24, 2019 and until June 30,2020 Onelink, Holdings, S.A., or Onelink Holdings, and its subsidiary Onelink are once again related parties, because Mr. Rodrigo Antonio Escobar Nottebohm, an alternate board member of Onelink Holdings, became an alternate Director of the Company. Pursuant to this agreement, One Link receives calls from the customers to book flights and provides customers with information about fares, schedules and availability. As of December 31, 2019 and 2020, our balance due under this agreement was Ps.39.8 million and Ps.0, respectively, we accrued an expense under this agreement of Ps.37.0 million and Ps.73.2 million for the years ended December 31, 2019 and 2020, respectively. As of December 31, 2021, the Company did not recognize any outstanding balances from OneLink neither revenue nor expense as related party transaction.
Mijares, Angoitia, Cortés y Fuentes, S.C.
Mijares, Angoitia, Cortés y Fuentes, S.C., or MACF, is a related party because Ricardo Maldonado Yañez and Eugenio Macouzet de León, member and alternate member, respectively, of our board of of the Company since April 2018, are partners of MACF. Mijares provides legal services to us. As of December 31, 2019 and 2020, our balance due in connection with these services was Ps.1.0 million and Ps.0.2 million, respectively. For the years ended December 31, 2019 and 2020, we recognize expense transactions with this related party of Ps.1.3 million, Ps.5.6 million and Ps.4.3 million
Frontier
Frontier is a related party because Mr. William A. Franke and Brian H. Franke, members of our board of the Company and Frontier as well as Indigo Partners, the later has investments in both Companies. We executed a codeshare agreement with Frontier on January 16, 2018. As of December 31, 2019, 2020 and 2021, the account receivable under this agreement was Ps.23.4 million, Ps.72.6 million and Ps.95.9 million, respectively, and the account payable was Ps.16.3 million, Ps.0.0 million and Ps.0.0 million, respectively.
110

Table of Contents
For the years ended December 31, 2019, 2020 and 2021, we recognized revenue under this agreement of Ps.209.0 million, Ps.149.0 million and Ps.71.2 million, respectively.
Chevez, Ruiz, Zamarripa y Cia, S.C
Chevez, Ruiz, Zamarripa y Cia, S.C., or Chevez, is a related party because Mr. José Luis Fernández Fernández, an independent member of our board of directors, as well as the chairman of our Audit and Corporate Governance Committee of the Company, is a non-managing limited partner of Chevez. Chevez provides tax advisory services to us, however Mr. Fernández has had no active role in providing these services, and his compensation has been and remains unaffected by the fees charged to us in connection with such services. For the year ended December 31, 2020 and 2021, our account payable to Chevez totaled Ps.4.8 million and Ps.9.3 millon, respectively. During the years ended December 31, 2020 and 2021, the Company recognized expenses with Chevez of Ps.4.8 million and Ps.4.8 million, respectively.
Grupo Aeroportuario del Centro Norte
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., or OMA, is a related party because Mrs. Guadalupe Phillips Margain and Mr. Ricardo Maldonado Yañez are independent members of our board of directors and members of the board of directors of OMA. For the year ended December 31, 2020 and 2021, our account payable to OMA was Ps.80.7 million and Ps.199.4 million, respectively. For the year ended December 31, 2020 and 2021, we recognized expenses with OMA of Ps.32.2 million and Ps.133.3 million, respectively.
C.          Interests of Experts and Counsel
Not Applicable.
ITEM  8    FINANCIAL INFORMATION

A.	Consolidated Statements and Other Financial Information	
Our annual consolidated financial statements prepared in accordance with IFRS on pages F-1 through F-90 are filed as part of this annual report.
Legal Proceedings
We are subject to various legal proceedings in the ordinary course of our business that we believe are incidental to the operation of our business. We believe that the outcome of the proceedings to which we are currently a party will not, individually or in the aggregate, have a material adverse effect on our consolidated financial statements.
Certain proceedings are considered possible obligations. Based on the plaintiffs’ claims, as of December 31, 2020 and 2021, these possible contingencies amount to a total of Ps.125 million and Ps.163 million, respectively.
Dividend Policy
We have not paid any cash dividends in the past and do not expect to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain any additional future earnings to finance our operations and growth. Any future determination to pay cash dividends on our common stock will be at the discretion of our shareholders on the recommendation of our board of directors and will depend on our earnings, financial condition, results of operations, capital requirements and contractual, regulatory and other restrictions on the payment of dividends and other factors our shareholders deem relevant. In addition, we may not pay any dividend unless such dividend is paid from our net profit account and the financial statements including such net profit and the payment of the relevant dividend have been approved by a shareholder resolution. Furthermore, our revolving line of credit with Banco Santander México and Bancomext may limit our ability to declare and pay dividends in the event that we fail to comply with the payment terms thereunder. See Item 5: “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Loan Agreements.”
111

Table of Contents
Mexican law requires that at least 5% of a company’s net income each year (after profit sharing and other deductions required by Mexican law) be allocated to a legal reserve fund until such fund reaches an amount equal to at least 20% of its capital stock from time to time (without adjustment for inflation). For the years ended December 31, 2019, 2020 and 2021, we did not allocate any amount to our legal reserve fund. As of December 31, 2019, 2020 and 2021, the legal reserve was Ps.291,178 or 9.8%, 8.5% and 8.5%, respectively, of our capital stock.
Mexican companies may pay dividends only out of earnings (including retained earnings after all losses have been absorbed or paid up), after allocation to the legal reserve fund and only if shareholders have approved the yearly financials from which such earnings are derived and the payment of the dividend. The reserve fund is required to be funded on a stand-alone basis for each company, rather than on a consolidated basis. The level of earnings available for the payment of dividends is determined under IFRS. Our subsidiaries are required to allocate earnings to their respective legal reserve funds prior to paying dividends to us.
Dividends that are paid from a company’s distributable earnings that have not been subject to corporate income tax are subject to a corporate-level tax payable by us. Companies are entitled to apply any such tax on the distribution of earnings as a credit against their Mexican corporate income tax corresponding to the fiscal year in which the dividend was paid or against the Mexican corporate income tax of the two fiscal years following the date in which the dividend was paid. Dividends paid from a company’s distributable earnings that have been subject to corporate income tax are not subject to this corporate-level dividend income tax. Dividends paid to resident and non-resident holders with respect to the CPOs and ADSs are subject to a 10% Mexican tax withholding.
In the event we were to declare dividends, they would be in pesos. In the case of CPOs represented by ADSs, the cash dividends would be paid to the depositary and, subject to the terms of the Deposit Agreement, converted into and paid in U.S. dollars at the prevailing rate of exchange, net of conversion expenses of the depositary and applicable Mexican withholding tax. Fluctuations in exchange rates would affect the amount of dividends that ADS holders would receive. For a more detailed discussion, see Item 12: “Description of Securities Other than Equity Securities—American Depositary Shares.”
B.Significant changes
Except as otherwise disclosed in this annual report, there has been no undisclosed significant change since the date of our annual consolidated financial statements.
ITEM 9    THE OFFER AND LISTING
A.           Offer and Listing Details
New York Stock Exchange
American Depositary Shares
Our ADSs, each representing 10 of our Series A shares, are listed on the NYSE under the trading symbol “VLRS.” The ADSs began trading on the NYSE on September 18, 2013 and were issued initially by the Bank of New York Mellon.
Mexican Stock Exchange
Series A Shares
The Series A shares are listed on the Bolsa Mexicana de Valores, S.A.B. de C.V., or the Mexican Stock Exchange, under the trading symbol “VOLAR.” The Series A shares began trading on the Mexican Stock Exchange on September 18, 2013.
B.          Plan of Distribution
Not Applicable.
112

Table of Contents
C.          Markets
The Mexican Stock Market
The information concerning the Mexican securities market set forth below has been prepared based on materials obtained from public sources, including the CNBV, the Mexican Stock Exchange and information made public by market participants. The following summary does not purport to be a comprehensive description of all of the material aspects related to the Mexican securities market.
Trading on the Mexican Stock Exchange
The Mexican Stock Exchange, located in Mexico City, is the only stock exchange currently operating in Mexico. Operating continuously since 1907, the Mexican Stock Exchange is organized as a variable capital public stock corporation. Securities trading on the Mexican Stock Exchange occurs each business day from 8:30 a.m. to 3:00 p.m., Mexico City time subject to adjustments to operate uniformly with certain markets in the United States.
Since January 1999, all trading on the Mexican Stock Exchange has been effected electronically. The Mexican Stock Exchange may impose a number of measures to promote an orderly and transparent trading price of securities, including the operation of a system of automatic suspension of trading in shares of a particular issuer, when price fluctuations exceed certain limits.
Settlement of transactions with equity securities on the Mexican Stock Exchange are effected three business days after a share transaction is agreed to. Deferred settlement is not permitted without the approval of the Mexican Stock Exchange, even where mutually agreed. Securities traded on the Mexican Stock Exchange are on deposit in book-entry form through the facilities of Indeval, a privately owned securities depositary that acts as a clearinghouse, depositary, and custodian, as well as a settlement, transfer, and registration agent for Mexican Stock Exchange transactions, eliminating the need for physical transfer of securities. Transactions must be settled in pesos except under limited circumstances and in respect of limited transactions in which settlement in foreign currencies may be permitted.
Market Regulation
In 1925, the Mexican National Banking Commission (Comisión Nacional Bancaria) was established to regulate banking activity and in 1946, the Mexican Securities Commission (Comisión Nacional de Valores) was established to regulate stock market activity. In 1995, these two entities merged to form the CNBV.
Among other things, the CNBV regulates the public offering and trading of securities, public companies and their regime and participants in the Mexican securities market (including brokerage houses and the Mexican Stock Exchange), and imposes sanctions for the illegal use of insider information and other violations of the Mexican Securities Market Law. The CNBV regulates the Mexican securities market, the Mexican Stock Exchange, and brokerage firms, through its staff and a board of governors comprised of thirteen members.
Mexican Securities Market Law
The current Mexican Securities Market Law was enacted on December 8, 2005, published in the Official Gazette of the Federation (Diario Oficial de la Federación) or Official Gazette of the Federation on December 31, 2005, and became effective on June 28, 2006, and is referred to as the Mexican Securities Market Law. The Mexican Securities Market Law changed Mexican securities laws in various material respects to further align Mexican laws with the securities and corporate governance standards laws in effect in other jurisdictions that maintained more developed securities markets.
In particular, the Mexican Securities Market Law:

	●	establishes the sociedad anónima promotora de inversión, a form of corporate organization that permits agreements among shareholders, mediating rights of first offer and refusal, tag-along rights, vetoes, non-compete provisions and other terms that enhance rights of minority shareholders;	

113

Table of Contents

	·	establishes the variable capital public stock corporation, a corporate form of organization that is subject to the general requirements of the Mexican Corporations Law, but is subject to specific requirements for issuers with stock registered with the CNBV and listed in the Mexican Stock Exchange;	
	·	includes private placement exemptions directed to Mexican institutional and qualified investors, and specifies the requirements that need to be satisfied for an issuer or underwriter to fall within the exemption;	
	·	includes improved rules for tender offers, dividing them in either voluntary or mandatory;	
	·	establishes standards for disclosure of holdings applicable to shareholders of public companies;	
	·	expands and strengthens the role of the board of directors of public companies;	
	·	defines the role of the chief executive officer and other relevant officers of public corporations;	
	·	defines the standards applicable to the board of directors and the duties and potential liabilities and penalties applicable to each director, the chief executive officer and other executive officer and of members of the technical committee and the corporate governance committee (introducing concepts as the duty of care, duty of loyalty and safe harbors for actions attributable to directors, committee members and officers);	
	·	replaces the statutory auditor (comisario) with the audit committee and establishes the corporate governance committee with clearly defined responsibilities;	
	·	improves the rights of minority shareholders (including rights to initiate shareholders’ derivative suits);	
	·	defines applicable sanctions for violation of law;	
	·	provides for flexibility to allow regulated Mexican brokerage firms to engage in certain limited activities;	
	·	regulates stock exchanges, clearinghouses, futures and derivatives markets, and rating agencies;	
	·	establishes penalties (including incarceration), arising from violations of the Securities Market Law and regulations thereunder;	
	·	establishes that public companies are considered a single economic unit with the entities they control;	
	·	introduces concepts such as consortiums, groups of related persons or entities, control, related parties and decision-making power;	
	·	defines rules relating to types of securities that may be offered by public companies;	
	·	sets forth information for share repurchases; and	
·specifies requirements for implementing anti-takeover measures.
In March 2003, the CNBV issued certain general regulations applicable to issuers and other securities market participants, which regulations have since been amended, or the General Regulations, and in September 2004, the CNBV issued certain general regulations applicable to brokerage firms. The General Regulations, which repealed several previously enacted CNBV regulations, provide a consolidated set of rules governing public offerings, reporting requirements and issuer activity, among other things.
Registration and Listing Standards
In order to offer securities to the public in Mexico, an issuer must meet specific qualitative and quantitative requirements. Only securities that have been registered with the Mexican National Securities Registry (Registro Nacional de Valores) or the RNV, pursuant to an approval by the CNBV may be listed on the Mexican Stock Exchange. In addition, the Mexican Stock Exchange has created a parallel quotation system, named the international quotation system, or SIC, where debt and equity securities issued by non-Mexican issuers may be listed, for trading by institutional and accredited investors. Issuers listed on the SIC have limited disclosure and reporting requirements and may comply with obligations through a sponsor and by providing disclosure made available in their
114

Table of Contents
home market. These securities may be listed through the SIC if (i) the securities are not already listed on the RNV, (ii) the market of origin of the company issuing the shares has received, based on its characteristics, recognition from the CNBV, and (iii) the securities satisfy the listing requirements of the applicable stock exchange.
The General Regulations require the Mexican Stock Exchange to adopt minimum requirements for issuers that seek to list their securities in Mexico. These requirements relate to operating history, financial and capital structure, and minimum public floats applicable to shares of public companies, among other things. The General Regulations also require the Mexican Stock Exchange to implement minimum requirements (including minimum public floats) for issuers to maintain their listing in Mexico. These requirements relate to the issuer’s financial condition, capital structure and public float, among others. The CNBV may waive some of these requirements in certain circumstances. In addition, some of the requirements are applicable for each series of shares of the relevant issuer.
The CNBV’s approval for registration with the RNV does not imply any kind of certification or assurance related to the investment quality of the securities, the solvency of the issuer, or the accuracy or completeness of any information delivered to the CNBV or included in any offering document.
The Mexican Stock Exchange may review compliance with the foregoing requirements and other requirements at any time, but will normally do so on an annual, semi-annual and quarterly basis. The Mexican Stock Exchange must inform the CNBV of the results of its review, and this information must, in turn, be disclosed to investors.
If an issuer fails to comply with any of these minimum requirements, the Mexican Stock Exchange will request that the issuer propose a plan to cure the violation. If the issuer fails to propose a plan, if the plan is not satisfactory to the Mexican Stock Exchange, or if an issuer does not make substantial progress with respect to the implementation of the corrective plan, trading of the relevant series of shares on the Mexican Stock Exchange may be temporarily suspended. In addition, if an issuer fails to implement the plan in full, the CNBV may cancel the registration of the shares, in which case the majority shareholder or any controlling group will be required to carry out a tender offer to acquire all of the outstanding shares of the issuer in accordance with the tender offer provisions set forth in the Mexican Securities Market Law (under which all holders must be treated in the same manner).
Reporting Obligations
Issuers of listed securities are required to file unaudited quarterly financial statements and audited annual financial statements (together with an explanation thereof) and periodic reports, in particular reports dealing with material events, with the CNBV and the Mexican Stock Exchange. Mexican issuers must file the following reports with the CNBV:

	●	a comprehensive annual report prepared in accordance with the General Regulations, by no later than April 30 of each year;	

	·	quarterly reports, within 20 days following the end of each of the first three quarters and 40 days following the end of the fourth quarter;	
	·	reports disclosing material information;	
	·	reports and disclosure memoranda revealing corporate restructurings such as mergers, spin-offs or acquisitions or sales of assets, to be approved by shareholders’ meeting or the board of directors;	
	·	reports regarding the policies and guidelines with respect to the use of the company’s (or its subsidiaries) assets by related persons; and	
	●	details dealing with agreements among shareholders.	

Pursuant to the General Regulations, the internal rules of the Mexican Stock Exchange were amended to implement an automated electronic information transfer system (Sistema Electrónico de Envío y Difusión de Información), or SEDI, called Sistema Electrónico de Comunicación con Emisoras de Valores, or EMISNET, for information required to be filed with the Mexican Stock Exchange. Issuers of listed securities must prepare and disclose their financial and other information via EMISNET. Immediately upon receipt, the Mexican Stock Exchange makes this financial and other information available to the public.
115

Table of Contents
The General Regulations and the rules of the Mexican Stock Exchange require issuers of listed securities to file through SEDI information that relates to any event or circumstance that could influence an issuer’s share prices and investor decisions to acquire stock. If listed securities experience unusual price volatility, the Mexican Stock Exchange must immediately request that an issuer inform the public as to the causes of the volatility or, if the issuer is unaware of the causes, that it makes a statement to the effect that it is unaware of the causes of such volatility. In addition, the Mexican Stock Exchange must immediately request that issuers disclose any information relating to material events when it deems the available public information to be insufficient, as well as instruct issuers to clarify information when necessary. The Mexican Stock Exchange may request that issuers confirm or deny any material event that has been disclosed to the public by third parties when it deems that the material event may affect or influence the price of the listed securities. The Mexican Stock Exchange must immediately inform the CNBV of any such request. In addition, the CNBV may also make any of these requests directly to issuers. An issuer may delay the disclosure of material events if:

	·	the issuer implements adequate confidentiality measures (including maintaining a log with the names of parties in possession of confidential information and the date when each such party became aware of the relevant information);	
	·	the information is related to incomplete transactions;	
	·	there is no misleading public information relating to the material event; and	
	●	no unusual price or volume fluctuation occurs.	

Similarly, if an issuer’s securities are traded on both the Mexican Stock Exchange and a foreign securities exchange, the issuer must simultaneously file the information that it is required to file pursuant to the laws and regulations of the foreign jurisdiction with the CNBV and the Mexican Stock Exchange.
Suspension of Trading
In addition to the authority of the Mexican Stock Exchange under its internal regulations described above, the CNBV and the Mexican Stock Exchange may suspend trading in an issuer’s securities:

	·	if the issuer does not disclose a material event; or	
	●	upon price or volume volatility or changes in the trading of the relevant securities that are not consistent with the historic performance of the securities and cannot be explained solely through information made publicly available pursuant to the General Regulations.	

The Mexican Stock Exchange must immediately inform the CNBV and the general public of any suspension. An issuer may request that the CNBV or the Mexican Stock Exchange permit trading to resume if it demonstrates that the causes triggering the suspension have been resolved and that it is in full compliance with periodic reporting requirements. If an issuer’s request has been granted, the Mexican Stock Exchange will determine the appropriate mechanism to resume trading (which may include a bidding process to determine applicable prices). If trading in an issuer’s securities is suspended for more than 20 business days and the issuer is authorized to resume trading without conducting a public offering, the issuer must disclose via SEDI, before trading may resume, a description of the causes that resulted in the suspension.
Under consent regulations, the Mexican Stock Exchange may consider the measures adopted by other non-Mexican exchanges to suspend and/or resume trading of an issuer’s shares, in cases where the relevant securities are simultaneously traded on stock exchanges located outside of Mexico.
Insider Trading, Trading Restrictions and Tender Offers
The Mexican Securities Market Law contains specific regulations regarding insider trading, including the requirement that persons in possession of information deemed privileged abstain (i) from directly or indirectly, trading in the relevant issuer’s securities, or derivatives with respect to such securities, the trading price of which may be affected by such information, (ii) from making recommendations or providing advice to third parties to trade in such securities, and (iii) disclosing or communicating such privileged information to third parties (except for persons to whom such information must be disclosed as a result of their positions or employment, as governmental authorities).
116

Table of Contents
Pursuant to the Mexican Securities Market Law, the following persons must notify the CNBV of any transactions undertaken by them with respect to a listed issuer’s securities, whether on a case-by-case basis or quarterly:

	●	members of a listed issuer’s board of directors;	

	●	shareholders controlling 10% or more of a listed issuer’s outstanding capital stock;	

	●	advisors;	

	●	groups controlling 25% or more of a listed issuer’s outstanding capital stock; and	

	●	other insiders.	

These persons must also inform the CNBV of the effect of the transactions within five days following their completion, or, alternatively, that the transactions have not been consummated. In addition, insiders must abstain from purchasing or selling securities of the issuer within three months from the last sale or purchase, respectively.
Also, for purposes of preparing annual reports, holders of 1% or more of the outstanding shares of a Mexican public company, must disclose their holdings and the relevant issuer.
Subject to certain exceptions, any acquisition of a public company’s shares that results in the acquirer owning 10.0% or more, but less than 30.0%, of an issuer’s outstanding capital stock, must be publicly disclosed to the CNBV and the Mexican Stock Exchange by no later than one business day following the acquisition.
Any acquisition or disposition by an insider that results in the insider holding an additional 5% or more of a public company’s outstanding capital stock or that reduces such insider’s holdings by 5% or more, must also be publicly disclosed to the CNBV and the Mexican Stock Exchange no later than one business day following the acquisition or disposition. Some insiders must also notify the CNBV of share purchases or sales that occur within any three-month or five-day period and that exceed certain value thresholds. The Mexican Securities Market Law requires that convertible securities, warrants and derivatives to be settled in kind be taken into account in the calculation of share ownership percentages of public companies.
The Mexican Securities Market Law requires that convertible securities, warrants, and derivatives to be settled in kind be considered in determining whether any of the foregoing percentages is reached or affected.
Tender Offers
The Mexican Securities Market Law contains provisions relating to public tender offers and certain other share acquisitions occurring in Mexico. Under the Securities Market Law, tender offers may be voluntary or mandatory. Voluntary tender offers, or offers where there is no requirement that they be initiated or completed, are required to be made pro rata. Any intended acquisition of a public company’s shares that results in the acquirer owning 30% or more, but less than a percentage that would result in the acquirer obtaining control, of a company’s voting shares requires the acquirer to make a mandatory tender offer for the greater of (a) the percentage of the capital stock intended to be acquired, or (b) 10% of the company’s outstanding capital stock. Finally, any intended acquisition of a public company’s shares that is aimed at obtaining control requires the potential acquirer to make a mandatory tender offer for 100% of the company’s outstanding capital stock (however, under certain circumstances, the CNBV may permit an offer for less than 100%). The tender offer must be made at the same price to all shareholders and classes of shares. The board of directors, with the advice of the audit committee, must issue its opinion in respect of the fairness of the price applicable to any tender offer resulting in a change of control, which opinion must take minority shareholder rights into account and which may be accompanied by an independent fairness opinion. Directors and officers of a public company, in respect of which a tender offer has been made, must disclose whether or not each of them will tender his respective shares in the tender offer.
Under the Mexican Securities Market Law, all tender offers must be open for at least 20 business days and purchases thereunder are required to be made pro rata to all tendering shareholders. The Mexican Securities Market Law also permits the payment of certain amounts to controlling shareholders over and above the offering price if these amounts are fully disclosed, approved by the board of directors, and paid solely in connection with non-compete or similar obligations. The law also provides exceptions to the mandatory tender offer requirements and specifically sets forth remedies for non-compliance with these tender offer
117

Table of Contents
rules (e.g., suspension of voting rights, possible annulment of purchases, etc.) and other rights available to prior shareholders of the issuer.
Joint Trading of Common Shares and Limited or Non-Voting Shares
The Mexican Securities Market Law does not permit issuers to implement mechanisms for common shares and limited or non-voting shares to be jointly traded or offered to public investors, unless the limited or non-voting shares are convertible into common shares within a period of up to five years, or when, because of the nationality of the holder, the shares or the securities representing the shares limit the right to vote to comply with foreign investment laws. In addition, the aggregate amount of shares with limited or non-voting rights may not exceed 25% of the aggregate amount of publicly held shares. The CNBV may increase this 25% limit by an additional 25%, provided that the limited or non-voting shares exceeding 25% of the aggregate amount of publicly held shares are convertible into common shares within five years of their issuance.
Anti-Takeover Protections
The Mexican Securities Market Law provides that public companies may include anti-takeover provisions in their by-laws if such provisions (i) are approved by a majority of the shareholders, without shareholders representing 5% or more of the capital stock present at the meeting voting against such provision, (ii) do not exclude any shareholders or group of shareholders, (iii) do not restrict, in an absolute manner, a change of control, and (iv) do not contravene legal provisions related to tender offers or have the effect of disregarding the economic rights related to the shares held by the acquiring party.
Board of Directors and Committees
Under the Mexican Securities Market Law, public companies must have a board of directors comprised of no more than 21 members, of which at least 25% must be independent. Independent members must be selected based on their experience, ability and reputation at the issuer’s shareholders’ meeting; whether or not a director is independent must be determined by the issuer’s shareholders and such determination may be challenged by the CNBV. As a departure from legislative precedents, the Mexican Securities Market Law permits then-acting members of the board of directors (as opposed to shareholders) to select, under certain circumstances, on a temporary basis, new members of the board of directors.
Boards of directors of public companies are required to meet at least four times during each calendar year and have the following principal duties:

	·	determine general strategies applicable to the issuer;	
	·	approve guidelines for the use of corporate assets;	
	·	approve, on an individual basis, transactions with related parties, subject to certain limited exceptions;	
	·	approve unusual or non-recurrent transactions and any transactions that imply the acquisition or sale of assets with a value equal to or exceeding 5% of the issuer’s consolidated assets or that imply the provision of collateral or guarantees or the assumption of liabilities equal to or exceeding 5% of the issuer’s consolidated assets;	
	·	approve the appointment or removal of the chief executive officer;	
	·	approve waivers in respect of corporate opportunities;	
	·	approve accounting and internal control policies;	
	·	approve the chief executive officers’ annual report and corrective measures for irregularities; and	
	●	approve policies for disclosure of information.	

Directors have the general duty to act for the benefit of the issuer, without favoring any shareholder or groups of shareholders.
The Mexican Securities Market Law requires the creation of two committees, the audit committee and the corporate governance committee, each of which must maintain at least three members appointed by the board of directors and which members
118

Table of Contents
must all be independent (except for the corporate governance committee of corporations controlled by a person or group maintaining 50% or more of the outstanding capital stock, where the majority must be independent). The audit committee (together with the board of directors, which has added duties) replaces the statutory auditor (comisario) that had been previously required under the Mexican Corporations Law.
The corporate governance committee is required to provide opinions to the board of directors, request and obtain opinions from independent third-party experts, call shareholders’ meetings, provide assistance to the board in the preparation of annual reports and provide a report to the board of directors.
The audit committee’s principal role is to supervise the external auditors of the issuer, analyze the external auditor’s reports, discuss yearly financial statements and, when applicable, recommend their approval, inform the board of directors in respect of existing internal controls, require the issuer’s executive to prepare reports when deemed necessary, inform the board of directors of any irregularities that it encounters, investigate breaches of operating policies internal control and internal audit systems, supervise the activities of the issuer’s chief executive officer, call shareholders’ meetings, and provide an annual report to the board of directors.
Disclosure of Shareholders’ Agreements
Any shareholders’ agreements containing non-compete clauses, any agreements related to the sale, transfer or exercise of preemptive rights, any agreements which allow for the sale and purchase of shares (including any tag-along, drag-along and put or call rights), voting rights, and sale of shares in a public offering, must be notified to the company within five business days following their execution, to allow the company to disclose such agreements to the investors through the stock exchanges on which its securities are traded and to be made public in an annual report prepared by the company. These agreements (i) will be available for the public to review at the company’s offices, (ii) will not be enforceable against the company and a breach of such agreements will not affect the validity of the vote at a shareholders’ meeting, and (iii) will only be effective among the relevant parties once they have been disclosed to the public.
Miscellaneous
The Mexican Securities Market Law also specifies that any transaction or series of transactions that, during any fiscal year, represent 20% or more of the consolidated assets of a public company, must be considered and approved by a meeting of shareholders.
In addition to the right granted to minority shareholders of a public company representing 5% or more of the outstanding shares to initiate a shareholder derivative suit against directors for a breach of the duty of care or the duty of loyalty, the Mexican Securities Market Law recognizes the right of shareholders representing 10% or more of the outstanding shares to appoint a director and call a shareholders’ meeting and request that vote on resolutions in respect of which they were not sufficiently informed be postponed. Holders of 20% or more of the outstanding voting shares may judicially oppose resolutions that were passed by a shareholders’ meeting and file a petition for a court order to suspend the resolution, if the claim is filed within 15 days following the adjournment of the meeting at which the action was taken, provided that (i) the challenged resolution violates Mexican law or the company’s by-laws, (ii) the opposing stockholders either did not attend the meeting or voted against the challenged resolution, and (iii) the opposing stockholders deliver a bond to the court to secure payment of any damages that the company may suffer as a result of suspending the resolution in the event that the court ultimately rules against the opposing stockholder; these provisions have seldom been invoked in Mexico and, as a result, any action that may be taken by a competent court is uncertain.
The New York Stock Market
NYSE traces its origins to 1792, when 24 New York City stockbrokers and merchants signed the Buttonwood Agreement. This agreement set in motion the NYSE’s unwavering commitment to investors and issuers. NYSE Euronext, the holding company created by the combination of NYSE Group, Inc. and Euronext N.V., was launched on April 4, 2007. NYSE Euronext (NYSE/New York and Euronext/Paris: NYX) operates the world’s largest and most liquid exchange group and offers the most diverse array of financial products and services. NYSE Euronext, which brings together six cash equities exchanges in five countries and six derivatives exchanges, is a world leader for listings, trading in cash equities, equity and interest rate derivatives, bonds and the distribution of market data. NYSE Euronext is a leading provider of securities listing, trading and market data products and services. To protect investors, the health of the financial system and the integrity of the capital-formation process, the SEC has designated the NYSE as the examining authority for its members and member firms. Listed companies, individual investors, institutional investors
119

Table of Contents
and member firms create the NYSE market. A member organization is a registered broker-dealer organized as a corporation, a partnership or an LLC, which is regulated by the Exchange. A member organization may, or may not, hold a trading license.
At the NYSE, two types of members work on the Trading Floor, each playing a distinct role in the trade execution process: Floor Brokers and Specialists. NYSE is open from Monday through Friday 9:30 a.m. to 4:00 p.m. EST each business day of the year.
On June 19, 2008, the NYSE Regulation, Inc. announced that “eGovDirect.com” was being offered to non-U.S. foreign private issuers listed on NYSE, including companies that trade American Depositary Shares on the NYSE through their Depositary Bank. This password-protected website assists NYSE-listed companies to meet their corporate governance and compliance requirements and allows issuers to save time and resources by filing annual and interim financial reports, disclosing officer and audit committee member information, and publishing declarations of dividends, shareholder meeting dates, shares outstanding and press releases through this website.
On January 29, 2009, NYSE Euronext and BIDS Holdings, L.P., launched a joint venture, the New York Block Exchange, or NYBX, an innovative new platform designed to maximize access to liquidity and improve execution quality in the U.S. equity block trading market. Institutional investors and other market participants can execute block trades on NYBX, the first venue of its kind to allow non-displayed liquidity to anonymously access both the displayed and reserve liquidity of the NYSE order book, creating an innovative platform to re-aggregate blocks of stock. BIDS Holdings and the NYSE Euronext each have a 50% ownership stake in NYBX.
On November 12, 2009, NYSE Euronext established its commission on corporate governance to address U.S. corporate governance and the overall proxy process. Consistent with the NYSE’s role as a leading advocate on governance issues, the commission brings together leading experts and representatives from public companies, institutional and individual investors, broker/dealers and other advisors.
On November 13, 2013, NYSE Euronext was acquired by Intercontinental Exchange Group, Inc. NYSE Euronext continues to operate under its brand name as a wholly-owned subsidiary of IntercontinentalExchange Group, Inc.

D.	Selling Shareholders	
Not Applicable.

E.	Dilution	
Not Applicable.

F.	Expenses of the Issue	
Not Applicable.
ITEM  10    ADDITIONAL INFORMATION

A.	Share Capital	
Not applicable.
B.Memorandum and Articles of Association
Register
Our by-laws were filed as an Exhibit 3.1 to our registration statement on Form F-1 filed with the SEC on September 16, 2013 and our amended bylaws were filed on Form 6-K with the SEC on September 30, 2020. As of the date of this annual report, we have not further amended our by-laws.
120

Table of Contents
Corporate Object and Purpose
Article 2 of our by-laws state that our corporate purpose is, in general, to undertake any type of act, and execute any type of agreements, instruments and documents, including those of commercial and civil nature, permitted by the applicable law, in Mexico or in any other jurisdiction.
Overview
Our capital stock is divided into two series of shares, Series A shares and Series B shares. Series A shares are common shares and may only be owned directly by Mexican individuals or entities controlled by Mexican individuals. Series B Shares are common shares and may be purchased by Mexican or non-Mexican individuals or entities.
Series B shares may be convertible at any time into Series A shares pursuant to a mechanism set forth in our by-laws. Series A shares may underlie CPOs, but while Series B shares are not transferable to third parties (other than our principal shareholders or their affiliates) as Series B shares, may not represent more than 49% of our outstanding capital stock that is not underlying CPOs. The Series B shares will be automatically converted into Series A shares upon their transfer to a third party (other than our principal shareholders or their affiliates).
Since we are a variable capital public stock corporation, our capital stock must have a fixed portion, currently represented by Series A shares and may have a variable portion currently represented both by Series A shares and Series B shares. Our by-laws set forth that Series B shares may not represent more than 49% of our outstanding capital stock that is not underlying CPOs at any time. As of the date of this annual report our outstanding capital stock consisted of 1,108,462,804 Series A shares and 57,513,873 Series B shares. All or a portion of our Series A shares may underlie CPOs and can be purchased by non-Mexican investors.
Upon the consummation of our initial public offering in September 2013, our non-Mexican shareholders at that time became the holders of all the outstanding Series B shares and a certain number of CPOs and our current Mexican shareholders at that time became holders of Series A shares directly.
Non-Mexican investors are only entitled to hold Series A shares through CPOs (including CPOs in the form of ADSs), which will give non-Mexican investors economic rights but not voting rights.
We have obtained authorization from the Mexican Ministry of Economy (Secretaría de Economía) to issue up to 90% of our outstanding shares representing capital stock in the form of CPOs.
Changes to Capital Stock
The fixed portion of our capital stock may be increased or decreased by a resolution adopted at a general extraordinary shareholders’ meeting and upon amendment of our by-laws. The variable portion of our capital stock may be increased or decreased by a resolution adopted at a general ordinary shareholders’ meeting without amending our by-laws. Increases or decreases in the fixed or variable portion of the capital stock must be recorded in our registry of capital variations. New shares cannot be issued unless the then-issued shares have been paid in full.
Registration and Transfer
Our shares are evidenced by share certificates in registered form. Our shareholders may hold their Series A shares in the form of physical certificates if they are Mexican, or through Series A shares (in the case of Mexican investors) or CPOs (in the case of non-Mexican investors) that are maintained in book-entry form with institutions which have accounts with the Mexican depositary institution, S.D. Indeval Institución para el Depósito de Valores, S.A. de C.V., or Indeval. The CPO trustee is the holder of record of the Series A shares underlying our CPOs. Accounts may be maintained at Indeval by brokers, banks and other financial institutions and entities authorized for this purpose. We maintain a stock registry and only those persons listed in such stock registry and holding certificates issued in their name as registered holders, or persons holding Series A shares or CPOs through institutions that maintain accounts with Indeval, will be recognized as our shareholders.
Pursuant to Mexican law, any transfer of shares must be registered in our stock registry, if effected physically, or through book entries that may be traced back from our stock registry to the records of Indeval, if effected through book-entry CPOs or Series A shares.
121

Table of Contents
Change of Control Provisions
Subject to certain exceptions (including those applicable to transfers or acquisitions or certain other transactions by or among our current shareholders), our by-laws require that any acquisition of our Series A shares (whether directly or by acquiring ADSs or CPOs), resulting in beneficial ownership of shares representing 5% or more of our outstanding capital stock, or any proposal by any person or group of persons to enter into an agreement among shareholders that would result in such person or group of persons effectively having control of the voting rights of 20% or more of our outstanding capital stock or will result in a change of control, will require the prior approval of our board of directors.
In the event that approval is not granted, our board of directors or our shareholders may decide, among other things, to require any such person or group of persons to reverse the transaction or to transfer the Series A shares (whether held directly or through ADSs or CPOs) to a third party interested in acquiring the securities at a reference price specified by our board of directors. In addition, such person or group of persons desiring to purchase 5% or more of our outstanding capital stock will be required to follow certain procedures, including observing certain time periods specified in our by-laws.
Any potential purchaser who proposes to acquire our Series A shares (whether directly or by acquiring ADSs or CPOs), resulting in beneficial ownership of 20% or more of our outstanding capital stock, will be required to make a tender offer for 100% of our outstanding capital stock (including any Series A shares evidenced by CPOs or ADSs) at a price at least equal to the highest of (i) the most recent publicly reported book value per share, (ii) the highest trading price of our Series A shares on the Mexican Stock Exchange within the 365 days prior to the request for approval or approval of the board of directors of the relevant transaction, and (iii) the highest price per share or CPO, as the case may be, paid by the purchaser or, in the case of the ADSs the equivalent thereto, plus, in each case, a 30% premium or a different premium determined by our board of directors, considering the opinion of a reputable investment bank.
Any acquisition of our Series A shares, CPOs or ADSs in contravention of the procedures described above will result in the purchaser not having any voting rights in respect to the purchased securities. No transfer in breach of these provisions will be registered in our stock registry.
Shareholders’ Meetings
Calls. Under Mexican law and our by-laws, shareholders’ meetings may be called by:

	●	our board of directors, the chairman of our board of directors or the secretary of the board of directors;	

	●	shareholders representing at least 10% of our outstanding capital stock who may request that the chairman of any of the board of directors or the audit and corporate governance committee call a shareholders’ meeting;	

	●	any shareholder, provided that no annual ordinary meeting has been held for two consecutive years or the annual shareholders’ meeting did not address the matters required to be addressed in the annual shareholders’ meetings;	

	●	a Mexican court of competent jurisdiction, in the event the board of directors does not comply with a valid request of the shareholders described in the two bullet points above; and	

	●	the audit and corporate governance committee.	

Calls for shareholders’ meetings will be required to be published in the electronic system implemented by the ministry of economy at least 15 days before the scheduled date of the shareholders’ meeting in the case of first call. Calls will have to contain the matters to be addressed at the meeting. From the date on which a call is published until the date of the corresponding meeting, all relevant information will be made available to the shareholders at our executive offices. To attend a shareholders’ meeting, shareholders will have to be either registered in the stock registry, present evidence of the deposit of their certificates with a financial institution or deposit them with our secretary, or present certificates issued by the custodian of the holder of our Series A shares, together with an Indeval certification. Investors holding our CPOs may not vote nor cause the underlying Series A shares to be voted by the CPO trustee.
122

Table of Contents
Shareholders’ Meetings. General shareholders’ meetings may be general ordinary shareholders’ meetings or general extraordinary shareholders’ meetings. Shareholders may also hold special meetings for classes of shares outstanding (as for example, meetings of Series B shareholders, as a means to exercise their rights).
General ordinary shareholders’ meetings will be those called to discuss any issues not reserved for extraordinary meetings. General ordinary shareholders’ meetings will have to be held at least once a year, during the first four months following the end of each fiscal year to:

	●	approve financial statements for the preceding fiscal year;	

	●	discuss and approve the audit and corporate governance committees’ annual reports, and determine how to allocate net profits for the preceding year (including, if applicable, the payment of dividends);	

	●	elect directors;	

	●	appoint the president of the audit committee and the corporate governance committees;	

	●	approve any increase or decrease in the variable portion of our capital stock and the issuance of the corresponding shares;	

	●	approve the chief executive officer’s annual report together with the board of directors’ report and the board of directors’ opinion;	

	●	determine the maximum amount of resources allocated to share repurchases; and	

	●	approve any transaction representing 20% or more of our consolidated assets during any fiscal year.	

General extraordinary shareholders’ meetings will be those called to consider:

	●	an extension of our duration or voluntary dissolution;	

	●	an increase or decrease in the fixed portion of our capital stock and the issuance of the outstanding stock;	

	●	issuance of shares for purposes of a public offering;	

	●	any change in our corporate purpose or nationality;	

	●	any merger or transformation into another type of company;	

	●	any issuance of preferred stock;	

	●	the redemption of shares with retained earnings;	

	●	any amendments to our by-laws including amendments to provisions addressing change of control;	

	●	any other matters provided for by law or our by-laws; and	

	●	the cancellation of the registration of shares at the Mexican National Securities Registry.	

A special shareholders’ meeting, comprising a single class of shares, may be called if an action is proposed to be taken that may only affect such class. The quorum for a special meeting of shareholders and the vote required to pass a resolution at a special Series B shareholders’ meeting are identical to those required for extraordinary meetings of shareholders, except that the calculations are based upon the number of outstanding Series B shares.
Except as described below, the attendance quorum for general ordinary shareholders’ meetings will be 51% of the outstanding capital stock, and resolutions may be taken by a majority of the capital stock represented therein. If the attendance quorum
123

Table of Contents
is not met upon the first call, a subsequent meeting may be called, the attendance quorum of which will also be 51% of the outstanding capital stock and resolutions may be taken by a majority of the capital stock represented at such meeting. Except as described below, the attendance quorum for general extraordinary shareholders’ meetings will be at least 75% of our outstanding capital stock. If an attendance quorum is not met upon the first call, a subsequent meeting may be called, at which at least 51% of the capital stock must be represented. In either case, resolutions must be taken by the vote of shares representing at least 50% plus one of the shares representing our outstanding capital stock, except for resolutions in respect to the cancellation of the registration of shares at the Mexican National Securities Registry which require that at least 95% of the outstanding capital stock vote in favor of such resolution.
Holders of our shares will not have cumulative voting rights.
Voting Rights
Holders of ADSs and CPOs will not be entitled to vote, at any time, the underlying Series A shares. Mexican holders of Series A shares will be entitled to vote their shares on all matters. Holders of Series B shares will be entitled to vote their shares on all matters and will have the specific voting rights described under “—Shareholders’ Meetings.”
Series A shares underlying the CPOs and CPOs underlying the ADSs will be voted by the CPO trustee in the same manner as the majority of Series A shares votes cast at the relevant shareholders’ meeting under all circumstances.
Provisions of our By-laws and Mexican Law Relating to Directors
Election of Directors
Our board of directors is currently comprised of fourteen principal members and four alternate members. Nine members of our board of directors currently qualify as independent. Whether a director qualifies as independent must be determined by our shareholders (at the general shareholders’ meeting at which the director is elected), and such determination may be challenged by the CNBV within 30 days following the date in which the appointment of the director is notified to the CNBV. The CNBV may only challenge the appointment after a hearing with us and the affected director. Our officers, individuals who have a material influence on us or authority to direct our management or business decisions, and individuals who are part of our group of controlling shareholders may not be deemed independent directors.
Under our by-laws and the Securities Market Law, any shareholder or group of shareholders representing 10% of our outstanding capital stock, have the right to appoint one director for each such 10% ownership stake.
Authority of the Board of Directors
Our management is entrusted to a chief executive officer and a board of directors. The board of directors sets forth the guidelines and general strategy for the conduct of our business and supervises the execution thereof.
Pursuant to the Mexican Securities Market Law and our by-laws, the board of directors must approve, among other matters:

	●	our general strategy;	

	●	the monitoring of our management and that of our subsidiaries;	

	●	with prior input from the audit or the corporate governance committee, on a case-by-case basis (i) transactions with related parties, subject to certain limited exceptions, (ii) the election of our chief executive officer, his compensation and removal, and policies for the description and comprehensive remuneration of other executive officers, (iii) our guidelines for internal controls and internal audits, including those for our subsidiaries (iv) our accounting policies, (v) our financial statements, (vi) unusual or non-recurring transactions and any transactions or series of related transactions during any calendar year that involve (a) the acquisition or sale of assets with a value equal to or exceeding 5% of our consolidated assets, or (b) the giving of collateral or guarantees or the assumption of liabilities, equal to or exceeding 5% of our consolidated assets, and (vii) the selection of the external auditors;	

	●	calling shareholders’ meetings and taking action based upon their resolutions;	
124

Table of Contents

	●	the annual submission to our general shareholders’ meeting of (i) the chief executive officer’s report and (ii) the opinion of the board of directors in respect of such report;	

	●	creation of special committees and granting authority to such committees, provided that the committees will not have the authority to take action which by law or under our by-laws is expressly reserved to our shareholders or our board of directors;	

	●	determining how to vote the shares that we hold in our subsidiaries; and	

	●	policies for disclosure of information.	

Our by-laws provide that meetings of our board of directors are validly convened and held if a majority of the members or their respective alternates are present. Resolutions passed at these meetings will be valid if approved by a majority of the disinterested members of the board of directors (i.e., members that do not have a conflict of interest). The chairman of the board of directors will not have a tie-breaking vote.
Meetings of our board of directors may be called by (i) 25.0% of our board members, (ii) the president of the board of directors, and (iii) the president of the audit or the corporate governance committee.
Duty of Care and Duty of Loyalty
The Mexican Securities Market Law imposes duties of care and loyalty on directors.
The duty of care generally requires that our directors obtain sufficient information and be sufficiently prepared to act in our best interest. The duty of care is discharged, principally, by (i) requesting and obtaining from us all information that may be necessary to make decisions, (ii) obtaining information from third parties, (iii) requiring the attendance of, and information from, our officers that may be necessary to make decisions, and (iv) attending board meetings and disclosing to the board of directors material information in possession of the relevant director. Failure to act with care by a director subjects the relevant director to joint and several liability with other directors involved in the act, for damages and losses caused to us and our subsidiaries. An indemnity for claims related to a breach of a director’s duty of care has been incorporated into our by-laws. Furthermore, we carry insurance to protect our directors for breaches of their duty of care.
The duty of loyalty consists, primarily, of a duty to maintain the confidentiality of information received in connection with the performance of a director’s duties, to abstain from discussing or voting on matters where the director has a conflict of interest and to abstain from taking advantage of corporate opportunities resulting from its actions as a director. In addition, the duty of loyalty is breached if a shareholder or group of shareholders is knowingly favored.
The duty of loyalty is also breached if the director uses corporate assets or approves the use of corporate assets in violation of our policies, discloses false or misleading information, orders not to or causes the failure to, register any transaction in our records that could affect our financial statements, or causes material information not to be disclosed or to be modified.
The violation of the duty of loyalty will render the breaching director jointly and severally liable with all breaching directors, for damages and losses caused to us and to the persons we control. Liability may also arise if damages and losses result from benefits obtained by the directors or third parties as a result of activities carried out by such directors.
Claims for breach of the duty of care and the duty of loyalty may be brought solely for our benefit (as a derivative suit), as opposed to for the benefit of the claimant, and may only be brought by us or by shareholders or groups of shareholders representing at least 5.0% of our outstanding shares. Claims may be exercised by the trustee issuing CPOs or by holders of CPOs, in each case holding underlying shares representing at least 5% of our outstanding Series A shares.
As a safe harbor for the benefit of directors, the Mexican Securities Market Law provides that liabilities arising from a breach of the duty of care or the duty of loyalty will not arise if the director acted in good faith and (i) complied with applicable law and our by- laws, (ii) acted based upon facts and information provided by officers, external auditors or third-party experts, the capacity and credibility of which may not be the subject of reasonable doubt, and (iii) selected the more adequate alternative in good faith, or if the negative effects of the director’s decision could not have been reasonably foreseeable, based upon the then available information.
125

Table of Contents
Mexican courts have not yet interpreted the meaning of this provision and, as a result, the extent and enforceability of this safe harbor remains uncertain.
Under the Mexican Securities Market Law and our by-laws, our chief executive officer and our principal officers are also required to act for our benefit and not for the benefit of a shareholder or group of shareholders. Our officers are required to submit to the board of directors for approval, the principal strategies for our business and the business of the companies we control, to submit to the audit and corporate governance committee proposals relating to internal control systems, to prepare all material information related to our activities and the activities of the companies we control, to disclose all material information to the public, to maintain adequate accounting and registration systems and internal control mechanisms, to prepare and submit to the board the yearly financial statements, and to implement internal control mechanisms.
Committees of the Board of Directors
Like all public companies in Mexico, we are required to have an audit and corporate governance committee. The members of our audit and corporate governance committee must be independent members, elected by our board of directors except for the chairman who is elected by our shareholders. Our audit and corporate governance committee is required to prepare an annual report, to be submitted to our board of directors, that must include (i) a report of our internal control systems and our internal audit procedures and any deficiencies, (ii) the evaluation of our external auditors, (iii) the results arising from the review of our financial statements, and (iv) any amendments to our accounting policies. The quorum for any session of our audit and corporate governance committee is the majority of its members and decisions must be taken by majority of its members.
In addition, our audit and corporate governance committee has the following principal duties:

	●	supervising and evaluating our external auditors and analyzing their reports (including their audit opinion);	

	●	analyzing and supervising the preparation of our financial statements and making a recommendation to the board of directors for their approval;	

	●	informing the board of directors of the status of our internal controls and internal audit and their adequacy;	

	●	supervising the execution of related party transactions and transactions representing 20% or more of consolidated assets being undertaken pursuant to applicable law;	

	●	requesting reports from our executive officers or independent experts whenever it deems appropriate;	

	●	investigating and informing the board of directors of any irregularities that it may encounter;	

	●	receiving and analyzing recommendations and observations made by the shareholders, members of the board of directors, executive officers or any third party and taking necessary action;	

	●	calling shareholders’ meetings;	

	●	supervising compliance by our chief executive officer of the instructions provided by our board or shareholders;	

	●	providing an annual report to the board in respect of our accounting policies, their sufficiency and adequacy, and consistency;	

	●	rendering opinions to the board of directors in connection with the designation, compensation and removal of our chief executive officer and policies for the description and comprehensive remuneration of other executive officers;	

	●	supervising and reporting on the performance of our key officers;	

	●	rendering its opinion to the board of directors in connection with transaction with related parties;	

	●	requesting opinions from independent third-party experts;	
126

Table of Contents

	●	calling shareholders’ meetings; and	

	●	providing assistance to the board of directors with the preparation of reports for the annual shareholders’ meeting.	

We also maintain a compensation and nominations committee, which is comprised of, four non-independent members, as determined by our board of directors from time to time, appointed by our board of directors. We established a compensation and nominations committee pursuant to the unanimous resolutions adopted by our shareholders in June 2013.
The compensation committee is responsible for, among other things:

	●	submitting proposals to the board of directors relating to the removal of officers within the first two corporate levels;	

	●	proposing the creation, amendment or termination of any incentive plan for officers;	

	●	consulting with third-party experts in connection with any issues related to compensation, organizational development, and other related matters;	

	●	proposing compensation packages for officers within the first four corporate levels;	

	●	proposing to our board of directors the entering into, amendment or termination of any collective bargaining agreements;	

	●	informing our board of directors of any material contingencies; and	

	●	submitting periodic reports to our board of directors.	

Preemptive Rights
Under Mexican law, our shareholders (holding shares directly or through CPOs) have preemptive rights for all share issuances except in the cases noted below. Generally, if we issue additional shares of capital stock, our shareholders will have the right to purchase the number of shares necessary (or CPOs, subject to applicable U.S. securities laws, representing such shares and subject to the CPO trustee being permitted to issue or release the necessary additional CPOs) to maintain their existing ownership percentage. Shareholders must exercise their preemptive rights within the time period set forth by our shareholders at the meeting approving the relevant issuance of additional shares. This period must be equal to at least 15 days following the publication of notice of the issuance in the official newspaper or our corporate domicile and in the electronic system implanted by the ministry of economy. Under Mexican law, shareholders cannot waive their preemptive rights in advance, and preemptive rights may not be represented by an instrument that is negotiable separately from the corresponding share.
The preemptive rights specified in the prior paragraph will not apply (i) in the case of shares issued in connection with mergers, (ii) in the case of resale of shares held in our treasury, as a result of repurchases of shares conducted on the Mexican Stock Exchange or otherwise, (iii) in the event that holders of our shares entitled to vote approve the issuance of the unsubscribed shares for purposes of a public offering at an extraordinary shareholders’ meeting called for such purpose provided requirements specified in Article 53 of the Mexican Securities Market Law are satisfied, and (iv) in respect of shares issued for conversion of any convertible securities.
If we issue new Series A shares for cash, in accordance with our by-laws and the CPO trust, non-Mexican holders of our CPOs (directly or through ADSs) may not exercise their preemptive rights, unless we cause the CPO trustee to issue additional CPOs (to the extent possible), to permit the non-Mexican holders of CPOs to exercise preemptive rights by purchasing and holding newly issued Series A shares through CPOs. Although we expect to take all measures necessary to maintain sufficient CPOs available to permit non-Mexican holders of CPOs to exercise preemptive rights in respect of underlying Series A shares, no assurances can be made that we will be able to do so, particularly because regulatory approvals in Mexico are necessary for the issuances of additional CPOs. Mexican holders of Series A shares may exercise their preemptive rights if we issue new Series A shares for cash. Non-Mexican holders of CPOs may suffer dilution if we issue new Series A shares in exchange for cash and CPOs are not available to represent the additional Series A shares.
127

Table of Contents
Dividends
Our board of directors must submit our financial statements for the previous fiscal year, proposed and prepared by our chief executive officer and supplemented by a report of our board of directors, at our annual ordinary general shareholders’ meeting for approval. Once our shareholders approve our financial statements, they are required to allocate net profits for the previous fiscal year. Under Mexican law and our by-laws, prior to any distribution of dividends, 5% of our net earnings must be allocated to a legal reserve fund, until such legal reserve fund is equal to at least 20% of our paid-in capital stock. Additional amounts may be allocated to other reserve funds as the shareholders may determine, including the amount allocated to the reserve fund for the repurchase of shares. The remaining balance, if any, may be distributed as dividends. See also Item 8: “Financial Information—Consolidated Statements and Other Financial Information—Dividend Policy.”
Redemption
In accordance with our by-laws, shares representing our capital stock are subject to redemption in connection with either (i) a reduction of capital stock, or (ii) a redemption with retained earnings, which in either case must be approved by our shareholders. In connection with a capital reduction, the redemption of shares will be made pro rata among the shareholders but in no case will the redemption price be less than the book value of such shares as determined pursuant to our latest statements of financial position approved at a general ordinary shareholders’ meeting or by means of a tender offer conducted on the Mexican Stock Exchange at prevailing market prices, in accordance with the Mexican Corporations Law, the Mexican Securities Market Law and our by-laws.
Dissolution or Liquidation
Upon our dissolution or liquidation, our shareholders will appoint one or more liquidators at an extraordinary general shareholders’ meeting to wind up our affairs. All fully paid and outstanding shares of capital stock will be entitled to participate equally in any liquidating distributions.
Certain Minority Protections
Pursuant to the Mexican Securities Market Law and the Mexican Corporations Law, our by-laws include a number of minority shareholder protections. These minority protections will include provisions that permit:

	●	holders of at least 10% of our outstanding capital stock:	

	●	to request a call for a shareholders’ meeting;	

	●	to request that resolutions with respect to any matter on which they were not sufficiently informed be postponed; and	

	●	to appoint one member of our board of directors and one alternate member of our board of directors;	

	●	holders of 20% of our outstanding capital stock to oppose any resolution adopted at a shareholders’ meeting and file a petition for a court order to suspend the resolution temporarily, within 15 days following the adjournment of the meeting at which the action was taken, provided that (i) the challenged resolution violates Mexican law or our by-laws, (ii) the opposing shareholders neither attended the meeting nor voted in favor of the challenged resolution, and (iii) the opposing shareholders deliver a bond to the court to secure payment of any damages that we may suffer as a result of suspending the resolution, in the event that the court ultimately rules against the opposing shareholder; and	

	●	holders of 5% of our outstanding capital stock may initiate a shareholder derivative suit against some or all of our directors, for violations of their duty of care or duty of loyalty, for the benefit of Volaris, in an amount equal to the damages or losses caused to us. Actions initiated on these grounds have a five year statute of limitations.	

128

Table of Contents
Other Provisions
Foreign Investment Regulations
Mexico’s Foreign Investment Law restricts ownership by non-Mexicans of our capital stock to 49% of the capital stock not otherwise represented by CPOs. Our amended by-laws establish that only Mexican investors may acquire our Series A shares directly. Non-Mexican investors may acquire our Series B shares directly. As required by Mexican law, our by-laws provide that if a non-Mexican investor acquires a direct interest or participation in a Series A share representing the capital stock of our company at any time, such Series A share will be forfeited to the Mexican government. The Mexican Foreign Investment Law permits non-Mexican investors to hold our Series A shares indirectly through neutral shares or securities such as the CPOs.
Duration
Our corporate existence under our by-laws is indefinite.
Purchase of Shares by Us
We will be able to purchase our shares (or CPOs evidencing such shares) through the Mexican Stock Exchange at the prevailing market prices for the shares at the time of purchase. The economic and voting rights corresponding to repurchased shares will not be exercised during the period the shares are owned by us, and the shares will not be deemed outstanding for purposes of calculation any quorum or vote at any shareholders’ meeting. We will not be required to create a special reserve for the repurchase of shares and we will not require the approval of our board of directors to effect share repurchases. However, we will require the approval of our shareholders in respect of the maximum amount that may be used for share repurchases and our board of directors must appoint an individual or group of individuals for effecting share repurchases. Share repurchases will have to be made subject to the provisions of applicable law, including the Mexican Securities Market Law, and carried out, reported and disclosed in the manner specified by the CNBV. If we intend to repurchase shares representing more than 1% of our outstanding capital stock at a single trading session, we will be required to inform the public of such intention, at least ten minutes before submitting our bid.
If we intend to repurchase shares representing 3% or more of our outstanding capital stock during any rolling period of twenty trading days, we will be required to conduct a public tender offer for such shares.
Purchases of Shares by our Subsidiaries
Our subsidiaries or other entities controlled by us may not purchase, directly or indirectly, shares representing our capital stock or shares of companies or entities that are our shareholders.
Conflicts of Interest
Under Mexican law, any shareholder that has an opposing interest to ours, must abstain from discussing and voting on the relevant matter. Any such shareholder that votes in a transaction in which its interests conflict with our interest may be liable for damages and losses, but only if the transaction would not have been approved without such shareholder’s vote.
A member of the board of directors that has an opposing interest to ours must disclose such opposing interest and abstain from any deliberation or vote in connection therewith. A breach by any member of the board of directors of any such obligations may result in the director being liable for damages and losses.
Exclusive Jurisdiction
Our by-laws provide that, in connection with any controversy between our shareholders and us, or between our shareholders, in connection with any matter related to us, both we and our shareholders must submit to the jurisdiction of the courts of Mexico City, Mexico.
129

Table of Contents
Appraisal Rights
Whenever our shareholders approve a change in our corporate purpose, jurisdiction of organization or transformation from one corporate form to another, any shareholder entitled to vote that voted against the matters approved has the right to withdraw and receive the book value of its shares as set forth in the financial statements last approved by our shareholders, provided that the shareholder exercises this appraisal right within 15 days after the meeting at which the relevant matter was approved. Since holders of our CPOs may have no voting rights, appraisal rights generally will not be available to them.
Cancellation of Registration in the Mexican National Securities Registry
In accordance with our by-laws, and as set forth in the Mexican Securities Market Law, we will be required to make a public tender offer for the purchase of stock held by minority shareholders, in the event that the registration of our Series A shares with the Mexican National Securities Registry is cancelled, either as a result of our determination or by an order of the CNBV. Our controlling shareholders will be secondarily liable for these obligations. A controlling shareholder will be deemed to be a shareholder that holds a majority of our capital stock, has the ability to control the outcome of decisions made at a shareholders or board of directors meeting, or has the ability to appoint a majority of the members of our board of directors. The price at which the stock must be purchased is the higher of:

	●	the average quotation price on the Mexican Stock Exchange for the 30 days prior to the date of the tender offer, or	

	●	the book value, as reflected in the report filed with the CNBV and the Mexican Stock Exchange.	

If the tender for cancellation is requested by the CNBV, it must be initiated within 180 days from the date of the request. If initiated by us, under the Mexican Securities Market Law, the cancellation must be approved by 95% of our shareholders.
Our board of directors must make a determination with respect to fairness of the tender offer price, taking into consideration the minority shareholders’ interest, and disclose its opinion within 10 business days from the commencement of the offering.
The resolution of the board of directors may be accompanied by a fairness opinion issued by an expert selected by our audit and corporate governance committee. Directors and first level officers are required to disclose whether or not each of them will sell their shares in connection with the tender offer.

C.	Material Contracts	
For a description of material contracts relating to our indebtedness, see Item 5: “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Loan Agreements.”

D.	Exchange Controls	
Mexico has had a free market for foreign exchange since 1991, and the Mexican government has allowed the peso to float freely against the U.S. dollar since December 1994. We have no control over or influence on this exchange rate policy. The Mexican government has announced that it does not intend to change its floating exchange rate policy, but there is no guarantee that the Mexican government will not change this policy. See Item 3: “Key Information—Exchange Rates.”
E.Taxation
Material U.S.Federal Income Tax Consequences
The following is a discussion of the material U.S. federal income tax consequences to U.S. Holders (as defined below) of theownership and disposition of our ADSs. This discussion applies only to U.S. Holders that hold our ADSs as “capital assets” (within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code) and that have the U.S. dollar as their functional currency. This discussion is based on the Code, the U.S. Treasury regulations promulgated thereunder, administrative rulings of the Internal Revenue Service, or the IRS, and judicial decisions, each as in effect as of the date hereof. All of the foregoing authorities are subject to change or differing interpretations, possibly with retroactive effect, and any such change or differing interpretation could affect the tax consequences described below. Except as expressly described herein, this discussion does not
130

Table of Contents
address the U.S. federal income tax consequences that may apply to U.S. Holders under the “Convention Between the Government of the United States of America and the Government of the United Mexican States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income,” or the Treaty. This discussion does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may be relevant to U.S. Holders with respect to their ownership and disposition of our ADSs. This summary does not address any consequences under any U.S. federal tax laws other than those pertaining to the income tax (e.g., estate or gift taxes), any withholding required pursuant to the Foreign Account Tax Compliance Act of 2010 (including the U.S. Treasury regulations promulgated thereunder and intergovernmental agreements entered into in connection therewith) or any state, local or non-U.S. tax consequences.
This discussion also does not address all U.S. federal income tax consequences relevant to a U.S. Holder’s particular circumstances, including the impact of the Medicare contribution tax on net investment income and the alternative minimum tax. In addition, it does not address consequences relevant to U.S. Holders subject to special rules under the U.S. federal income tax laws, including, without limitation:

	·	banks, financial institutions or insurance companies;	
	·	regulated investment companies, real estate investment trusts or grantor trusts;	
	·	dealers or traders in securities, commodities or currencies;	
	·	tax-exempt entities or organizations, including an “individual retirement account” or “Roth IRA” as defined in Sections 408 or 408A of the Code, respectively;	
	·	certain former citizens or long-term residents of the United States;	
	·	persons holding our ADSs as part of a straddle, hedging, constructive sale, conversion or other integrated transaction;	
	·	persons that actually or constructively own 10% or more of the voting power or value of our stock;	
	·	persons that are resident or ordinarily resident in or have a permanent establishment in a jurisdiction outside the United States or persons that are not U.S. Holders;	
	·	persons subject to special tax accounting rules as a result of any item of gross income with respect to our ADSs being taken into account in an applicable financial statement;	
	·	persons who acquired our ADSs pursuant to the exercise of any employee share option or otherwise as compensation for the performance of services; or	
	·	partnerships (including entities classified as partnerships for U.S. federal income tax purposes) or other pass-through entities (or persons holding our ADSs through partnerships or other pass-through entities).	
For purposes of this discussion, a “U.S. Holder” is beneficial owner of an ADS that is, for U.S. federal income tax purposes:

	·	an individual who is a citizen or resident of the United States;	
	·	a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;	
	·	an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or	
	·	a trust that (i) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.	
131

Table of Contents
If a partnership or an entity treated as a partnership for U.S. federal income tax purposes holds an ADS, the tax treatment of a partner in the partnership will depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our ADSs and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
Unless otherwise indicated, this discussion assumes that we are not, and will not become, a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes. See the discussion below under “—Passive Foreign Investment Company Considerations.”
The discussion below assumes that the representations contained in the CPO trust agreement and ADS deposit agreement are true and that the obligations in the CPO trust agreement, ADS deposit agreement and any related agreements have been and will be complied with in accordance with their terms. For U.S. federal income tax purposes, U.S. Holders who own our ADSs will be treated as the beneficial owners of the CPOs represented by our ADSs and each CPO should represent a beneficial interest in our Series A Shares represented by the CPOs. The U.S. Treasury Department has expressed concern that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying security. Accordingly, the creditability of certain Mexican taxes paid, if any, and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. Holders, including individual U.S. Holders (as discussed below under“—Distributions”), could be affected by actions taken by intermediaries in the chain of ownership between the U.S. Holders of our ADSs and us if as a result of such actions the U.S. Holders of our ADSs are not properly treated as beneficial owners of the CPOs and our Series A Shares represented by the CPOs.
THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR ADSs UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER THE TREATY.
Distributions
Subject to the PFIC rules discussed below under “—Passive Foreign Investment Company Considerations,” the gross amount of distributions made with respect to our ADSs (including the amount of any Mexican taxes withheld therefrom, if any, and excluding certain pro rata distributions of our underlying Series A Shares or other similar equity interests) will generally be includable in a U.S. Holder’s gross income (in accordance with the U.S. Holder’s method of accounting for U.S. federal income tax purposes) as dividend income to the extent that such distributions are paid out of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. Because we do not expect to maintain calculations of our earnings and profits in accordance with U.S. federal income tax principles, it is expected that distributions paid to U.S. holders generally will be reported as dividends. Accordingly, U.S. Holders should expect that all such distributions made with respect to our ADSs will be treated as dividends. Dividends on our ADSs will not be eligible for the dividends-received deduction allowed under the Code to U.S. Holders that are corporations.
With respect to non-corporate U.S. Holders, dividends on our ADSs may qualify as “qualified dividend income” which is eligible for reduced rates of U.S. federal income taxation provided that:

	·	we are eligible for the benefits of the Treaty, or with respect to the dividend paid on our ADSs which are readily tradable on an established securities market in the United States;	
	·	we are not a PFIC (as discussed below) for either the taxable year in which the dividend was paid or the preceding taxable year;	
	·	the U.S. Holder satisfies certain holding period requirements, and	
	·	the U.S. Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property.	
132

Table of Contents
Currently our ADSs are listed on NYSE, which is an established securities market in the United States, and should be considered readily tradable on NYSE. However, there can be no assurance that our ADSs will be considered readily tradable on an established securities market in the United States in future years. U.S. Holders should consult their tax advisors regarding the availability of such reduced rate for dividends paid with respect to our ADSs.
The amount of any distribution on our ADSs paid in pesos will be equal to the U.S. dollar value of pesos on the date such distribution is includible in income by the recipient, regardless of whether the payment is in fact converted into U.S. dollars at that time. If the distribution is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the distribution. A U.S. Holder may have foreign currency gain or loss if the distribution is converted into U.S. dollars after the date of receipt. In general, foreign currency gain or loss will be treated as U.S.-source ordinary income or loss. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution.
Sale or Other Taxable Disposition of our ADSs
Subject to the PFIC rules discussed below, upon the sale or other taxable disposition of our ADSs, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized (in U.S. dollars) on such taxable disposition and the U.S. Holder’s adjusted tax basis (in U.S. dollars) in such ADSs. Any such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s holding period for such ADSs exceeds one year. Certain non-corporate U.S. Holders (including individuals) are currently subject to U.S. federal income tax on long-term capital gain at preferential rates. The deductibility of capital losses is subject to significant limitations.
Foreign Taxes
Certain Mexican taxes, if any, withheld or paid on dividends on, or upon the sale or other taxable disposition of, our ADSs may, subject to limitations and conditions, be treated as foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability under the U.S. foreign tax credit rules or, at the U.S. Holder’s election, eligible for deduction in computing the U.S. Holder’s U.S. federal taxable income. If a refund of any such Mexican tax is available to a U.S. Holder under the laws of Mexico imposing such tax or under the Treaty, the amount of such tax that is refundable will not be eligible for the credit or deduction against the U.S. Holder’s U.S. federal income tax liability. Dividends paid on ADSs generally will constitute foreign source income and generally will be considered “passive category” income in computing the foreign tax credit allowable to U.S. Holders under U.S. federal income tax laws. The rules governing the determination of the foreign tax credit are complex, and certain limitations and conditions may apply to a U.S. Holder’s ability to claim the foreign tax credit for any foreign taxes paid or withheld with respect to the ADSs. U.S. Holders should consult their tax advisors regarding the availability of a foreign tax credit in their particular circumstances and the possibility of claiming a deduction in lieu of the foreign tax credit.
Passive Foreign Investment Company Considerations
Notwithstanding the foregoing, certain adverse U.S. federal income tax consequences could apply to a U.S. Holder if we are treated as a PFIC for any taxable year during which such U.S. Holder holds our ADSs. We would be classified as a PFIC for any taxable year if, after applying certain look-through rules with respect to the income and assets of our subsidiaries, either:

	·	75% or more of our gross income for such taxable year is “passive income” (as defined in the relevant provisions of the Code), or	
	·	50% or more of the value of our assets (generally determined on the basis of a quarterly average) during such taxable year is attributable to assets that produce or are held for the production of passive income.	
For this purpose, “passive income” includes, subject to certain exceptions, dividends, interest, rents, annuities, gains from commodities and securities transactions, net gains from the sale or exchange of property producing such passive income, net foreing currency gains and amounts derived by reason of the temporary investment of funds.
Based on the market price of our ADSs and the composition of our income, assets and operations, we do not believe we were classified as a PFIC for U.S. federal income tax purposes for the taxable year ended December 31, 2021. However, this is a factual determination that must be made annually after the close of each taxable year. This determination will depend on, among other things,
133

Table of Contents
the ownership and the composition of the income and assets, as well as the value of the assets (which may fluctuate with our market capitalization), of the Company and its subsidiaries from time to time. Therefore, there can be no assurance that we will not be classified as a PFIC for the current taxable year or for any future taxable year.
If we were classified as a PFIC for any taxable year during which a U.S. Holder held our ADSs, the U.S. Holder would be subject to special tax rules with respect to any “excess distributions” that the U.S. Holder receives in respect of our ADSs and any gain realized by the U.S. Holder from a sale or other disposition (including a pledge) of the ADSs, unless the U.S. Holder makes a “mark--to-market” election, as discussed below. Under these special tax rules:

	·	the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for our ADSs;	
	·	the amount allocated to the current taxable year, and any taxable year in the U.S. Holder’s holding period prior to the first taxable year in which we became a PFIC, will be treated as ordinary income; and	
	·	the amount allocated to each other taxable year will be subject to the highest tax rate in effect for that year and the interest charge applicable to underpayments of tax will be imposed on the resulting tax attributable to each such taxable year.	
In addition, dividend distributions made to the U.S. Holder will not qualify for the preferential rates of U.S. federal income taxation applicable to long-term capital gains discussed above under “—Distributions.”
If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs, we will continue to be treated as a PFIC with respect to the U.S. Holder for all succeeding taxable years during which the U.S. Holder holds the ADSs. If we cease to be a PFIC, the U.S. Holder may be able to avoid some of the adverse tax consequences of the PFIC regime by making a deemed sale election with respect to our ADSs. If such election is made, the U.S. Holder will be deemed to have sold our ADSs that the U.S. Holder holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain from such deemed sale would be subject to the consequences described above. After the deemed sale election, the U.S. Holder’s ADSs with respect to which the deemed sale election was made will not be treated as ADSs in a PFIC unless we subsequently become a PFIC.
If the Company is a PFIC, certain elections may be available that would result in an alternative treatment. In lieu of being subject to the tax and interest charge rules described above, a U.S. Holder may make an election to include gain on the stock of a PFIC as ordinary income under a “mark-to-market” method, provided that such stock is “marketable.” The ADSs generally would be considered marketable for purposes of this election if the ADSs are traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in the applicable U.S. Treasury regulations. NYSE, on which our ADSs are listed, is a qualified exchange for this purpose. U.S. Holders should consult their tax advisors regarding the availability and consequences of a market-to-market election with respect to the ADSs.
Alternatively, a U.S. Holder may avoid the adverse tax and interest-charge regime described above by making an election to treat us as a “qualified electing fund”. However, we do not intend to prepare or provide the information that would enable U.S. Holders to make a qualified electing fund election.
The U.S. federal income tax rules relating to PFICs are complex. Prospective U.S. investors are urged to consult their tax advisors with respect to the application of the PFIC rules to their investment in the ADSs.
Information Reporting and Backup Withholding
Dividend payments with respect to our ADSs and proceeds from the sale, exchange, redemption or other taxable disposition of our ADSs may be subject to information reporting to the IRS and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification or otherwise properly establishes an exemption from backup withholding. U.S. Holders who are required to establish their exempt status may be required to provide such certification on IRS Form W-9.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability, if any, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and furnishing any required information to
134

Table of Contents
the IRS. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Foreign Financial Asset Reporting
Certain U.S. Holders who are individuals or certain specified entities that own “specified foreign financial assets” with an aggregate value in excess of U.S. $50,000 on the last day of the taxable year (and in some circumstances, a higher threshold) may be required to report information relating to the ADSs by attaching a completed IRS Form 8938, Statement of Specified Foreign Financial Assets (which requires U.S. Holders to report “specified foreign financial assets,” which generally include financial accounts held at a non-U.S. financial institution, interests in non-U.S. entities, as well as stock and other securities issued by a non-United States person), to their tax return for each year in which they hold our ADSs, subject to certain exceptions (including an exception for the ADSs held in accounts maintained by U.S. financial institutions). U.S. Holders should consult their tax advisors regarding their reporting obligations with respect to their acquisition, ownership, and disposition of the ADSs.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR ADSs.
Mexican Taxation
General
The following summary of certain Mexican federal income tax consequences of the purchase, ownership and disposition of ADSs or CPOs or the Series A shares underlying the CPOs, is based upon the federal tax laws of Mexico as in effect on the date of this annual report, which are subject to change. Prospective purchasers of ADSs or CPOs are encouraged to consult their own tax advisors as to the Mexican or other tax consequences of the purchase, ownership and disposition of ADSs or CPOs and indirectly the Series A shares underlying the CPOs, including, in particular, the effect of any foreign, state or municipal tax laws.
This summary is based upon the Mexican federal income tax laws in effect on the date of this annual report, which are subject to change and does not describe any tax consequences arising under the laws of any state or municipality, other than the federal laws of Mexico.
Holders of ADSs or CPOs are encouraged to consult their own tax advisors as to their entitlement to the benefits, if any, afforded by the Treaty regarding income tax.
Mexico has also entered into and is negotiating several other tax treaties with various countries, that may have an impact on the tax treatment of the purchase, ownership and disposition of ADSs, CPOs or the Series A shares underlying the CPOs. Prospective purchasers of the ADSs or CPOs are encouraged to consult their own tax advisors as to the tax consequences, if any, of any such treaties.
The following summary of the Mexican federal income tax consequences of the purchase, ownership or disposition of ADSs or CPOs is a general summary of the principal consequences, under Mexican tax law and the Treaty, as currently in effect, of such purchase, ownership or disposition of ADSs or CPOs by non-Mexican holders (but not by holders who are or may be deemed residents of Mexico for tax purposes), that will not hold ADSs or CPOs in connection with the conduct of a trade or business through a permanent establishment for tax purposes, in Mexico.
For purposes of Mexican taxation, individuals are residents of Mexico for tax purposes if they have established their place of residence in Mexico, unless they have a place of residence in a different country, in which case such individuals will only be considered residents of Mexico for tax purposes if they have their center of vital interests (centro de intereses vitales) in Mexico. Mexican law considers individuals to have their center of vital interests in Mexico if (i) at least 50% of their income is derived from Mexican sources or (ii) their principal center of professional activities is located in Mexico, among others. An individual will also be considered a resident of Mexico if such individual is a state employee, regardless of the location of such person’s core of vital interests. A legal entity is a resident of Mexico if it is incorporated under the laws of Mexico, or if it maintains the principal administration of its business or the effective location of its management in Mexico.
135

Table of Contents
A permanent establishment in Mexico of a non-Mexican resident will be regarded as a resident of Mexico for tax purposes, and any and all income attributable to such permanent establishment will be required to pay taxes in Mexico in accordance with applicable law.
Dividends
Dividends, either in cash or in any other form (except for stock dividends), paid with respect to A shares or B shares represented by the CPOs (or in the case of holders who hold CPOs represented by ADSs), will be subject to a 5% Mexican withholding tax based on the amount of the distributed dividend, multiplied by a factor of 1.5385, which produces a net Mexican withholding tax of approximately 7.7% applicable to holders of CPOs who are non-residents of Mexico. Under the Treaty, a U.S. Shareholder who owns less than 10% of our stock and is otherwise eligible for benefits under such treaty will, in no event, be subject to more than a 10% withholding tax.
Disposition of ADSs or CPOs
The sale or the disposition of ADSs or CPOs by a non-Mexican holder will not be subject to any Mexican tax, if the transaction is carried out through the Mexican Stock Exchange or other securities markets approved by the Ministry of Finance and Public Credit (Secretaria de Hacienda y Crédito Público).
The exemption referred to in the previous paragraph would not be applicable (i) if the person or group of persons that directly or indirectly hold 10% or more of the shares of Volaris, in a period of 24 months, sell 10% or more of such shares, through one transaction or through more than one simultaneous or successive transactions, including transactions conducted through derivatives or in any other analogous or similar manner, and (ii) if a person or group of persons who control Volaris sell their control through one transaction or more than one simultaneous or successive transactions in a period of 24 months, including transactions conducted through derivatives or in any other analogous or similar manner. For purposes of the above, “control” and “group of persons” have the meaning ascribed to them in the Mexican Securities Market Law. Gains received by a non-resident holder arising out of the sale or other transfers of ADSs or CPOs made in any of the circumstances described in (i) and (ii) above, are deemed as income arising from Mexican source subject to Mexican income tax.
Gain on sales or other dispositions of ADSs or CPOs made in circumstances other than those described in the first paragraph of this section, generally would be subject to Mexican tax at a rate of 25% based on the aggregate proceeds received from the transaction or, subject to certain requirements applicable to the seller (including the appointment of a representative in Mexico for tax purposes to pay the applicable taxes), on any gain arising from a sale or other disposition as described in the next paragraph. If income of a non-resident holder is subject to a preferential tax regime (as defined by the Mexican Income Tax Law), the applicable rate may be up to 40% on the gross income obtained.
A non-resident holder may elect to pay taxes on the gains realized from the sale of our shares on a net basis (sales price less tax cost basis) at a rate of 30%, provided that the income of the non-resident holder is not subject to a preferential tax regime (as such terms are defined by the Mexican Income Tax Law), the non-resident holder appoints a legal representative in Mexico for purposes of the disposition of the shares and the representative files a tax notice claiming the election and a tax return coupled with a report issued by a public accountant.
Pursuant to the Treaty, gains realized by a holder of ADSs or CPOs that is eligible to claim benefits thereunder may be exempt from Mexican income tax on gains realized on a sale or other disposition of shares, if such holder owned, directly or indirectly, less than 25% of our outstanding capital stock during the 12-month period preceding such disposition provided certain requirements are met. These requirements include the obligation to (i) prove tax treaty residence, (ii) appoint a legal representative in Mexico for taxation purposes, and (iii) present tax reports prepared by authorized certified public accountants.
Value Added Tax
According to the provisions of the Mexican Value Added Tax Law (Ley del Impuesto al Valor Agregado), the disposition of the ADSs or CPOs made by non-resident holders would be exempt from the Value Added Tax.
136

Table of Contents
Other Mexican Taxes
There are currently no Mexican estate, gift, inheritance, or value added taxes applicable to the purchase, ownership or disposition of ADSs or CPOs. However, gratuitous transfers of ADSs or CPOs may result in the imposition of a Mexican federal income tax upon the recipient in certain circumstances.
There are currently no Mexican stamp, registration or similar taxes payable with respect to the purchase, ownership or disposition of ADSs or CPOs.
F.    Dividends and Paying Agents
Not Applicable.
G.    Statement by Experts
Not Applicable.
H.    Documents on Display
We are subject to the informational requirements of the Exchange Act, applicable to foreign private issuers and, in accordance therewith, file reports and other information with the SEC. Accordingly, we will be required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information to be filed with the SEC at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington D.C. 20549. Copies of the materials may be obtained from the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. In addition, the SEC maintains an Internet website at http://www.sec.gov, from which you can electronically access the registration statement and its materials.
As a foreign private issuer, we are not subject to the same disclosure requirements as a domestic U.S. Registrant under the Exchange Act. For example, we are not required to prepare and issue quarterly reports. However, we will be required to file annual reports on Form 20-F within the time period required by the SEC, which is currently four months from December 31, the end of our fiscal year. As a foreign private issuer, we are exempt from Exchange Act rules regarding proxy statements and short-swing profits.
We will provide the depositary with annual reports in English, which will include a review of operations and annual audited consolidated financial statements prepared according to IFRS.
You may request a copy of our SEC filings, at no cost, by contacting us at: Av. Antonio Dovalí Jaime No. 70, 13th Floor, Tower B, Colonia Zedec Santa Fe, México City, México 01210, Attention: Investor Relations, Email: ir@volaris.com, Tel.: +52-55-5261-6400.
I.    Subsidiary Information
Not Applicable.
ITEM  11    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are subject to certain market risks, including commodity prices, specifically fuel. The adverse effects of changes in these markets could pose a potential loss as discussed below. The sensitivity analysis provided below does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ.
Fuel. Our results of operations can vary materially due to changes in the price and availability of fuel. Fuel expense for the years ended December 31, 2019, 2020 and 2021 represented 38%, 26% and 34% (including non-derivative financial instruments), respectively, of our operating expenses. Increases in fuel prices or a shortage of supply could have a material adverse effect on our operations and operating results. We source a significant portion of our fuel from refining resources located in Mexico. Gulf Coast
137

Table of Contents
fuel is subject to volatility and supply disruptions, particularly during hurricane season when refinery shutdowns have occurred, or when the threat of weather-related disruptions has caused Gulf Coast fuel prices to spike above other regional sources.
During the year ended December 31, 2021, we did not entered into hedging positions for Jet Fuel.
During the year ended December 31, 2020, we entered into US Gulf Coast Jet Fuel 54 Asian call options designated to hedge 23,967 thousand gallons of fuel. Such hedges represented a portion of our second and third quarter 2020, as well as first quarter 2021 projected consumption. Additionally, during the same period, we entered into US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options designated to hedge 81,646 thousand gallons of fuel. The latter hedges represented a portion of our projected second quarter and second half 2020, as well our second quarter 2021 consumption.
During the year ended December 31, 2019, we entered into US Gulf Coast Jet Fuel 54 Asian call options designated to hedge 13,492 thousand gallons of fuel. Such hedges represented a portion of our fourth quarter 2019 projected consumption. Additionally, during the same period, we entered into US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options designated to hedge 70,136 thousand gallons of fuel. The latter hedges represented a portion of our projected third quarter 2019 and our 2020 consumption.
Our fuel cost is referenced to US Gulf Coast Jet Fuel 54 and US West Coast Jet Fuel, which are the crudes utilized to determine the cost of the fuel provided by our suppliers. Based on our 2021 annual fuel consumption, a 5% increase in the average price per gallon of those reference prices would have increased our fuel expense for 2021 by approximately Ps.523 million.
To attempt to manage fuel price risk, from time to time we use derivative financial instruments to mitigate the risk in cash flows attributable to changes in the fuel price. The fair value of our fuel call options as of December 31, 2019, 2020 and 2021 was a net asset position of Ps.0 million, Ps.0.2 million and Ps.0 million, respectively, and the fair value of our zero-cost collars as of December 31, 2019, 2020 and 2021 was a gain of Ps.133.6 million, a loss Ps.9.7 million and a Ps.0 million and these were presented as part of the financial assets and financial liabilities line items in our consolidated statements of financial position.
We measure our derivative financial instruments at fair value. We measure the fair value of the derivative instruments based on quoted market prices. Outstanding derivative financial instruments expose us to credit loss in the event of nonperformance by the counterparties to the agreements. However, we do not expect the counterparties to fail to meet their obligations. As of December 31, 2021, we believe the credit exposure related to derivatives contracts was minor.
Our fuel hedging practices are dependent upon many factors, including our assessment of market conditions for fuel, our access to the capital necessary to support margin requirements under derivative agreements and the pricing of hedges and other derivative products in the market. As of December 31, 2021, we had not hedged of our projected fuel requirements for the year ended December 31, 2022.
Currency fluctuations. The value of the peso has been subject to significant fluctuations with respect to the U.S. dollar in the past and may be subject to significant fluctuations in the future. If the peso declines in value against the U.S. dollar our demand would be adversely affected. Please see Item 3: --“ Currency fluctuations or the devaluation and depreciation of the peso could adversely affect our business, results of operations, financial condition, and prospects”.
As a result of the depreciation or appreciation of the peso against the U.S. dollar in the last three years, as applicable, we recorded a foreign exchange gain (loss), net of Ps.1.4 billion, Ps.0.5 billion and Ps.(2.6) billion in 2019, 2020 and 2021, respectively.
Regarding the foreign currency risk effective since January 1, 2019, we implemented two hedging strategies for our forecasted foreign exchange exposures using non-derivative financial assets and liabilities denominated in U.S. dollars as hedging instruments.
In the first hedging strategy, we have designated a hedge to mitigate our foreign exchange rate risk and the foreign exchange fluctuation in U.S. dollar denominated forecasted revenues by using a portion of the financial liabilities associated with a portfolio of lease liabilities denominated in U.S. dollars over the term of the remaining lease arrangements as a hedging instrument. As of December 31, 2021, there was not outstanding U.S. dollar balance designated under this hedging strategy due to the discontinuation of the hedge relationships. As of December 31, 2020, and 2019, we had an amount equivalent to U.S. $1.5 billion and U.S. $1.7 billion, respectively, of lease liabilities designated as hedging instruments tied to U.S. dollar denominated forecasted revenues over the remaining lease term.
138

Table of Contents
The second strategy involves designating a portion of our U.S. dollar denominated non-derivative financial assets as hedging instruments in order to mitigate the exchange rate risk and foreign exchange (the peso to U.S. dollar) variation intrinsic in our U.S. dollar denominated Jet Fuel purchases. For this strategy, a portion of our Jet Fuel consumption over approximately the next two years has been designated as a hedged item; while the hedging instrument is represented by U.S. dollar denominated recognized assets, including guaranteed deposits and cash and cash equivalents.
During the first quarter of 2021, the designated hedging instrument back in 2019 for U.S. $410 million expired consistent with the same foreign exchange strategy, the Company decided to designate a new hedging relationship, like the one concluded. For this new strategy designated a portion of the Jet Fuel consumption over the two following years has been designated as hedged item; while the hedging instrument is represented by U.S. dollar denominated recognized assets, including guaranteed deposits and cash and cash equivalents equivalent to U.S.$350 million, which represent a portion of the financial assets denominated in U.S. dollar.
As of December 31, 2021, there was not outstanding U.S. dollar balance designated under this hedging strategy due to the discontinuation of the hedge relationships. The outstanding balance designated under this hedging strategy as of December 31, 2020, and 2019 was U.S. $60.5 million and U.S. $166.7 million, respectively, which represents a portion of the recognized financial assets denominated in U.S. dollars.
During the year ended December 31, 2021, and 2020, the impact of these hedges was Ps.182.2 million and Ps.409.2 million, respectively, which has been presented as part of the total fuel expense.
Since the hedged items in both hedging strategies were targeted at mitigating the cash flow variability of expected and forecasted transactions, they were represented by multiple hedging relationships which followed the Cash Flow Hedge Accounting Model.
The effective portion of each hedging instrument’s changes in fair value were accounted for in the hedge reserve within the OCI and presented as a separate line item within our statement of stakeholders’ equity, which is in accordance with the IFRS 9 criteria.
The amounts recorded in OCI were recycled to our income statement on a timely basis as corresponding U.S. dollar denominated income and/or jet fuel consumptions impact the Company’s operating margin and were presented as adjustments to both operating income and expense, with respect to each FX hedging strategy in a timely matter, as U.S. dollar denominated income and jet fuel consumption were recognized within operating earnings, hence reflecting a portion of both operating income and expenses amounts, net of both FX Hedging activities.
As of December 31, 2021, as a result of the change in functional currency from the Mexican peso to the U.S. dollar, the Company concluded that these hedging strategies will no longer be effective, for which reason it accounted for the termination of non-derivative financial instruments. Consequently, non-derivative financial instruments in other comprehensive income generated a loss of U.S.$109 million, which is included in the foreign exchange (loss) gain, net.
Interest Rates. We use derivative financial instruments to reduce our exposure to fluctuations in market interest rates. We had market risk associated with changes in variable interest rates due to the LIBOR-based rates in two of our aircraft leases which ended in 2017, and therefore, no further hedging of interest rates was made during 2018. As of December 31, 2019, we had an outstanding hedging contract in the form of an interest rate cap with a notional amount of Ps.1.5 billion and a fair value of Ps.2.7 million. As of December 31, 2020, we had an outstanding hedging contract in the form of an interest rate cap with a notional amount of Ps.1.5 billion and a fair value of Ps.0.3 million. As of December 31, 2021, we had an outstanding hedging contract in the form of an interest rate cap with a notional amount of Ps.2.8 billion and a fair value of Ps.28.8 million. These instruments are included as assets in our consolidated statements of financial position. All the Company’s positions in the form of interest rate swaps matured on March 31 and April 30, 2017. Consequently, there was no outstanding balance as of December 31, 2018.
Our debt, as recognized in our consolidated statements of financial position, consists of the revolving line of credit with Banco Santander México and Bancomext, a short-term working capital facility with Sabadell, and an asset-backed trust notes (CEBUR) issued in the Mexican market. A hypothetical 100 bps increase in market interest rates during the year 2021 would have increased our debt interest payment in 2021 on our consolidated statements of financial position by Ps.55.8 million.

139

Table of Contents
ITEM 12    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A.	Debt Securities	
Not Applicable.

B.	Warrants and Rights	
Not Applicable.

C.	Other Securities	
Not Applicable.
D.    American Depositary Shares
The Bank of New York Mellon, as depositary, will register and deliver American Depositary shares, also referred to as ADSs. Each ADS will represent ten CPOs (or a right to receive ten CPOs) deposited with Indeval, as custodian for the depositary. Each ADS will also represent any other securities, cash or other property which may be held by the depositary. The depositary’s office at which the ADSs will be administered is located at 101 Barclay Street, New York, New York 10286.
ADSs may be held either (a) directly (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs, registered in the holder’s name, or (ii) by having ADSs registered in the holder’s name in the Direct Registration System, or DRS, or (b) indirectly by holding a security entitlement in ADSs through a broker or other financial institution.
The DRS is a system administered by The Depository Trust Company, also referred to as DTC, pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership is confirmed by periodic statements sent by the depositary to the registered holders of uncertificated ADSs.
We will not treat ADS holders as one of our shareholders and ADS holders will not have shareholder rights under Mexican law and our by-laws. A deposit agreement among us, the depositary and ADS holders, and the beneficial owners of ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs.
Dividends and Other Distributions
The depositary has agreed to pay to ADS holders the cash dividends or other distributions it or the custodian receives in respect of the underlying CPOs or other deposited securities, after deducting its fees and expenses described below. ADS holders will receive these distributions in proportion to the number of CPOs their ADRs represent.
Cash Dividends and Distributions. The depositary will convert any cash dividend or other cash distribution we pay on the shares underlying the applicable CPOs into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any Mexican government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest. If the depositary can only convert a portion of the cash dividend into U.S. dollars, it can either distribute the unconverted portion in the foreign currency or hold the foreign currency on the account of the ADS holders. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, ADS holders may lose some or all of the value of the distributions. Before making a distribution, the depositary will deduct any withholding taxes that must be paid. See Item 10: “Additional Information—Taxation.” It will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent.
Share Dividends and Distributions. The depositary may distribute additional ADSs representing any additional CPOs issued as a result of our issuing a share dividend or distribution. The depositary will only distribute whole ADSs. It will sell CPOs or Series A Shares, which would require it to deliver a fractional ADS and distribute the net proceeds in the same way as it does with
140

Table of Contents
cash. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new CPOs. The depositary may sell a portion of the distributed CPOs or Series A shares sufficient to pay its fees and expenses in connection with that distribution.
Rights to Purchase Additional CPOs. If the CPO trustee offers CPO holders any rights to subscribe for additional CPOs or any other rights, the depositary may make these rights available to ADS holders. If the depositary decides it is not legal and practical to make the rights available but that it is practical to sell the rights, the depositary will use reasonable efforts to sell the rights and distribute the proceeds in the same way as it does with cash. Under current Mexican law, preemptive rights with respect to our common stock may not be sold apart from the applicable shares. The depositary will allow rights that are not distributed or sold to lapse. In that case, ADS holders will receive no value for them. If the depositary makes rights to purchase CPOs available to ADS holders, it will exercise the rights and purchase the CPOs on their behalf. The depositary will then deposit the CPOs and deliver ADSs to the applicable holders. It will only exercise rights if holders pay it the exercise price and any other charges required by the terms of the rights. U.S. securities laws may restrict transfers and cancellation of the ADSs representing CPOs purchased upon exercise of rights. For example, holders may not be able to trade these ADSs freely in the United States. In this case, the depositary may deliver restricted depositary shares that have the same terms as the ADSs described in this section except for changes needed to put the necessary restrictions in place.
Other Distributions. The depositary will send to ADS holders anything else the CPO trustee distributes on deposited securities by any means it determines to be legal, fair and practical. If the depositary determines that it cannot make the distribution in a legal, fair and practical manner, it may sell the distributed assets and distribute the net proceeds, in the same way as it does with cash or determine to hold the distributed assets, in which case ADSs will also represent the newly distributed assets. However, the depositary is not required to distribute any securities (other than ADSs) unless it receives satisfactory evidence from us that it is legal to make that distribution. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and expenses in connection with that distribution.
Unlawful or Impracticable Distributions. The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, CPOs, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, CPOs, rights or anything else to ADS holders. This means that ADS holders may not receive the distributions we make on our common stock or any value for such distributions if it is illegal or impractical for us to make them available to such holders.
Deposit, Withdrawal and Cancellation
The depositary will deliver ADSs upon the deposit of CPOs or evidence of rights to receive CPOs with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names requested and will deliver the ADSs to the persons requested.
Upon surrender of ADSs to the depositary, upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the CPOs and any other deposited securities underlying the surrendered ADSs to the person surrendering the ADSs or a person designated by them at the office of the custodian or, at the holder’s request, risk and expense, the depositary will deliver the deposited securities at its office, if feasible; provided, however, that non-Mexican holders may not hold Series A shares directly, but will hold CPOs representing a financial interest in such Series A shares as described in this prospectus.
Voting Rights
ADS holders have no voting rights and do not have the power to instruct the depositary to vote the shares underlying the CPOs underlying such ADSs.
141

Table of Contents
Fees and Expenses
The following table sets forth the applicable fees for various services, transactions and activities related to the ADSs.

Persons Depositing CPOs or ADR Holders Must Pay:	    	For:		
				
U.S. $5.00 (or less) per 100 ADSs (or portion of 100 ADSs)		Issuance of ADSs, including issuances resulting from a distribution of CPOs or rights or other property		
				
		Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates		
				
U.S. $0.05 (or less) per ADS		Any cash distribution to ADS holders		
				
A fee equivalent to the fee that would be payable if securities distributed to you had been CPOs and the CPOs had been deposited for issuance of ADSs		Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders		
				
U.S. $0.05 (or less) per ADS per calendar year		Depositary services		
				
Registration or transfer fees		Transfer and registration of CPOs on our CPO register to or from the name of the depositary or its agent when you deposit or withdraw CPOs		
				
Expenses of the depositary		Conversion of foreign currency to U.S. dollars		
				
Expenses of the depositary		Cable, telex and facsimile transmission (when expressly provided in the deposit agreement)		

142

Table of Contents

Persons Depositing CPOs or ADR Holders Must Pay:	    	For:	
			
Taxes and other governmental charges the depositary or the custodian have to pay on any ADSs or CPOs underlying ADSs, for example, stock transfer taxes, stamp duty or withholding taxes, any charges incurred by the depositary or its agents for servicing deposited securities. The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.		As necessary	
			
From time to time, the depositary may make payments to us to reimburse and / or share revenue from the fees collected from ADS holders, or waive fees and expenses for services provided, generally relating to costs and expenses arising out of establishment and maintenance of the ADS program. In performing its duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates of the depositary and that may earn or share fees or commissions.			

Payment of Taxes
The depositary may deduct the amount of any taxes owed from any payments to ADS holders. It may also sell deposited securities, by public or private sale, to pay any taxes owed. ADS holders will remain liable if the proceeds of the sale are not enough to pay the taxes. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay or distribute to applicable ADS holder any proceeds or property remaining after it has paid the taxes.
143

Table of Contents
Reclassifications, Recapitalizations and Mergers

If We:	    	Then:	
			
Change the nominal or par value of the CPOs		The cash, shares or other securities received by the depositary will become deposited securities. Each ADS will automatically represent its equal share of the new deposited securities.	
			
Reclassify, split up or consolidate any of the deposited securities		The depositary may distribute some or all of the cash, shares or other securities it received. It may also deliver new ADRs or ask ADR holders to surrender their outstanding ADRs in exchange for new ADRs identifying the new deposited securities.	
			
Distribute securities on the CPOs that are not distributed to ADS holders		 	
			
Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action		 	

Amendment and Termination
We may agree with the depositary to amend the deposit agreement and the ADRs for any reason without the consent of the ADS holders. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, ADS holders are considered, by continuing to hold ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended.
The depositary will terminate the deposit agreement if we ask it to do so. The depositary may also terminate the deposit agreement if the depositary has told us that it would like to resign, and we have not appointed a new depositary bank within 60 days. In either case, the depositary must notify ADS holders at least 30 days before termination.
After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: (a) advise ADS holders that the deposit agreement is terminated, (b) collect distributions on the deposited securities, (c) sell rights and other property, and (d) deliver CPOs and other deposited securities upon surrender of ADSs. Four months or more after termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement for the pro rata benefit of the ADS holders that have not surrendered their ADSs. It will not invest the money and has no liability for interest. The depositary’s only obligations will be to account for the money and other cash. After termination our only obligations will be to indemnify the depositary and to pay fees and expenses of the depositary that we agreed to pay.
Shareholder Communications and Inspection of Register of Holders of ADSs
The depositary will make available for shareholders’ inspection at its office all communications that it receives from us or the CPO trustee as a holder of deposited securities that we or the COP trustee make generally available to holders of deposited securities. The depositary will send shareholders copies of those communications if we ask it to. Shareholders have a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders about a matter unrelated to our business or the ADSs.
Limitations on Obligations and Liability
The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary:

	●	are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;	
144

Table of Contents

	●	are not liable if either of us is prevented or delayed by law or circumstances beyond our control from performing our obligations under the deposit agreement;	

	●	are not liable if either of us exercises discretion permitted under the deposit agreement;	

	●	are not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made available to holders of ADSs under the terms of the deposit agreement, or for any special, consequential or punitive damages for any breach of the terms of the deposit agreement;	

	●	have no obligation to become involved in a lawsuit or other proceeding related to the ADRs or the deposit agreement on an ADR holder’s behalf or on behalf of any other party; and	

	●	may rely upon any documents we believe in good faith to be genuine and to have been signed or presented by the proper party.	

In the deposit agreement, we agree to indemnify the depositary for acting as depositary, except for losses caused by the depositary’s own negligence or bad faith, and the depositary agrees to indemnify us for losses resulting from its negligence or bad faith.
Requirements for Depositary Actions
Before the depositary will deliver or register a transfer of an ADS, make a distribution of ADSs, or permit withdrawal of CPOs, the depositary may require:

	●	payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any CPOs or other deposited securities;	

	●	satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and	

	●	compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.	

The depositary may refuse to deliver ADSs or register transfers of ADSs generally when the transfer books of the depositary, the CPO trustee or our transfer books are closed or at any time if the depositary or we think it advisable to do so.
ADS Holders’ Right to Receive the CPOs Underlying ADSs
ADS holders have the right to surrender their ADSs and withdraw the underlying CPOs at any time except:

	●	when temporary delays arise because: (i) the depositary or the CPO trustee has closed its transfer books, or we have closed our transfer books; (ii) the transfer of CPOs is blocked to permit voting at a shareholders’ meeting; or (iii) we are paying a dividend on our common stock or any other security deposited with the CPO trustee;	

	●	if the ADS holder owes money to pay fees, taxes and similar charges; and	

	●	when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of CPOs or other deposited securities.	

This right of withdrawal may not be limited by any other provision of the deposit agreement.
Pre-release of ADSs
The deposit agreement permits the depositary to deliver ADSs before deposit of the underlying CPOs. This is called a pre-release of the ADSs. The depositary may also deliver CPOs upon cancellation of pre-released ADSs (even if the ADSs are surrendered before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying CPOs are delivered to the depositary. The depositary may receive ADSs instead of CPOs to close out a pre-release. The depositary may pre-release ADSs only
145

Table of Contents
under the following conditions: (a) before or at the time of the pre-release, the person to whom the pre-release is being made represents to the depositary in writing that it or its customer owns the CPOs or ADSs to be deposited; (b) the pre-release is fully collateralized with cash or other collateral that the depositary considers appropriate; and (c) the depositary must be able to close out the pre-release on not more than five business days’ notice. In addition, the depositary will limit the number of ADSs that may be outstanding at any time as a result of pre-release, although the depositary may disregard the limit from time to time, if it thinks it is appropriate to do so.
Depositary Payments
During 2021, U.S. $542,032.13 was received by us from the depositary relating to our American Depositary Shares program, consisting of reimbursements for continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (e.g., the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls), any applicable performance indicators relating to the ADR facility, underwriting fees and legal fees.
Please refer to Exhibit 2.1(b) to this annual report for the remaining information relating to our American Depositary Shares as required under Item 12.D of Form 20-F.
PART II.
ITEM  13    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
A.    Use of Proceeds
Not applicable.
ITEM  15    CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. We carried out an evaluation under the supervision of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2021. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our chief executive officer and chief financial officer, and effected by our board of directors, management, and
146

Table of Contents
other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with IFRS, and it includes those policies and procedures that:

	●	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets;	

	●	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorization of our management and board of directors; and	

	●	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.	

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, effective control over financial reporting cannot, and does not, provide absolute assurance of achieving our control objectives. Also, projection of any evaluation of the effectiveness of the internal controls to future periods is subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
As of the year ended December 31, 2021, our management conducted an assessment of the effectiveness of our internal control over financial reporting in accordance with the criteria established in 2013 in the publication “Internal Control—Integrated Framework,” issued by the Treadway Commission’s Committee of Sponsoring Organizations (COSO), as well as the rules prescribed by the SEC in its Final Rule “Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports.”
Based on the assessment performed, management concluded that our internal control over financial reporting was effective as of the end of the period covered by this annual report.
Attestation Report of the Registered Public Accounting Firm
The attestation report of KMPG Cárdenas Dosal, S.C., an independent registered public accounting firm, on our internal control over financial reporting is included with the audit report accompanying our audited financial statements included in this annual report.
Changes in Internal Control over Financial Reporting
During the period covered by this annual report, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM  16    [RESERVED]
ITEM 16A    AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that José Luis Fernández Fernández, a member of our audit and corporate governance committee, meets the requirements of an “audit committee financial expert,” as defined by the SEC.
See Item 6: “Directors, Senior Management and Employees—Directors and Senior Management—Board of Directors—Audit and Corporate Governance Committee.”
ITEM  16B    CODE OF ETHICS
We currently have a code of ethics which has been accepted by all of our directors and executive officers and other personnel. Our Code of Ethics is available on our website at www.ir.volaris.com under the “Corporate Governance—Code of Ethics” tab. The information on our website is not incorporated into this annual report.
147

Table of Contents
ITEM 16C    PRINCIPAL ACCOUNTANT FEES AND SERVICES
The table below sets forth the fees for services performed by KPMG Cárdenas Dosal, S.C., an independent registered public accounting firm , or KPMG, and Mancera, S.C., independent registered public accounting firm and a member practice of Ernst & Young Global Limited, or E&Y, for the periods indicated (including related expenses) and categorized by service in Pesos.

		Year Ended December 31, 	
	    	2021		2021	    	2020	
		KPMG		E&Y		E&Y	
	
		(in Pesos)	
Audit Fees(1)	 	14,697,500		3,006,124	 	14,894,247	
Audit-Related Fees(2)	 	1,085,200		2,421,200	 	1,550,076	
Total	 	15,782,700		5,427,324	 	16,444,323	

(1)	“Audit Fees” are the aggregate fees billed for professional services rendered by our auditors for the audit of our annual financial statements as well as in connection with audit services for SEC or other regulatory filings.	

(2)	“Audit- Related fees” are attestation services, over taxes and social security obligations, provided in connection with statutory and regulatory requirements.	

Our audit and corporate governance committee pre-approves all audit and non-audit services provided by our independent auditor pursuant to the Sarbanes-Oxley Act of 2002.
ITEM  16D    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM  16E    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM  16F    CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
On July 20, 2021, we announced the termination of Mancera, S.C., as our independent registered public accounting firm and a member of Ernst & Young Global Limited, and appointed KPMG Cárdenas Dosal, S.C., an independent registered public accounting firm , as our successor independent registered public accounting firm effective October 12, 2021 and for the year ended December 31, 2021. The termination of Mancera, S.C., and the appointment KPMG Cárdenas Dosal, S.C. was considered and approved by the audit committee.
The audit report of Mancera, S.C., for the years ended December 31, 2020 and 2019 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. There were no disagreements with Mancera, S.C., on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, from the time of Mancera, S.C.’s engagement up to the date of termination which disagreements that, if not resolved to Mancera, S.C.’s satisfaction, would have caused Mancera, S.C., to make reference in connection with its opinion to the subject matter of the disagreement.
ITEM  16G    CORPORATE GOVERNANCE
As a foreign private issuer, we may follow our home country’s corporate governance practices in lieu of most of the NYSE’s corporate governance listing standards. Pursuant to Section 303A.11 of the Listed Company Manual of the New York Stock Exchange and Rule 4350(a)(1) of the NASDAQ Stock Market, Inc. Marketplace Rules, we are required to provide a summary of the significant ways in which our corporate governance practices differ from those required for U.S. companies under the NYSE and NASDAQ listing standards. The table below discloses the significant differences between our corporate governance practices and the NYSE and NASDAQ standards.
148

Table of Contents

NYSE Standards	    	NASDAQ Standards	    	Our Corporate Governance
Practices	
					
Director Independence. Majority of board of directors must be independent. “Controlled companies,” which would include our company if we were a U.S. issuer, are exempt from this requirement. A controlled company is one in which more than 50% of the voting power is held by an individual, group or another company, rather than the public. §303A.01		Director Independence. Majority of board of directors must be independent and directors deemed independent must be identified in a listed company’s proxy statement (or annual report on Form 10-K or 20-F if the issuer does not file a proxy statement). “Controlled companies,” which would include our company if we were a U.S. issuer, are exempt from this requirement. A controlled company is one in which more than 50% of the voting power is held by an individual, group or another company, rather than the public. Rules 4350(c)(1) & (c)(5)		Director Independence. Pursuant to the Mexican Securities Market Law and our by-laws, our shareholders are required to appoint the members of our board of directors comprised of no more than 21 members, 25% of whom must be independent. Certain persons are per se non-independent, including insiders, control persons, major suppliers and relatives of such persons. In accordance with the Mexican Securities Market Law, our shareholders’ meeting is required to make a determination as to the independence of our directors, though such determination may be challenged by the CNBV. See Item 6: “Directors, Senior Management and Employees—Directors and Senior Management” and Item 10: “Additional Information— Memorandum and Articles of Association—Provisions of Our By-laws and Mexican Law Relating to Directors—Election of Directors.”	

NYSE Standards	    	NASDAQ Standards	    	Our Corporate Governance
Practices	
					
Executive Sessions. Non-management directors must meet regularly in executive sessions without management. Independent directors should meet alone in an executive session at least once a year. §303A.03		Executive Sessions. Independent directors must meet regularly in executive sessions at which only independent directors are present. Rule 4350(c)(2)		Executive Sessions. Non-management directors are not required to meet in executive sessions without management.	
					
Nominating/Corporate Governance Committee. Nominating/corporate governance committee of independent directors is required. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. “Controlled companies” are exempt from these requirements. §303A.04 As a controlled company, we would be exempt from this requirement if we were a U.S. issuer.		Nominating Committee. Director nominees must be selected, or recommended for the board’s selection, either by a nominating committee comprised solely of independent directors or by a majority of independent directors. Each listed company also must certify that it has adopted a formal charter or board resolution addressing the nominations process. “Controlled companies” are exempt from this requirement. Rules 4350(c)(4)(A)-(B) & (c)(5).
 
As a controlled company, we would be exempt from this requirement if we were a U.S. issuer.		Nominating Committee. We are not required to have a nominating committee. However, we maintain a compensation committee which may, among other things, submit proposals to our board of directors in respect of the appointment of principal officers, the inaction, amendment or formation of incentive plans for officers and compensation of officers within the first four corporate levels. See Item 6: “Directors, Senior Management and Employees— Directors and Senior Management—Board of Directors” and Item 10: “Additional Information— Memorandum and Articles of Association—Provisions of Our By-laws and Mexican Law Relating to Directors” for further information.	
					
149

Table of Contents

NYSE Standards	    	NASDAQ Standards	    	Our Corporate Governance
Practices	
					
Compensation Committee. Compensation committee of independent directors is required, which must evaluate and approve executive officer compensation. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. “Controlled companies” are exempt from this requirement. §303A.05.
As a controlled company, we would be exempt from this requirement if we were a U.S. issuer.		Compensation Committee. CEO compensation must be determined, or recommended to the board for determination, either by a compensation committee comprised solely of independent directors or a majority of the independent directors and the CEO may not be present during voting or deliberations. Compensation of all other executive officers must be determined in the same manner, except that the CEO, and any other executive officers, may be present. “Controlled companies” are exempt from this requirement. Rules 4350(c)(3)(A)-(B) & (c)(5).
 
As a controlled company, we would be exempt from this requirement if we were a U.S. issuer.		Compensation Committee. We are not required to have a compensation committee. However, we maintain a compensation committee that makes proposals to the board of directors in respect of compensation of officers within the first four corporate levels. See Item 10: “Additional Information—Memorandum and Articles of Association— Provisions of Our By-laws and Mexican Law Relating to Directors” for further information.	

NYSE Standards	    	NASDAQ Standards	    	Our Corporate Governance
Practices	
					
Audit Committee. Audit committee satisfying the independence and other requirements of Exchange Act Rule 10A-3 and the more stringent requirements under the NYSE standards is required. §§303A.06, 303A.07		Audit Committee. Audit committee satisfying the independence and other requirements of Exchange Act Rule 10A-3 and the more stringent requirements under the NASDAQ standards is required. Rule 4350(d)		Audit and Corporate Governance Committee. We have an audit and corporate governance committee comprised of three members. Each member of the audit and corporate governance committee is independent, as independence is defined under the Mexican Securities Market Law, and also meets the independence requirements of Exchange Act Rule 10A-3. Our audit and corporate governance committee operates primarily pursuant to Mexican Securities Market Law and our by- laws. For a detailed description of the duties of our audit committee, see Item 6: “Directors, Senior Management and Employees—Directors and Senior Management—Board of Directors—Audit and Corporate Governance Committee.”	
					
Equity Compensation Plans. Equity compensation plans require shareholder approval, subject to limited exemptions. §§303A.08 & 312.03		Equity Compensation Plans. Equity compensation plans require shareholder approval, subject to limited exemptions. Rule 4350(i)(1)(A)		Equity Compensation Plans. Shareholder approval is required for the adoption and amendment of an equity-compensation plan based upon the recommendation of our board of directors and the opinion of our compensation committee.	
					
150

Table of Contents

NYSE Standards	    	NASDAQ Standards	    	Our Corporate Governance
Practices	
					
Shareholder Approval for Issuance of Securities. Issuances of securities (1) that will result in a change of control of the issuer, (2) that are to a related party or someone closely related to a related party, (3) that have voting power equal to at least 20% of the outstanding common stock voting power before such issuance or (4) that will increase the number of shares by at least 20% of the number of outstanding shares before such issuance require shareholder approval. §§312.03(b)-(d)		Shareholder Approval for Issuance of Securities. Issuances of securities (1) that will result in a change of control of the issuer, (2) in connection with certain acquisitions of the stock or assets of another company or (3) in connection with certain transactions other than public offerings require shareholder approval. Rules 4350(i)(1)(B)-(D)		Shareholder Approval for Issuance of Securities. Mexican law and our by-laws require our shareholders to authorize any share issuance. Any issuance of shares is subject to mandatory preemptive rights, except in the event of a public offering and other limited circumstances. Shares issued that have cleared preemptive rights or that are the subject of public offerings, may be allocated as a result of a resolution from our directors. Shares repurchased by us in the open market may be placed again based upon resolutions by our directors.	

					
NYSE Standards	    	NASDAQ Standards	    	Our Corporate Governance
Practices	
					
Code of Business Conduct and Ethics. Corporate governance guidelines and a code of business conduct and ethics is required, with disclosure of any waiver for directors or executive officers. The code must contain compliance standards and procedures that will facilitate the effective operation of the code. §303A.10		Code of Business Conduct and Ethics. Corporate governance guidelines and a code of business conduct and ethics is required, with disclosure of any waiver and the reasons for such waiver for directors or executive officers. The code must include an enforcement mechanism. Rule 4350(n)		Code of Business Conduct and Ethics. We have adopted a code of ethics, which has been accepted by all of our directors and executive officers and other personnel.	
					
Conflicts of Interest. Determination of how to review and oversee related party transactions is left to the listed company. The audit committee or comparable body, however, could be considered the forum for such review and oversight. §307.00. Certain issuances of common stock to a related party require shareholder approval. §312.03(b)		Conflicts of Interest. Appropriate review of all related party transactions for potential conflict of interest situations and approval by an audit committee or another independent body of the board of directors of such transactions is required.
Rule 4350(h)		Conflicts of Interest. In accordance with Mexican law and our by-laws, our board of directors is required to approve, on a case-by-case basis, transactions involving a conflict of interest (other than transactions in the ordinary course of business that satisfy our procedures), based upon the opinion of our corporate governance committee, that may request the opinion of a third- party expert. Pursuant to the Mexican Securities Market Law, our board of directors may establish guidelines regarding related party transactions that do not require the board of directors’ approval.	
					
151

Table of Contents

NYSE Standards	    	NASDAQ Standards	    	Our Corporate Governance
Practices	
					
Solicitation of Proxies. Solicitation of proxies and provision of proxy materials is required for all meetings of shareholders. Copies of such proxy solicitations are to be provided to NYSE. §§402.00 & 402.04		Solicitation of Proxies. Solicitation of proxies and provision of proxy materials is required for all meetings of shareholders. Copies of such proxy solicitations are to be provided to NASDAQ. Rule 4350(g)		Solicitation of Proxies. We are required under Mexican law to solicit proxies and provide proxy materials for meetings of shareholders. In accordance with Mexican law and our by-laws, we are also required to inform shareholders of all meetings by notice provided in newspapers of wide distribution in Mexico, and which specify the requirements for admission to the meeting, provides a mechanism by which shareholders can vote by proxy, and makes proxies available. Shareholders that are Mexican investors and are entitled to vote, may attend a shareholders’ meeting and cast votes at such meeting. Under the deposit agreement relating to the ADSs, holders of the ADSs receive notices of shareholders’ meetings. As foreign investors, holders of ADSs (or CPOs underlying the securities) are not entitled to vote at our shareholders’ meetings.	

					
NYSE Standards	    	NASDAQ Standards	    	Our Corporate Governance
Practices	
					
 		Peer Review. A listed company must be audited by an independent public accountant that (i) has received an external quality control review by an independent public accountant (“peer review”) that determines whether the auditor’s system of quality control is in place and operating effectively and whether established policies and procedures and applicable auditing standards are being followed or (ii) is enrolled in a peer review program and within 18 months receives a peer review that meets acceptable guidelines.
Rule 4350(k)		Peer Review. Under Mexican law we must be audited by a public accountant that qualifies as independent, and satisfies the requirements specified under applicable law, maintaining certain quality standards.	

ITEM 16H    MINE SAFETY DISCLOSURE
Not applicable.
PART III.
ITEM  17    FINANCIAL STATEMENTS
Not applicable.
152

Table of Contents
ITEM  18    FINANCIAL STATEMENTS
See pages F-1 through F-90.
ITEM  19    EXHIBITS

153

Table of Contents
EXHIBIT INDEX

Exhibit			
Number	    	Exhibit	
			
1.1		Amended By-laws of the Company (estatutos) (English translation) (incorporated by reference to Exhibit 99.48 of the Company’s report on Form 6-K filed with the SEC on September 30, 2020 (File No. 001-36059))	
			
2.1(b)		Form of Deposit Agreement among the Company, The Bank of New York Mellon, as Depositary, and all Owners and Holders from time to time of American Depositary Shares issued thereunder (incorporated by reference to Exhibit 1(1) of the Company’s registration statement on Form F-6 filed with the SEC on August 30, 2013 (File No. 333-190940))	
			
4.1†		Engine Lease Agreement, dated as of November 24, 2009, between the Company, RRPF Engine Leasing Limited and Rolls-Royce & Partners Finance Limited (incorporated by reference to Exhibit 10.1 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))	
			
4.2†		Engine Lease Agreement, dated as of June 28, 2007, between the Company and Celestial Aviation Trading 50 Limited, as amended by the Engine Lease Extension & Amendment Agreement, dated as of March 27, 2013 between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.2 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))	
			
4.3†		Lease Agreement, dated as of August 21, 2008, between the Company and Engine Lease Finance Corporation (incorporated by reference to Exhibit 10.4 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))	
			
4.4†		Fleet Hour Agreement, dated as of June 8, 2007, between the Company and IAE International Aero Engines AG including Side Letter dated as of May 31, 2012 (incorporated by reference to Exhibit 10.5 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.5†		Lease Agreement, dated as of April 28, 2006, between the Company and Engine Lease Finance Corporation, as amended by the Lease Extension and Amendment Agreement No. 1, dated as of September 30, 2011, between the Company and Engine Lease Finance Corporation (incorporated by reference to Exhibit 10.6 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))	
			
4.6†		General Terms of Sale Agreement, dated as of December 8, 2006, between the Company and IAE International Aero Engines AG (incorporated by reference to Exhibit 10.9 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121)).	
			
4.7†		A320 Family Purchase Agreement, dated as of October 28, 2005, between the Company and Airbus S.A.S., including Amendment No. 1, dated as of June 22, 2007, Amendment No. 2, dated as of July 11, 2008, Amendment No. 3, dated as of January 30, 2009, Amendment No. 4, dated as of October 28, 2010, Amendment No. 5, dated as of December 15, 2010, Amendment No. 6, dated as of December 15, 2010, Amendment No. 7, dated as of January 4, 2011 and Amendments Nos. 8 and 9 both dated as of December 28, 2011 (incorporated by reference to Exhibit 10.10 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))	
			
4.8†		Lease Agreement, dated as of March 9, 2007, between the Company Concesionaria Vuela and International Lease Finance Corporation (incorporated by reference to Exhibit 10.12 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))	
			
4.9†		Lease Agreement, dated as of March 12, 2007, between the Company and RBS Aerospace Limited (incorporated by reference to Exhibit 10.14 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))	
			
4.10†		Lease Agreement, dated as of August 23, 2010, as amended between the Company and Macquarie Airfinance Acquisitions (Ireland) Limited (incorporated by reference to Exhibit 10.25 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))	
154

Table of Contents

Exhibit			
Number	    	Exhibit	
			
4.11†		Lease Agreement, dated as of August 23, 2010, as amended between the Company and Macquarie Aerospace Ireland Limited (incorporated by reference to Exhibit 10.26 of the Company’s registration statement on Form F-1 filed with the SEC on September 12, 2013 (File No. 333-189121))	
			
4.12†		Lease Agreement, dated as of April 13, 2011, between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.31 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))	
			
4.13†		Common Terms Agreement, dated as of June 28, 2007, between the Company and GE Commercial Aviation Services Limited, as amended by the Engine Lease Extension & Amendment Agreement, dated as of March 27, 2013, between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.34 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))	
			
4.14†		Fuel Sales Agreement, dated as of January 1, 2012, between the Company and World Fuel Services, Inc., as amended (incorporated by reference to Exhibit 10.35 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))	
			
4.15†		Lease Agreement, dated as of April 14, 2011, between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.36 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.16†		Lease Agreement, dated as of June 26, 2012, between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.37 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.17†		Lease Agreement, dated as of April 14, 2011, between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.38 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.18†		Lease Agreement, dated as of April 14, 2011, between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.39 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.19†		Lease Agreement, dated as of April 14, 2011, between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.40 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.20†		Lease Agreement, dated as of March 15, 2012, between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.41 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.21†		Lease Agreement, dated as of June 26, 2012, between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.42 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.22†		Aircraft Lease Agreement “A,” dated as of April 12, 2011, between Wells Fargo Bank Northwest, National Association and the Company (incorporated by reference to Exhibit 10.43 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.23†		Aircraft Lease Agreement “B,” dated as of April 12, 2011, between Wells Fargo Bank Northwest, National Association and the Company (incorporated by reference to Exhibit 10.44 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
155

Table of Contents

Exhibit			
Number	    	Exhibit	
4.24†		Aircraft Lease Agreement “C,” dated as of April 12, 2011, between Wells Fargo Bank Northwest, National Association and the Company (incorporated by reference to Exhibit 10.45 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.25†		Aircraft Lease Agreement “D,” dated as of April 12, 2011, between Wells Fargo Bank Northwest, National Association and the Company (incorporated by reference to Exhibit 10.46 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.26†		Agreement on Technical Services for A319/A320 Aircraft, dated as of August 15, 2012 between the Company and Lufthansa Technik AG; Attachment 1: Total Component Support to Agreement on Technical Services for A310/320 Aircraft between Concesionaria Vuela Compañía de Aviación S.A.P.I. de C.V. and Lufthansa Technik AG dated August 15, 2012 (incorporated by reference to Exhibit 10.47 of the Company’s registration statement on Form F-1 filed with the SEC on September 12, 2013 (File No. 333-189121))	
			
4.27†		Aircraft Lease Agreement “A,” dated as of December 31, 2012, between Wells Fargo Bank Northwest, National Association and the Company (incorporated by reference to Exhibit 10.48 of the Company’s registration statement on Form F-1 filed with the SEC on September 12, 2013 (File No. 333-189121))	
			
4.28†		Aircraft Lease Agreement “B,” dated as of December 31, 2012, between Wells Fargo Bank Northwest, National Association and the Company (incorporated by reference to Exhibit 10.49 of the Company’s registration statement on Form F-1 filed with the SEC on September 12, 2013 (File No. 333-189121))	
			
4.29†		Aircraft Lease Agreement “C,” dated as of December 31, 2012, between Wells Fargo Bank Northwest, National Association and the Company (incorporated by reference to Exhibit 10.50 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.30†		The Engine Lease Extension & Amendment Agreement, dated as of March 27, 2013, between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.51 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.31†		Revolving Credit Line Agreement dated July 27, 2011, as amended among the Company, Deutsche Bank México, S.A., Institución de Banca Múltiple, División Fiduciaria, Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander Mexico and Banco Nacional de Comercio Exterior, S.N.C., as amended (incorporated by reference to Exhibit 10.52 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.32†		Navitaire Hosted Services Agreement, dated January 29, 2013 (incorporated by reference to Exhibit 10.54 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
4.33†		Aircraft Lease Agreement “D,” dated as of December 31, 2012, between Wells Fargo Bank Northwest, National Association and the Company (incorporated by reference to Exhibit 10.55 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))	
			
8.1		List of the Subsidiaries of the Company	
			
12.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	
			
12.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	
			
13.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
			
15.1		Concession Title, dated as of May 9, 2005, as amended from time to time, granted to the Company by the Ministry of Communications and Transportation (Secretaria de Comunicaciones y Transportes) (incorporated by reference to Exhibit 99.1 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))	
156

Table of Contents

Exhibit			
Number	    	Exhibit	
			
15.2		Consent of KMPG Cárdenas Dosal, S.C., independent registered accounting firm	
			
15.3		Consent of Mancera, S.C., independent registered accounting firm	
			
101.INS		XBRL Instance Document	
			
101.SCH		XBRL Taxonomy Extension Schema Document	
			
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document	
			
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document	
			
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document	
			
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document	
			
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)	

†	Portions of the exhibit were omitted pursuant to a request for confidential treatment.	

157

Table of Contents
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Controladora Vuela Compañía de Aviación, S.A.B. de C.V.	
			
	By:	/s/ Enrique Beltranena	
	Name:	Enrique Beltranena	
	Title:	President and Chief Executive Officer	
			
	By:	/s/ Jaime E. Pous	
	Name:	Jaime E. Pous	
	Title:	Senior Vice President Chief Financial Officer	
			
	By:	/s/ Jose Alejandro de Iturbide	
	Name:	José Alejandro de Iturbide	
	Title:	Vice President Chief Legal Officer	

Date: April 26, 2022

Table of Contents
CONTROLADORA VUELA COMPAÑÍA DE AVIACIÓN,
S.A.B. DE C.V. AND SUBSIDIARIES
(d.b.a. VOLARIS)

Consolidated Financial Statements

Years Ended December 31, 2021, 2020 and 2019
with Independent Auditor’s Report

F-1

Table of Contents
CONTROLADORA VUELA COMPAÑÍA DE AVIACIÓN,
S.A.B. DE C.V. AND SUBSIDIARIES
(d.b.a. VOLARIS)
Consolidated Financial Statements
Years Ended December 31, 2021, 2020 and 2019
Contents:

Independent Auditor’s Report (PCAOB ID: ID1141)	F-5	
Independent Auditor’s Report (PCAOB ID: 1284)	F-6	
Audited Consolidated Financial Statements:		
Consolidated Statements of Financial Position	F-12	
Consolidated Statements of Operations	F-13	
Consolidated Statements of Comprehensive Income	F-14	
Consolidated Statements of Changes in Equity	F-15	
Consolidated Statements of Cash Flows	F-16	
Notes to the Consolidated Financial Statements	F-17	

F-2

Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Controladora Vuela Compañía de Aviación, S.A.B. de C.V.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of Controladora Vuela Compañía de Aviación, S.A.B. de C.V. and subsidiaries (the Company) as of December 31, 2021, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended , in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 26, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Aircraft and engine lease return obligation
As described in Notes 1 (q), 2 (i) and 16 to the consolidated financial statements, as of December 31, 2021 the Company has recorded an Aircraft and engine lease return obligation in the amount of $3,887,789 (thousand). Aircraft lease agreements require the Company to return aircraft airframes, engines and other components to the lessor under specific conditions of maintenance or, alternatively, pay an amount to the lessor based on the condition of these components due to usage of the aircraft. The aircraft and engine lease return obligation is recognized as a provision from the time it becomes more likely than not that such costs will be incurred and these can be estimated reliably. The provision is included as part of other liabilities and the costs are recognized as a component of variable lease expenses on a straight-line basis through the remaining lease term. The Company estimates the provision related to the aircraft and engine lease return obligation using certain assumptions including the projected usage of the aircraft, the expected costs of the maintenance tasks to be performed at the return date and the discount rate.
F-3

Table of Contents
We identified the evaluation of the estimate of the aircraft and engine lease return obligation as a critical audit matter. The assessment required significant judgment given the complexity involved in determining the projected utilization of leased airframes, engines and other components, the estimated maintenance cost at the end of the lease contract and the discount rate used to reflect the present value of the provision at the reporting date.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the aircraft and engine lease return obligation. This included controls related to the inputs to the determination of the estimate of aircraft and engine lease return obligation. We compared the assumption of projected usage of the aircraft with our understanding of the Company’s future operations and plans, and we compared the estimated costs of maintenance tasks to be performed at the return date with historical payments for these types of maintenance. We involved our valuation specialists to assist in the evaluation of the discount rate used by the Company to reflect the present value of the aircraft and engine lease return obligation. We tested input data used in the calculation of the provision by comparing it to the underlying lease contracts. We also compared the cost of historical aircraft and engine lease returns to the provision amounts at the reporting date prior to those returns in order to evaluate the Company’s ability to accurately estimate its future aircraft and engine lease return obligations.
KPMG Cardenas Dosal S.C.
We have served as the Company’s auditor since 2021.
Mexico City, Mexico
April 26, 2022

F-4

Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Controladora Vuela Compañía de Aviación, S.A.B. de C.V.:
Opinion on Internal Control Over Financial Reporting
We have audited Controladora Vuela Compañía de Aviación, S.A.B. de C.V. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the year ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated April 26, 2022, which should be the same as the date of the report on the effectiveness of internal control over financial reporting, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
KPMG Cardenas Dosal S.C.
Ciudad de Mexico, Mexico
April 26, 2022
F-5

Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Controladora Vuela Compañía de Aviación, S.A.B. de C.V.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Controladora Vuela Compañía de Aviación, S.A.B. de C.V. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 29, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Mexico according to the “Codigo de Etica Profesional del Instituto Mexicano de Contadores Publicos” (“IMCP Code”), and the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

F-6

Table of Contents

 	    	Lease return condition provision	
Description of the Matter	 	As described in Note 1 p) to the consolidated financial statements, the Company’s lease agreements require that the underlying aircraft and engines be returned to lessors either in a specific condition or to make a payment in lieu of performance of the maintenance and repair activities necessary to meet these conditions.
The Company performed an assessment of the return condition provision for leased aircraft and engines, which required management to estimate the cost of those maintenance obligations to be included in connection with aircraft and engines lease return.
The Company accounts for the lease return condition provision in accordance with IFRS 16 because the maintenance event is performed at the end of the lease and as a result it does not benefit the Company. The amounts accrued are considered variable payments under IFRS 16 and recognized in profit or loss based on the aircraft utilization over the period starting upon the completion of the major maintenance event occurring prior to aircraft and engines lease return.
The maintenance provision covers the cost to fulfill return condition that must be satisfied at the expiration of the related leases primarily related to airframe, engine overhaul and limited life parts using certain assumptions including the projected usage of the aircraft and the expected costs of maintenance tasks to be performed at the return of the lease. The maintenance return condition provision for aircraft and engines also considers deposits paid to the lessor considered as supplemental rental. At December 31, 2020, the Company’s provision for return condition of leased aircraft and engines amounted Ps.2,504,484.
Auditing management’s lease return condition provision was complex as it is based on management’s judgement in estimating the amount and timing of the costs and the discount rate to be used, therefore we have determined this to be a critical audit matter.
 	
How We Addressed the Matter in Our Audit	 	We obtained an understanding and evaluated the design and operating effectiveness of the Company’s internal controls over the return condition provision for leased aircraft and engines. We tested controls over management´s review of the return cost, the discount rate calculation, timing of recognition, the significant assumptions and the data inputs used in the calculation.
To test the provision for return condition, our procedures included, among others, reviewing the accuracy and completeness of the lease agreements and underlying data, assessing the methodology applied in the calculation of the provision and testing the period in which the event or condition that triggers the payments occurs and critical assumptions, as the projected costs of maintenance for which we compared to historical trends and actual costs incurred in connection with aircraft returned to the lessor or maintenance costs paid at lease return as specified in the lease agreements.
Additionally, we involved our valuation specialists to assist in the evaluation of the discount rate used by the Company.	
 	    	Impairment of long-lived assets 	
Description of the Matter	 	As discussed in Note 2iv to the consolidated financial statements, the Company assesses at each reporting date whether there is objective evidence that a long-lived asset or its cash-generating unit (CGU) may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s or CGU’s	
F-7

Table of Contents

		recoverable amount. The Company records impairment charges when events and circumstances indicate that the assets may be impaired or when the carrying amount of a long-lived asset or related cash generating unit exceeds its recoverable amount, which is the higher of (i) its fair value less cost to sell and (ii) its value in use. In 2020 the Company performed a quantitative impairment test and estimated the recoverable amount of the CGU by calculating the CGU value in use. As a result of this analysis, the Company determined the recoverable amount was in excess of the CGU book value and, therefore, no impairment was recorded.
Auditing management’s long-lived asset impairment test was complex and highly judgmental due to the significant estimation required to determine the value in use. In particular, the value in use estimate was sensitive to significant assumptions, such as changes in the discount rate and revenue growth rate, which are affected by expectations about the impact on future market and economic conditions on the Company, therefore we have determined this to be a critical audit matter.
 	
How We Addressed the Matter in Our Audit	 	We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s impairment review process, including controls over management’s review of the significant assumptions described above.
To test the impairment analysis our audit procedures included, evaluating the Company’s methodology, assumptions and completeness and accuracy of the data used. We compared the discount rate and revenue growth rate significant assumptions used to current industry and economic trends. We also involved our valuation specialists to assist in the evaluation of the Company’s methodology, significant assumptions including the discount rate and performed sensitivity analysis to evaluate the effect in the recoverable amount of the CGU that would result from changes in the underlying assumptions.
 	
 	 	Aircraft maintenance deposits paid to lessors
 	
Description of the Matter	 	Certain of the Company’s lease agreements require the payment of maintenance deposits to lessors during the lease term for the underlying aircraft and engines leased. The Company has booked aircraft maintenance deposits to lessors of Ps.7,920,934 as of December 31, 2020. Related disclosure is included in Note 11 of the consolidated financial statements.
Most of the Company’s lease agreements require the Company to pay maintenance deposits to aircraft and engines lessors to be held as collateral in advance of the Company’s performance of the related major maintenance activities. These lease agreements provide that maintenance deposits are reimbursable to the Company upon completion of the maintenance event in an amount equal to the lesser of (i) the amount of the maintenance deposits held by the lessor associated with the specific maintenance event, or (ii) the qualifying costs of the specific maintenance event. The Company considers as supplemental rental those maintenance deposits paid for which a maintenance event is not expected to be performed during the term of the aircraft lease, then such deposits are considered as not recoverable by the Company since will be kept by the lessor to cover future maintenance costs.
Maintenance deposits are recorded as recoverable to the extent qualifying maintenance costs are expected to be incurred during the lease term. Any excess is recognized as additional lease expense in the consolidated statements of operations as supplemental rental.	
 	    	Auditing management’s aircraft and engines maintenance deposits was complex as it is based on significant management’s judgements and assumptions; for example, in estimating	
F-8

Table of Contents

		the recoverability of these deposits, the estimated time between the maintenance events, the costs of future maintenance and the number of flight hours the aircraft is estimated to be flown before it is returned to the lessor, among others, therefore we have determined this to be a critical audit matter.	
 	 	 	
How We Addressed the Matter in Our Audit	 	We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the process of aircraft and engines maintenance deposits, including controls over management’s review of the significant assumptions described above and the data inputs used by management in the determination of the recoverability of maintenance deposits for aircraft and engines.
To test the recoverability of the maintenance deposits, we performed audit procedures that included, among others, inspecting the lease agreements and testing the analysis of the estimates prepared by management to determine the recoverability of the maintenance deposits. We tested the recognition of the unrecoverable amounts as part of supplemental rental by assessing the estimation of the major maintenance costs expected to be incurred by comparing them to historical amounts and/or costs of aircraft and engines maintenance specified in agreements with vendors; we also evaluated the usage projections applied to determine the timing of the maintenance by comparing them with the Company’s scheduled flight plans and the term of the lease agreement.	

Mancera, S.C.
A member practice of
Ernst & Young Global Limited
/s/ MANCERA, S.C.
We have served as the Company’s auditor since 2005.
Mexico City, Mexico
April 29, 2021

F-9

Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Controladora Vuela Compañía de Aviación, S.A.B. de C.V.
Opinion on Internal Control over Financial Reporting
We have audited Controladora Vuela Compañía de Aviación, S.A.B. de C.V. and subsidiaries’ internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Controladora Vuela Compañía de Aviación, S.A.B. de C.V. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes, and our report dated April 29, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Mexico according to the “Codigo de Etica Profesional del Instituto Mexicano de Contadores Publicos” (“IMCP Code”), and the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standard Board. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS as issued by the International Accounting Standard Board, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

F-10

Table of Contents
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Mancera, S.C.
A member practice of
Ernst & Young Global Limited
/s/ MANCERA, S.C.
Mexico City, Mexico
April 29, 2021
F-11

Table of Contents
CONTROLADORA VUELA COMPAÑÍA DE AVIACIÓN, S.A.B. DE C.V. AND SUBSIDIARIES
(d.b.a. VOLARIS)
Consolidated Statements of Financial Position
(In thousands of Mexican pesos)

		(Thousands of U.S.		At December 31, 	
		dollars*)						
	    	2021	    	2021	    	2020	
Assets	 		  	 		  	 		  	
Current assets:	 		  	 		  	 		  	
Cash, cash equivalents and restricted cash (Note 6)	 	US$	741,122	 	Ps.	15,254,876	 	Ps.	10,103,385	
Accounts receivable:	 			 			 			
Related parties (Note 7)			4,662			95,951			72,629	
Other accounts receivable, net (Note 8)	 		50,264			1,034,604			560,640	
Recoverable value added tax and others	 		35,862			738,162			922,458	
Recoverable income tax	 		15,296			314,845			471,652	
Inventories (Note 9)	 		14,397			296,345			278,959	
Prepaid expenses and other current assets (Note 10)	 		38,387			790,138			850,425	
Derivative Financial instruments (Notes 3 and 5)	 		—			—			206	
Guarantee deposits (Note 11)	 		78,990			1,625,886			1,141,956	
Total current assets	 		978,980			20,150,807			14,402,310	
										
Non-current assets:	 		  	 		  	 		  	
Rotable spare parts, furniture and equipment, net (Note 12)	 		454,602			9,357,304			7,281,157	
Right-of-use assets (Note 14)			1,917,235			39,463,408			34,316,217	
Intangible assets, net (Note 13)	 		12,632			260,015			191,562	
Derivative Financial instruments (Notes 3 and 5)	 		1,398			28,771			326	
Deferred income taxes (Note 20)	 		141,272			2,907,879			3,128,555	
Guarantee deposits (Note 11)	 		455,372			9,373,154			8,424,738	
Other long-term assets			23,077			475,023			444,248	
Total non-current assets	 		3,005,588			61,865,554			53,786,803	
Total assets	 	US$	3,984,568	 	Ps.	82,016,361	 	Ps.	68,189,113	
										
Liabilities and equity	 		  	 		  	 		  	
Current liabilities:	 		  	 		  	 		  	
Unearned transportation revenue (Note 21)	 	US$	303,982	 	Ps.	6,257,008	 	Ps.	5,850,917	
Suppliers	 		108,164			2,226,400			2,239,736	
Related parties (Note 7)	 		10,547			217,103			124,993	
Accrued liabilities (Note 15a)	 		178,096			3,665,841			2,356,287	
Lease liabilities (Note 14)			283,843			5,842,492			6,484,092	
Other taxes and fees payable (Note 1r)	 		131,182			2,700,183			2,236,161	
Income taxes payable	 		4,187			86,187			4,005	
Derivative Financial instruments (Notes 3 and 5)	 		—			—			9,657	
Financial debt (Note 5)	 		196,898			4,052,859			1,558,884	
Other liabilities (Note 16)	 		34,635			712,903			101,218	
Total current liabilities	 		1,251,534			25,760,976			20,965,950	
										
Non-current liabilities:	 		  	 		  	 		  	
Financial debt (Note 5)	 		108,039			2,223,821			3,795,749	
Accrued liabilities (Note 15b)	 		1,475			30,363			66,698	
Lease liabilities (Note 14)			2,128,294			43,807,747			37,646,450	
Other liabilities (Note 16)	 		166,930			3,436,001			2,667,683	
Employee benefits (Note 17)	 		3,968			81,673			50,627	
Deferred income taxes (Note 20)	 		11,191			230,342			199,771	
Total non-current liabilities	 		2,419,897			49,809,947			44,426,978	
Total liabilities	 		3,671,431			75,570,923			65,392,928	
										
Equity (Note 19):	 		  	 		  	 		  	
Capital stock	 		166,464			3,426,406			3,426,406	
Treasury shares	 		(10,172)			(209,383)			(223,744)	
Contributions for future capital increases	 		—			1			1	
Legal reserve	 		14,146			291,178			291,178	
Additional paid-in capital	 		226,120			4,654,340			4,720,221	
Accumulated deficit	 		(84,282)			(1,734,828)			(3,855,379)	
Accumulated other comprehensive income (loss)	 		861			17,724			(1,562,498)	
Total equity	 		313,137			6,445,438			2,796,185	
Total liabilities and equity	 	US$	3,984,568	 	Ps.	82,016,361	 	Ps.	68,189,113	

*Convenience translation to U.S. dollars (Ps.20.5835) – Note 1z.
The accompanying notes are an integral part of these consolidated financial statements.

F-12

Table of Contents
CONTROLADORA VUELA COMPAÑÍA DE AVIACIÓN, S.A.B. DE C.V. AND SUBSIDIARIES
(d.b.a. VOLARIS)
Consolidated Statements of Operations
(In thousands of Mexican pesos, except for earnings per share expressed in Mexican pesos)

		(Thousands of U.S.										
		dollars*, except		For the years ended	
		for earnings		December 31, 	
		per share)							
	    	2021	    	2021	    	2020	    	2019	
Operating revenues (Notes 21 and 26):	 		  	 		  	 		  	 		  	
Passenger revenues:	 			 									
Fare revenues		US$	1,248,726		Ps.	25,703,144		Ps.	12,873,174	 	Ps.	23,129,991	
Other passenger revenues	 		854,773			17,594,223			8,613,398	 		10,569,208	
	 		2,103,499			43,297,367			21,486,572	 		33,699,199	
Non- passenger revenues													
Other non-passenger revenues (Note 21)			75,696			1,558,092			882,360			897,586	
Cargo			11,718			241,202			201,881			228,836	
Non-derivatives financial instruments			(21,110)			(434,522)			(411,222)			(72,949)	
			2,169,803			44,662,139			22,159,591			34,752,672	
													
Other operating income (Note 22)	 		(10,583)			(217,838)			(730,333)	 		(327,208)	
Fuel expense, net	 		601,271			12,376,263			6,640,820	 		11,626,069	
Landing, take-off and navigation expenses	 		292,500			6,020,681			4,090,864	 		5,108,489	
Depreciation of right of use assets (Note 14)	 		265,389			5,462,625			5,048,976	 		4,702,971	
Salaries and benefits	 		235,970			4,857,083			3,453,382	 		3,600,762	
Sales, marketing and distribution expenses			95,316			1,961,936			1,840,819			1,447,637	
Maintenance expenses	 		94,843			1,952,202			1,167,720	 		1,488,431	
Aircraft and engine variable lease expenses	 		81,953			1,686,875			1,845,254	 		961,657	
Other operating expenses (Note 22)	 		64,944			1,336,792			1,157,240	 		1,112,927	
Depreciation and amortization (Notes 12 and 13)	 		56,318			1,159,224			898,445	 		675,514	
Operating income (loss)	 		391,882			8,066,296			(3,253,596)	 		4,355,423	
													
Finance income (Note 23)	 		3,477			71,578			101,511	 		207,799	
Finance cost (Note 23)	 		(137,585)			(2,831,989)			(3,018,484)	 		(2,269,829)	
Foreign exchange (loss) gain, net (Note 3 b (i))	 		(125,897)			(2,591,406)			470,594	 		1,440,501	
													
Income (loss) before income tax	 		131,877			2,714,479			(5,699,975)	 		3,733,894	
Income tax (expense) benefit (Note 20)	 		(28,855)			(593,928)			1,406,184	 		(1,094,831)	
Net income (loss)	 	US$	103,022		Ps.	2,120,551		Ps.	(4,293,791)	 	Ps.	2,639,063	
													
Earnings (loss) per share basic:	 	US$	0.088		Ps.	1.819		Ps.	(4.203)	 	Ps.	2.608	
Earnings (loss) per share diluted:	 	US$	0.088		Ps.	1.819		Ps.	(4.203)	 	Ps.	2.608	

*Convenience translation to U.S. dollars (Ps.20.5835) – Note 1z.
The accompanying notes are an integral part of these consolidated financial statements.

F-13

Table of Contents
CONTROLADORA VUELA COMPAÑÍA DE AVIACIÓN, S.A.B. DE C.V. AND SUBSIDIARIES
(d.b.a. VOLARIS)
Consolidated Statements of Comprehensive Income
(In thousands of Mexican pesos)0

					For the years ended	
		(Thousands of		December 31, 	
	    	U.S. dollars*)	    		    			    			
		2021		2021		2020		2019	
Net income (loss) for the year		US$	103,022		Ps.	2,120,551		Ps.	(4,293,791)		Ps.	2,639,063	
Other comprehensive income(loss):	 			 			 			 			
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods:	 			 			 			 			
Discontinuation of hedge relationships (Note 24 b)			76,638			1,577,473			—			—	
Net gain (loss) on cash flow hedges (Note 24 b)	 		916	 		18,854	 		(1,747,686)	 		263,495	
Income tax effect (Note 20)	 		(275)	 		(5,655)	 		46,835	 		(74,820)	
Exchange differences on translation of foreign operations	 		(195)	 		(4,021)	 		23,970	 		8,045	
Other comprehensive (loss) income not to be reclassified to profit or (loss) in subsequent periods:	 			 			 			 			
Remeasurement loss of employee benefits (Note 17)	 		(451)	 		(9,279)	 		(2,651)	 		(10,192)	
Income tax effect (Note 20)	 		138	 		2,850	 		794	 		3,058	
Other comprehensive income (loss) for the year, net of tax	 	US$	76,771	 	Ps.	1,580,222	 	Ps.	(1,678,738)	 	Ps.	189,586	
Total comprehensive income (loss) for the year	 	US$	179,793	 	Ps.	3,700,773	 	Ps.	(5,972,529)	 	Ps.	2,828,649	

*Convenience translation to U.S. dollars (Ps.20.5835) – Note 1z.
The accompanying notes are an integral part of these consolidated financial statements.

F-14

Table of Contents
CONTROLADORA VUELA COMPAÑÍA DE AVIACIÓN, S.A.B. DE C.V. AND SUBSIDIARIES
(d.b.a. VOLARIS)
Consolidated Statements of Changes in Equity
For the years ended December 31, 2021, 2020 and 2019
(In thousands of Mexican pesos)

								Contributions 																
								for future 										Other				
		Capital		Treasury		capital		Legal		Additional		Accumulated		comprehensive			
	    	stock	    	Shares	    	increases	    	reserve	    	paid-in capital	    	Deficit	    	(loss) income	    	Total equity	
Balance as of December 31, 2018		Ps.	2,973,559		Ps.	(122,661)		Ps.	1		Ps.	291,178		Ps.	1,837,073		Ps.	(2,200,651)		Ps.	(73,346)		Ps.	2,705,153	
Treasury shares			—		 	(75,375)		 	—		 	—		 	56,483		 	—		 	—		 	(18,892)	
Exercise of stock options (Note 18)		 	—		 	14,773		 	—		 	—		 	—		 	—		 	—		 	14,773	
Long-term incentive plan cost (Note 18)		 	—		 	13,549		 	—		 	—		 	(13,549)		 	—		 	—		 	—	
Net income for the period		 	—		 	—		 	—		 	—		 	—		 	2,639,063		 	—		 	2,639,063	
Other comprehensive income items		 	—		 	—		 	—		 	—		 	—		 	—		 	189,586		 	189,586	
Total comprehensive income		 	—		 	—		 	—		 	—		 	—		 	2,639,063		 	189,586		 	2,828,649	
Balance as of December 31, 2019			2,973,559			(169,714)			1			291,178			1,880,007			438,412			116,240			5,529,683	
Capital stock increase (Note 19)		 	452,847		 	—		 	—		 	—		 	2,819,985		 	—		 	—		 	3,272,832	
Treasury shares		 	—		 	(94,564)		 	—		 	—		 	60,763		 	—		 	—		 	(33,801)	
Long-term incentive plan cost (Note 18)		 	—		 	40,534		 	—		 	—		 	(40,534)		 	—		 	—		 	—	
Net loss for the period		 	—		 	—		 	—		 	—		 	—		 	(4,293,791)		 	—		 	(4,293,791)	
Other comprehensive loss items		 	—		 	—		 	—		 	—		 	—		 	—		 	(1,678,738)		 	(1,678,738)	
Total comprehensive loss		 	—		 	—		 	—		 	—		 	—		 	(4,293,791)		 	(1,678,738)		 	(5,972,529)	
Balance as of December 31, 2020			3,426,406		Ps.	(223,744)			1			291,178			4,720,221			(3,855,379)			(1,562,498)			2,796,185	
Treasury shares		 	—		 	(89,209)		 	—		 	—		 	(19,215)		 	—		 	—		 	(108,424)	
Exercise of stock options (Note 18)			—			56,904			—			—			—			—			—			56,904	
Long-term incentive plan cost (Note 18)		 	—		 	46,666		 	—		 	—		 	(46,666)		 	—		 	—		 	—	
Net income for the period		 	—		 	—		 	—		 	—		 	—		 	2,120,551		 	—		 	2,120,551	
Other comprehensive income items		 	—		 	—		 	—		 	—		 	—		 	—		 	1,580,222		 	1,580,222	
Total comprehensive income		 	—		 	—		 	—		 	—		 	—		 	2,120,551		 	1,580,222		 	3,700,773	
Balance as of December 31, 2021		Ps.	3,426,406		Ps.	(209,383)		Ps.	1		Ps.	291,178		Ps.	4,654,340		Ps.	(1,734,828)		Ps.	17,724		Ps.	6,445,438	
		US$	166,464		US$	(10,172)		US$	—		US$	14,146		US$	226,120		US$	(84,282)		US$	861		US$	313,137	

Convenience translation to U.S. dollars  (Ps.20.5835) – Note 1z.
The accompanying notes are an integral part of these consolidated financial statements.

F-15

Table of Contents
CONTROLADORA VUELA COMPAÑÍA DE AVIACIÓN, S.A.B. DE C.V. AND SUBSIDIARIES
(d.b.a. VOLARIS)
Consolidated Statements of Cash Flows
(In thousands of Mexican pesos)

		(Thousands of		For the years ended December 31, 	
		U.S. dollars*)									
	    	2021	    	2021	    	2020	    	2019	
Operating activities													
Income (loss) before income tax		US$	131,877		Ps.	2,714,479		Ps.	(5,699,975)		Ps.	3,733,894	
Non-cash adjustment to reconcile income (loss) before income tax to net cash flows from operating activities:		 	  		 			 	  				
Depreciation and amortization (including right-of-use-assets) (Notes 12, 13 and 14)		 	321,706		 	6,621,849		 	5,947,421			5,378,485	
Allowance for credit losses (Note 8)		 	783		 	16,118		 	13,664			40,393	
Finance income (Note 23)		 	(3,477)		 	(71,578)		 	(101,511)			(207,799)	
Finance cost (Note 23)		 	137,107		 	2,822,147		 	2,561,526			2,265,242	
Net foreign exchange gain (loss) differences		 	79,192		 	1,630,050		 	(573,591)			(1,722,985)	
Derivative Financial instruments (Notes 3 and 4)		 	681		 	14,019		 	1,306,557			67,629	
Amortized Cost (CEBUR)			408			8,400			6,930			3,306	
Net gain on disposal of rotable spare parts, furniture and equipment and gain on sale of aircraft (Note 22)		 	(9,376)		 	(192,981)		 	(707,918)			(275,805)	
Employee benefits (Note 17)		 	542		 	11,152		 	11,079			10,086	
Aircraft and engine lease extension benefit and other benefits from service agreements		 	(512)		 	(10,545)		 	(10,633)			(10,634)	
Management incentive and long-term incentive plans		 	(1,395)		 	(28,715)		 	48,772			32,257	
Cash flows from operating activities before changes in working capital		 	657,536		 	13,534,395		 	2,802,321			9,314,069	
Changes in operating assets and liabilities:		 	  		 			 			 		
Related parties		 	3,342		 	68,788		 	17,252			25,603	
Other accounts receivable		 	(15,555)		 	(320,183)		 	793,045			(367,603)	
Recoverable and prepaid taxes		 	16,669		 	343,116		 	(22,010)			(425,410)	
Inventories		 	(845)		 	(17,386)		 	22,949			(4,637)	
Prepaid expenses		 	636		 	13,086		 	73,220			(369,860)	
Other assets		 	3,385		 	69,674		 	56,717			(10,789)	
Guarantee deposits		 	(51,284)		 	(1,055,594)		 	(1,397,131)			(1,168,537)	
Suppliers		 	6,077		 	125,087		 	892,232			518,189	
Accrued liabilities		 	44,397		 	913,736		 	(561,229)			352,475	
Other taxes and fees payable		 	12,782		 	263,094		 	164,777			119,700	
Unearned transportation revenue		 	19,729		 	406,091		 	2,170,991			1,241,410	
Derivative Financial instruments		 	(1,827)		 	(37,602)		 	(1,271,904)			(18,943)	
Other liabilities		 	75,561		 	1,555,310		 	771,229			191,099	
													
Cash generated from operating activities			770,603			15,861,612			4,512,459			9,396,766	
Interest received		 	3,477		 	71,578		 	101,511			207,799	
Income taxes paid		 	(3,141)		 	(64,658)		 	(254,525)			(94,922)	
Net cash flows provided by operating activities		 	770,939		 	15,868,532		 	4,359,445			9,509,643	
													
Investing activities		 			 			 			 		
Acquisitions of rotable spare parts, furniture and equipment (Note 12)		 	(183,390)		 	(3,774,799)		 	(3,376,576)			(3,483,368)	
Acquisitions of intangible assets (Note 13)		 	(9,915)		 	(204,095)		 	(124,724)			(77,325)	
Acquisitions of subsidiaries net cash acquired			(78)			(1,597)			—			—	
Pre-delivery payments reimbursements		 	43,037		 	885,855		 	1,710,338			704,852	
Proceeds from disposals of rotable spare parts, furniture and equipment		 	17,677		 	363,850		 	1,723,205			976,500	
Net cash flows used in investing activities		 	(132,669)		 	(2,730,786)		 	(67,757)			(1,879,341)	
													
Financing activities		 			 			 			 		
Net proceeds from public offering (Note 19)			—			—			3,272,832			—	
Proceeds from exercised stock options (Note 18)		 	2,765		 	56,904		 	—			14,773	
Treasury shares purchase		 	(4,334)		 	(89,209)		 	(94,564)			(75,375)	
Interest paid		 	(12,319)		 	(253,567)		 	(291,637)			(277,842)	
Payments of principal portion of lease liabilities (Note 14)			(452,230)			(9,308,477)			(6,110,569)			(6,499,802)	
Payments of financial debt		 	(75,808)		 	(1,560,367)		 	(2,140,194)			(1,181,726)	
Proceeds from financial debt		 	113,020		 	2,326,339		 	2,323,292			2,781,132	
Net cash flows used in financing activities		 	(428,906)		 	(8,828,377)		 	(3,040,840)			(5,238,840)	
													
Increase in cash, cash equivalents and restricted cash		 	209,364		 	4,309,369		 	1,250,848			2,391,462	
Net foreign exchange differences on cash balance		 	40,909		 	842,122		 	872,565			(274,432)	
Cash, cash equivalents and restricted cash at beginning of year		 	490,849		 	10,103,385		 	7,979,972			5,862,942	
Cash, cash equivalents and restricted cash at end of year		US$	741,122		Ps.	15,254,876		Ps.	10,103,385		Ps.	7,979,972	

*Convenience translation to U.S. dollars (Ps.20.5835) – Note 1z.
The accompanying notes are an integral part of these consolidated financial statements.

F-16

Table of Contents
CONTROLADORA VUELA COMPAÑÍA DE AVIACIÓN,
S.A.B. DE C.V. AND SUBSIDIARIES
(d.b.a. VOLARIS)
Notes to Consolidated Financial Statements
For the years ended December 31, 2021, 2020 and 2019
(In thousands of Mexican pesos and thousands of U.S. dollars,
except when indicated otherwise)
1.  Description of the business and summary of significant accounting policies
Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (“Controladora” or the “Company”) was incorporated in Mexico in accordance with the laws of Mexico on October 27, 2005.
Controladora is domiciled in Mexico City at Av. Antonio Dovali Jaime No. 70, 13th Floor, Tower B, Colonia Zedec Santa Fe, Mexico City, Mexico, 01210.
The Company, through its subsidiary Concesionaria Vuela Compañía de Aviación, S.A.P.I. de C.V. (“Concesionaria”), has a concession to provide air transportation services for passengers, cargo and mail throughout Mexico and abroad.
Concesionaria’s concession was granted by the Mexican federal government through the Mexican Communications and Transportation Ministry (Secretaría de Comunicaciones y Transportes) on May 9, 2005 initially for a period of five years and was extended on February 17, 2010 for an additional period of ten years. On February 24, 2020, Concesionaria’s concession was extended for a 20-year term starting on May 9, 2020.
Concesionaria made its first commercial flight as a low-cost airline on March 13, 2006. Concesionaria operates under the trade name of “Volaris”. On June 11, 2013, Controladora Vuela Compañía de Aviación, S.A.P.I. de C.V. changed its corporate name to Controladora Vuela Compañía de Aviación, S.A.B. de C.V.
On September 23, 2013, the Company completed its dual listing Initial Public Offering on the New York Stock Exchange (“NYSE”) and on the Mexican Stock Exchange (Bolsa Mexicana de Valores, or “BMV”), and on September 18, 2013 its shares started trading under the ticker symbol “VLRS” and “VOLAR”, respectively.
On November 16, 2015, certain shareholders of the Company completed a secondary follow-on equity offering on the NYSE.
On November 10, 2016, the Company, through its subsidiary Vuela Aviación, S.A. (“Volaris Costa Rica”), obtained from the Costa Rica Civil Aviation Authority an Air Operator Certificate to provide air transportation services for passengers, cargo and mail, in scheduled and non-scheduled flights for an initial period of five years. On December 20, 2021 Volaris Costa Rica´s Air Operator Certificate was renewed, modified and extended for an additional 15- year term. Volaris Costa Rica started operations on December 1, 2016.
On June 20, 2019, Concesionaria, issued 15,000,000 asset backed trust notes (certificados bursátiles fiduciarios; the “ Trust Notes ”), under the ticker symbol VOLARCB 19 for the amount of Ps.1.5 billion Mexican pesos by CIBanco, S.A., Institución de Banca Multiple, acting as Trustee under the Irrevocable Trust number CIB/3249 created by Concesionaria in the first issuance under a program approved by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) for an amount of up to Ps.3.0 billion Mexican pesos. The Trust Notes are backed by future receivables under agreements entered into with credit card processors with respect to funds received from the sale of airplane tickets and ancillaries denominated in Mexican pesos, through credit cards VISA and Mastercard, via the Company’s website, mobile app and travel agencies. The Trust Notes were listed on the Mexican Stock Exchange, have a maturity of five years and will pay an interest rate of Tasa de Interes Interbancaria de Equilibrio (“TIIE”) 28 plus 175 percentage points.
On December 11, 2020, the Company announced the closing of an upsized primary follow-on equity offering in which the Company
F-17

Table of Contents
offered 134,000,000 of its Ordinary Participation Certificates (Certificados de Participación Ordinarios), or CPOs, in the form of American Depositary Shares, or ADSs, at a price to the public of USD$.11.25 per ADS in the United States and other countries outside of Mexico, pursuant to the Company’s shelf registration statement filed with the Securities and Exchange Commission (the “SEC”). In connection with the offering, the underwriters exercised their option to purchase up to 20,100,000 additional CPOs in the form of ADSs. Each ADS represents 10 CPOs and each CPO represents a financial interest in one Series A share of common stock of the Company.
The accompanying consolidated financial statements and notes were approved by the Company's Board of Directors on April 20, 2022 and by the Shareholders on April 26, 2022. These consolidated financial statements were also approved for issuance in the Company's annual report on Form 20-F by the Company's Vice President and Chief Executive Officer, Enrique Beltranena, and the Senior Vice President and Chief Financial Officer, Jaime E. Pous, on April 26, 2022 and subsequent events were considered through that date.
a)  Relevant events
Change in functional currency
An entity’s functional currency is the currency of the primary economic environment in which it operates. During the second half of 2021 management identified indicators of changes in the primary economic environment in which its main subsidiary Concesionaria operates, as follows: (i) increase in the international market transactions during 2021, (ii) change in the determination of rates (iii) most representative costs are determined and denominated in US dollars. As a result, the Company evaluated the functional currency of its main subsidiary in accordance with the regulatory provisions contained in IAS-21 “Effects of Variations in Foreign Currency Exchange Rates”, concluding that the functional currency has changed from the Mexican peso to the US dollar as of December 31, 2021.
In addition, considering the dependency of Controladora in its operations related to its wholly owned subsidiary Concesionaria, management has evaluated and concluded that its functional currency has also changed from the Mexican peso to US dollar as of December 31, 2021.The change in functional currency is prospectively applied from the date of the change.
As of December 31,2021,the Company´s presentation currency remains Mexican pesos, consequently there is no impact on any comparative financial information presented.
Derived from the foregoing, once reviewed and authorized by the Board of Directors and its Audit and Corporate Governance Committee, as well as informed to the corresponding regulators, as of December 31, 2021, the Company and Concesionaria changed prospectively its functional currency from the Mexican peso to the US dollar (Note 3b).
New purchase order for 39 A321NEO aircraft
On November 15, 2021, the Company executed an amendment to its purchase agreement with Airbus to purchase 39 A321NEO aircraft, securing its growth on the upcoming years. In addition to the acquisition of these 39 aircraft, the Company exercised its rights under the purchase agreement with Airbus to convert 20 aircraft from A320NEO to A321NEO aircraft of its current order.
Obtention of the Operation Permit of Vuela El Salvador, S.A. de C.V. (“Volaris El Salvador”)
On August 25, 2021, the Company through its subsidiary Vuela El Salvador, S.A. de C.V. (“Volaris El Salvador”) obtained from the El Salvadorian Civil Aviation Authority an Operation Permit, for scheduled and non-scheduled international public air transportation services for passengers, cargo and mail valid until May 30, 2024. Volaris El Salvador started operations on September 15, 2021.
Merger between subsidiaries
The Company analyzed the impacts resulting from the amendments to certain laws regarding labor subcontracting, or outsourcing matters, published in the Official Gazette of the Federation (Diario Oficial de la Federacion) on April 23, 2021, which prohibits the subcontracting or outsourcing activities in Mexico, that is, when any individual or legal entity provides or make available its own employees for the benefit of third parties. As the only exception, it is established that the rendering of specialized services or the execution of specialized works, which are not part of the corporate purpose or the economic activity of the beneficiary of the services, will not be considered subcontracting of personnel. The modifications became effective on April 24, 2021, the day following date of its publication in the Official Gazette of the Federation.
F-18

Table of Contents
According to the foregoing, the management concluded that the employees of the subsidiary “Servicios Administrativos Volaris, S.A. de C.V.” directly participate in the main activity of the subsidiary “Concesionaria”, therefore, to comply with the guidelines of the reform, the corresponding employer substitution was performed.
On July 14, 2021, the Subsidiaries “Concesionaria”, and “Servicios Administrativos”, agreed to merge, the first being “the merging company” and the second “the merged company”, respectively. The merger takes full effect against third parties after three months from the date of registration of the merger agreements in the Public Registry of Property and Commerce of Mexico City, in accordance with the provisions of Article 224 of the General Corporations Law.
The merger entered into full legal, accounting and tax effects on August 31, 2021. Any intercompany assets and liabilities between the “Merging company” and the “Merged company” were extinguished on the effective date of the merger. Serving as an accounting basis for this merger the statements of financial position of the entities, this transaction was carried out between subsidiaries of the Company, therefore it did not affect the consolidated financial statements.
Covid-19 commentary
During 2021 the Company managed to recover its pre-pandemic capacity despite spikes in the COVID19 cases, especially during the 1st half of the year. As the vaccination program evolved in the markets the Company operates, the Company achieved an important recovery in capacity. As the national authorities eased the migratory requirements the Company restarted operations to and from Costa Rica, Guatemala and El Salvador. In fact, during September 2021 the Company effectively started operations of a new operating subsidiary Volaris El Salvador.
As of December 31, 2021, the Company´s capacity as measured by available seat miles (“ASMs”) was increased 53.7% compared to the previous year and a 14.7% growth compared with 2019. The Company has taken actions to preserve liquidity and sustain its operations during the period and certain other measures.
Customers and employees
The Company has made a great effort in 2021 to face health contingency of COVID-19 internally (with all employees) and externally (with all clients) through the implementation of different strategies like: sanitation programs in work centers, placement of “entrance, exit and safe distance” signs, manuals and training courses with sanitary protocols, implementation “home office scheme”, medical follow up to employees, routine application of random Rapid Tests to employees, some trips to USA with employees to facilitate vaccination.
Second issuance asset backed trust notes
On October 13, 2021, “Concesionaria”, completed the issuance of fifteen million (15,000,000) of asset backed trust notes (certificados bursátiles fiduciarios) (the “Trust Notes”) issued under the ticker VOLARCB 21L for an amount of Ps.1.5 billion Mexican pesos, issued by CIBanco, S.A., Institución de Banca Múltiple, acting as Trustee of the Irrevocable Trust number CIB/3249 created by Concesionaria, in the second offering under the program authorized by the Mexican National Banking and Securities Commission for an amount of up to Ps.3.0 billion (three billion pesos 00/100 national currency).
The Trust Notes are backed by future receivables under agreements entered into with credit card processors with respect to funds received from the sale of airplane tickets and ancillaries denominated in Mexican pesos, through credit cards VISA and Mastercard, via the Company’s website, mobile app and travel agencies.
The Trust Notes were rated “HR AA (E)”and “AA+/M(e)” by the rating agencies HR Ratings de México, S.A. de C.V. and Verum Calificadora de Valores, S.A.P.I. de C.V., respectively, will have a maturity term of 5 (five) years and will pay an interest rate of TIIE + two hundred (200) basis points.
The Trust Notes comply with the Sustainability-Linked Bond Principles 2020, administered by the International Capital Market Association (ICMA) and has Sustainability Objectives (SPT) for the KPI, to reduce carbon dioxide emissions measured as grams of CO2 emissions per revenue passenger/kilometer (gCO2 / RPK) by 21.54%, 24.08% and 25.53% by 2022, 2023 and 2024, respectively,
F-19

Table of Contents
compared to 2015. This offering will help the Company to accomplish its long-term sustainable goals, among which are to reduce CO2 emissions by 35.42% by 2030.
A feature of the asset backed trust notes is that they will pay an additional (25) basis points to the interest rate if the sustainability goals are not met, with the possibility of mitigating the additional rate if the 2023 or 2024 targets are met.
Shares conversion
On December 20, 2021, one of the Company´s shareholders concluded the conversion of 30,538,000 Series B Shares for the equivalent number of Series A Shares. This conversion has no impact either on the total number of outstanding shares nor on the earnings-per-share calculation.
b)  Basis of preparation
Statement of compliance
These consolidated financial statements comprise the financial statements of the Company and its subsidiaries at December 31, 2021 and 2020 and for each of the three years ended December 31, 2021, and were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which each entity operates (“functional currency”). The functional currency of Controladora and its subsidiary Concesionaria was the Mexican peso until December 31, 2021, and since such date changed to US dollar.
The presentation currency of the Company’s consolidated financial statements is the Mexican peso, which is used also for compliance with its legal obligations. All values in the consolidated financial statements are rounded to the nearest thousand (Ps.000), except when otherwise indicated.
The Company has consistently applied its accounting policies to all periods presented in these consolidated financial statements and provide comparative information in respect of the previous period.
Basis of measurement and presentation
The accompanying consolidated financial statements have been prepared under the historical-cost convention, except for derivative financial instruments that are measured at fair value.
The preparation of the consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and notes. Actual results could differ from those estimates.
F-20

Table of Contents
c)  Basis of consolidation
The accompanying consolidated financial statements comprise the financial statements of the Company and its subsidiaries. On December 31, 2021 and 2020, for accounting purposes the companies included in the consolidated financial statements are as follows:

		Principal				% Equity interest		
Name	    	Activities	    	Country	    	2021	    	2020	 	
Concesionaria Vuela Compañía de Aviación S.A.P.I. de C.V.	 	Air transportation services for passengers, cargo and mail throughout Mexico and abroad	 	Mexico	 	100	%  	100	%	
Vuela Aviación, S.A.	 	Air transportation services for passengers, cargo and mail in Costa Rica and abroad	 	Costa Rica	 	100	%  	100	%	
Vuela, S.A. (“Vuela”) *	 	Air transportation services for passengers, cargo and mail in Guatemala and abroad	 	Guatemala	 	100	%  	100	%	
Vuela El Salvador, S.A. de C.V.		Air transportation services for passengers, cargo and mail in El Salvador and abroad		El Salvador		100	%  	100	%	
Comercializadora Volaris, S.A. de C.V. ("Comercializadora")	 	Merchandising of services	 	Mexico	 	100	%  	100	%	
Servicios Earhart, S.A.*	 	Recruitment and payroll	 	Guatemala	 	100	%  	100	%	
Servicios Corporativos Volaris, S.A. de C.V. (“Servicios Corporativos”)	 	Recruitment and payroll	 	Mexico	 	100	%  	100	%	
Servicios Administrativos Volaris, S.A. de C.V. (“Servicios Administrativos”) (3)	 	Recruitment and payroll	 	Mexico	 	—		100	%	
Comercializadora V Frecuenta, S.A. de C.V. (“Loyalty Program”) **		Loyalty Program		Mexico		100	%  	100	%	
Viajes Vuela, S.A. de C.V. (“Viajes Vuela”)		Travel agency		Mexico		100	%  	100	%	
Guatemala Dispatch Service, S.A., (“GDS, S.A.”) (4)		Aeronautical Technical Services		Guatemala		100	%	—		
CIBanco, S.A., Institución de Banca Múltiple, Fidecomiso
1710 (1)		Pre-delivery payments financing (Note 5)		Mexico		100	%	100	%	
CIBanco, S.A., Institución de Banca Múltiple, Fidecomiso
1711 (2)		Pre-delivery payments financing (Note 5)		Mexico		100	%	100	%	
Fideicomiso Irrevocable de Administración número F/307750 “Administrative Trust”	 	Share administration trust (Note 18)	 	Mexico	 	100	%  	100	%	
Fideicomiso Irrevocable de Administración número F/745291 “Administrative Trust”	 	Share administration trust (Note 18)	 	Mexico	 	100	%  	100	%	
Fideicomiso de Administración número CIB/3081 “Administrative Trust”		Share administration trust (Note 18)		Mexico		100	%  	100	%  	
Fideicomiso Irrevocable de Administración número CIB/3249 “Administrative Trust”		Asset backed securities trustor & administrator (Note 5)		Mexico		100	%  	100	%	

*The Companies have not started operations yet in Guatemala
**The Company has not started operations yet

(1)	With effect from October 16, 2020, the Successor of the Trust 1710 was changed from Deutsche Bank México, S.A. to CIBanco, S.A., Institución de Banca Múltiple.	
(2)	With effect from October 16, 2020, the Successor of the Trust 1711 was changed from Deutsche Bank México, S.A. to CIBanco, S.A., Institución de Banca Múltiple.	
(3)	With effect from August 31,2021, the Company merged with Concesionaria Vuela Compañía de Aviación S.A.P.I. de C.V.	
(4)	The Company was acquired in October 5, 2021.	

The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies.
Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if, and only if, the Company has:

(i)	Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee).	
(ii)	Exposure, or rights, to variable returns from its involvement with the investee.	
(iii)	The ability to use its power over the investee to affect its returns.	

When the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(i)	The contractual arrangement with the other vote holders of the investee.	
F-21

Table of Contents

(ii)	Rights arising from other contractual arrangements.	
(iii)	The Company’s voting rights and potential voting rights.	

The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Company gains control until the date the Company ceases to control the subsidiary.
All intercompany balances, transactions, unrealized gains and losses resulting from intercompany transactions are eliminated in full on consolidation in the consolidated financial statements.
On consolidation, the assets and liabilities of foreign operations are translated into Mexican pesos at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at the average exchange rates prevailing at the time. The exchange differences arising on translation for consolidation are recognized in other comprehensive income (“OCI”). On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognized in profit or loss.
d)  Revenue recognition
Passenger revenues
Revenues from the air transportation of passengers 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 contract liabilities under the caption “unearned transportation revenue” and, once the transportation service is provided by the Company or when the non-refundable ticket expires at the date of the scheduled travel, the earned revenue is recognized as passenger ticket revenues and the unearned transportation revenue is reduced by the same amount. All the Company’s tickets are non-refundable and are subject to change upon a payment of a fee. Additionally, the Company does not operate a frequent flier program.
The most significant passenger revenue includes revenues generated from: (i) fare revenue and (ii) other passenger revenues. Other passenger services include but are not limited to fees charged for excess baggage, bookings through the call center or third-party agencies, advanced seat selection, itinerary changes and charters. They are recognized as revenue when the obligation of passenger transportation service is provided by the Company or when the non-refundable ticket expires at the date of the scheduled travel.
The Company also classifies as other passenger revenue “V Club” and other similar services, which are recognized as revenue over time when the service is provided.
Non-passenger revenues
The most significant non-passenger revenues include revenues generated from: (i) revenues from other non-passenger services described below and (ii) cargo services.
Revenues from other non-passenger services mainly include but are not limited to commissions charged to third parties for the sale of hotel reservations, trip insurance, rental cars and advertising spaces to third parties. They are recognized as revenue at the time the service is provided.
The Company also evaluated the principal versus agent considerations as it relates to certain non-air travel services arrangements with third party providers. No changes were identified under this analysis as the Company is agent for those services provided by third parties.
Code-share agreement
The Company sells certain tickets with connecting flights with one or more segments operated by its other airline partner. For segments operated by its other airline partner, the Company has determined that it is acting as an agent on behalf of the other airline, as is
F-22

Table of Contents
responsible for its portion of the contract (i.e., transportation of the passenger). The Company, as the agent, recognizes revenue within Other operating revenue at the time of the travel, for the net amount retained by the Company for any segments flown by other airline.
On January 16, 2018, the Company and Frontier Airlines (herein after Frontier) entered into a code-share operations agreement, which started operations in September 2018.
Through this alliance, the Company´s customers gain access to additional cities in the U.S. beyond the current available destinations as the Company’s customers are able to buy a ticket throughout any of Frontier’s actual destinations; and Frontier customers gain first-time access to new destinations in Mexico through Volaris presence in Mexican airports.
Code-share tickets can be purchased directly from the Volaris’ website. The airline that provides the transportation recognize the revenue when the service is provided.
Other considerations analyzed as part of revenue from contracts with customers
All revenues offered by the Company including sales of tickets for future flights, other passenger related services and non-passenger revenue must be paid through a full cash settlement. The payment of the transaction price is equal to the cash settlement from the client at the sales time (using different payment options like credit or debit cards, paying through a third party or directly at the counter in cash). There is little or no judgment to determine the point in time of the revenue recognition, and the amount of it. Even if mainly all the sales of services are initially recognized as contract liabilities, there is no financing component in these transactions.
The cost to obtain a contract is represented by the commissions paid to the travel agencies and the bank commissions charged by the financial institutions for processing electronic transactions (Note 10). The Company does not incur any additional costs to obtain and fulfill a contract that is eligible for capitalization.
Trade receivables are mainly with financial institutions due to transactions with credit and debit cards, and therefore they are non-interest bearing and are mainly on terms of 24 to 48 hours. The Company has the right of collection at the beginning of the contracts and there are no discounts, payment incentives, bonuses, or other variable considerations subsequent to the purchase that could modify the amount of the transaction price.
The Company´s tickets are non-refundable. However, if the Company cancels a flight for causes attributable to the airline, including as a result of the COVID-19 pandemic, then the passenger is entitled to either move their flight at no cost, receive a refund or a voucher. No revenue is recognized until either the voucher is redeemed, and the associate flight occurs, or the voucher expires. When vouchers issued exceed the amount of the original amount paid by the passenger the excess is recorded as reduction of the operating revenues. All of the Company´s revenues related to future services are rendered through an approximate period of 12 months.
e)  Cash, cash equivalents and restricted cash
Cash and cash equivalents are represented by bank deposits and highly liquid investments with maturities of 90 days or less at the original purchase date. For the purposes of the consolidated statements of cash flows, cash and cash equivalents consist of cash and short-term investments as defined above.
The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. These credit card processing agreements don’t have significant cash reserve requirements.
Restricted cash are used to constitute the debt service reserves and cannot be used for purposes other than those established.
f)  Financial instruments -initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset for one entity and a financial liability or equity instrument for another entity.
F-23

Table of Contents
i)  Financial assets
Initial recognition
Classification of financial assets and initial recognition
The Company determines the classification and measurement of financial assets, in accordance with the categories in IFRS 9, which are based on both: the characteristics of the contractual cash flows of these assets and the business model objective for holding them.
Financial assets include those carried at FVTPL, whose objective to hold them is for trading purposes (short-term investments), or at amortized cost, for accounts receivables held to collect the contractual cash flows, which are characterized by solely payments of principal and interest (“SPPI”). Derivative financial instruments are also considered financial assets when these represent contractual rights to receive cash or another financial asset. All the Company’s financial assets are initially recognized at fair value, including derivative financial instruments.
Subsequent measurement
The subsequent measurement of financial assets depends on their initial classification, as is described below:

1.	Financial assets at FVTPL which include financial assets held for trading.	
2.	Financial assets at amortized cost, whose characteristics meet the SPPI criterion and were originated to be held to collect principal and interest in accordance with the Company’s business model.	
3.	Financial assets at fair value through OCI with recycling of cumulative gains and losses.	

Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:

a)	The rights to receive cash flows from the asset have expired;	

b)	The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (i) the Company has transferred substantially all the risks and rewards of the asset, or (ii) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset; or	

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset, nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset.
In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
ii)  Impairment of financial assets
The Company assesses at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is credit - impaired. A financial asset is credit- impaired when one or more events have occurred since the initial recognition of an asset (an incurred ‘loss event’), that has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence that a financial asset is credit – impaired may of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in receivable, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated cash flows, such as changes in arrears or economic conditions that correlate with defaults.
F-24

Table of Contents
Further disclosures related to impairment of financial assets are also provided in Note 8.
For trade receivables, the Company applies a simplified approach in calculating expected credit losses (ECLs). Therefore, the Company does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date.
Based on this evaluation, allowances are taken into account for the expected losses of these receivables. For the years ended December 31, 2021 and 2020 the Company recorded expected credit losses on accounts receivable of Ps.16,118 and Ps.13,664, respectively (Note 8).
iii)  Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL, including loans and borrowings, accounts payables to suppliers, unearned transportation revenue, other accounts payable and financial instruments.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
Subsequent measurement
The measurement of financial liabilities depends on their classification as described below:
Financial liabilities at amortized cost
Accounts payable, are subsequently measured at amortized cost and do not bear interest or result in gains and losses due to their short-term nature.
Loans and borrowings are the category most relevant to the Company. After initial recognition at fair value (consideration received), interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method (EIR). Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on issuance and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the consolidated statements of operations. This amortized cost category generally applies to interest-bearing loans and borrowings (Note 5).
Financial liabilities at FVTPL
Financial liabilities at FVTPL include financial liabilities under the fair value option, which are classified as held for trading, if they are acquired for the purpose of selling them in the near future. This category includes derivative financial instruments that are not designated as hedging instruments in hedge relationships as defined by IFRS 9.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability.
The difference in the respective carrying amounts is recognized in the consolidated statements of operations.
F-25

Table of Contents
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the net amount is reported in the consolidated statement of financial position if there is:

(i)	A currently enforceable legal right to offset the recognized amounts, and	
(ii)	An intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.	

g)  Other accounts receivable
Other accounts receivables are due primarily from major credit card processors associated with the sales of tickets and are stated at cost less allowances made for credit losses, which approximates fair value given their short-term nature.
h)  Inventories
Inventories consist primarily of flight equipment expendable parts, materials and supplies, and are initially recorded at acquisition cost. Inventories are carried at the lower of cost and their net realization value. The cost is determined based on the method of specific identification and expensed when used in operations. The Company recognizes the necessary estimates for decreases in the value of its inventories due to impairment, obsolescence, slow movement and causes that indicate that the use or realization of the aircraft spare parts and flight equipment accessories that are part of the inventory will be less than recorded value. The cost of inventories is determined based on the specific identification method and is recorded as an expense as it is used in operations.
i)  Intangible assets
Cost related to the purchase or development of computer software that is separable from an item of related hardware is capitalized separately measured at cost and amortized over the period in which it will generate benefits not exceeding five years on a straight-line basis. The Company annually reviews the estimated useful lives and salvage values of intangible assets and any changes are accounted for prospectively.
The Company records impairment charges on intangible assets used in operations when events and circumstances indicate that the assets or related cash generating unit may be impaired and the carrying amount of a long-lived asset or cash generating unit exceeds its recoverable amount, which is the higher of (i) its fair value less cost to sell, and (ii) its value in use.
The value in use calculation is based on a discounted cash flow model, using our projections of operating results for the near future. The recoverable amount of long-lived assets is sensitive to the uncertainties inherent in the preparation of projections and the discount rate used in the calculation. For the years ended December 31, 2021, and 2020, the Company did not record any impairment loss in the value of its intangible assets.
Software
Acquired computer software licenses are capitalized on the basis of cost incurred to acquire, implement and bring the software into use. Costs associated with maintaining computer software programs are expensed as incurred. In case of development or improvement to systems that will generate probable future economic benefits, the Company capitalizes software development costs, including directly attributable expenditures on materials, labor, and other direct costs.
Acquired software cost is amortized on a straight-line basis over its useful life. Licenses and software rights acquired by the Company have finite useful lives and are amortized on a straight–line basis over the term of the contract. Amortization expense is recognized in the consolidated statements of operations.
j)  Guarantee deposits
Guarantee deposits consist primarily of aircraft maintenance deposits paid to lessors, deposits for rent of flight equipment and other guarantee deposits. Aircraft and engine deposits are held by lessors in U.S. dollars and are presented as current assets and non-current assets, based on the recovery dates of each deposit established in the related agreements (Note 11).
F-26

Table of Contents
Deposits for flight equipment maintenance paid to lessors
Most of the Company’s lease contracts stipulate the obligation to pay maintenance deposits to aircraft lessors, in order to guarantee major maintenance work.
These lease agreements establish that maintenance deposits are reimbursable to the Company at the time the major maintenance event is concluded for an amount equal to: (i) the maintenance deposit held by the lessor associated with the specific maintenance event, or (ii) the qualifying costs related to the specific maintenance event.
Substantially all major maintenance deposits are generally calculated based on the use of leased aircraft and engines (flight hours or operating cycles). The sole purpose of these deposits is to guarantee to the lessor the execution of maintenance work on the aircraft and engines.
Maintenance deposits that the Company expects to recover from lessors are presented as security deposits in the consolidated statement of financial position. These deposits are registered as a monetary asset and are revalued to record changes in foreign currency in each reporting period.
According to the term of the lease, in each contract it is evaluated whether major maintenance of the leased aircraft and engines is expected to be carried out. In the event that major maintenance is not expected to be performed on its own account, it is recorded as a variable lease payment, since it represents part of the use of the leased goods and is determined based on time or flight cycles. For the years ended December 31, 2021, 2020 and 2019, the Company made a supplemental lease payment of Ps.775,579, Ps.421,030 and Ps.295,720, respectively.
When modifications are made to the contracts that entail an extension of the lease term, said maintenance deposits can be converted into recoverable deposits, in that case, to the date of modification of the agreement. Deposits are considered a recoverable asset that is recognized as a decrease in the expense recognized for variable leases.
During the years ended December 31, 2021, 2020 and 2019, the Company added fifteen, seven and seven net new aircrafts to its fleet, respectively (Note 14). During the year ended December 31, 2021, the Company extended the lease period for aircrafts and engines, through lease agreements for fifteen aircraft and three engines. During the year ended December 31, 2020, the Company did not extend the period of lease contracts for aircrafts and engines. During the year ended December 31, 2019, the Company extended the lease period, through lease agreements, of one aircraft. Additionally, the Company extended the lease period for a spare engine in 2019. Certain other aircraft lease agreements do not require the obligation to pay maintenance deposits in advance to lessors to guarantee important maintenance activities; therefore, the Company does not record or make payments for guarantee deposits with respect to these aircrafts. However, some of these lease agreements include the obligation to make maintenance adjustment payments to lessors at the end of the lease period. These maintenance adjustments cover maintenance events that are not expected to be performed before the termination of the lease; for such agreements, the Company accumulates a liability related to the amount of the costs that will be incurred at the end of the lease, since no maintenance deposits have been made (Note 16).
k)  Aircraft and engine maintenance
The Company is required to conduct various levels of aircraft maintenance. Maintenance requirements depend on the type of aircraft, age and the route network over which it operates.
Fleet maintenance requirements may involve short cycle engineering checks, for example, component checks, monthly checks, annual airframe checks and periodic major maintenance and engine checks.
Aircraft maintenance and repair consists of routine and non-routine works, divided into three general categories: (i) routine maintenance, (ii) major maintenance and (iii) component service.
(i)  Routine maintenance requirements consist of scheduled maintenance checks on the Company’s aircraft, including pre-flight, daily, weekly and overnight checks, any diagnostics and routine repairs and any unscheduled tasks performed as required. These type of
F-27

Table of Contents
maintenance events are currently serviced by Company mechanics and are primarily completed at the main airports that the Company currently serves.
All other maintenance activities are sub-contracted to qualified maintenance business partner, repair and overhaul organizations. Routine maintenance also includes scheduled tasks that can take from seven to 14 days to accomplish and are required approximately every 24 or 36 months, such as 24 month checks and C checks. All routine maintenance costs are expensed as incurred.
(ii)  Major maintenance consists of a series of more complex tasks that can take up to six weeks to accomplish and typically are required every five to six years.
Major maintenance is accounted for under the deferral method, whereby the cost of major maintenance and major overhaul and repair is capitalized (leasehold improvements to flight equipment) and amortized over the shorter of the period to the next major maintenance event or the remaining contractual lease term. The next major maintenance event is estimated based on assumptions including estimated time of usage. The United States Federal Aviation Administration (“FAA”) and the Mexican Federal Civil Aviation Agency (Agencia Federal de Aviación Civil - AFAC) mandate maintenance intervals and average removal times as suggested by the manufacturer.
These assumptions may change based on changes in the utilization of aircraft, changes in government regulations and suggested manufacturer maintenance intervals. In addition, these assumptions can be affected by unplanned incidents that could damage an airframe, engine, or major component to a level that would require a heavy maintenance event prior to a scheduled maintenance event. To the extent the planned usage increases, the estimated life would decrease before the next maintenance event, resulting in additional expense over a shorter period.
During the years ended December 31, 2021 and 2020, the Company capitalized major maintenance events as part of leasehold improvements to flight equipment for an amount of Ps.1,742,979 and Ps.646,219, respectively. For the years ended December 31, 2021, 2020 and 2019, the amortization of major maintenance leasehold improvement costs was Ps.838,433, Ps.652,091 and Ps.450,371 respectively. The amortization of deferred maintenance costs is recorded as part of depreciation and amortization in the consolidated statements of operations.
(iii)  The Company has a power-by-the hour agreement for component services, which guarantees the availability of aircraft parts for the Company’s fleet when they are required. It also provides aircraft parts that are included in the redelivery conditions of the contract (hard time) without constituting an additional cost at the time of redelivery. The monthly maintenance cost associated with this agreement is recognized as incurred in the consolidated statements of operations.
The Company has an engine flight hour agreement (component repair agreement), that guarantees a cost per overhaul, provides miscellaneous engines coverage, caps the cost of foreign objects damage events, ensures there is protection from annual escalations, and grants an annual credit for scrapped components. The cost associated with the miscellaneous engines’ coverage is recorded monthly as incurred in the consolidated statements of operations.
l)  Rotable spare parts, furniture and equipment, net
Rotable spare parts, furniture and equipment, are recorded at cost and are depreciated to estimated residual values over their estimated useful lives using the straight-line method.
Aircraft spare engines have significant components with different useful lives; therefore, they are accounted for as separate items (major components) of spare engine parts (Note 12).
Pre-delivery payments refer to prepayments made to aircraft and engine manufacturers during the manufacturing stage of the aircraft. The borrowing costs related to the acquisition or construction of a qualifying asset are capitalized as part of the cost of that asset.
Depreciation rates are as follows:

F-28

Table of Contents

	    	Annual	
	    	depreciation rate	
Flight equipment		4.0-16.7%	
Constructions and improvements	 	Remaining contractual lease term	
Computer equipment	 	25%	
Workshop tools	 	33.3%	
Electric power equipment	 	10%	
Communications equipment	 	10%	
Workshop machinery and equipment	 	10%	
Motorized transport equipment platform		25%	
Service carts on board	 	20%	
Office furniture and equipment	 	10%	
Leasehold improvements to flight equipment	 	The shorter of: (i) remaining contractual lease term, or (ii) the next major maintenance event	

The Company reviews annually the useful lives of these assets and any changes are accounted for prospectively.
The Company identified one Cash Generating Unit (CGU), which includes the entire aircraft fleet and flight equipment. The Company assesses at each reporting date, whether there is objective evidence that rotable spare parts, furniture and equipment and right of use asset are impaired in the CGU. The Company records impairment charges on rotable spare parts, furniture and equipment and right of use assets used in operations when events and circumstances indicate that the assets may be impaired or when the carrying amount of a long-lived asset or related cash generating unit exceeds its recoverable amount, which is the higher of (i) its fair value less cost to sell and (ii) its value in use.
The value in use calculation is based on a discounted cash flow model, using projections of operating results for the near future. The recoverable amount of long-lived assets is sensitive to the uncertainties inherent in the preparation of projections and the discount rate used in the calculation.
On December 2021, the Company reviewed through an analysis if there were signs of impairment, according to the result it was concluded there were not sings of impairment. On December 2020, the Company performed its annual impairment test. The recoverable amount of the CGU was determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management, covering a five-year period. The projected cash flows have been updated to reflect the future operating cashflows. It was concluded that the carrying amount of the CGU did not exceed the value in use.
m)  Foreign currency transactions and exchange differences
The Company’s consolidated financial statements are presented in Mexican pesos, which is the presentation currency of the parent company. For each subsidiary, the Company determines the functional currency and items included in the financial statements of each entity are measured using the currency of the primary economic environment in which each entity operates (“the functional currency”).
The financial statements of foreign subsidiaries prepared under IFRS and denominated in their respective local currencies different from its functional currency are translated into their functional currency as follows:

●	Transactions in foreign currencies are translated into the respective functional currencies at the exchange rates at the dates of the transactions.	
●	All monetary assets and liabilities are translated into the functional currency at the exchange rate at the consolidated statement of financial reporting date.	
●	All non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction.	
●	Equity accounts are translated at the prevailing exchange rate at the time the capital contributions were made, and the profits were generated.	
●	Revenues, costs and expenses are translated at the average exchange rate during the applicable period.	

F-29

Table of Contents
Any differences resulting from the currency functional translation are recognized in the consolidated statements of operations.
For the year ended December 31, 2021, 2020 and 2019, the exchange rates of local currencies translated to functional currencies are as follows:

						Exchange rates of local		Exchange rates of local	 	Exchange rates of local	
						currencies translated to 		currencies translated to 		currencies translated to 	
						functional currencies		 functional currencies	 	 functional currencies	
					 	Average					Average	 				Average				
		Local		Functional		exchange rate		Exchange rate		exchange rate		Exchange rate		exchange rate		Exchange rate	
Country	    	currency	    	currency	    	for 2021	    	as of 2021	    	for 2020	    	as of 2020	    	for 2019	    	as of 2019	
Costa Rica	 	Colon	 	U.S. dollar	 	₵.	641.2439		₵.	645.9000		₵.	588.4240		₵.	615.7800		₵.	590.9574	 	₵.	573.4400	
Guatemala	 	Quetzal	 	U.S. dollar	 	Q.	7.75370		Q.	7.7285		Q.	7.7292		Q.	7.8095		Q.	7.7066	 	Q.	7.6988	
El Salvador		U.S Dollar		U.S. dollar		$.	20.9853		$.	20.5835		$.	21.4961		$.	19.9487		$.	19.2618		$.	18.8452	

The exchange rates used to translate the above amounts to Mexican pesos on December 31, 2021, 2020 and 2019, were Ps.20.5835, Ps.19.9487 and Ps.18.8452, respectively, per U.S. dollar.
The Company’s consolidated financial statements are presented in Mexican pesos. Assets and liabilities from foreign subsidiaries are converted from the functional currency to the presentation currency at the exchange rate on the reporting date; revenues and expenses are translated at the average exchange rate.
Foreign currency differences arising on translation into the presentation currency are recognized in OCI. Exchange differences on translation of foreign entities for the years ended December 31, 2021, 2020 and 2019, were Ps.(4,021), Ps.23,970 and Ps.8,045, respectively.
n)  Liabilities and provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
o)  Employee benefits
i)  Personnel vacations
The Company and its subsidiaries in Mexico and Central America recognize a reserve for the costs of paid absences, such as vacation time, based on the accrual method.
ii)  Termination benefits
The Company recognizes a liability and expense for termination benefits at the earlier of the following dates:
a)  When it can no longer withdraw the offer of those benefits; and
b)  When it recognizes costs for a restructuring that is within the scope of IAS 37, Provisions, Contingent Liabilities and Contingent Assets, and involves the payment of termination benefits.
The Company is demonstrably committed to a termination when, and only when, it has a detailed formal plan for the termination and is without realistic possibility of withdrawal.
For the years ended December 31, 2021 and 2020, no termination benefits provision has been recognized.
F-30

Table of Contents
iii)  Seniority premiums
In accordance with Mexican Labor Law, the Company provides seniority premium benefits to the employees which rendered services to its Mexican subsidiaries under certain circumstances. These benefits consist of a one-time payment equivalent to 12 days’ wages for each year of service (at the employee’s most recent salary, but not to exceed twice the legal minimum wage), payable to all employees with 15 or more years of service, as well as to certain employees terminated involuntarily prior to the vesting of their seniority premium benefit.
Obligations relating to seniority premiums other than those arising from restructurings, are recognized based upon actuarial calculations and are determined using the projected unit credit method.
The latest actuarial computation was prepared as of December 31, 2021. Remeasurement gains and losses are recognized in full in the period in which they occur in OCI. Such remeasurement gains and losses are not reclassified to profit or loss in subsequent periods.
The defined benefit asset or liability comprises the present value of the defined benefit obligation using a discount rate based on government bonds, less the fair value of plan assets out of which the obligations are to be settled.
For entities in Costa Rica, Guatemala and El Salvador there is no obligation to pay seniority premium, these countries have Post- Employee Benefits.
iv)  Incentives
The Company has a quarterly incentive plan for certain personnel whereby cash bonuses are awarded for meeting certain performance targets. These incentives are payable shortly after the end of each quarter and are accounted for as a short-term benefit under IAS 19, Employee Benefits. A provision is recognized based on the estimated amount of the incentive payment. During the years ended December 31, 2021, 2020 and 2019 the Company expensed Ps.75,418, Ps.25,918 and Ps.62,825, respectively, as quarterly incentive bonuses, recorded under the caption salaries and benefits.
The Company has a short-term benefit plan for certain key personnel whereby cash bonuses are awarded when certain Company’s performance targets are met. These incentives are payable shortly after the end of each year and also are accounted for as a short-term benefit under IAS 19. A provision is recognized based on the estimated amount of the incentive payment (Note 7).
v)  Long-term incentive plan (“LTIP”) and long-term retention plan (LTRP)
The Company has adopted a Long-term incentive plan (“LTIP”). This plan consists of a share purchase plan (equity-settled) and a share appreciation rights “SARs” plan (cash settled), and therefore accounted under IFRS 2 “Shared based payments”. This incentive plan has been granting annual extensions in the same terms from the original granted in 2014.
The Company measures the cost of its equity-settled transactions at fair value at the date the equity benefits are conditionally granted to employees. The cost of equity-settled transactions is recognized in the statement of operations, together with a corresponding increase in treasury shares, over the period in which the performance and/or service conditions are fulfilled. For grants that vest on meeting performance conditions, compensation cost is recognized when it becomes probable that the performance condition will be met.
F-31

Table of Contents
During 2021, 2020 and 2019, the Company approved a new long-term retention plan (“LTRP”), which consisted in a purchase plan (equity-settled). This plan does not include cash compensations granted through appreciation rights on the Company’s shares. The retention plans granted in previous periods will continue in full force and effect until their respective due dates and the cash compensation derived from them will be settled according to the conditions established in each plan.
vi)  Share-based payments
a)  LTIP
- Share purchase plan (equity-settled)
Certain key employees of the Company receive additional benefits through a share purchase plan denominated in Restricted Stock Units (“RSUs”), which has been classified as an equity-settled share-based payment. The cost of the equity-settled share purchase plan is measured at grant date, taking into account the terms and conditions on which the share options were granted. The equity-settled compensation cost is recognized in the consolidated statement of operations under the caption of salaries and benefits, over the requisite service period (Note 18).
During the years ended December 31, 2021, 2020 and 2019, the Company expensed Ps.89,464, Ps.75,040 and Ps.49,659, respectively, related to RSUs granted under the LTIP and LTRP. The expenses were recorded under the caption salaries and benefits.
- SARs plan (cash settled)
The Company granted SARs to key employees, which entitle them to a cash payment after a service period.
The amount of the cash payment is determined based on the increase in the share price of the Company between the grant date and the time of exercise. The liability for the SARs is measured, initially and at the end of each reporting period until settled, at the fair value of the SARs, taking into account the terms and conditions on which the SARs were granted. The compensation cost is recognized in the consolidated statement of operations under the caption of salaries and benefits, over the requisite service period (Note 18). As of December 31, 2021 the Company did not record an expense or benefit related to the SARs included in the LTIP. During the years ended December 31, 2020 and 2019, the Company recorded a (benefit) expense for Ps.(1,901) and Ps.2,964, respectively, related to the SARs included in the LTIP. These amounts were recorded under the caption salaries and benefits.
The cost of the SARs plan is measured initially at fair value at the grant date, further details of which are given in (Note 18). This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. As with the equity settled awards described above, the valuation of cash settled award also requires using similar inputs, as appropriate.
b)  Management incentive plan (“MIP”)
- MIP I
Certain key employees of the Company receive additional benefits through a share purchase plan, which has been classified as an equity-settled share-based payment. The equity-settled compensation cost is recognized in the consolidated statement of operations under the caption of salaries and benefits, over the 20. requisite service period (Note 18). The total cost of this plan has been totally recognized during the required service period.
F-32

Table of Contents
- MIP II
On February 19, 2016, the Board of Directors of the Company authorized an extension to the MIP for certain key employees, this plan was named MIP II. In accordance with this plan, the Company granted SARs to key employees, which entitle them to a cash payment after a service period. The amount of the cash payment is determined based on the increase in the share price of the Company between the grant date and the time of exercise. The liability for the SARs is measured initially and at the end of each reporting period until settled at the fair value of the SARs, taking into account the terms and conditions on which the SARs were granted. The compensation cost is recognized in the consolidated statement of operations under the caption of salaries and benefits, over the requisite service period (Note 18).
During the years ended December 31, 2021, 2020 and 2019, the Company recorded a (benefit) expense for Ps. (62,262), Ps.107,204 and Ps.37,760, respectively, related to MIP II into the consolidated statement of operations.
c)  Board of Directors Incentive Plan (BoDIP)
Certain members of the Board of Directors of the Company receive additional benefits through a share-based plan, which has been classified as an equity-settled share-based payment and therefore accounted under IFRS 2 “Shared based payments”.
In April 2018, the Board of Directors of the Company authorized a Board of Directors Incentive Plan “BoDIP”, for the benefit of certain board members. The BoDIP grants options to acquire shares of the Company or CPOs during a five- year period, which was determined on the grant date. Under this plan, no service or performance conditions are required to the board members for exercise the option to acquire shares, and therefore, they have the right to request the delivery of those shares at the time they pay for them.
vii)  Employee profit sharing
The Mexican Income Tax Law (“MITL”), establishes that the base for computing current year employee profit sharing shall be the taxpayer’s taxable income of the year for income tax purposes, including certain adjustments established in the Income Tax Law, at the rate of 10%. For the years ended December 31, 2021, 2020 and 2019, the employee profit sharing is Ps.262,667, Ps.13,458 and Ps.22,134, respectively, and is presented as an operating expense in the consolidated statements of operations. Subsidiaries in Central America do not have such profit -sharing benefit, as it is not required by local regulations.
p)  Leases
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration.
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognizes lease liabilities for payments to be made under the lease term and right-of-use assets representing the right to use the underlying assets.
i.  Right-of-use assets
The Company recognizes right-of-use assets at the commencement date of the lease.  Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, an estimate of costs to be incurred by the Company in dismantling and removing the underlying asset to the condition required by the terms and conditions of the lease, and lease payments made at or before the commencement date less any lease incentives received.
F-33

Table of Contents
Components of the right-of-use assets are depreciated on a straight-line basis over the shorter of the remining lease term and the estimated useful lives of the assets, as follows:

Aircraft and engines	    	up to 18	years	
Spare engines	 	up to 18	years	
Buildings leases	 	one to ten	years	
Maintenance component	 	up to eight	years	

ii.   Lease Liabilities
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.
Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments or a change in the assessment of an option to purchase the underlying asset.
The short-term leases and leases of low value assets are recognized as expense on a straight-line basis over the lease term.
During the years ended December 31, 2021, 2020 and 2019, there were no impairment charges recorded in respect of the Company right-of-use asset.
iii.  Sale and leaseback
The Company enters into sale and leaseback agreements whereby an aircraft or engine is sold to a lessor upon delivery and the lessor agrees to lease such aircraft or engine back to the Company.
The Company measures the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained by the seller-lessee. Accordingly, the Company recognizes in the Statement of Operations only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor. If the fair value of the consideration for the sale of an asset does not equal the fair value of the asset, or if the payments for the lease are not at market rates, then the Company adjusts the difference to measure the sale proceeds at fair value and accounts for any below-market terms as a prepayment of lease payments an any above market terms as additional financing provided by the buyer-lessor to the seller-lessee.
First, the sale and leaseback transactions are analyzed within the scope of IFRS 15 - Revenue from Contracts with Customers, in order to verify whether the performance obligation has been satisfied and, therefore, are accounted for the sale of the asset. If this requirement is not met, it is a financing with the asset given as collateral. If the requirements related to the performance obligation established in IFRS 15 are met, the Company measures an asset for right of use that arises from the sale transaction with subsequent lease in proportion to the book value of the asset related to the right-of-use assets retained by the Company. Consequently, only the gains or losses related to the rights transferred to the lessor-buyer are recognized.
q)   Return obligations
The aircraft lease agreements of the Company also require that the aircraft components (airframe, APU and landing gears) and engines (overhaul and limited life parts) be returned to lessors under specific conditions of maintenance. The costs of return, which in no case are related to scheduled major maintenance, are estimated, and recognized ratably as a provision from the time it becomes likely such costs will be incurred and can be estimated reliably. These return costs are recognized on a straight-line basis as a component of variable lease expenses and the provision is included as part of other liabilities, through the remaining lease term. The Company estimates the
F-34

Table of Contents
provision related to aircraft components and engines using certain assumptions including the projected usage of the aircraft and the expected costs of maintenance tasks to be performed. This provision is made in relation to the present value of the expected future costs of meeting the return conditions (Note 14 and 16).‌
r)   Other taxes and fees payable
The Company is required to collect certain taxes and fees from customers on behalf of government agencies and airports and to remit these to the applicable governmental entity or airport on a periodic basis. These taxes and fees include federal transportation taxes, federal security charges, airport passenger facility charges, and foreign arrival and departure fees. These charges are collected from customers at the time they purchase their tickets but are not included in passenger revenue. The Company records a liability upon collection from the customer and discharges the liability when payments are remitted to the applicable governmental entity or airport.
s)   Income taxes
Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date.
Current income tax relating to items recognized directly in equity is recognized in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax is recognized in respect of temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognized for all taxable temporary differences, except, in respect of taxable temporary differences associated with investments in subsidiaries when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, the carry-forward of unused tax credits and any available tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and available tax losses can be utilized, except, in respect of deductible temporary differences associated with investments in subsidiaries deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profits will be available against which the temporary differences can be utilized.
The Company considers the following criteria in assessing the probability that taxable profit will be available against which the unused tax losses or unused tax credits can be utilized: (a) whether the entity has sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity, which will result in taxable amounts against which the unused tax losses or unused tax credits can be utilized before they expire; (b) whether it is probable that the Company will have taxable profits before the unused tax losses or unused tax credits expire; (c) whether the unused tax losses result from identifiable causes which are unlikely to recur; and (d) whether tax planning opportunities are available to the Company that will create taxable profit in the period in which the unused tax losses or unused tax credits can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
F-35

Table of Contents
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction in OCI.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Income taxes are computed based on tax laws approved in Mexico, Costa Rica, Guatemala and El Salvador at the date of the consolidated statement of financial position.
The IFRIC Interpretation 23 Uncertainty over Income Tax Treatment addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:

●	Whether an entity considers uncertain tax treatments separately.	
●	The assumptions an entity makes about the examination of tax treatments by taxation authorities.	
●	How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.	
●	How an entity considers changes in facts and circumstances.	

The Company determines whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty.
The Company applies significant judgement in identifying uncertainties over income tax treatments. Since the Company operates in a complex multinational environment, it assessed whether the Interpretation had an impact on its consolidated financial statements.
Upon adoption of the Interpretation, the Company considered whether it has any uncertain tax positions, particularly those relating to transfer pricing. The Company’s and the subsidiaries’ tax filings in different jurisdictions include deductions related to transfer pricing and the taxation authorities may challenge those tax treatments. The Company determined, based on its tax compliance and transfer pricing studies, that it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. As of December 31, 2021 and 2020 the Interpretation did not have an impact on the consolidated financial statements of the Company.
t)   Derivative and non-derivative financial instruments and hedge accounting
The Company mitigates certain financial risks, such as volatility in the price of jet fuel, adverse changes in interest rates and exchange rate fluctuations, through a risk management program that includes the use of derivative financial instruments and non-derivative financial instrument.
In accordance with IFRS 9, derivative financial instruments and non-derivative financial instruments are recognized in the consolidated statement of financial position at fair value. At inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which it wishes to apply hedge accounting, as well as the risk management objective and strategy for undertaking the hedge. The documentation includes the hedging strategy and objective, identification of the hedging instrument, the hedged item or transaction, the nature of the risks being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk(s).
Only if such hedges are expected to be effective in achieving offsetting changes in fair value or cash flows of the hedge item(s) and are assessed on an ongoing basis to determine that they have been effective throughout the financial reporting periods for which they were designated, hedge accounting treatment can be used.
Under the cash flow hedge (CFH) accounting model, the effective portion of the hedging instrument’s changes in fair value is recognized in OCI, while the ineffective portion is recognized in current year earnings in the statement of profit or loss. The cash flow hedge reserve
F-36

Table of Contents
is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item. The amounts recognized in OCI are transferred to earnings in the period in which the hedged transaction affects earnings. During the year ended December 31, 2021, the Company did not recognize an ineffective portion with respect to derivative financial instruments. As of December 31,2020, the Company recorded the ineffective portion of Ps.448.6 million, with respect to derivative financial instruments. During the year ended December 31, 2019, there was no ineffectiveness with respect to derivative financial instruments.
The realized gain or loss of derivative financial instruments and non-derivative financial instruments that qualify as CFH are recorded in the same caption of the hedged item in the consolidated statement of operations (Note 3 b (i)).
Accounting for the time value of options
The Company accounts for the time value of options in accordance with IFRS 9, which requires all derivative financial instruments to be initially recognized at fair value. Subsequent measurement for options purchased and designated as CFH requires that the option’s changes in fair value be segregated into its intrinsic value (which will be considered the hedging instrument’s effective portion in OCI) and its correspondent changes in extrinsic value (time value and volatility). The extrinsic value changes will be considered as a cost of hedging (recognized in OCI in a separate component of equity) and accounted for in income when the hedged items also are recognized in income.
u)   Financial instruments — Disclosures
IFRS 7 requires a three-level hierarchy for fair value measurement disclosures and requires entities to provide additional disclosures about the relative reliability of fair value measurements (Notes 4 and 5).
v)   Treasury shares
The Company’s equity instruments that are reacquired (treasury shares), are recognized at cost and deducted from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of treasury shares. Any difference between the carrying amount and the consideration received, if reissued, is recognized in additional paid in capital. Share-based payment options exercised during the reporting period were settled with treasury shares (Note 18).
w)   Operating segments
Management of Controladora monitors the Company as a single business unit that provides air transportation and related services, accordingly it has only one operating segment.
The Company has two geographic areas identified as domestic (Mexico) and international (United States of America, Central America and South America) Note 26.
x)   Current versus non-current classification
The Company presents assets and liabilities in the consolidated statement of financial position based on current/non-current classification. An asset is current when it is: (i) expected to be realized or intended to be sold or consumed in normal operating cycle, (ii) expected to be realized within twelve months after the reporting period, or, (iii) cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current.
A liability is current when: (i) it is expected to be settled in normal operating cycle, (ii) it is due to be settled within twelve months after the reporting period, or, (iii) there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The Company classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as noncurrent assets and liabilities.
F-37

Table of Contents
y)   Impact of new International Financial Reporting Standards
New and amended standards and interpretations already effective
The Company applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after January 1, 2021. The Company has not early adopted any other standard interpretation or amendment that has been issued but is not yet effective.
The nature and the effect of these changes are disclosed below:
Covid-19-Related Rent Concessions beyond June 30, 2021 Amendments to IFRS 16
On May 28, 2020, the IASB issued Covid-19-Related Rent Concessions - amendment to IFRS 16 Leases The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the Covid-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a Covid-19 related rent concession from a lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments resulting from the Covid-19 related rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification.
The amendment was intended to apply until June 30, 2021, but as the impact of the Covid-19 pandemic is continuing, on March 31, 2021, the IASB extended the period of application of the practical expedient to June 30, 2022.The amendment applies to annual reporting periods beginning on or after April 1st, 2021. As of December 31, 2021 this amendment did not have impact on the consolidated financial statements of the Company (Note 14).
Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR).
The amendments include the following practical expedients:

●	A practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest	
●	Permit changes required by IBOR reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued	
●	Provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component.	

These amendments had no impact on the consolidated financial statements of the Company (Note 3c).
F-38

Table of Contents
Standards issued but not yet effective
Annual Improvements to IFRS Standards 2018–2020
IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities
As part of its 2018-2020 annual improvements to IFRS standards process the IASB issued amendment to IFRS 9. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after January 1st, 2022 with earlier adoption permitted. The Company expects to adopt the improvements in their effective dates considering preliminarily no significant effects.
Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16
In May 2020, the IASB issued Property, Plant and Equipment - Proceeds before Intended Use, which prohibits entities deducting from the cost of an item of property, plant and equipment, any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those items, in profit or loss.
The amendment is effective for annual reporting periods beginning on or after January 1st, 2022 and must be applied retrospectively to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment. The Company expects to adopt the amendments in their effective dates considering preliminarily no significant effects.
Reference to the Conceptual Framework – Amendments to IFRS 3
In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations - Reference to the Conceptual Framework. The amendments are intended to replace a reference to the Framework for the Preparation and Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018 without significantly changing its requirements.
The Board also added an exception to the recognition principle of IFRS 3 to avoid the issue of potential “day 2” gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 or IFRIC 21 Levies, if incurred separately.
At the same time, the Board decided to clarify existing guidance in IFRS 3 for contingent assets that would not be affected by replacing the reference to the Framework for the Preparation and Presentation of Financial Statements. The amendments are effective for annual reporting periods beginning on or after 1 January 2022 and apply prospectively. The Company expects to adopt the amendments  in their effective dates considering preliminarily no significant effects.
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments clarify:

●	What is meant by a right to defer settlement.	
●	That a right to defer must exist at the end of the reporting period.	
●	That classification is unaffected by the likelihood that an entity will exercise its deferral right.	
●	That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification.	

F-39

Table of Contents
The amendments are effective for annual reporting periods beginning on or after January 1st, 2023 and must be applied retrospectively. The Company is currently assessing the impact of these amendments which expects to adopt in their effective date.
Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements, in which it provides guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their ‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
The amendments to IAS 1 are applicable for annual periods beginning on or after January 1st, 2023 with earlier application permitted. Since the amendments to the Practice Statement 2 provide non-mandatory guidance on the application of the definition of material to accounting policy information, an effective date for these amendments is not necessary.
The Company is currently assessing the impact of these amendments which expects to adopt in their effective date.
Definition of Accounting Estimates – Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of “accounting Estimates”. The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. Also, they clarify how entities use measurement techniques and inputs to develop accounting estimates.
The amendments are effective for annual reporting periods beginning on or after January 1st, 2023 and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period. Earlier application is permitted as long as this fact is disclosed. The Company is currently assessing the impact of these amendments which expects to adopt in their effective date.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12
The amendments to IAS 12 Income Taxes require companies to recognize deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. They will typically apply to transactions such as leases of lessees and decommissioning obligations and will require the recognition of additional deferred tax assets and liabilities. The amendment is effective for annual reporting periods beginning on January 1st, 2023 and should be applied to transactions that occur on or after the beginning of the earliest comparative period presented. In addition, entities should recognize deferred tax assets (to the extent that it is probable that they can be utilized) and deferred tax liabilities at the beginning of the earliest comparative period for all deductible and taxable temporary differences associated with:

●	Right-of-use assets and lease liabilities, and	
●	Decommissioning, restoration and similar liabilities, and the corresponding amounts recognized as part of the cost of the related assets.	

The cumulative effect of recognizing these adjustments is recognized in retained earnings, or another component of equity, as appropriate.
IAS 12 did not previously address how to account for the tax effects of on-balance sheet leases and similar transactions and various approaches were considered acceptable.
At the date of adoption of IFRS 16, the Company applied the criterion of recognizing the deferred assets and liabilities associated with the lease liability and the right of use, which is consistent with this amendment to IAS 12, and therefore this will not generate effects in the Company. (Note 20).
F-40

Table of Contents
z)  Convenience translation
U.S. dollar amounts on December 31, 2021 shown in the consolidated financial statements have been included solely for the convenience of the reader and are translated from Mexican pesos, using an exchange rate of Ps.20.5835 per U.S. dollar, as reported by the Mexican Central Bank (Banco de México) as the rate for the payment of obligations denominated in foreign currency payable in Mexico in effect on December 31, 2021. Such translation should not be construed as a representation that the peso amounts have been or could be converted into U.S. dollars at this or any other rate. The referred information in U.S. dollars is not audited, is solely for information purposes and does not represent that the amounts are in accordance with IAS 21 Effects of variations in foreign currency exchange rates or the equivalent in U.S. dollars in which the transactions were conducted or in which the amounts presented in Mexican pesos can be translated or realized.

2.  Significant accounting judgments, estimates and assumptions
The preparation of these financial statements requires management to make estimates, assumptions and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the Company’s consolidated financial statements. Note 1 to the Company’s consolidated financial statements provides a detailed discussion of the significant accounting policies.Certain of the Company’s accounting policies reflect significant judgments, assumptions or estimates about matters that are both inherently uncertain and material to the Company’s financial position or results of operations.
Actual results could differ from these estimates. Revisions to accounting estimates are recognized in the period in which the estimate is revised. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
For Leases significant accounting judgments, estimates and assumptions refer to Note 1q.
i)  Return obligations
The aircraft lease agreements of the Company also require that the aircraft components (airframe, APU and landing gears) and engines (overhaul and limited life parts) be returned to lessors under specific conditions of maintenance. The costs of return, which in no case are related to scheduled major maintenance, are estimated and recognized ratably as a provision from the time it becomes likely such costs will be incurred and can be estimated reliably. These return costs are recognized on a straight-line basis as a component of variable lease expenses and the provision is included as part of other liabilities, through the remaining lease term. The Company estimates the provision related to aircraft components and engines using certain assumptions including the projected usage of the aircraft and the expected costs of maintenance tasks to be performed. This provision is made in relation to the present value of the expected future costs of meeting the return conditions (Note 14 and 16).
ii)  Deferred taxes
Deferred tax assets are recognized for all available tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Management’s judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning opportunities to advance taxable profit before expiration of available tax losses.
Tax losses relate to operations of the Company on a stand-alone basis, in conformity with current Tax Law and may be carried forward against taxable income generated in the succeeding years at each country and may not be used to offset taxable income elsewhere in the Company’s consolidated group (Note 20).
During the years ended December 31, 2021, 2020 and 2019, the Company utilized Ps.1,944,922, Ps.0 and Ps.214,460, respectively, of the available tax loss carry-forwards.
F-41

Table of Contents
iii)  Fair value measurement of financial instruments
Where the fair value of financial assets and financial liabilities recorded in the consolidated statements of financial position cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values.
The judgments include considerations of inputs such as liquidity risk, credit risk and expected volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments (Note 4).
iv)  Impairment of long-lived assets
The Company assesses whether there are indicators of impairment for long-lived assets and right of use assets, annually and at other times when such indicators exist in the related CGU. Impairment exists when the carrying amount of a long-lived asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less cost to sell and its value-in-use.
In making these determinations, the Company uses certain assumptions, including, but not limited to estimated, undiscounted future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service the asset will be used in the Company’s operations, excluding additions and extensions.
The Company’s assumptions about future conditions important to its assessment of potential impairment of its long-lived assets, including the impact of the COVID-19 pandemic to its business, are subject to uncertainty, and the Company will continue to monitor these conditions in future periods as new information becomes available, and will updated its analyses accordingly.
For the year ended December 31, 2021 the Company has evaluated whether there were indications of impairment in its long-lived assets and right-of-use assets and concluded that there are no triggering events.
For the year ended December 31, 2020 the Company evaluated whether there were indications of impairment and concluded that there were triggering events. Therefore, performed a quantitative impairment test and estimated the recoverable amount of the CGU by calculating the CGU value in use. As a result of this analysis, the Company determined the recoverable amount was in excess of the CGU book value and, therefore, no impairment was recorded.
v)  Leases - Estimating the incremental borrowing rate
The Company cannot readily determine the interest rate implicit in its leases, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Company ‘would have to pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Company estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating).

3.  Financial instruments and risk management
Financial risk management
The Company’s activities are exposed to different financial risks stemmed from exogenous variables which are not under their control but whose effects might be potentially adverse such as: (i) market risk, (ii) credit risk, and (iii) liquidity risk.
The Company’s global risk management program is focused on uncertainty in the financial markets and tries to minimize the potential adverse effects on net earnings and working capital requirements. The Company uses derivative financial instruments to hedge part of such risks. The Company does not enter into derivatives for trading or speculative purposes. The sources of these financial risk exposures
F-42

Table of Contents
are included in both “on balance sheet” exposures, such as recognized financial assets and liabilities, as well as in “off-balance sheet” contractual agreements and on highly expected forecasted transactions.
These on and off-balance sheet exposures, depending on their profiles, do represent potential cash flow variability exposure, in terms of receiving less inflows or facing the need to meet outflows which are higher than expected, therefore increase the working capital requirements.
Since adverse movements erode the value of recognized financial assets and liabilities, as well some other off-balance sheet financial exposures, there is a need for value preservation, by transforming the profiles of these fair value exposures. The Company has a Finance and Risk Management department, which identifies and measures financial risk exposures, in order to design strategies to mitigate or transform the profile of certain risk exposures, which are taken up to the corporate governance level for approval.
Market risk
a)  Jet fuel price risk
Since the contractual agreements with jet fuel suppliers include reference to jet fuel index, the Company is exposed to fuel price risk which might have an impact on the forecasted consumption volumes. The Company’s jet fuel risk management policy aims to provide the Company with protection against increases in jet fuel prices. In an effort to achieve the aforesaid, the risk management policy allows the use of derivative financial instruments available on over the counter (“OTC”) markets with approved counterparties and within approved limits. Aircraft jet fuel consumed in the years ended December 31, 2021, 2020 and 2019 represented 34%, 26% and 38% (includes derivative and non-derivative financial instruments) of the Company’s operating expenses, respectively. The foreign currency risk is disclosed within subsection b) in this note.
During the year ended December 31, 2021, the Company did not enter into derivative financial instruments to hedge US Gulf Coast Jet Fuel 54 Asian call options and US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options. As of the year ended December 31, 2020, the Company entered into US Gulf Coast Jet fuel 54 Asian call options designated to hedge 23,967 thousand gallons. Such hedges represented a portion of the projected consumption for the 2Q20, 3Q20 & 1Q21. Additionally, during the year ended December 31, 2020, the Company entered into US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options designated to hedge 81,646 thousand gallons. Such hedges represented a portion of the projected consumption for the 2Q20, 2H20 & 2Q21.
As of the year ended December 31, 2020 the Company recognized an unwind of the Zero cost collar of Ps.42,643 which was recognized as part of finance cost.
In accordance with IFRS 9 the Company separates the intrinsic value from the extrinsic value of an option contract; as such, the change in the intrinsic value can be designated as hedge accounting. Because extrinsic value (time and volatility values) of the Asian call options is related to a “transaction related hedged item”, it is required to be segregated and accounted for as a cost of hedging in OCI and accrued as a separate component of stockholders’ equity until the related hedged item matures and therefore impacts profit and loss.
The underlying (US Gulf Coast Jet Fuel 54) of the options held by the Company is a consumption asset (energy commodity), which is not in the Company’s inventory. Instead, it is directly consumed by the Company’s fleet at different airport terminals. Therefore, although a non-financial asset is involved, its initial recognition does not generate an adjustment in the Company’s inventories.
Rather, it is initially accounted for in the Company’s OCI and a reclassification adjustment is made from OCI to profit and loss and recognized in the same period or periods in which the hedged item is expected to be allocated to profit and loss. Furthermore, the Company hedges its forecasted jet fuel consumption month after month, which is congruent with the maturity date of the monthly serial “Asian call options and Zero-Cost Collars”.
All the Company’s Asian calls matured throughout the first quarter of 2021. The Zero-Cost Collars matured throughout the second quarter of 2021, leaving no outstanding fuel position going forward as of December 31, 2021.
As of December 31, 2020, the fair value of the outstanding US Gulf Coast Jet Fuel Asian call options was an unrealized gain of Ps.206; as for the Zero-Cost Collars it was an unrealized loss of Ps.9,657 and is presented as part of the derivative financial assets and derivative financial liabilities in the consolidated statement of financial position. (See Note 4).
F-43

Table of Contents
During the year ended December 31, 2021, the intrinsic value of the Asian call options recycled to the fuel cost was an expense of Ps.12,577.
During the year ended December 31, 2020, the intrinsic value of the Asian call options recycled to the fuel cost was an expense of Ps.33,627 (Ps.20,646 which was recognized in the fuel cost and an expense of Ps.12,981 in finance cost). During the year ended December 31, 2019, the intrinsic value of the Asian call options recycled to the fuel cost was an expense of Ps.61,069.
During the year ended December 31, 2021, there was no cash flow to recycle for the Zero-Cost collar position.
During the year ended December 31, 2020, the intrinsic value of the Zero-Cost Collars recycled to the fuel cost was an expense of Ps.1,271,462 (Ps.835,884 which was recognized in the fuel cost and an expense of Ps.435,578 in finance cost) and for the year ended December 2019 the intrinsic value of the Zero-Cost Collars recycled to the fuel cost was an expense of Ps.9,477.
The cost of hedging derived from the extrinsic value changes of the jet fuel hedged position as of December 31, 2020 recognized in other comprehensive income totals Ps.21,650. As of December 31, 2019 the benefits of the hedges was Ps.(133,567), and was recycled to the fuel cost in 2021, as these options were expired on a monthly basis and the jet fuel was consumed.
During the year ended December 31, 2021, all the derivative financial instruments were effective.
For the period ended December 31, 2021, there was no cost of hedging as all the derivatives position matured all through 2Q21.
As of December 31,2021, the Company didn´t hold any outstanding fuel position.
The following table includes the notional amounts and strike prices of the derivative financial instruments outstanding as of the end of December 2020:

		Position as of December 31, 2020		
		Jet fuel Asian call and Zero-Cost		
		collars option contracts maturities		
	    	1 Half 2021	    	2 Half 2021	    	2021 Total		
Jet fuel risk Asian Calls	 		  	 		  	 		  	 	
Notional volume in gallons (thousands)*	 		7,280	 		—	 		7,280	 	
Strike price agreed rate per gallon (U.S.dollars) **	 	US$	1.90	 		—	 	US$	1.90	 	
Approximate percentage of hedge (of expected consumption value)	 		6	%  		—	%  		3	%	
Jet fuel risk Zero-Cost collars											
Notional volume in gallons (thousands)*			7,556			—			7,556		
Strike price agreed rate per gallon (U.S. dollars) **		US$	1.23/1.93		US$	—		US$	1.23/1.93		
Approximate percentage of hedge (of expected consumption value)			6	%  		—	%  		3	%	
All-in											
Approximate percentage of hedge (of expected consumption value)			12	%  		—	%  		6	%	

* US Gulf Coast Jet 54 as underlying asset
** Weighted average
Fuel Sensitivity
The sensitivity analysis provided below presents the impact of a change of US$0.01 per gallon in fuel market spot price in the Company´s financial performance. Considering these figures, an increase of US$0.01 per gallon in the fuel prices during 2021 and 2020 would have impacted the Company’s operating costs in US$2,731 and US$1,762, respectively.

		As of December 31, 	
		2021		2020	
	    	Operating costs	    	Operating costs	
		(In thousands of U.S. dollars)	
+ US$0.01 per gallon		2,731		1,762	
- US$0.01 per gallon		(2,731)		(1,762)	

F-44

Table of Contents
The Company has been proactively trying to mitigate this impact over our business through revenue yielding and a continued effort towards a reduced fuel consumption. Nonetheless, our ability to pass on any significant increases in fuel costs through fare increases is also limited by our ultra-low-cost business model and market high elasticity to price.
b)  Foreign currency risk
On December 31, 2021 the Company and its main subsidiary Concesionaria changed their functional currency from the Mexican Pesos to the US Dollar. The change of functional currency was accounted for prospectively with no impact on prior period information (Note 1m).
Through the year ending December 31, 2021 and before the change, the Mexican peso was the functional currency of Controladora and its main subsidiary Concesionaria, a significant portion of its operating expenses are denominated in U.S. dollar; thus, the Company relies on sustained U.S. dollar cash flows coming from operations in the United States of America, Central America and South America to support part of its commitments in such currency.
Foreign currency risk arises from possible unfavorable movements in the exchange rate which could have a negative impact in the Company’s cash flows. To mitigate this risk, the Company may use foreign exchange derivative financial instruments and non-derivative financial instruments.
Company’s expenditures, particularly those related to aircraft leasing and acquisition, are denominated in U.S. dollar. In addition, although jet fuel for those flights originated in Mexico are paid in Mexican pesos, the price formula is impacted by the Mexican peso /U.S. dollar exchange rate.
The Company’s exposure to currency risk as of December 31, 2021 is as set forth below:

	    	USD	    	Mexican Pesos	    	Others*	    	Total	
Assets:													
Cash, cash equivalents and restricted cash	 	Ps.	14,311,541		Ps.	817,735		Ps.	125,600		Ps.	15,254,876	
Other accounts receivable, net	 		830,688		 	193,727		 	10,189		 	1,034,604	
Guarantee deposits	 		10,992,268		 	—		 	6,772		 	10,999,040	
Total assets	 	Ps.	26,134,497		Ps.	1,011,462		Ps.	142,561		Ps.	27,288,520	
													
Liabilities:	 		  		 	  		 	  		 	  	
Financial debt	 	Ps.	3,552,092		Ps.	2,724,588		Ps.	—		Ps.	6,276,680	
Lease liabilities	 		53,326,884		 	—		 	1,588		 	53,328,472	
Suppliers	 		2,504,827		 	3,290,110		 	127,667		 	5,922,604	
Other taxes and fees payable	 		62,533		 	2,300,533		 	337,117		 	2,700,183	
Total liabilities	 	Ps.	59,446,336		Ps.	8,315,231		Ps.	466,372		Ps.	68,227,939	
Net foreign currency position	 	Ps.	(33,311,839)		Ps.	(7,303,769)		Ps.	(323,811)		Ps.	(40,939,419)	

*The foreign exchange exposure includes: Quetzales, Colombian pesos and Colones.
F-45

Table of Contents
The Company’s foreign exchange exposure as of December 31, 2020  is as set forth below:

		Thousands of U.S. dollars	
	    	2020	
Assets:	 		  	
Cash, cash equivalents and restricted cash	 	US$	495,612	
Other accounts receivable, net	 		39,997	
Guarantee deposits	 		479,566	
Derivative financial instruments	 		10	
Total assets	 	US$	1,015,185	
				
Liabilities:	 			
Financial debt (Note 5)	 	US$	183,806	
Lease liabilities			2,334,153	
Suppliers	 		174,553	
Other taxes and fees payable	 		16,105	
Derivative financial instruments	 		484	
Total liabilities	 		2,709,101	
Net foreign currency position	 	US$	(1,693,916)	

At April 26, 2022, date of issuance of these financial statements, the exchange rate was Ps.20.3183 per U.S. dollar.
In determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which the Company initially recognizes the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Company determines the transaction date for each payment or receipt of advance consideration.
As of December 31, 2021 and 2020, the Company did not enter into foreign exchange rate derivatives financial instruments. All the Company’s remaining position in FX plain vanilla forwards matured throughout the first quarter of 2019 (January).
For the year ended December 31, 2019, the net gains on the foreign currency forward contracts were Ps.4,199, which were recognized as part of rental expense in the consolidated statements of operations.
Foreign currency sensitivity
On December 31, 2021, the Company and its main subsidiary Concesionaria changed its functional currency from the Mexican peso to the US dollar. The following table demonstrates the sensitivity of a possible change in Mexican peso exchange rate to US dollar that would affect the Company prospectively from December 31, 2021 considering the change in functional currency, with all other variables held constant. The movement in the pre-tax effect shown below represents the result of a change in the fair value of assets and liabilities denominated in Mexican peso. The Company’s exposure to foreign currency exchange rates for all other currencies is not material.

	    	Change in	    	Effect on profit	
		 MXN$ rate		 before tax	
						
2021	 	+5	%  	Ps.	(69,942)	
	 	-5	%  		69,942	

F-46

Table of Contents
The following tables demonstrate the sensitivity to a reasonably possible change in USD exchange rates that would have occurred as of December 31, 2021 before consideration of the change in functional currency of Concesionaria and Controladora, with all other variables held constant. The movement in the pre-tax effect is a result of a change in the fair value of assets and liabilities denominated in US dollars before the change in functional currency. The Company’s exposure to foreign currency changes for all other currencies is not material.

	    	Change in 	    	Effect on profit	
		USD$ rate		before tax	
2021	 	+5	%  	Ps.	(1,439,653)	
	 	-5	%  		1,439,653	
						
2020	 	+5	%  	Ps.	(253,763)	
	 	-5	%  		253,763	

i)  Hedging relationships designating non-derivative financial instruments as hedging instruments for Foreign Exchange (FX) risk
Regarding the foreign currency risk effective since January 1st, 2019, the Company implemented two hedging strategies associated to forecasted FX exposures, by using non-derivatives financial assets and liabilities denominated in USD as hedging instruments.
In the first FX hedging strategy, the Company designated a hedge to mitigate the variability in FX fluctuation denominated in USD associated to forecasted revenues by using a portion of USD denominated financial liabilities associated to a portfolio of leasing liabilities up until the terms of the remaining leasing arrangements.
As of December 31, 2021, there was not outstanding USD balance designated under this hedging strategy due to the discontinuation of the hedge relationships. The outstanding USD balance designated under this hedging strategy as of December 31, 2020 amount to USD $1.5 billion, represented by recognized leasing liabilities, which have been designated as hedging instruments tagged to USD denominated forecasted revenues over the remaining lease term.
Additionally, during the year ended December 31, 2021 and 2020, the impact of these hedges was Ps.434,522 and Ps.411,222, respectively, which has been presented as part of the total operating revenue.
The second FX strategy consisted on designating a hedging relationship by using a portion of USD denominated non-derivative financial assets as hedging instruments, to mitigate the FX variability (MXN/USD) contractually included as a component in the purchase of a portion of future Jet Fuel consumption. For this strategy designated in 2019, a portion of the Jet Fuel consumption over the two following years was designated as hedged item; while the hedging instrument was represented by USD denominated recognized assets, including guaranteed deposits and cash and cash equivalents equivalent to USD$410 million, which represent a portion of the financial assets denominated in USD.
During the first quarter of 2021, the designated hedging instrument back in 2019 for USD$410 million expired consistent with the same foreign exchange strategy, the Company decided to designate a new hedging relationship, like the one concluded. For this new strategy a portion of the Jet Fuel consumption over the two following years has been designated as hedged item; while the hedging instrument was represented by USD denominated recognized assets, including guaranteed deposits and cash and cash equivalents equivalent to USD$350 million, which represent a portion of the financial assets denominated in USD.
As of December 31, 2021, there was not outstanding USD balance designated under this hedging strategy due to the discontinuation of the hedge relationships.The outstanding USD balance designated under this hedging strategy as of December 31, 2020 amount to USD$60.5 million, which does represent a portion of the recognized financial assets.
During the year ended December 31, 2021 and 2020, the impact of these hedges was Ps.182,190 and Ps.409,174, respectively, which has been presented as part of the total fuel expense.
Since the hedged items on for both hedging strategies were targeted at mitigating the cash flow variability of highly expected forecasted transactions, these were represented by multiple hedging relationships which do follow the Cash Flow Hedge Accounting Model.
F-47

Table of Contents
The effective portion of the hedging instrument’s changes in fair value, were taken to the hedge reserve within the OCI, presented as a separate caption within the Company’s Stakeholders Equity, which is in accordance with IFRS 9 criteria.
The amounts recorded in OCI were recycled to profit and loss on a timely basis as corresponding USD denominated Income and/or Jet Fuel consumptions also affected the Company’s operating margin and are presented as adjustments to both operating income and expense, with respect to each FX hedging strategy in a timely manner, as USD denominated income and jet fuel consumption were recognized within operating earnings, hence reflecting a portion of both operating income and expenses amounts, net of both FX Hedging activities.
As of December 31, 2021, as a result of the change in functional currency from the Mexican peso to the US dollar, the Company concluded that these hedging strategies will no longer be effective, for which reason it accounted for the discontinuation of the hedge relationships. Accordingly, the cash flow hedge reserve in other comprehensive income at the date of the change of Ps.2,251,442 or US$109 million was reclassified to the income statement, which represented a loss within the foreign exchange (loss) gain, net caption.
c)  Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s long-term debt obligations and flight equipment lease agreements with floating interest rates.
The Company’s results are affected by fluctuations in certain benchmark market interest rates due to the impact that such changes may have on operational lease payments indexed to the London Inter Bank Offered Rate (“LIBOR”).
For the replacement of the USD LIBOR by the Secured Overnight Financing Rate (“SOFR”) the company is taking the necessary measures to adopt the new benchmark rates. Although USD LIBOR was planned to be discontinued by the end of 2021, in November 2020 the ICE Benchmark Administration (“IBA”), the FCA-regulated and authorized administrator of LIBOR, announced that it had started to consult on its intention to cease the publication of certain USD LIBORs after June 2023. As of 31 December 2021, it is still unclear when the announcement that will set a date for the termination of the publication of US dollar LIBOR will take place.
The Company uses derivative financial instruments to reduce its exposure to fluctuations in market interest rates and accounts for these instruments as an accounting hedge.
In most cases, when a derivative can be tailored within the terms and it perfectly matches cash flows of a leasing agreement, it may be designated as a CFH and the effective portion of fair value variations are recorded in equity until the date the cash flow of the hedged lease payment is recognized in the consolidated statements of operations.
The Irrevocable Trust number CIB/3249, whose trustor is the Company, entered a cap to mitigate the risk due to interest rate increases on the CEBUR (VOLARCB19) coupon payments. The floating rate coupons reference to TIIE 28 are limited under the cap to 10% on the reference rate for the life of the CEBUR (VOLARCB19) and have the same amortization schedule. Thus, the cash flows of the CEBUR (VOLARCB19) are perfectly matched by the hedging instrument.
The sensitivity analysis of the change in the fair value of the interest hedging instrument on the CEBUR (VOLARCB19) as a result of a reasonably possible change in rates, keeping all other variables constant is as set forth below:

	    	Change in 	    			    	
		MX$ rate		Effect on cap	 	
2021	 	+0.01	%  	Ps.	(30.86)		
	 	-0.01	%  		30.86		
							
2020	 	+0.01	%  	Ps.	(0.28)		
	 	-0.01	%  		0.28		

The cap start date was July 19, 2019, and the maturity date is June 20, 2024; consisting of 59 “caplets” with the same specifications as the CEBUR (VOLARCB19) coupons for reference rate determination, coupon term, and fair value.
F-48

Table of Contents
In addition, during November 2021 the Trust entered into a cap to mitigate the risk due to interest rate increases on the CEBUR (VOLARCB21L) coupon payments. The floating rate coupons reference to TIIE 28 are limited under the cap to 10% on the reference rate for the life of the CEBUR (VOLARCB21L) and have the same amortization schedule. Thus, the cash flows of the CEBUR (VOLARCB21L) are perfectly matched by the hedging instrument.
The cap start date was November 3, 2021, and the maturity date is October 20, 2026; consisting of 59 “caplets” with the same specifications as the CEBUR (VOLARCB21L) coupons for reference rate determination, coupon term, and fair value.
The sensitivity analysis of the change in the fair value of the interest hedging instrument on the CEBUR (VOLARCB21L) as a result of a reasonably possible change in rates, keeping all other variables constant is as set forth below:

	    		    			
		Change in 				
		MX$ rate		Effect on cap	
2021	 	+0.01	%  	Ps.	(165.44)	
	 	-0.01	%  		165.44	

As of December 31, 2021 and December 31, 2020, the Company’s outstanding hedging contracts in the form of interest rate caps with original notional amount of Ps.3.0 billion and Ps.1.5 billion, respectively, had fair values of Ps.28,771 and Ps.326, respectively, and are presented as part of the financial assets in the consolidated statement of financial position. As of December 31, 2021, the effect allocated in OCI in relation to the interest rate caps amounts to Ps.5,407.
Debt Sensitivity Analysis
The following sensitivity analysis considers the position exposed to variable interest rates.
The target interest rate of the Banco de Mexico increased 125 bp in 2021, going from 4.25% to 5.50%. In addition to the reference changes, if the interest rate had changed on an annual average in the magnitude shown, the impact on results would have been as shown below:

	    	As of December 31, 2021	    	As of December 31, 2020	
		+ 100 BP		- 100 BP		+ 100 BP		- 100 BP	
Banco Nacional de Comercio Exterior, S.N.C. (“Bancomext”)	 	138,476	 	(138,476)	 	155,332	 	(155,332)	
Asset backed trust notes (“CEBUR”)	 	133,173	 	(133,173)	 	131,054	 	(131,054)	
Banco Sabadell S.A., Institución de Banca Múltiple (“Sabadell”)	 	16,064	 	(16,064)	 	18,086	 	(18,086)	

d)  Liquidity risk
Liquidity risk represents the risk that the Company has insufficient funds to meet its obligations.Because of the cyclical nature of the business, the operations, and its investment and financing needs related to the acquisition of new aircraft and renewal of its fleet, the Company requires liquid funds to meet its obligations.
The Company attempts to manage its cash and cash equivalents and its financial assets, relating the term of investments with those of its obligations. Its policy is that the average term of its investments may not exceed the average term of its obligations. This cash and cash equivalents position is invested in highly liquid short-term instruments through financial entities.
The Company has future obligations related to maturities of bank borrowings, lease liabilities and derivative contracts. The Company’s off-balance sheet exposure represents the future obligations related to aircraft purchase contracts. The Company concluded that it has a low concentration of risk since it has access to alternate sources of funding.
F-49

Table of Contents
As of December 31, 2021, our cash, cash equivalents and restricted cash were Ps.15,254,876.
The table below presents the Company’s contractual principal payments required on its financial liabilities and the derivative financial instruments fair value:

	    	December 31, 2021	
			Within one 		One to five 				
	    		year	    	years	    	Total	
Interest-bearing borrowings:										
Pre-delivery payments facilities (Note 5)	 	Ps.	3,535,649	 	Ps.	—	 	Ps.	3,535,649	
Asset backed trust note (“CEBUR”) (Note 5)			500,000			2,250,000	 	  	2,750,000	
										
Lease liabilities:			  	 	  	  	 	  	  	
Aircraft, engines, land and buildings leases			5,842,492			43,807,747	 	  	49,650,239	
Aircraft and engine lease return obligation			451,788			3,436,001	 	  	3,887,789	
Total	 	Ps.	10,329,929	 	Ps.  	49,493,748	 	Ps.  	59,823,677	

		December 31, 2020	
		Within one	    	One to five	    		
	    	year	    	years	    	Total	
Interest-bearing borrowings:										
Pre-delivery payments facilities (Note 5)		Ps.	1,096,543		Ps.	2,554,069		Ps.	3,650,612	
Short-term working capital facilities (Note 5)		 	200,000		 	—		 	200,000	
Asset backed trust note (“CEBUR”) (Note 5)			250,000			1,250,000			1,500,000	
										
Derivative financial instruments:										
Jet fuel Asian Zero-Cost collars options contracts			9,657			—			9,657	
Lease liabilities:										
Aircraft, engines, land and buildings leases			6,484,092			37,646,450			44,130,542	
Aircraft and engine lease return obligation			86,801			2,417,683			2,504,484	
Total		Ps.	8,127,093		Ps.	43,868,202		Ps.	51,995,295	

e)  Credit risk
Credit risk is the risk that any counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments including derivatives.
Financial instruments that expose the Company to credit risk involve mainly cash equivalents and accounts receivable. Credit risk on cash equivalents relate to amounts invested with major financial institutions.
Credit risk on accounts receivable relates primarily to amounts receivable from the major international credit card companies. The Company has a high receivable turnover; hence management believes credit risk is minimal due to the nature of its businesses, which have a large portion of their sales settled in credit cards.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.
Some of the outstanding derivative financial instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company does not expect any of its counterparties to fail to meet their obligations. The amount of such credit exposure is generally the unrealized gain, if any, in such contracts.
F-50

Table of Contents
To manage credit risk, the Company selects counterparties based on credit assessments, limits overall exposure to any single counterparty and monitors the market position with each counterparty. The Company does not purchase or hold derivative financial instruments for trading purposes. On December 31, 2021, the Company concluded that its credit risk related to its outstanding derivative financial instruments is low, since it has no significant concentration with any single counterparty and it only enters into derivative financial instruments with banks with high credit-rating assigned by international credit-rating agencies.
f)  Capital management
Management believes that the resources available to the Company are enough for its present requirements and will be sufficient to meet its anticipated requirements for capital expenditures and other cash requirements for the next fiscal year.
The primary objective of the Company’s capital management is to ensure that it maintains healthy capital ratios to support its business and maximize the shareholder’s value. No changes were made in the objectives, policies or processes for managing capital during the years ended December 31, 2021 and 2020. The Company is not subject to any externally imposed capital requirement, other than the legal reserve (Note 19).
As part of the management strategies related to acquisition of its aircrafts (pre-delivery payments), the Company pays the associated short-term obligations by entering into sale-leaseback agreements, whereby an aircraft is sold to a lessor upon delivery (Note 5 b).

4.  Fair value measurements
The only financial assets and liabilities measured at fair value after initial recognition are the derivative financial instruments. Fair value is the price that would be received from sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

(i)	In the principal market for the asset or liability, or	
(ii)	In the absence of a principal market, in the most advantageous market for the asset or liability.	

The principal or the most advantageous market must be accessible to the Company.
The fair value of an asset or a liability is assessed using the course of thought which market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
The assessment of a non-financial asset’s fair value considers the market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

●	Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.	
●	Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.	
●	Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.	

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
F-51

Table of Contents
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Set out below, is a comparison by class of the carrying amounts and fair values of the Company’s financial instruments, other than those for which carrying amounts are reasonable approximations of fair values:

		Carrying amount		Fair value	
		December 31, 		December 31, 		December 31, 		December 31, 	
	    	2021	    	2020	    	2021	    	2020	
Assets													
Derivative financial instruments		Ps.	28,771		Ps.	532		Ps.	28,771		Ps.	532	
													
Liabilities		 			 			 	  		 	  	
Financial debt (Interest-bearing loans and borrowings)		 	(6,285,649)		 	(5,350,612)		 	(6,234,241)		 	(5,527,332)	
Derivative financial instruments		 	—		 	(9,657)		 	—		 	(9,657)	
Total		Ps.	(6,256,878)		Ps.	(5,359,737)		Ps.	(6,205,470)		Ps.	(5,536,457)	

The following table summarizes the fair value measurements on December 31, 2021:

		Fair value measurement	
	    	Quoted prices	    	Significant	    	Significant	    		
		in active		observable		unobservable			
		markets		inputs		inputs			
	    	Level 1	    	Level 2	    	Level 3	    	Total	
Assets													
Derivatives financial instruments:	 		  	 		  	 		  	 		  	
Interest rate Caps		Ps.	—		Ps.	28,771		Ps.	—		Ps.	28,771	
Liabilities		 	  		 	  		 	  		 	  	
Liabilities for which fair values are disclosed:		 	  		 	  		 	  		 	  	
Interest-bearing loans and borrowings**		 	—		 	(6,234,241)		 	—		 	(6,234,241)	
Net		Ps.	—		Ps.	(6,205,470)		Ps.	—		Ps.	(6,205,470)	

** LIBOR, SOFR curve and TIIE Mexican interbank rate. Includes short-term and long-term debt.
There were no transfers between level 1 and level 2 during the period.
The following table summarizes the fair value measurements on December 31, 2020:

		Fair value measurement	
	    	Quoted prices	    	Significant	    	Significant	    		 	
		in active		observable		unobservable			 	
		markets		inputs		inputs			 	
		Level 1		Level 2		Level 3		Total	
Assets	 		  	 		  	 		  	 		  	
Derivatives financial instruments:	 		  	 		  	 		  	 		  	
Jet fuel Asian call options contracts*	 	Ps.	—	 	Ps.	206	 	Ps.	—	 	Ps.	206	
Interest rate Caps	 		—	 		326	 		—	 		326	
Liabilities	 		  	 			 		  	 			
Derivatives financial instruments:Jet fuel Asian Zero-Cost collars options contracts*			—			(9,657)			—			(9,657)	
Liabilities for which fair values are disclosed:	 		  	 			 		  	 			
Interest-bearing loans and borrowings**	 		—	 		(5,527,332)	 		—	 		(5,527,332)	
Net	 	Ps.	—	 	Ps.	(5,536,457)	 	Ps.	—	 	Ps.	(5,536,457)	

* Jet fuel forwards levels and LIBOR curve.
F-52

Table of Contents
** LIBOR curve and TIIE Mexican interbank rate. Includes short-term and long-term debt.
There were no transfers between level 1 and level 2 during the period.
The following table summarizes the losses from derivatives financial instruments recognized in the consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019:

	    		    			    			    			
Instrument	    	Financial statements line	    	2021	    	2020	    	2019	
Jet fuel Asian call options contracts	 	Fuel		Ps.	(12,577)		Ps.	(20,646)		Ps.	(61,069)	
Jet fuel Zero-Cost collars contracts	 	Fuel			—			(835,884)			(9,477)	
Jet fuel Asian call options contracts		Finance cost			—			(12,981)			—	
Jet fuel Zero-Cost collars contracts		Finance cost			—			(435,578)			—	
Foreign currency forward		Aircraft and engine rent expenses			—			—			4,199	
Interest rate cap		Finance cost			(1,443)			(1,468)			(1,282)	
Total	 	  		Ps.	(14,020)		Ps.	(1,306,557)		Ps.	(67,629)	

The following table summarizes the net gain (loss) on CFH before taxes recognized in the consolidated statements of comprehensive income for the years ended December 31, 2021, 2020 and 2019:
Consolidated statements of other comprehensive income (loss)

	    	Financial 	    			    			    			
Instrument	    	statements line	    	2021	    	2020	    	2019	
Jet fuel Asian call options contracts	 	OCI		Ps.	11,997		Ps.	(11,993)		Ps.	11,148	
Jet fuel Zero cost collars		OCI			9,657			(143,224)			256,515	
Foreign currency contracts	 	OCI		 	—		 	—		 	(14,241)	
Interest rate cap		OCI			(2,800)			(900)			(4,023)	
Non derivative financial instruments*		OCI			1,577,473			(1,591,569)			14,096	
Total	 			Ps.	1,596,327		Ps.	(1,747,686)		Ps.	263,495	

*As of December 31, 2021, includes the effect of the discontinuation of the hedging strategies by Ps.2,251,442 as described in note 3b (i).

The exchange rates used to translate the above amounts to Mexican pesos at December 31, 2021, 2020 and 2019 were Ps.20.5835, Ps.19.9487 and Ps.18.8452, respectively, per U.S. dollar.

F-53

Table of Contents
5.  Financial assets and liabilities
As of December 31, 2021 and 2020, the Company’s financial assets are represented by cash, cash equivalents and restricted cash, trade and other accounts receivable, accounts receivable for which their carrying amount is a reasonable approximation of fair value.
a) Financial assets

		December 31, 		December 31, 	
	    	2021	    	2020	
Derivative financial instruments designated as cash flow hedges (effective portion recognized within OCI)	 		  	 		  	
Jet fuel Asian call options		Ps.	—		Ps.	206	
Interest rate cap			28,771			326	
Total derivative financial assets		Ps.	28,771		Ps.	532	
							
Presented on the consolidated statements of financial position as follows:		 			 		
Current		Ps.	—		Ps.	206	
Non-current		Ps.	28,771		Ps.	326	

b) Financial debt
(i) As of December 31, 2021 and 2020, the Company’s short-term and long-term debt consists of the following:

			December 31, 		December 31, 	
		    	2021	    	2020	
I.	Revolving line of credit with Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander (“Santander”) and Banco Nacional de Comercio Exterior, S.N.C. (“Bancomext”), in U.S. dollars, to finance pre-delivery payments, maturing on October 31, 2022, bearing annual interest rate at the three-month LIBOR plus a spread of 260 basis points.		Ps.	3,535,649		Ps.	3,650,612	
								
II.	In June 2019 the Company issued in the Mexico market Asset backed trust notes (“CEBUR”), in Mexican pesos, maturing on June 20th, 2024 bearing annual interest rate at TIIE 28 days plus 175 basis points.			1,250,000			1,500,000	
								
III.	In October 2021 the Company issued in the Mexico market a second tranche of its Asset backed trust notes (“CEBUR”), in Mexican pesos, maturing on October 20th, 2026 bearing annual interest rate at TIIE 28 days plus 200 basis points.		 	1,500,000		 	—	
								
IV.	In December 2019, the Company entered into a short-term working capital facility with Banco Sabadell S.A., Institución de Banca Multiple (“Sabadell”) in Mexican pesos, bearing annual interest rate at TIIE 28 days plus a spread of 300 basis points.		 	—		 	200,000	
								
V.	Amortized transaction costs			(31,408)			(15,542)	
								
VI.	Accrued interest and other financial cost		 	22,439		 	19,563	
	  		 	6,276,680		 	5,354,633	
	Less: Short-term maturities		 	4,052,859		 	1,558,884	
	Long-term		Ps.	2,223,821		Ps.	3,795,749	

TIIE: Mexican interbank rate
F-54

Table of Contents
(ii) The following table provides a summary of the Company’s scheduled principal payments of financial debt and accrued interest on December 31, 2021:

					January 2023-		January 2024-					
		Within one		December		December		January 2025			
	    	year	    	2023	    	2024	    	onwards	    	Total	
Santander/Bancomext		Ps.	3,552,091		Ps.	—		Ps.	—		Ps.	—		3,552,091	
CEBUR program			505,997			583,333			750,000			916,667		2,755,997	
Total		Ps.	4,058,088		Ps.	583,333		Ps.	750,000		Ps.	916,667		6,308,088	

iii) Since 2011, the Company has financed the pre-delivery payments with Santander/Bancomext for the acquisition of its aircraft through a revolving financing facility.
The “Santander/Bancomext” loan agreement provides for certain covenants, including limits to the ability to, among others:

i)	Incur debt above a specified debt basket unless certain financial ratios are met.	
ii)	Create liens.	
iii)	Merge with or acquire any other entity without the previous authorization of the Banks.	
iv)	Dispose of certain assets.	
v)	Declare and pay dividends or make any distribution on the Company’s share capital unless certain financial ratios ( that the long-term adjusted net debt is less than or equal to 6.5 ( six point five) times the EBITDAR, which on any determination date) are met.	

On December 31, 2021, the Company was in compliance with the covenants under the above-mentioned loan agreement. On December 31, 2020, the Company was not in compliance with the financial ratio, therefore, the Company requested a waiver to the banks. The company received a waiver dated October 23, 2020, for the covenant regarding the financial ratio for the PDP financing facility that included the third and fourth quarter of 2020 and the first and second quarter of 2021. The waiver was provided by both banks, Santander and Bancomext.
For purposes of financing the pre-delivery payments, Mexican trusts were created whereby, the Company assigned its rights and obligations under the Airbus Purchase Agreement with Airbus S.A.S. (“Airbus”), including its obligation to make pre-delivery payments to the Mexican trusts, and the Company guaranteed the obligations of the Mexican trusts under the financing agreement (CIBanco, S.A., Institución de Banca Múltiple, Fidecomiso (previously Deutsche Bank México, S.A. Fideicomisos 1710 and 1711)).
As of December 31, 2021, the financial debt related to finance pre-delivery payments of aircraft amounts to Ps.3,535,649, the company covers this short-term obligation through the celebration of the sale and the collection made by the transaction denominated as sale and leaseback at the time of delivery, therefore, it does not represent a disbursement that directly impacts the company’s working capital.
As of December 31, 2021, the Company has committed credit lines totaling Ps.9,949,640 of which Ps.6,967,530 were related to financial debt (Ps.200,000 were undrawn) and Ps.2,982,110 were related to letters of credit (Ps.476,689 were undrawn). As of December 31, 2020, the Company had available credit lines totaling Ps.9,256,978 of which Ps.6,851,338 were related to financial debt (Ps.1,500,726 were undrawn) and Ps.2,405,640 were related to letters of credit (Ps.214,012 were undrawn).
On June 20, 2019, the Company, through its subsidiary Concesionaria issued 15,000,000 asset backed trust notes (“CEBUR”) under the ticket VOLARCB 19 for Ps.1.5 billion Mexican pesos through the Fideicomiso Irrevocable de Administración número CIB/3249 created by Concesionaria. The issuance amount is part of a program approved by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) for an amount of up to Ps.3.0 billion Mexican pesos.
The notes have a five-year maturity annual reduction of Ps.250,000, Ps.500,000, Ps.500,000 and Ps.250,000 in 2021, 2022, 2023 and 2024, respectively, with a floating one-month coupon rate referenced to TIIE 28 plus with a 175 basis point spread. The notes start amortizing at the end of the second year.
On October 13, 2021, the Company, through its subsidiary Concesionaria issued in the Mexico market a second issuance of 15,000,000 asset backed trust notes (“CEBUR”) under the ticket VOLARCB 21L for Ps.1.5 billion Mexican pesos through the Fideicomiso Irrevocable de Administración número CIB/3249 created by Concesionaria. The issuance amount is part of a program approved by the
F-55

Table of Contents
Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) for an amount of up to Ps.3.0 billion Mexican pesos. With this second issuance the total amount approved for the program has been reached.
The Trust Notes comply with the Sustainability-Linked Bond Principles 2020, administered by the International Capital Market Association (ICMA). Which has Sustainability Objectives (SPT) for the KPI, to reduce carbon dioxide emissions measured as grams of CO2 emissions per revenue passenger/kilometer (gCO2 / RPK) by 21.54%, 24.08% and 25.53% by 2022, 2023 and 2024, respectively, compared to 2015. This offering will help the Company to accomplish its long-term sustainable goals, among which are to reduce CO2 emissions by 35.42% by 2030.
A feature of the asset backed trust notes is that they will pay an additional twenty-five (25) basis points to the interest rate if the sustainability goals are not met, with the possibility of mitigating the additional rate if the 2023 or 2024 targets are met.
The notes have a five -year maturity annual reductions of Ps.83,333, Ps.500,000, Ps.500,000 and Ps.416,667 in 2023, 2024, 2025 and 2026, respectively, with a floating one-month coupon rate referenced to TIIE 28 plus with a 200 basis point spread. The notes start amortizing at the end of the second year.
The asset backed trust note’s structure operate on specific rules and provide a DSCR “Debt Service Coverage Ratio” which is computed by comparing the Mexican Peso collections over the previous six months to the next 6 months of debt service. In general, not retention of funds exists if the ratio exceeds 2.5 times. Amortization on the asset backed trust notes began in July of 2021 for the first issuance and the second issuance will begin in October of 2023. In addition, early amortization applies if:

i)	The Debt Coverage Ratio is less than 1.75x on any of the determination dates;	
ii)	An event of retention is not covered in a period of 90 consecutive days;	
iii)	The debt service reserve account of any series maintains on deposit an amount less than the required balance of the debt service reserve account for a period that includes two or more consecutive payment methods;	
iv)	Insolvency event of Concesionaria;	
v)	The update of a new insolvency event in relation to the Concesionaria;	
vi)	Updating a new event of default.	

In the event of default, the Trustee will refrain from delivering any amount that it would otherwise be to require to deliver to Concesionaria and will dedicate use such cash flow to amortize the principal of the  trust notes (“CEBUR”).
In December 2021, the Company renewed the working capital facility with Banco Sabadell S.A., Institución de Banca Multiple (“Sabadell”) in Mexican pesos, bearing annual interest rate at TIIE 28 days plus a 240 basis points. As of December 31, 2021, the company paid the dispositions made during the year, therefore, it does not have a balance pending settlement.
In December 2019, the Company entered into a short-term working capital facility with Banco Sabadell S.A., Institución de Banca Multiple (“Sabadell”) in Mexican pesos, bearing annual interest rate at TIIE 28 days plus a 300 basis points. The “Sabadell” working capital facility has the following covenant:

i)	Joint obligor (Concesionaria) must represent 85% of EBITDA of the holding.	

At December 31, 2021 and 2020, the Company was in compliance with the covenants under the terms and conditions of the asset backed trusted notes and short-term working capital facilities.
F-56

Table of Contents
Changes in liabilities arising from financing activities
For the years ended December 31, 2021 and 2020, the changes in liabilities from financing activities from the Company are summarized in the following table:

																						
													Current vs non-							
		January 1,  		Net cash		Accrued*		Foreign exchange 		 current 					December 31, 	
	    	2021	    	Flows	    	Interest	    	 movement	    	 reclassification	    	Other	    	2021	
Current interest-bearing loans and borrowings		Ps.	1,558,884		Ps.	(1,223,402)		Ps.	2,876		Ps.	76,942		Ps.	3,637,559		Ps.	—		Ps.	4,052,859	
Non-current interest -bearing loans and borrowings	 		3,795,749	 		2,023,240			—	 		35,171	 		(3,637,559)	 		7,220	 		2,223,821	
Total liabilities from financing activities	 	Ps.	5,354,633	 	Ps.	799,838		Ps.	2,876	 	Ps.	112,113	 	Ps.	—	 	Ps.	7,220	 	Ps.	6,276,680	

																						
											Foreign		Current vs non-							
		January 1, 		Net cash 		Accrued*		 exchange 		 current 					December 31, 	
	    	2020	    	Flows	    	Interest	    	 movement	    	 reclassification 	    	Other	    	2020	
Current interest-bearing loans and borrowings		Ps.	2,086,017		Ps.	(1,231,695)		Ps.	(10,498)		Ps.	(32,491)		Ps.	747,551		Ps.	-		Ps.	1,558,884	
Non-current interest -bearing loans and borrowings	 		2,889,952	 		1,374,678			—	 		231,612	 		(747,551)	 		47,058	 		3,795,749	
Total liabilities from financing activities	 	Ps.	4,975,969	 	Ps.	142,983		Ps.	(10,498)	 	Ps.	199,121	 	Ps.	—	 	Ps.	47,058	 	Ps.	5,354,633	

* This balance is net of interest provisions and interest effectively paid as of December 31, 2021 and 2020, respectively.

c)  Other financial liabilities
At December 31, 2021 and 2020, the derivative financial instruments designated as CFH from the Company are summarized in the following table:

	    	2021	    	2020	
Derivative financial instruments designated as CFH (effective portion recognized within OCI):	 		  	 		  	
Zero-Cost Collar options		Ps.	—		Ps.	9,657	
Total derivative financial liabilities		Ps.	—		Ps.	9,657	
Presented on the consolidated statements of financial position as follows:		 			 		
Current		Ps.	—		Ps.	9,657	
Non-current		Ps.	—		Ps.	—	

F-57

Table of Contents
6.  Cash, cash equivalents and restricted cash
An analysis of this caption is as follows:

	    	2021	    	2020	
Cash in banks		Ps.	9,543,860		Ps.	6,907,295	
Short-term investments			5,558,131			3,068,618	
Restricted funds held in trust related to debt service reserves			147,415			91,040	
Cash on hand			5,470			36,432	
Total cash, cash equivalents and restricted cash		Ps.	15,254,876		Ps.	10,103,385	

As of December 31, 2021 and 2020, the Company recorded a portion of advance ticket sales by an amount of Ps.147,415 and Ps.91,040, respectively, as a restricted fund (Note 1e). The restricted funds held in Trusts are used to constitute the debt service reserves and cannot be used for purposes other than those established in the contracts of the Trusts.

7.  Related parties
a)  An analysis of balances due from/to related parties at December 31, 2021 and 2020 is provided below. All companies are considered affiliates, since the Company’s primary shareholders or directors are also direct or indirect shareholders of the related parties:

	    		    	Country 	    			    			    		
		Type of transaction		of origin		2021		2020		Terms	
Due from:	 	  	 	  	 		  	 		  	 	  	
Frontier Airlines Inc. (“Frontier”)	 	Code-share	 	USA	 	Ps.	95,951	 	Ps.	72,629	 	30 days	
													
Due to:													
Grupo Aeroportuario del Centro Norte (“OMA”)		Airport Services		Mexico		Ps.	199,393		Ps.	80,681		30 days	
Chevez, Ruiz, Zamarripa y Cía., S.C.		Professional fees		Mexico			9,373			4,823		30 days	
Aeromantenimiento, S.A. (“Aeroman”)		Aircraft maintenance and technical support		El Salvador			8,295			39,284		30 days	
Mijares, Angoitia, Cortés y Fuentes, S.C.		Professional fees		Mexico			—			166		30 days	
Frontier Airlines Inc. (“Frontier”)		Code-share		USA			42			39		30 days	
						Ps.	217,103		Ps.	124,993			

F-58

Table of Contents
b)  During the years ended December 31, 2021, 2020 and 2019, the Company had the following transactions with related parties:

Related party transactions	    	Country of origin 	    	2021	    	2020	    	2019	
Revenues:												
Transactions with affiliates												
Frontier Airlines Inc												
Code-share		USA		Ps.	71,210		Ps.	148,964		Ps.	208,968	
Expenses:												
Transactions with affiliates	 			 	  		 	  		 	  	
Aeromantenimiento, S.A.												
Aircraft maintenance		El Salvador		Ps.	160,632		Ps.	239,118		Ps.	201,624	
Technical support	 	El Salvador			2,882			3,945			5,815	
Grupo Aeroportuario del Centro Norte												
Airport services		Mexico			133,296			32,193			—	
Chevez, Ruiz, Zamarripa y Cía, S.C.	 			 			 			 		
Professional fees		Mexico			4,798			4,823			—	
Mijares, Angoitia, Cortés y Fuentes, S.C.	 			 			 			 		
Professional fees		Mexico			4,311			5,582			1,321	
Servprot, S.A. de C.V.Security services		Mexico			3,531			3,464			3,120	
Onelink, S.A. de C.V.												
Call center fees		Mexico/El Salvador			—			73,167			37,026	

Frontier started having transactions with the Company in August 2018. As of December 31, 2021 and 2020, there have been no guarantees provided or received for any related party receivables or payables. For the years ended December 31, 2021 and 2020, no provision for expected credit losses has been recognized, due to the Company considers the credit risk is minimal, and these balances are current accounts.
c)  Servprot
Servprot S.A. de C.V. (“Servprot”) is a related party because Enrique Beltranena, the Company’s President and Chief Executive Officer and director, is shareholder of such company. Servprot provides security services for Mr. Beltranena and his family. As of December 31,2021, and 2020 there are not outstanding balances due to Servprot under this agreement.
During the years ended December 31, 2021, 2020 and 2019 the Company expensed Ps.3,531, Ps.3,464 and Ps.3,120, respectively for this concept.
d)  Aeroman
Aeroman is a related party, because Marco Baldocchi a member of the board of the Company’s board of directors is an alternate director of Aeroman. The Company entered into an aircraft repair and maintenance service agreement with Aeroman on January 1, 2017. This agreement provides that the Company must use Aeroman, exclusively for aircraft repair and maintenance services, subject to availability. Under this agreement, Aeroman provides inspection, maintenance, repair and overhaul services for aircraft. The Company makes payments under this agreement depending on the services performed. This agreement is for a 5-year term. As of December 31, 2021 and 2020, the balances due under the agreement to Aeroman were Ps.8,295 and Ps.39,284, respectively. The Company incurred expenses in aircraft maintenance and technical support under this agreement amounted to Ps.163,514, Ps.243,063 and Ps.207,439 for the years ended December 31, 2021, 2020 and 2019, respectively.
e)  OneLink
Onelink, S.A. de C.V. (“Onelink”) was a related party until December 31, 2017, because Marco Baldocchi, a member of the board, was a director of Onelink. As of October 24, 2019 and until June 30, 2020 Onelink Holdings, S.A. (“Onelink Holdings”) and its subsidiary Onelink were related parties, because Mr. Rodrigo Antonio Escobar Nottebohm, a former alternate board member of Onelink Holdings, became an alternate Director of the Company. Pursuant to this agreement, Onelink received calls from the customers to book flights and provides customers with information about fares, schedules and availability.
F-59

Table of Contents
As of December 31, 2021 and 2020, the Company did not recognize any outstanding balances, from Onelink as related party transaction. During the year ended December 31, 2021, the Company did not recognize any revenue and expense transactions as a related party. During the years ended December 31, 2020 and 2019, Company recognized an expense under this agreement of Ps.73,167 and Ps.37,026, respectively.
f)  Mijares, Angoitia, Cortés y Fuentes
Mijares, Angoitia, Cortés y Fuentes, S.C. (“MACF”) is a related party because Ricardo Maldonado Yañez and Eugenio Macouzet de León, member and alternate member, respectively, of the board of the Company since April 2018, are partners of MACF which provides legal services to us. As of December 31, 2021, the Company did not have outstanding balance due to MACF and December 31, 2020, the balance due for the services received from MACF was Ps. 166. During the years ended December 31, 2021, 2020 and 2019, the Company recognize expense transactions with this related party of Ps.4,311, Ps.5,582 and Ps.1,321, respectively.
g)  Frontier
Frontier is a related party because Mr. William A. Franke and Brian H. Franke are members of the board of the Company and Frontier as well as Indigo Partners, the later has investments in both companies. As of December 31, 2021 and 2020, the accounts receivable from Frontier were Ps.95,951 and Ps.72,629, respectively. Additionally, as of December 31, 2021 and 2020, the account payable was Ps.42 and Ps.39, respectively. During the years ended December 31, 2021, 2020 and 2019 the Company recognized revenue under this agreement of Ps.71,210, Ps.148,964 and Ps.208,968, respectively.
h)  Grupo Aeroportuario del Centro Norte (“OMA”)
On April 22, 2020, Grupo Aeroportuario del Centro Norte (“OMA”) became a related party because Mrs. Guadalupe Phillips Margain is an independent member of the board of directors of the Company and member of the board of directors of OMA. Mr. Ricardo Maldonado Yañez is also an independent member of the board of directors of the Company and OMA. As of December 31, 2021 and 2020, the account payable with OMA was Ps.199,393 and Ps.80,681, respectively. During the years ended December 31, 2021 and 2020, the Company recognized expenses with OMA of Ps.133,296 and Ps.32,193, respectively.
i)  Chevez, Ruiz, Zamarripa y Cia, S.C. (“Chevez”)
Chevez, Ruiz, Zamarripa y Cia, S.C. (“Chevez”) is a related party because Mr. José Luis Fernández Fernández is an independent member of the board of directors, as well as the chairman of the Audit and Corporate Governance Committee of the Company and non-managing partner of Chevez. Chevez provides tax advisory services to us. As of December 31, 2021 and 2020, the account payable with Chevez was Ps.9,373 and Ps.4,823, respectively. During the years ended December 31, 2021 and 2020, the Company recognized expenses with Chevez of Ps.4,798 and Ps.4,823, respectively.
j)  Directors and officers
During the years ended December 31, 2021, 2020 and 2019, the chairman and the independent members of the Company’s board of directors received a net compensation of Ps.12,598, Ps.5,762 and Ps.8,085, respectively, and the rest of the directors received a net compensation of Ps.3,620, Ps.3,692 and Ps.4,367, respectively.
During the years ended December 31, 2021, 2020 and 2019, all the Company’s senior managers received an aggregate compensation of short and long-term benefits of Ps.383,838, Ps.253,681 and Ps.237,846, respectively, these amounts were recognized in salaries and benefits in the consolidated statement of operations.
During the years ended December 31, 2021, 2020 and 2019 the cost of the share-based payments transactions (MIP and LTIP) was Ps.89,464, Ps.75,040 and Ps.49,659, respectively. The (benefit) cost of the cash-settled payments transactions MIP II and SARs were Ps. (62,262), Ps.105,303 and Ps.40,724, respectively (Note 18).
The Company has a short-term benefit plan for certain personnel whereby cash bonuses are awarded for meeting certain Company’s performance targets.  During the year ended December 31, 2021 the Company recorded a provision in the amount of Ps.155,388. During
F-60

Table of Contents
the year ended December 31,2020 the Company did not record a provision. During the year ended December 31, 2019 the Company recorded a provision in the amount of Ps.80,634.
During the years ended December 31, 2021, 2020 and 2019 the Company recorded an expense for an amount of Ps.155,388, Ps.0 and Ps.80,634, respectively, under the caption salaries and benefits.

8.  Other accounts receivable, net
An analysis of other accounts receivable as of December 31, 2021 and 2020, is detailed below:

	    	2021	    	2020	
Current:							
Credit cards		Ps.	760,016		Ps.	231,260	
Other points of sales			140,952			67,315	
Cargo clients			51,790			45,201	
Travel agencies and insurance commissions		 	33,864		 	16,099	
Other accounts receivable		 	33,688		 	87,204	
Employees		 	15,637		 	36,287	
Benefits from suppliers			10,616			105,947	
Marketing services receivable		 	706		 	4,020	
Airport services			—			15	
			1,047,269			593,348	
Allowance for expected credit losses		 	(12,665)		 	(32,708)	
		Ps.	1,034,604		Ps.	560,640	

Accounts receivable have the following aging:

	    	2021	    	2021	    	Total	    	2020	    	2020	    	Total	
Days	    	Impaired 	    	Not impaired 	    	2021	    	Impaired 	    	Not impaired 	    	2020	
0–30		Ps.	10,347		Ps.	976,313		Ps.	986,660		Ps.	4,090		Ps.	486,001		Ps.	490,091	
31–60		 	—		 	27,411		 	27,411		 	—		 	13,872		 	13,872	
61–90		 	—		 	8,453		 	8,453		 	—		 	6,081		 	6,081	
91–120		 	2,318		 	22,427		 	24,745		 	28,618		 	54,686		 	83,304	
		Ps.	12,665		Ps.	1,034,604		Ps.	1,047,269		Ps.	32,708		Ps.	560,640		Ps.	593,348	

The movement in the allowance for credit losses from January 1, 2019 to December 31, 2021 is as follows:

Balance as of January 1st, 2019	    	Ps.	(11,304)	
Write-offs		 	11,389	
Increase in allowance		 	(40,393)	
Balance as of December 31, 2019		 	(40,308)	
Write-offs		 	21,264	
Increase in allowance		 	(13,664)	
Balance as of December 31, 2020		 	(32,708)	
Write-offs		 	36,161	
Increase in allowance		 	(16,118)	
Balance as of December 31, 2021		Ps.	(12,665)	

An allowance for expected credit losses on accounts receivables is established in accordance with the information mentioned in Note 1f) ii).

F-61

Table of Contents
9.  Inventories
An analysis of inventories as of December 31, 2021 and 2020 is as follows:

	    	2021	    	2020	
Spare parts and accessories of flight equipment		Ps.	296,345		Ps.	271,454	
Miscellaneous supplies		 	—		 	7,505	
		Ps.	296,345		Ps.	278,959	

The inventory items are consumed during or used mainly in delivery of in-flight services and for maintenance services by the Company and are valued at the lower of cost or replacement value. The Company recognizes the necessary estimates for decreases in the value of its inventories due to impairment, obsolescence, slow movement and causes that indicate that the use or realization of the aircraft spare parts and flight equipment accessories that are part of the inventory will be less than recorded value. During the years ended as of December 31, 2021, 2020 and 2019, the amount of consumption of inventories, recorded as an operating expense as part of maintenance expense was Ps.312,462, Ps.234,691 and Ps.284,687, respectively.

10.  Prepaid expenses and other current assets
An analysis of prepaid expenses and other current assets at December 31, 2021 and 2020 is as follows:

	    	2021	    	2020	
Other prepaid expenses		Ps.	214,874		Ps.	81,803	
Sales commission to travel agencies (Note 1d)			190,052			151,342	
Advances to suppliers		 	175,830		 	163,044	
Flight credits		 	123,964		 	389,927	
Prepaid insurance		 	85,418		 	64,309	
		Ps.	790,138		Ps.	850,425	

11.  Guarantee deposits
An analysis of this caption as of December 31, 2021 and 2020 is as follows:

	    	2021	    	2020	
Current asset:	 		  	 		  	
Credit letters deposits		Ps.	1,127,302		Ps.	829,918	
Aircraft maintenance deposits paid to lessors (Note 1j)			434,866			279,390	
Deposits for rental of flight equipment		 	34,723		 	23,584	
Other guarantee deposits		 	28,995		 	9,064	
		 	1,625,886		 	1,141,956	
Non-current asset:		 			 		
Aircraft maintenance deposits paid to lessors (Note 1j)		 	8,320,612		 	7,641,544	
Deposits for rental of flight equipment		 	1,029,323		 	741,871	
Other guarantee deposits		 	23,219		 	41,323	
		 	9,373,154		 	8,424,738	
		Ps.	10,999,040		Ps.	9,566,694	

F-62

Table of Contents
12.  Rotable spare parts, furniture and equipment, net

		Gross value 		Accumulated depreciation 		Net carrying value 	
	    	At December	    	At December	    	At December	    	At December	    	At December	    	At December	
	    	31, 2021	    	31, 2020	    	31, 2021	    	31, 2020	    	31, 2021	    	31, 2020	
Leasehold improvements to flight equipment		Ps.	5,328,605		Ps.	5,092,049		Ps.	(2,696,788)		Ps.	(3,354,166)		Ps.	2,631,817		Ps.	1,737,883	
Pre-delivery payments*		 	5,224,632		 	4,920,126		 	—		 	—		 	5,224,632		 	4,920,126	
Flight equipment		 	2,193,686		 	1,689,473		 	(1,330,958)		 	(1,223,560)		 	862,728		 	465,913	
Construction and improvements in process		 	545,941		 	53,545		 	—		 	—		 	545,941		 	53,545	
Constructions and improvements		 	153,485		 	175,407		 	(127,845)		 	(148,391)		 	25,640		 	27,016	
Office furniture and equipment			60,362			67,035			(34,596)			(35,309)			25,766			31,726	
Computer equipment		 	28,813		 	49,945		 	(24,693)		 	(42,126)		 	4,120		 	7,819	
Workshop machinery and equipment		 	22,679		 	20,574		 	(8,243)		 	(7,641)		 	14,436		 	12,933	
Communications equipment		 	12,049		 	14,803		 	(7,453)		 	(9,038)		 	4,596		 	5,765	
Motorized transport equipment platform		 	11,542		 	15,247		 	(3,358)		 	(7,924)		 	8,184		 	7,323	
Electric power equipment		 	11,011		 	20,448		 	(5,057)		 	(12,773)		 	5,954		 	7,675	
Service carts on board		 	9,216		 	9,216		 	(6,874)		 	(6,112)		 	2,342		 	3,104	
Workshop tools		 	8,664		 	27,727		 	(7,516)		 	(24,398)		 	1,148		 	3,329	
Allowance for obsolescence			—			(3,000)			—			—			—			(3,000)	
Total		Ps.	13,610,685		Ps.	12,152,595		Ps.	(4,253,381)		Ps.	(4,871,438)		Ps.	9,357,304		Ps.	7,281,157	

* During the years ended December 31, 2021 and 2020, the Company capitalized borrowing costs of Ps.143,966 and Ps.384,038, respectively. The amount of this line is net of disposals of capitalized borrowing costs related to sale and leaseback transactions of Ps.84,273 and Ps.401,862, respectively.

F-63

Table of Contents

																																														
	   			   			   			   		   			   			   	Motorized	   			   	Workshop	   			   						   		   		   			
				Constructions												transport					machinery		Service							Construction and		Leasehold				
		Flight		and		Computer		Office furniture		Electric power		Workshop		equipment		Communications		and		carts on		Allowance for		Pre-delivery		improvements		improvements to				
		equipment		improvements 		equipment 		and equipment		equipment 		Tools 		platform 		equipment 		equipment 		board 		obsolescence		payments 		in process 		flight equipment 		Total 	
Net balance as of December 31, 2019		Ps.	733,250		Ps.	40,950		Ps.	13,071		Ps.	36,660		Ps.	9,012		Ps.	4,852		Ps.	9,634		Ps.	5,777		Ps.	10,209		Ps.	2,121		Ps.	(3,000)		Ps.	4,507,770		Ps.	474,240		Ps.	1,540,788		Ps.	7,385,334	
Additions			668,376			128			1,648			733			—			851			—			—			—			1,541			—			2,185,902			176,607			646,219		 	3,682,005	
Disposals and transfers			(861,761)			—			—			—			—			—			—			—			—			—			—			(1,755,724)			(354,146)			—		 	(2,971,631)	
Borrowing costs, net*			—			—			—			—			—			—			—			—			—			—			—			(17,822)			—			—		 	(17,822)	
Other movements			—			2,317			713			101			36			—			222			1,083			4,273			—			—			—			(243,156)			235,509		 	1,098	
Depreciation			(73,952)			(16,379)			(7,613)			(5,768)			(1,373)			(2,374)			(2,533)			(1,095)			(1,549)			(558)			—			—			—			(684,633)		 	(797,827)	
As of December 31, 2020		 	465,913		 	27,016		 	7,819		 	31,726		 	7,675		 	3,329		 	7,323		 	5,765		 	12,933		 	3,104		 	(3,000)		 	4,920,126		 	53,545		 	1,737,883		 	7,281,157	
Cost		 	1,689,473		 	175,407		 	49,945		 	67,035		 	20,448		 	27,727		 	15,247		 	14,803		 	20,574		 	9,216		 	(3,000)		 	4,920,126		 	53,545		 	5,092,049		 	12,152,595	
Accumulated depreciation		 	(1,223,560)		 	(148,391)		 	(42,126)		 	(35,309)		 	(12,773)		 	(24,398)		 	(7,924)		 	(9,038)		 	(7,641)		 	(6,112)		 	—		 	—		 	—		 	(3,354,166)		 	(4,871,438)	
Net balance as of December 31, 2020		 	465,913		 	27,016		 	7,819		 	31,726		 	7,675		 	3,329		 	7,323		 	5,765		 	12,933		 	3,104		 	(3,000)		 	4,920,126		 	53,545		 	1,737,883		 	7,281,157	
Additions			517,234			—			1,470			63			1,938			1,708			4,796		 	—		 	4,173			—		 	—			1,130,669			547,220		 	1,755,614		 	3,964,885	
Disposals and transfers			(2,781)			(14)			(61)			(3,462)			(2,491)		 	(277)		 	(5,078)		 	(587)		 	(872)		 	—		 	3,000		 	(885,855)		 	(28,088)		 	—		 	(926,566)	
Borrowing costs, net*			—			—			—			—			—		 	—		 	—		 	—		 	—		 	—		 	—		 	59,692		 	—		 	—		 	59,692	
Other movements			—			14,899			522			3,010			—		 	—		 	3,579		 	431		 	130		 	—		 	—		 	—		 	(26,736)		 	4,313		 	148	
Depreciation			(117,638)			(16,261)		 	(5,630)		 	(5,571)		 	(1,168)		 	(3,612)		 	(2,436)		 	(1,013)		 	(1,928)		 	(762)		 	—		 	—		 	—		 	(865,993)		 	(1,022,012)	
As of December 31, 2021		 	862,728		 	25,640		 	4,120		 	25,766		 	5,954		 	1,148		 	8,184		 	4,596		 	14,436		 	2,342		 	—		 	5,224,632		 	545,941		 	2,631,817		 	9,357,304	
Cost		 	2,193,686		 	153,485		 	28,813		 	60,362		 	11,011		 	8,664		 	11,542		 	12,049		 	22,679		 	9,216		 	—		 	5,224,632		 	545,941		 	5,328,605		 	13,610,685	
Accumulated depreciation		 	(1,330,958)		 	(127,845)		 	(24,693)		 	(34,596)		 	(5,057)		 	(7,516)		 	(3,358)		 	(7,453)		 	(8,243)		 	(6,874)		 	—		 	—		 	—		 	(2,696,788)		 	(4,253,381)	
Net balance as of December 31, 2021		Ps.	862,728		Ps.	25,640		Ps.	4,120		Ps.	25,766		Ps.	5,954		Ps.	1,148		Ps.	8,184		Ps.	4,596		Ps.	14,436		Ps.	2,342		Ps.	—		Ps.	5,224,632		Ps.	545,941		Ps.	2,631,817		Ps.	9,357,304	

a)  On 2021, the Company acquired two NEO spare engines (based on the terms of the Pratt & Whitney purchase agreement FMP), which were accounted for a cost for a total amount of Ps.394,254 (US$19,082). The Company had identified the major components as separate parts at their respective cost. These major components of the engine are presented as part of the flight equipment and depreciated over their useful life.
b)  During the years ended December 31, 2021, 2020 and 2019, the Company capitalized borrowing costs which amounted to Ps.143,966, Ps.384,038 and Ps.456,313, respectively (Note 23). The rate used to determine the amount of borrowing cost was 2.76%, 3.58% and 5.10%, for the years ended December 31, 2021, 2020 and 2019, respectively.
c)  Depreciation expense for the years ended December 31, 2021, 2020 and 2019, was Ps.1,022,012, Ps.797,827 and Ps.587,849, respectively. Depreciation charges for the year are recognized as a component of operating expenses in the consolidated statements of operations.
d)  In October 2005 and December 2006, the Company entered into purchase agreements with Airbus and International Aero Engines AG (“IAE”) for the purchase of aircraft and engines, respectively. Under such agreements and prior to the delivery of each aircraft and engine, the Company agreed to make pre-delivery payments, which were calculated based on the reference price of each aircraft and engine, and following a formula established for such purpose in the agreements.

In 2011, the Company amended the agreement with Airbus for the purchase of 44 A320 family aircraft to be delivered from 2015 to 2020. The new order includes 14 A320CEO (“Current Engine Option Aircraft”) and 30 A320NEO. Additionally, during December 2017, the Company amended the agreement with Airbus for the purchase of 80 A320 family aircraft to be delivered from 2022 to 2026. The new order includes 46 A320NEO and 34 A321NEO. Under such agreement and prior to the delivery of each aircraft, the Company agreed to make pre-delivery payments, which shall be calculated based on the reference price of each aircraft, and following a formula established for such purpose in the agreement.
F-64

Table of Contents
In November 2018, the Company amended the agreement with Airbus to reschedule the remaining 26 fleet deliveries between 2019 and 2022. Also, in this amendment the Company used its rights on the Airbus Purchase Agreement to convert six A320NEO into A321NEO. In July 2020, the Company amended the agreement with Airbus to reschedule the 80 aircraft deliveries between 2023 and 2028. In October 2020, the Company amended the agreement with Airbus to reschedule the remaining 18 fleet deliveries between 2020 and 2022.
In 2021, the Company amended the agreement with Airbus for the purchase of 39 A320 family aircraft to be delivered from 2023 to 2029. The new order includes only A321NEO aircraft. Under such agreement and prior to the delivery of each aircraft, the Company agreed to make pre-delivery payments, which shall be calculated based on the reference price of each aircraft, and following a formula established for such purpose in the agreement. Also, in this agreement the Company used its rights on the Airbus Purchase Agreement to convert twenty A320NEO into A321NEO.
On August 16, 2013, the Company entered into certain agreements with IAE and United Technologies Corporation Pratt & Whitney Division (“P&W”), which included the purchase of the engines for 14 A320CEO and 30 A320NEO respectively, to be delivered between 2014 and 2022. This agreement also included the purchase of one spare engine for the A320CEO fleet (which was received during the fourth quarter of 2016) and six spare engines for the A320NEO fleet to be received from 2017 to 2022. In November 2015, the Company amended the agreement with the engine supplier to provide major maintenance services for the engines of sixteen aircrafts (10 A320NEO and 6 A321NEO). This agreement also includes the purchase of three spare engines, two of them for the A320NEO fleet, and one for the A321NEO fleet. In April 2021, the Company amended the agreement with the engine supplier to provide major maintenance services for the engines of two aircrafts A320NEO.
On May 12, 2020, the Company entered into certain agreements with IAE and United Technologies Corporation Pratt & Whitney Division (“P&W”), which included the purchase of the engines for 46 A320NEO and 34 A321NEO respectively, to be delivered between 2022 and 2028. This agreement also included the purchase of eleven firm spare engines for the A320NEO fleet to be received from 2022 to 2029.
In October 2021, the Company amended the agreement with the engine supplier to provide major maintenance services for the engines of thirteen aircrafts (all A320NEO). This agreement also includes the purchase of one spare engine for the A320NEO fleet.
The Company received credit notes from P&W in December 2017 of Ps.58,530 (USD$3.06 million), which are being amortized on a straight-line basis, prospectively during the term of the agreement. As of December 31, 2021 and 2020, the Company amortized a corresponding benefit from these credit notes of Ps.4,878 and Ps.4,878, respectively, which is recognized as an offset to maintenance expenses in the consolidated statements of operations.
During the years ended December 31, 2021 and 2020, the amounts paid for aircraft and spare engine pre-delivery payments were of Ps.1,130,669 (USD$55,639 million) and Ps.2,185,902 (USD$102.7 million), respectively.
The current purchase agreement with Airbus requires the Company to accept delivery of 132 Airbus A320 family aircraft during a period of nine years (from January 2022 to November 2029). The agreement provides for the addition of 132 Aircraft to its fleet as follows: thirteen in 2022, five in 2023, seventeen in 2024, sixteen in 2025, twenty-seven in 2026, twenty-one in 2027, nineteen 2028 and fourteen in 2029. Commitments to acquisitions of property and equipment are disclosed in Note 25.
During the years ended December 31, 2021, 2020 and 2019 the Company entered into aircraft and spare engines sale and leaseback transactions, resulting in gains of Ps.195,552, Ps.710,522 and Ps.284,759, respectively, these were recorded under the caption other operating income in the consolidated statement of operations, that represented only the amount of gains that relate to the rights transferred to the buyer-lessor. (Note 22).
F-65

Table of Contents
d)  During December 2017, the Company entered into an updated total support agreement with Lufthansa for 66 months, with an effective date on July 1, 2018. This agreement includes similar terms and conditions as the original agreement.
As part of this agreement, the Company received credit notes of Ps.28,110 (USD$1.5 million), which are being amortized on a straight-line basis, prospectively during the term of the agreement. As of December 31, 2021, 2020 and 2019, the Company amortized a corresponding benefit from these credit notes of Ps.5,230, Ps.5,230 and Ps.5,230, respectively, recognized as an offset to maintenance expenses in the consolidated statements of operations.
e)  On September 5, 2019, the Company acquired one previously leased A319 aircraft from the lessor, which was accounted for a cost for a total amount of Ps.392,076 (USD$19,600). This transaction did not generate any gain or loss in our consolidated statements of operations.
The Company identified the major components as separate parts at their respective cost. These major components of the aircraft are presented as part of the aircraft and depreciated over their useful life. During December 2019, the Company sold acquired aircraft engines in a sale and lease back transaction.
As of December 31, 2021 and 2020 the carrying amount of the remaining owned aircraft was Ps.7,859 and Ps.47,039, respectively, and for the years ended December 31, 2021, 2020 and 2019 the depreciation expense was Ps.39,179, Ps.5,946, and 1,787, respectively.

F-66

Table of Contents
13.  Intangible assets, net
The composition and movement of intangible assets is as follows:

		Useful		Gross value 		Accumulated amortization		Net carrying amount	
	
		Life		At December 31,	
	    	years	    	2021	    	2020	    	2021	    	2020	    	2021	    	2020	
Software	 	1 - 4			Ps.	844,917		Ps.	704,257		Ps.	(584,902)		Ps.	(512,695)		Ps.	260,015		Ps.	191,562	

Balance as of January 1st, 2020	    	Ps.	167,397	
Additions		 	124,724	
Disposals		 	—	
Amortization		 	(100,618)	
Exchange differences			59	
Balance as of December 31, 2020			191,562	
Additions		 	205,692	
Disposals		 	(25)	
Amortization		 	(137,212)	
Exchange differences		 	(2)	
Balance as of December 31, 2021		Ps.	260,015	

The Company had implemented the SAP4HANA software. As a result of the analysis carried out, it was concluded that the Company controls the software, therefore it is the only beneficiary with respect to the configuration, since the settings made were customized according to the needs of the business. The costs directly attributable to the implementation were recognized as an intangible asset, the other costs different to the implementation were recognized in Net Income As of December 31, 2021, the capitalization for this implementation was Ps.90,187.
Software amortization expense for the years ended December 31, 2021, 2020 and 2019 was Ps.137,212, Ps.100,618 and Ps.87,667, respectively. These amounts were recognized in depreciation and amortization caption on the consolidated statements of operations.

14.   Leases
As of December 31, 2021 and 2020 the most significant leases are as follows:
a)  Aircraft and engines represent the Company’s most significant lease agreements. On December 31, 2021, the Company leases 100 aircraft (85 as of December 31, 2020) and 20 spare engines under lease agreements (18 as of December 31, 2020) that have maximum terms through 2033. These leases are generally guaranteed by either deposit in cash or letters of credits.
Composition of the fleet and spare engines, leases*:

Aircraft	    		    	At December	    	At December	
Type	    	Model 	    	31, 2021	    	31, 2020	
A319	 	132	 	3	 	3	
A319	 	133	 	2	 	2	
A320	 	233	 	39	 	39	
A320	 	232	 	1	 	1	
A320NEO	 	271N	 	39	 	24	
A321	 	231	 	10	 	10	
A321NEO		271N		6		6	
	 	  	 	100	 	85	

F-67

Table of Contents

Engine spare	    		    	At December	    	At December	
Type	    	Model 	    	31, 2021	    	31, 2020	
V2500		V2524-A5		2		2	
V2500	 	V2527M-A5	 	3	 	3	
V2500	 	V2527E-A5	 	5	 	5	
V2500	 	V2527-A5	 	4	 	2	
PW1100		PW1127G-JM		5		5	
PW1100		PW1133G-JM		1		1	
	 	  	 	20	 	18	

* Certain of the Company’s aircraft and engine lease agreements include an option to extend the lease term period. Management evaluates extensions based on the market conditions at the time of renewal.
During the year ended December 31, 2021, the Company added fifteen new leased aircraft to its fleet (five A320 NEO´s acquired through sale and leaseback transactions under our existing Airbus purchase agreement and ten obtained directly from the lessor’s aircraft order book). Also, the Company extended the lease term of thirteen A320CEO (effective from 2022, 2023 and 2025) and two A319CEO (effective from 2021). All the aircraft incorporated through the lessor´s aircraft order were not subject to sale and leaseback transactions.
During the year ended December 31, 2021, the Company also incorporated two NEO spare engines. Such leases were not subject to sale and leaseback transactions. Also, the Company extended the lease term of three spare engines (two of them effective from February 2021 and the other from October 2021).
During the year ended December 31, 2020, the Company added seven new leased aircraft to its fleet (seven A320 NEO´s acquired through sale and leaseback transactions under our existing Airbus purchase agreement). Also, the Company returned three aircraft to their respective lessors.
During the year ended December 31, 2020, the Company also incorporated two NEO spare engines (based on the terms of the Pratt & Whitney purchase agreement FMP) and two CEO spare engines to its fleet. These four engines incorporated were subject to sale and leaseback transactions and their respective lease agreements were accounted for leases.
Set out below are the carrying amounts of right-of-use assets recognized and the movements during the period:

	    			    	Spare engine	    	Land and	    		
	    	Aircraft leases	    	leases	    	building leases	    	Total	
As of January 1st, 2020	 	Ps.	33,312,089		Ps.	677,198	 	Ps.	139,479		Ps.	34,128,766	
Additions	 	 	4,876,071		 	362,081	 	 	15,222		 	5,253,374	
Disposals			(17,742)			—			—			(17,742)	
Foreign exchange effect			—			—			795			795	
Depreciation on right of use assets	 	 	(4,763,928)		 	(210,079)	 	 	(74,969)		 	(5,048,976)	
As of December 31, 2020	 	 	33,406,490		 	829,200	 	 	80,527		 	34,316,217	
Additions			8,869,694			59,374			281,790			9,210,858	
Modifications			1,221,718			42,267			140,514			1,404,499	
Disposals	 	 	—		 	—	 	 	(5,536)		 	(5,536)	
Foreign exchange effect			—			—			(5)			(5)	
Depreciation on right of use assets			(5,124,774)			(235,732)			(102,119)			(5,462,625)	
As of December 31, 2021	 	Ps.	38,373,128		Ps.	695,109	 	Ps.	395,171		Ps.	39,463,408	

F-68

Table of Contents
Set out below are the carrying amounts of lease liabilities and the movements during the period:

	    	2021	    	2020	
As of January 1st,	 	Ps.	44,130,542		Ps.	40,517,045	
Additions	 		9,411,524			5,572,764	
Modifications			1,370,795			—	
Disposals			(5,898)			(231,566)	
Accretion of interest	 		2,582,391			2,218,982	
Foreign exchange effect	 		1,469,362			2,163,886	
Payments			(9,308,477)			(6,110,569)	
As of 31 December,		Ps.	49,650,239		Ps.	44,130,542	
Current	 	Ps.	5,842,492		Ps.	6,484,092	
Non-current		Ps.	43,807,747		Ps.	37,646,450	

The Company had total cash outflows for leases of Ps.9,308,477 in 2021 (Ps.6,110,569 in 2020 and Ps.6,499,802 in 2019).

The Company applied practical expedients to leases in accordance with IFRS 16 guidance on lease modification accounting for rent concessions for those lease modifications arising as a direct result of COVID-19.

The net impact on the consolidated statements of operations for 2020 was Ps.190,811, which reflects the changes to lease payments that arose from such concessions. During the year ended of December 31, 2021, the Company have not rent concessions for lease modifications arising as a direct result of COVID-19.

For the years ended December 31, 2021, 2020 and 2019 the amounts recognized in profit or loss were as follow:

	    	For the year ended	
		December 31, 2021	    	December 31, 2020	    	December 31, 2019	
Depreciation of right-of-use assets		Ps.	(5,462,625)		Ps.	(5,048,976)		Ps.	(4,702,971)	
Interest expense on lease liabilities and aircraft and engine lease return obligation (Note 23)		 	(2,603,820)		 	(2,350,250)		 	(2,128,162)	
Aircraft and engine variable expenses		 	(1,686,875)		 	(1,845,254)		 	(961,657)	
Total amount recognized in profit or loss		Ps.	(9,753,320)		Ps.	(9,244,480)		Ps.	(7,792,790)	

i)      Return obligations
The aircraft lease agreements of the Company also require that the aircraft and engines be returned to lessors under specific conditions of maintenance. The costs of return, which no case are related to scheduled major maintenance, are estimated and recognized ratably as a provision from the time it becomes likely such costs will be incurred and can be estimated reliably. These return costs are recognized on a straight-line basis as a component of variable lease expenses and the provision is included as part of other liabilities, through the remaining lease term.
The Company estimates the provision related to airframe, engine overhaul and limited life parts using certain assumptions including the projected usage of the aircraft and the expected costs of maintenance tasks to be performed. For the years ended December 31, 2021, 2020 and 2019, in relation with this provision the Company expensed as supplemental rent Ps.1,131,107, Ps.1,428,179 and Ps.680,964, respectively.
Extension options
Some lease contracts contain extension options, which the Company evaluates exercising once the lease period comes to its end based on the market conditions at such moment. The lease liabilities corresponding to leases on which it was decided to extend are remeasured for the period negotiated between the Company and the lessor.
F-69

Table of Contents
For the leases which it was decided to exercise the extension options during 2021, resulted in an increase in the lease liability and corresponding right of use assets by Ps.1,376,005.

15.  Accrued liabilities
a)  The detail of current accrued liabilities as of December 31, 2021 and 2020 is as follows:

	    	2021	    	2020	
Fuel and traffic accrued expenses	 	Ps.	1,819,353	 	Ps.	1,285,931	
Salaries and benefits			432,596			337,467	
Maintenance and aircraft parts accrued expenses			466,566			98,942	
Sales, marketing and distribution accrued expenses	 		386,388	 		179,342	
Accrued administrative expenses			196,856			122,729	
Maintenance deposits	 		170,158	 		174,549	
Deferred revenue from V Club membership			75,434			20,830	
Others			45,987			86,374	
Information and communication accrued expenses	 		40,899	 		35,359	
Supplier services agreement	 		23,763	 		10,634	
Benefits from suppliers	 		7,776	 		3,888	
Advances from travel agencies	 		65	 		242	
	 	Ps.	3,665,841	 	Ps.	2,356,287	

b)  Non-current accrued liabilities as of December 31, 2021 and 2020 is as follows:

	    	2021	    	2020	
Supplier services agreement		Ps.	15,704		Ps.	45,270	
Benefits from suppliers		 	9,071		 	16,847	
Other		 	5,588		 	4,581	
		Ps.	30,363		Ps.	66,698	

16. Other liabilities

	    	Balance as of	    			    			    	Balance as of	
		January 1,		Increase for					December 31, 	
	    	2021	    	the year 	    	Payments 	    	2021	
Aircraft and engine lease return obligation (Note 1q and 2i)		Ps.	2,504,484		Ps.	1,422,133		Ps.	(38,828)		Ps.	3,887,789	
Guarantee deposit (Note 1j)			250,000			—			(250,000)			—	
Employee profit sharing (Note 17)		 	14,417		 	262,667		 	(15,969)		 	261,115	
		Ps.	2,768,901		Ps.	1,684,800		Ps.	(304,797)		Ps.	4,148,904	
													
Current maturities		 	  		 	  		 	  		Ps.	712,903	
Non-current		 	  		 	  		 	  		Ps.	3,436,001	

F-70

Table of Contents

	    	Balance as of	    			    			    	Balance as of	
		January 1,		Increase for					December 31, 	
	    	2020	    	the year 	    	Payments 	    	2020	
Aircraft and engine lease return obligation (Note 1q and 2i)		Ps.	1,852,688		Ps.	2,126,401		Ps.	(1,474,605)		Ps.	2,504,484	
Guarantee deposit (Note 1j)			—			250,000			—			250,000	
Employee profit sharing (Note 17)		 	24,097		 	20,810		 	(30,490)		 	14,417	
		Ps.	1,876,785		Ps.	2,397,211		Ps.	(1,505,095)		Ps.	2,768,901	
													
Current maturities		 	  		 	  		 	  		Ps.	101,218	
Non-current		 	  		 	  		 	  		Ps.	2,667,683	

During the years ended December 31, 2021 and 2020 no cancellations or write-offs related to these liabilities were recorded. Since 2012, the Company holds a cobrand credit card agreement with Banco Invex, S.A., Institución de Banca Múltiple, Invex, Grupo Financiero Invex “Invex”. Through this agreement, Invex pays certain commissions to Volaris related to the cobrand credit card and Invex’s clients receive vouchers to be redeemed in different Volaris services under certain conditions. A portion of the voucher cost is paid by Volaris and the remaining amount by Invex. During the years ended December 31, 2021 and December 31, 2020, Invex prepaid certain commissions to Volaris, which were recorder in guarantee deposit as part of other liabilities.

17.  Employee benefits
The components of net period cost recognized in the consolidated statement of operations and the obligations for seniority premium for the years ended December 31, 2021, 2020 and 2019, are as follows:

	    	2021	    	2020	    	2019	
Analysis of net period cost:	 		  	 		  	 		  	
Current service cost		Ps.	8,611		Ps.	8,449		Ps.	8,214	
Interest cost on benefit obligation		 	2,585		 	2,630		 	1,872	
Net period cost		Ps.	11,196		Ps.	11,079		Ps.	10,086	

Changes in the defined benefit obligation are as follows:

	    	2021	    	2020	
Defined benefit obligation on January 1,		Ps.	50,627		Ps.	38,151	
Net period cost charged to profit or loss:		 			 	  	
Current service cost		 	8,611		 	8,449	
Interest cost on benefit obligation		 	2,585		 	2,630	
Remeasurement losses in other comprehensive income:		 			 		
Actuarial changes arising from changes in assumptions		 	9,279		 	2,651	
Payments made		 	(1,452)		 	(1,254)	
Others			12,023			—	
Defined benefit obligation on December 31, 		Ps.	81,673		Ps.	50,627	

F-71

Table of Contents
The significant assumptions used in the computation of the seniority premium obligations are shown below:

	    	2021	    	2020	    	2019	 	
Financial:	 	  	 	  	 	  		
Discount rate	 	7.84	%  	7.04	%  	7.18	%	
Expected rate of salary increases	 	5.50	%  	5.50	%  	5.50	%	
Annual increase in minimum salary	 	19.00%/4.50	% *	4.00	%  	4.00	%	
*19.00% applies to the General Zone and 4.50% to the Border Zone								
Biometric:	 		 		 			
Mortality (1)	 	EMSSA 09, CEPAL* 2010 EL SALVADOR, CEPAL*2010 COSTA RICA	 	EMSSA 09, CEPAL* 2010 EL SALVADOR, CEPAL*2010 COSTA RICA	 	EMSSA 09, CEPAL* 2010 EL SALVADOR, CEPAL*2010 COSTA RICA		
Disability (2)	 	IMSS-97	 	IMSS-97	 	IMSS-97		

(1)	Mexican Experience of social security (EMSSA), Economic Commission for Latin America and the Caribbean (CEPAL for its Spanish acronym).	
(2)	Mexican Experience of Instituto Mexicano del Seguro Social (IMSS).	

Accruals for short-term employee benefits (included as part of other liabilities). As of December 31, 2021 and 2020, respectively, are as follows:

	    	2021	    	2020	
Employee profit-sharing (Note 16)		Ps.	261,115		Ps.	14,417	

The key management personnel of the Company include the members of the Board of Directors (Note 7).

Sensitivity analysis

The reasonably possible variations at the date of the report, in one of the most significant actuarial assumptions, and assuming that the rest of the variables had remained constant, would have affected the benefit obligations defined as of December 31, 2021 in the amounts shown below:

	    			Present value of the defined benefit obligation	
				(Thousands Mexican pesos)	
Assumptions				Increase		Decrease	
Discount rate:		50 basis points		Ps.	78,054		Ps.	85,856	
Salary increase rate:	 	50 basis points	 	Ps.	82,294	 	Ps.	81,164	

18.  Share-based payments
a)  LTRP
On November 6, 2014, the shareholders of the Company and the shareholders of its subsidiary Servicios Corporativos, approved an amendment to the current LTRP for the benefit of certain key employees, based on the recommendations of the Board of Directors of the Company at its meetings held on July 24 and August 29, 2014. For such purposes on November 10, 2014 an irrevocable Administrative Trust was created by Servicios Corporativos and the key employees. The new plan was restructured and named LTIP, which consists of a share purchase plan (equity-settled transaction) and SARs plan (cash settled).
F-72

Table of Contents
On October 18, 2018, the Board of Directors of the Company approved a new long-term retention plan LTRP for certain executives of the Company, through which the beneficiaries of the plan, will receive shares of the Company once the service conditions are met. This plan does not include cash compensations granted through appreciation rights on the Company’s shares. The retention plans granted in previous periods under LTRP will continue in full force and effect until their respective due dates and the cash compensation derived from them will be settled according to the conditions established in each plan.
b)  LTIP
- Share purchase plan (equity-settled)
Under the share purchase plan (equity- settled), in November 2014 certain key employees of the Company were granted with a special bonus by an amount of Ps.10,831, to be used to purchase Company’s shares. The plan consisted in:

(i)	Servicios Corporativos granted a bonus to each key executive;	
(ii)	The bonus amount by Ps.7,059, net of withheld taxes, was transferred on November 11, 2014, as per the written instructions of each key employees, to the Administrative Trust for the acquisition of Series A shares of the Company through an intermediary authorized by the BMV based on the Administration Trust’s Technical Committee instructions;	
(iii)	Subject to specified terms and conditions set forth in the Administrative Trust, the acquired shares were in escrow under the Administrative Trust for its administration until the vesting period date for each key executive, date as of which the key executive can fully dispose of the shares and instruct as desired.	
(iv)	The share purchase plan provides that if the terms and conditions are not met by the vesting period date, then the shares would be sold in the BMV, and Servicios Corporativos would be entitled to receive the proceeds of the sale of shares.	
(v)	The key employees’ account balance will be tracked by the Administrative Trust. The Administrative Trust’s objectives are to acquire Series A shares on behalf of the key employees and to manage the shares granted to such key executive based on instructions set forth by the Technical Committee.	

As the Administrative Trust is controlled and therefore consolidated by Controladora, shares purchased in the market and held within the Administrative Trust are presented for accounting purposes as treasury stock in the consolidated statement of changes in equity.
In November 2021, 2020 and 2019, the extensions to the LTIP were approved, respectively by the Company’s shareholder’s and Company’s Board of Directors, respectively. The total cost of the extensions approved were Ps.104,698 (Ps.68,066 net of withheld taxes), Ps.92,132 (Ps.59,899 net of withheld taxes) and Ps.86,772 (Ps.56,407 net of withheld taxes), respectively. Under the terms of the incentive plan, certain key employees of the Company were granted a special bonus that was transferred to the Administrative Trust for the acquisition of Series A shares of the Company.
F-73

Table of Contents
As of December 31, 2021, 2020 and 2019, the number of shares into the Administrative Trust associated with the Company’s share purchase payment plans is as follows:

	    	Number of Series A		
	    	shares 		
Outstanding as of January 1st, 2019	 	3,553,295	*	
Purchased during the year	 	2,694,600		
Granted during the year	 	—		
Exercised/vested during the year	 	(959,614)		
Forfeited during the year		(173,090)		
Outstanding as of December 31, 2019	 	5,115,191		
Purchased during the year	 	3,159,763		
Granted during the year	 	—		
Exercised/vested during the year	 	(2,142,426)		
Forfeited during the year		(327,217)		
Outstanding as of December 31, 2020	 	5,805,311	*	
Purchased during the year	 	1,849,417		
Granted during the year	 	—		
Exercised/vested during the year	 	(2,612,575)		
Forfeited during the year	 	(551,732)		
Outstanding as of December 31, 2021	 	4,490,421	*	

* These shares are presented as treasury shares in the consolidated statement of financial position as of December 31, 2021, 2020 and 2019.
The vesting period of the shares granted under the Company’s share purchase plans is as follows:

Number of Series A	    		
shares	    	Vesting period 	
2,408,277	 	November  2022	
1,485,802	 	November 2023	
596,342	 	November  2024	
4,490,421	 	  	

In accordance with IFRS 2, the share purchase plans are classified as equity-settled transactions on the grant date. This valuation is the result of multiplying the total number of Series A shares deposited in the Administrative Trust and the price per share, plus the balance in cash deposited in the Administrative Trust.
For the years ended December 31, 2021, 2020 and 2019, the compensation expense recorded in the consolidated statement of operations amounted to Ps.89,464, Ps.75,040 and Ps.49,659, respectively. All shares held in the Administrative Trust are considered outstanding for both basic and diluted earnings (loss) per share purposes, since the shares are entitled to dividend if and when declared by the Company.
During 2021, 2020 and 2019, some key employees left the Company; therefore, the vesting conditions were not fulfilled. In accordance with the terms of the plan, Servicios Corporativos is entitled to receive the proceeds of the sale of such shares, the number of forfeited shares as of December 31, 2021, 2020 and 2019, were (551,732), (327,217) and (173,090), respectively.
- SARs (cash settled)
On November 6, 2014, the Company granted 4,315,264 SARs to key employees that entitle them to a cash payment and vest as long as the employee continues to be employed by the Company at the end of each anniversary, during a three - years period. The total amount of the appreciation rights granted under this plan at the grant date was Ps.10,831.
F-74

Table of Contents
Fair value of the SARs was measured at each reporting date. The carrying amount of the liability relating to the SARs as of December 31, 2019 was Ps.1,901. The retention plan granted in previous periods expired in November 2020.
The compensation cost is recognized in the consolidated statement of operations under the caption of salaries and benefits over the service period. During the years ended December 31, 2021, 2020 and 2019, the Company recorded an expense (benefit) of Ps.0, Ps. (1,901) and Ps.2,964, respectively, in the consolidated statement of operations.
The fair value of these SARs was estimated at the grant date and at each reporting date using the Black-Scholes option pricing model, taking into account the terms and conditions on which the SARs were granted.
During the year ended December 31, 2019, the Company made a cash payment to key employees related to the SARs plan in the amount of Ps.2,395.
Such payment was determined based on the increase in the share price of the Company from the grant date to the exercisable date.
During the year ended December 31, 2021 and 2020 the Company did not make a cash payment to key employees related to the SARs plan.
c)  MIP
- MIP I
In April 2012, the Board of Directors authorized a MIP for the benefit of certain key employees, subject to shareholders’ approval. On December 21, 2012, the shareholders approved the MIP consisting of: (i) the issuance of an aggregate of 25,164,126 Series A and Series B shares, representing 3.0% of the Company’s fully diluted capital stock; (ii) a grant of options to acquire shares of the Company or CPOs having shares as underlying securities for which, as long as certain conditions occur, the employees will have the right to request the delivery of those shares (iii) the creation of an Administrative Trust to deposit such shares in escrow until they are delivered to the officers or returned to the Company in the case that certain conditions do not occur; and (iv) the execution of share sale agreements setting forth the terms and conditions upon which the officers may exercise its shares at Ps.5.31 (five Mexican pesos 31/100) per share.
On December 24, 2012, the Administrative Trust was created, and the share sale agreements were executed. On December 27, 2012, the trust borrowed Ps.133,723 from the Company and immediately after; the trust paid the Company the same amount borrowed as purchase price for the shares.
The share sale agreements provide that the officers may pay for the shares at the same price upon the occurrence of either an initial public offering of the Company’s capital stock or a change of control and as long as they remain employees until the options are exercised, with a maximum term of ten years. Upon payment of the shares by the officers to the Management Trust, it must pay such amount back to the Company as repayment of the loan, for which the Company charges no interest.
The MIP has been classified as equity-settled, by which, the grant date, fair value is fixed and is not adjusted by subsequent changes in the fair value of capital instruments. Equity-settled transactions are measured at fair value at the date the equity benefits are conditionally granted to employees. The total cost of the MIP determined by the Company was Ps.2,722 to be recognized from the time it becomes probable the performance condition will be met over the vesting period. Total cost of the MIP related to the vested shares has been fully recognized in the consolidated statements of operations during the vesting years.
F-75

Table of Contents
This cost was determined by using the improved Binomial valuation model from Hull and White, on the date in which the plan had already been approved by the shareholders and a shared understanding of the terms and conditions of the plan was reached with the employees (December 24, 2012, defined as the grant date), with the following assumptions:

	    	2012	 	
Dividend yield (%)	 	0.00	%	
Volatility (%)	 	37.00	%	
Risk—free interest rate (%)	 	5.96	%	
Expected life of share options (years)	 	8.8		
Exercise share price (in Mexican pesos Ps.)	 	5.31		
Exercise multiple	 	1.1		
Fair value of the stock at grant date	 	1.73		

The expected volatility reflects the assumption that the historical volatility of comparable companies is indicative of future trends, which may not necessarily be the actual outcome.
Under the methodology followed by the Company, at the grant date and December 31, 2012, the granted shares had no positive intrinsic value.
In 2019, the key employees exercised 2,780,000 Series A shares. As a result, the key employees paid to the Management Trust Ps.14,773 corresponding to the exercised shares for the year ended December 31, 2019. During 2020, there were no exercised shares under the MIP. For the year ended December 31, 2021, the key employees exercised 7,653,981 Series A shares. As a result, the key employees paid to the Management Trust Ps.40,668 corresponding to the exercised shares for the year ended December 31, 2021.
Thereafter, the Company has received from the Management Trust the payment related to the exercised shares by the key employees as a repayment of the loan between the Company and the Management Trust.
Movements in share options
The following table illustrates the number of shares options and fixed exercise prices during the years 2021 and 2020:

	    			    			    	Total in	
		Number of share		Exercise price		thousands of	
	    	options 	    	in Mexican pesos 	    	Mexican pesos 	
Outstanding as of December 31, 2019	 	Ps.	7,653,981	 	Ps.	5.31	 	Ps.	40,668	
Granted during the year	 		—	 		—	 		—	
Forfeited during the year	 		—	 		—	 		—	
Exercised during the year	 		—	 		—	 		—	
Outstanding as of December 31, 2020	 		7,653,981			5.31			40,668	
Granted during the year	 		—		 	—		 	—	
Forfeited during the year	 		—		 	—		 	—	
Exercised during the year	 		(7,653,981)		 	5.31		 	(40,668)	
Outstanding as of December 31, 2021	 	Ps.	—		Ps.	—		Ps.	—	

As of December 31, 2021 all the share options were exercised. As of December 31, 2020, 7,653,981 share options pending to exercise were considered as treasury shares.
- MIP II
On February 19, 2016, the Board of Directors of the Company authorized an extension to the MIP for certain key employees. Such extension was modified as of November 6, 2016. Under MIP II, 13,536,960 share appreciation rights of our Series A shares were granted to be settled annually in cash in a period of five years in accordance with the established
F-76

Table of Contents
service conditions. In addition, a five-year extension to the period in which the employees can exercise MIP II once the SARs are vested was approved.
Fair value of the SARs is measured at each reporting period using a Black-Scholes option pricing model, taking into consideration the terms and conditions granted to the employees. The amount of the cash payment is determined based on the increase in our share price between the grant date and the settlement date.
The carrying amount of the liability relating to the SARs as of December 31, 2021 and 2020 was Ps.115,508 and Ps.177,770, respectively. The compensation cost is recognized in the consolidated statement of operations under the caption of salaries and benefits over the service period.
During the years ended December 31, 2021 and 2020, the Company recorded a (benefit) expense of Ps. (62,262) and Ps. 107,204, respectively, in the consolidated statement of operations. No SARs were exercised during 2021 and 2020.
The (benefit) expense recognized for the Company’s retention plans during the years 2021, 2020 and 2019 is shown in the following table:

	    	2021	    	2020	    	2019	
(Benefit) expense arising from cash-settled share-based payments transactions		Ps.	(62,262)		Ps.	105,303		Ps.	40,724	
Expense arising from equity-settled share-based payments transactions		 	89,464		 	75,040		 	49,659	
Total expense arising from share-based payments transactions		Ps.	27,202		Ps.	180,343		Ps.	90,383	

d) Board of Directors Incentive Plan (BoDIP)
Certain members of the Board of Directors of the Company receive additional benefits through a share-based plan, which has been classified as an equity-settled share-based payment and therefore accounted under IFRS 2 “Shared based payments”.
In April 2018, the Board of Directors of the Company authorized a Board of Directors Incentive Plan “BoDIP”, for the benefit of certain board members. The BoDIP grants options to acquire shares of the Company or CPOs during a five - year period with an exercise share price at Ps.32.23, Ps.9.74 and Ps.16.80 for the years ended 2021, 2020 and 2019, respectively, which was determined on the grant date. Under this plan, no service or performance conditions are required to the board members for exercise the option to acquire shares, and therefore, they have the right to request the delivery of those shares at the time they pay for them.
For such purposes on August 29, 2018 the Fideicomiso Irrevocable de Administración número CIB/3081 was created by Controladora Vuela Compañía de Aviación S.A.B de C.V as trustee and CIBanco, S.A., Institucion de Banco Multiple as trustor. The number of shares held as of December 31, 2021 and 2020 available to be exercised is 4,589,726 and 5,233,693, respectively.

F-77

Table of Contents
19.  Equity
As of December 31, 2021, the total number of the Company’s authorized shares was 1,165,976,677; represented by common registered shares, issued and with no par value, fully subscribed and paid, comprised as follows:

		Shares 				
	    	Fixed	    	Variable	    			
	    	Class I 	    	Class II 	    	Total shares 		
Series A shares (1)	 	10,478	 	1,108,452,326	 	1,108,462,804		
Series B shares (1)	 	13,702	 	57,500,171	 	57,513,873		
	 	24,180	 	1,165,952,497	 	1,165,976,677		
Treasury shares (Note 18)	 	—	 	(9,904,197)	 	(9,904,197)	(1)	
	 	24,180	 	1,156,048,300	 	1,156,072,480		

(1) The number of forfeited shares as of December 31, 2021 were 551,732, which are include in treasury shares.
As of December 31, 2020, the total number of the Company’s authorized shares was 1,165,976,677; represented by common registered shares, issued and with no par value, fully subscribed and paid, comprised as follows:

		Shares 				
	    	Fixed	    	Variable	    			
	    	Class I 	    	Class II 	    	Total shares 		
Series A shares (1)	 	10,478	 	1,077,914,326	 	1,077,924,804		
Series B shares (1)	 	13,702	 	88,038,171	 	88,051,873		
	 	24,180	 	1,165,952,497	 	1,165,976,677		
Treasury shares (Note 18)	 	—	 	(19,020,202)	 	(19,020,202)	(1)	
	 	24,180	 	1,146,932,295	 	1,146,956,475		

(1)	The number of forfeited shares as of December 31, 2020, were 327,217, which are include in treasury shares.	

On December 20, 2021, one of the Company’s shareholders concluded the conversion of 30,538,000 Series B Shares for the equivalent number of Series A Shares. This conversion had not impact either on the total number of outstanding shares nor on the earnings-per-share calculation.
On December 11, 2020, the Company announced the closing of an upsized primary follow-on equity offering in which the Company offered 134,000,000 of its Ordinary Participation Certificates (Certificados de Participación Ordinarios), or CPOs, in the form of American Depositary Shares, or ADSs, at a price to the public of USD11.25 per ADS in the United States and other countries outside of Mexico, pursuant to the Company’s shelf registration statement filed with the Securities and Exchange Commission. In connection with the offering, the underwriters exercised their option to purchase up to 20,100,000 additional CPOs in the form of ADSs. Each ADS represents 10 CPOs and each CPO represents a financial interest in one Series A share of common stock of the Company.
The net proceeds of USD$164,419,000 (after the deduction of the underwriters´ commission and expenses payable by the Company) obtained from the offering for general corporate purposes. The increase in capital stock amounted Ps.3,272,832.
All shares representing the Company’s capital stock, either Series A shares or Series B shares, grant the holders the same economic rights and there are no preferences and/or restrictions attaching to any class of shares on the distribution of dividends and the repayment of capital. Holders of the Company’s Series A common stock and Series B common stock are entitled to dividends when, and if, declared by a shareholders’ resolution. The Company’s revolving line of credit with Santander and Bancomext limits the Company’s ability to declare and pay dividends if the Company fails to comply with the payment terms thereunder. Only Series A shares from the Company are listed.
During the years ended December 31, 2021, 2020 and 2019 the Company did not declare any dividends.
F-78

Table of Contents
a)  Earnings (loss) per share
Basic earnings (loss) per share (“EPS or LPS”) amounts are calculated by dividing the net earnings (loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS (LPS) amounts are calculated by dividing the earnings (loss) attributable to ordinary equity holders of the parent (after adjusting for interest on the convertible preference shares, if any), by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares (to the extent that their effect is dilutive).
The following table shows the calculations of the basic and diluted earnings (loss) income per share for the years ended December 31, 2021, 2020 and 2019.

		As of  December 31, 	
		2021		2020		2019	
Net income (loss) for the period		Ps.	2,120,551		Ps.	(4,293,791)		Ps.	2,639,063	
Weighted average number of shares outstanding (in thousands):		 			 			 		
Basic		 	1,165,977		 	1,021,561		 	1,011,877	
Diluted		 	1,165,977		 	1,021,561		 	1,011,877	
EPS - LPS:		 			 			 	  	
Basic		Ps.	1.819		Ps.	(4.203)		Ps.	2.608	
Diluted		Ps.	1.819		Ps.	(4.203)		Ps.	2.608	

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of authorization of these financial statements.
b)  In accordance with the Mexican Corporations Act, the Company is required to allocate at least 5% of the net income of each year to increase the legal reserve. This practice must be continued until the legal reserve reaches 20% of capital stock. As of December 31, 2021, 2020 and 2019, the Company’s legal reserve was Ps.291,178, or 8.5%, 8.5% and 9.8% respectively of our capital stock. For the years ended December 31, 2021, 2020 and 2019, we did not allocate any amount to our legal reserve fund.
As of December 31, 2021, 2020 and 2019 the Company’s legal reserve has not reached the 20% of its capital stock.
c)  Any distribution of earnings in excess of the net tax profit account (Cuenta de utilidad fiscal neta or “CUFIN”) balance will be subject to corporate income tax, payable by the Company, at the enacted income tax rate at that time. A 10% withholding tax is imposed on dividends distributions to individuals and foreign shareholders from earnings generated starting January 1, 2014.Dividends paid will be free of Income taxes if they come from the (“CUFIN”). Dividends that exceed the CUFIN and the CUFINRE will cause a tax equivalent to 42.86%. Dividends paid that come from profits by the ISR will not be subject to any withholding or additional payment of taxes.
d)  Shareholders may contribute certain amounts for future increases in capital stock, either in the fixed or variable capital. Said contributions will be kept in a special account until the shareholders meeting authorizes an increase in the capital stock of the Company, at which time each shareholder will have a preferential right to subscribe and pay the increase with the contributions previously made. As it is not strictly regulated in Mexican law, the shareholders meeting may agree to return the contributions to the shareholders or even set a term in which the increase in the capital stock must be authorized.

20.  Income tax
a)  In accordance with the MITL, the Company and its Mexican subsidiaries are subject to income tax and each files its tax returns on an individual entity basis and the related tax results are included in the accompanying consolidated financial statements. The income tax is computed taking into consideration the taxable and deductible effects of inflation, such as
F-79

Table of Contents
depreciation calculated on Adjusted assets values. Taxable income is increased or reduced by the effects of inflation on certain monetary assets and liabilities through the annual inflation adjustment.

(i)	Based on the approved law, corporate income tax current rate for 2021, 2020 and 2019 and thereafter is 30%.	
(ii)	The tax rules include limits in the deductions of the exempt compensation amount certain items, as follows: Wages and benefits paid to workers 47% of income paid to workers and in certain cases up to 53% (holiday bonus, savings fund, employee profit sharing, seniority premiums) will be deductible for employers. As a result, certain wage and salary provisions have difference between tax and book values at year-end.	
(iii)	The MITL sets forth criteria and limits for applying some deductions, such as: the deduction of payments which, in turn, are exempt income for workers, contributions for creating or increasing provisions for pension funds, contributions to the Mexican Institute of Social Security payable by the worker that are paid by the employer, as well as the possible non-deduction of payments made to related parties in the event of failing to meet certain requirements.	
(iv)	Taxable income for purposes of the employee profit sharing is the same used for the Corporate Income Tax except for certain items.	
(v)	A 10% withholding tax is imposed on dividends distributions to individuals and foreign shareholders from earnings generated starting January 1, 2014.	

The income tax rates for 2021, 2020 and 2019 in Guatemala, Costa Rica and El Salvador are 25%, 30% and 30%, respectively.
b)  For the years ended December 31, 2021, 2020 and 2019, the Company reported on a combined basis taxable income of Ps.1,224,156, Ps.302,029 and Ps.938,304, respectively, which was partially offset by tax losses from prior years.
In accordance with the MITL and Costa Rican Income Tax Law (CRITL), tax losses may be carried forward against taxable income generated in the succeeding ten and three years, respectively. Carryforward tax losses are adjusted based on inflation.
In accordance with Guatemala Income Tax Law (GITL) and El Salvador Income Tax Law (ESITL), tax losses cannot be carried forward against taxable income generated.
c)  An analysis of consolidated income tax expense for the years ended December 31, 2021, 2020 and 2019 is as follows:
Consolidated statements of operations

	    	2021	    	2020	    	2019	 	
Current year income tax expense		Ps.	(347,803)		Ps.	(90,609)		Ps.	(281,491)		
Deferred income tax (expense) benefit		 	(246,125)	(1)		1,496,793	(2)	 	(813,340)	(3)	
Total income tax benefit (expense)		Ps.	(593,928)		Ps.	1,406,184		Ps.	(1,094,831)		

(1)    Includes translation effect by Ps. (2,015)
(2)    Includes translation effect by Ps.2,035
(3)    Includes translation effect by Ps. (2,278)
Consolidated statements of comprehensive income

	    	2021	    	2020	    	2019	
Deferred income tax related to items recognized in OCI during the year	 		  	 		  	 		  	
Net (loss) gain cash flow hedges		Ps.	(5,655)		Ps.	46,835		Ps.	(74,820)	
Remeasurement gain of employee benefits		 	2,850		 	794		 	3,058	
Deferred income tax recognized in OCI		Ps.	(2,805)		Ps.	47,629		Ps.	(71,762)	

F-80

Table of Contents
d)  A reconciliation of the statutory corporate income tax rate to the Company’s effective tax rate for financial reporting purposes is as follows:
The Company’s using domestic tax rate

	    	2021	    	%	    	2020	    	%	    	2019	    	%	 	
Statutory income tax rate	 	814,344		30.00	%  	(1,709,992)		30.00	%  	1,120,168		30.00	%	
Amendment tax return effects and other tax adjustments	 	93		(0.01)	%  	(53,192)		0.92	%  	(18,770)		(0.51)	%	
Inflation on furniture, intangible and equipment	 	(48,751)		(1.79)	%  	(17,442)		0.29	%  	(17,839)		(0.48)	%	
Inflation of tax losses		(41,375)		(1.52)	%	(13,512)		0.23	%	(8,018)		(0.21)	%	
Foreign countries difference with Mexican statutory rate		2,609		0.10	%	3,509		(0.06)	%	4,143		0.11	%	
Annual inflation adjustment	 	(167,294)		(6.16)	%  	51,768		(0.91)	%  	(1,882)		(0.05)	%	
Recorded deferred taxes on tax losses		(9,123)		(0.34)	%	74,597		(1.29)	%	10,025		0.27	%	
Non-deductible expenses		43,425		1.60	%	258,080		(4.51)	%	7,004		0.19	%	
	 	593,928		21.88	%  	(1,406,184)		24.67	%  	1,094,831		29.32	%	

Mexican income tax matters
For Mexican purposes, corporate income tax is computed on accrued basis. MITL requires taxable profit to be determined by considering revenue net of tax deductions. Prior years’ tax losses can be utilized to offset current year taxable income. Income tax is determined by applying the 30% rate on the net amount after tax losses utilization. For tax purposes, income is considered taxable at the earlier of: (i) the time the revenue is collected, (ii) the service is provided or (iii) the time of the issuance of the invoice. Expenses are deductible for tax purposes generally on accrual basis, with some exceptions, once the requirements established in the tax law are fulfilled.
Central America (Guatemala, Costa Rica and El Salvador)
According to Guatemala Corporate Income tax law, under the regime on profits from business activities, net operating losses cannot offset taxable income in prior or future years. For the years ended December 31, 2021, 2020 and 2019, our subsidiary in Guatemala generated net operating losses of Ps.664, Ps.1,835 and Ps.1,085, respectively. According to Costa Rica Corporate Income tax law, under the regime on profits from business activities, net operating losses can offset taxable income in a term of three years. For the years ended December 31, 2021, 2020 and 2019, our subsidiary in Costa Rica generated net operating losses for an amount of Ps.122,427, Ps.55,751 and Ps.50,246, respectively, for which no deferred tax asset has been recognized. According to El Salvador Corporate Income tax law, under the regime on profits from business activities, net operating losses cannot offset taxable income in prior or future years. For the year ended December 31, 2021, 2020 and 2019, our subsidiary in El Salvador generated net operating losses for an amount of Ps.53,550, Ps.16,619, Ps.32,494 respectively.
F-81

Table of Contents
e)  An analysis of consolidated deferred taxes is as follows:

		2021		2020	
		Consolidated		Consolidated		Consolidated		Consolidated	
		statement of		statement of		statement of		statement of	
	    	financial position	    	operations 	    	financial position 	    	operations 	

Deferred income tax assets:	 		  	 		  	 		  	 		  	
Lease liability		Ps.	13,969,589		Ps.	730,335		Ps.	13,239,254		Ps.	1,084,140	
Unearned transportation revenue		 	201,436		 	(1,032,225)		 	1,233,661			436,598	
Extension lease agreement		 	1,073,547		 	300,104		 	773,443		 	314,100	
Tax losses available for offsetting against future taxable income		 	100,472		 	(475,950)		 	576,422		 	272,452	
Intangible			395,752			(25,156)			420,908			(25,941)	
Allowance for doubtful accounts		 	131,486		 	69,921		 	61,565		 	47,476	
Employee benefits		 	10,432		 	(7,609)		 	15,191		 	2,934	
Derivative Financial instruments			2,293			—			7,948			(22)	
Employee profit sharing		 	1,870		 	(2,453)		 	4,323		 	(2,904)	
Non derivative financial instruments			—			473,242			(473,242)			(477,471)	
		 	15,886,877		 	30,209		 	15,859,473		 	1,651,362	
Deferred income tax liabilities:		 			 	  		 	  		 	  	
Right of use asset			9,552,956			(739,797)			10,292,753			55,824	
Supplemental rent		 	1,303,975		 	(574,890)		 	1,878,865		 	171,916	
Rotable spare parts, furniture and equipment, net		 	1,270,758		 	563,666		 	707,092		 	(177,384)	
Provisions			539,911			448,658			91,253			442,598	
Inventories		 	87,592		 	4,190		 	83,402		 	(6,885)	
Other prepayments		 	22,907		 	13,121		 	9,786		 	(17,942)	
Prepaid expenses and other assets			431,241			563,703			(132,462)			(311,523)	
		 	13,209,340		 	278,651		 	12,930,689		 	156,604	
		Ps.	2,677,537		Ps.	(248,442)		Ps.	2,928,784		Ps.	1,494,758	

Reflected in the consolidated statement of financial position as follows:

	    	2021	    	2020	
	 		  	 		  	
Deferred tax assets		Ps.	2,907,879		Ps.	3,128,555	
Deferred tax liabilities		 	(230,342)		 	(199,771)	
Deferred tax assets, net		Ps.	2,677,537		Ps.	2,928,784	

A reconciliation of deferred tax asset, net is as follows:

	    	2021	    	2020	
Opening balance as of January 1,		Ps.	2,928,784		Ps.	1,386,397	
Deferred income tax (expense) benefit during the current year recorded on profits*		 	(248,442)		 	1,494,758	
Deferred income tax (expense) benefit during the current year recorded in accumulated other comprehensive income (loss)		 	(2,805)		 	47,629	
Closing balance as of December 31, 		Ps.	2,677,537		Ps.	2,928,784	

*Includes the tax effect of the discontinuation of the hedging reserve by 473 million.

On December 31, 2021 and 2020 the table shown above includes deferred income tax asset recognized by Comercializadora (2021 and 2020) for tax losses carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
F-82

Table of Contents
According to IAS 12, Income Taxes, a deferred tax asset should be recognized for the carry-forward of available tax losses to the extent that it is probable that future taxable income will be available against which the available tax losses can be utilized. In these regards, the Company has recognized on December 31, 2021, 2020 and 2019 a deferred tax asset for tax losses of Ps.100,472, Ps.576,422 and Ps.303,970 respectively.
During 2020, the Company recognized a deferred tax asset for the carry-forward of available tax losses of Concesionaria and Comercializadora, based on the positive evidence of the Company to generate taxable profit related to the same taxation authority against which the available tax losses can be utilized before they expire. Positive evidence includes Concesionaria’s actions to increase its aircraft fleet in the following years, increase in flight frequencies, and routes, inside and outside of Mexico; the profit of Comercializadora, is derived directly from Concesionaria’s operations.
The temporary differences associated with investments in the Company’s subsidiaries, for which a deferred tax liability has not been recognized in the periods presented, aggregate to Ps.157,422 (2020: Ps.150,683). The Company has determined that the undistributed profits of its subsidiaries will not be distributed in the foreseeable future. The Company has an agreement with its associate that the profits of the associate will not be distributed until it obtains the consent of the Company. The Company does not anticipate giving such consent at the reporting date. Furthermore, the Group’s joint venture will not distribute its profits until it obtains the consent of all venture partners.
An analysis of the available tax losses carry-forward of the Company at December 31, 2021 is as follows:

Year	    	Historical	    	Inflation adjusted	    			    	Total remaining	    	Year of	
of loss	    	Loss	    	tax loss	    	Utilized	    	amount	    	expiration	
2017		Ps.	1,067,836		Ps.	1,278,913		Ps.	1,278,913		Ps.	—		2027	
2018			1,142			1,142			—			1,142	 	2021	
2019		 	4,922		 	5,568		 	—		 	5,568	 	2029	
2019		 	30,918		 	30,918		 	—		 	30,918	 	2022	
2020		 	863,847		 	943,026		 	883,401		 	59,625	 	2030	
2020			103,541			103,541			—			103,541	 	2023	
2021			122,427			122,427			—			122,427		2031	
2021			11,324			11,684			—			11,684		2024	
		Ps.	2,205,957		Ps.	2,497,219		Ps.	2,162,314		Ps.	334,905			

A breakdown of available tax loss carry-forward of Controladora and its subsidiaries on December 31, 2021 is as follows:

		Historical		Inflation adjusted					Total	 	
	    	loss	    	tax loss	    	Utilized	    	remaining amount	 	
Comercializadora		Ps.	54,101		Ps.	58,580		Ps.	—		Ps.	58,580		
Concesionaria		 	1,875,180		 	2,160,330		 	2,160,330		 	—		
Viajes Vuela			258,028			258,028			—			258,028		
Vuela Aviación		 	18,648		 	20,281		 	1,984		 	18,297		
		Ps.	2,205,957		Ps.	2,497,219		Ps.	2,162,314		Ps.	334,905		
Unrecognized NOLs												—		
											Ps.	334,905		
Tax rate												30	%	
Deferred income tax											Ps.	100,472		

f)  At December 31, 2021 the Company had the following tax balances:

	    	2021	
Adjusted contributed capital account (Cuenta de capital de aportación or “CUCA”)		Ps.	4,946,422	
CUFIN*		 	4,151,805	

*The calculation comprises all the subsidiaries of the Company.

F-83

Table of Contents
21. Operating Revenues
As of December 31, 2021, 2020 and 2019, the revenues from contracts with customers is described as follows:

	    	At the flight time		At the sale	    	Total	
Revenue recognition as of December 31, 2021	    	Domestic	    	International	    	Domestic	    	International	    	Revenues	
Passenger Revenues	 	  	 	  	 	  	 	  	 	  	 	  	 	  	 	
Fare Revenues	 	Ps.	17,466,759		Ps.	8,236,385	 	Ps.	—		Ps.	—	 	Ps.	25,703,144	
Other Passenger Revenues	 		14,376,043			3,049,608			135,992		 	32,580	 		17,594,223	
	 		31,842,802			11,285,993			135,992			32,580			43,297,367	
Non-Passenger Revenues	 		  	  	 	  	 	  	 	  	 	  	 		  	
Other Non-Passenger revenues	 		1,546,600			11,492			—		 	—	 		1,558,092	
Cargo	 		231,653			9,549			—		 	—	 		241,202	
Total	 	Ps.	33,621,055		Ps.	11,307,034	 	Ps.	135,992		Ps.	32,580	 	Ps.	45,096,661	
Non-derivative financial instruments	 				 	  	 	  	 	  	 	  	 	  	(434,522)	
	 													Ps.	44,662,139	

	    	At the flight time	    	At the sale		Total	
Revenue recognition as of December 31, 2020	    	Domestic	    	International	    	Domestic	    	International	    	Revenues	
Passenger Revenues	 	Ps.	8,455,647	  	Ps.	4,417,527	 	Ps.	—	  	Ps.	—	 	Ps.	12,873,174	
Fare Revenues	 		6,920,141			1,536,206			124,450			32,601			8,613,398	
Other Passenger Revenues	 		15,375,788			5,953,733			124,450			32,601			21,486,572	
	 		  			  			  							
Non-Passenger Revenues	 															
Other Non-Passenger revenues	 		875,610			6,750			—			—			882,360	
Cargo	 		196,349			5,532			—			—			201,881	
Total	 	Ps.	16,447,747		Ps.	5,966,015		Ps.	124,450		Ps.	32,601		Ps.	22,570,813	
Non-derivative financial instruments	 														(411,222)	
	 													Ps.	22,159,591	

	    	At the flight time	    	At the sale	    	Total	
Revenue recognition as of December 31, 2019	    	Domestic	    	International	    	Domestic	    	International	    	Revenues	
Passenger Revenues	 	  	 	  	 	  	 	  	 	  	 	  	 	  	 	
Fare Revenues	 	Ps.	15,833,878		Ps.	7,296,113	 	Ps.	—		Ps.	—	 	Ps.	23,129,991	
Other Passenger Revenues	 		7,531,725		 	2,865,555	 		119,466			52,462	 	  	10,569,208	
	 		23,365,603		 	10,161,668	 		119,466		  	52,462	 	  	33,699,199	
Non-Passenger Revenues	 	  	  		 	  	 	  	 		  	  	 	  	 	
Other Non-Passenger revenues	 		888,353		 	9,233	 		—			—	 	  	897,586	
Cargo	 		221,375		 	7,461	 		—			—	 	  	228,836	
Total	 	Ps.	24,475,331		Ps.	10,178,362	 	Ps.	119,466		Ps.	52,462	 	Ps.	34,825,621	
Non-derivative financial instruments	 				 	  	 	  	 	  	 	  	 	  	(72,949)	
	 			  	 	  	 	  	 	  	 	  	 	Ps.	34,752,672	

F-84

Table of Contents
Transactions from unearned transportation revenues

	    	2021	    	2020	
January 1,		Ps.	5,850,917		Ps.	3,679,926	
Deferred	 		43,703,458			23,657,563	
Recognized in revenue during the year	 		(43,297,367)			(21,486,572)	
December 31,	 	Ps.	6,257,008		Ps.	5,850,917	

The performance obligations related to contract liability are recognized over the following 12 months and are related to the scheduled flights and other passenger services purchased by the client in advance.

22.  Other operating income and expenses
An analysis of other operating income is as follows:

	    	2021	    	2020	    	2019	
Gain on sale and leaseback (Note 12)		Ps.	195,552		Ps.	710,522		Ps.	284,759	
Loss on sale of rotable spare parts, furniture and equipment			(2,571)			(2,604)			(8,954)	
Other income		 	24,857		 	22,415		 	51,403	
		Ps.	217,838		Ps.	730,333		Ps.	327,208	

An analysis of other operating expenses is as follows:

	    	2021	    	2020	    	2019	
Administrative and operational support expenses		Ps.	752,434		Ps.	632,041		Ps.	581,181	
Technology and communications		 	431,855		 	383,648		 	381,055	
Passenger services		 	76,107		 	87,850		 	65,477	
Insurance		 	74,499		 	53,507		 	74,661	
Others		 	1,897		 	194		 	10,553	
		Ps.	1,336,792		Ps.	1,157,240		Ps.	1,112,927	

23.  Finance income and cost
An analysis of finance income is as follows:

	    	2021	    	2020	    	2019	
Interest on cash and equivalents		Ps.	58,269		Ps.	93,122		Ps.	201,191	
Interest on asset backed trust notes		 	5,714		 	6,342		 	6,525	
Interest on recovery of guarantee deposits		 	7,595		 	2,047		 	83	
		Ps.	71,578		Ps.	101,511		Ps.	207,799	

F-85

Table of Contents
An analysis of finance cost is as follows:

	    	2021	    	2020	    	2019	
Interest expense on lease liabilities and aircraft and engine lease return obligation		Ps.	2,603,820		Ps.	2,350,250		Ps.	2,128,162	
Derivative financial instruments loss			—			448,559			—	
Interest on asset backed trust notes			115,578			116,240			80,314	
Cost of letter credit notes			61,549			73,141			49,856	
Bank fees and others		 	4,574		 	3,707		 	3,607	
Interest on debts and borrowings*		 	14,222		 	16,368		 	1,660	
Other finance costs		 	32,246		 	10,219		 	6,230	
		Ps.	2,831,989		Ps.	3,018,484		Ps.	2,269,829	

* The borrowing costs related to the acquisition or construction of qualifying assets are capitalized as part of the cost of the asset (Note 12). Interest expense not capitalized is related to the short-term working capital facility from Citibanamex.

	    	2021	    	2020	    	2019	
Interest on debts and borrowings		Ps.	158,188		Ps.	400,406		Ps.	457,973	
Capitalized interest (Note 12)		 	(143,966)		 	(384,038)		 	(456,313)	
Net interest on debts and borrowing in the consolidated statements of operations		Ps.	14,222		Ps.	16,368		Ps.	1,660	

24.  Components of other comprehensive (loss) income

	a.	An analysis of the other comprehensive (loss) income for the years ended December 31, 2021, 2020 and 2019 is as follows:	

	    			    	Derivative and	    	Exchange	    			
		Remeasurements		non-derivative		differences on				
		of employee		financial		the translation				
		benefits		instruments		of foreign		Total	
Other comprehensive (loss) income:	 			 			  	 	  	 	  	 	
Balance as of December 31, 2019	 	Ps.	(6,798)	 	Ps.	104,772		Ps.	18,266		Ps.	116,240	
Comprehensive (loss) income of the year	 		(2,651)	 		(1,747,686)			23,970			(1,726,367)	
Deferred Tax effect	 		794	 		46,835			—			47,629	
Balance as of December 31, 2020			(8,655)			(1,596,079)			42,236			(1,562,498)	
Comprehensive (loss) income of the year	 		(9,279)	 		1,596,327			(4,021)			1,583,027	
Deferred Tax effect	 		2,850	 		(5,655)			—			(2,805)	
Net balances as of December 31, 2021	 	Ps.	(15,084)	 	Ps.	(5,407)		Ps.	38,215		Ps.	17,724	

	b.	An analysis of the derivative financial instruments other comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019 is as follows:	

										
	    	2021	    	2020	    	2019	
Derivative and non-derivative financial instruments:	 		  	 		  	 		  	
Extrinsic value of changes on jet fuel Asian call options		Ps.	11,997		Ps.	(11,993)		Ps.	11,148	
Extrinsic value of changes on jet fuel Zero cost collars			9,657		 	(143,224)		 	256,515	
loss gain of the matured foreign currency forward contracts			—			—			(14,241)	
Loss of the interest rate Cap			(2,800)			(900)			(4,023)	
Non derivative financial instruments*			1,577,473			(1,591,569)			14,096	
Total		Ps.	1,596,327		Ps.	(1,747,686)		Ps.	263,495	

F-86

Table of Contents
*As of December 31, 2021, includes the effect of the discontinuation of the hedging strategies by Ps.2,251,442 as described in note 3b (i).

25.  Commitments and contingencies
Aircraft related commitments and financing arrangements
Committed expenditures for aircraft purchase and related flight equipment related to the Airbus purchase agreement, including estimated amounts for contractual prices escalations and pre-delivery payments, will be as follows:

	    			    	Commitment	
		Commitment		expenditures	
		expenditures in 		equivalent in	
		thousands of U.S.		thousands of	
	    	dollars	    	Mexican pesos(1)	
2022	 	US$	114,563		Ps.	2,358,108	
2023	 		314,660		 	6,476,797	
2024	 		903,776		 	18,602,869	
2025			981,657			20,205,930	
2026 and thereafter	 		4,362,996		 	89,805,726	
	 	US$	6,677,652		Ps.	137,449,430	

(1)	Using the exchange rate as of December 31, 2021 of Ps.20.5835.	

All aircraft acquired by the Company through the Airbus purchase agreement through December 31, 2021, have been executed through sale and leaseback transactions.
In addition, we have commitments to execute sale and leaseback over the next two years. The estimated proceeds from these commitments are as follows:

	    	Aircraft sale prices estimated 	
		in thousands of U.S. dollars	    	In thousands of Mexican pesos (1)	
2022		US$	705,500		Ps. 	14,521,659	
2023		 	108,000		 	2,223,018	
		US$	813,500		Ps.	16,744,677	

(1)	Using the exchange rate as of December 31, 2021 of Ps.20.5835.	

For future aircraft deliveries the Company will review the lease and financing structure applicable based on the then current market conditions.
The future lease payments for these non-cancellable sale and leaseback contracts are as follows:

		Aircraft leases	
		in thousands of U.S. 	    	In thousands of Mexican 	
		dollars		pesos (1)	
2022		US$	40,589		Ps.	835,464	
2023		 	75,098		 	1,545,780	
2024		 	79,244		 	1,631,119	
2025		 	79,244		 	1,631,119	
2026 and thereafter		 	676,748		 	13,929,842	
		US$	950,923		Ps.	19,573,324	

(1)	Using the exchange rate as of December 31, 2021 of Ps.20.5835.	

F-87

Table of Contents
Purchase of additional A320 New Engine Option (“NEO”) family aircraft
On December 28, 2017, the Company amended the agreement with Airbus, S.A.S. (“Airbus”) for the purchase of additional 80 A320NEO family aircraft to be delivered from 2022 to 2026, which was further amended in July 2020 to reschedule the deliveries between 2023 and 2028. Additionally, in November 2021 the Company entered into a new amendment to the referred agreement to purchase 39 additional A32O New Engine Option family Aircraft to be delivered between 2023 and 2029, all to support the Company’s targeted growth markets in Mexico, United States, Central America and South America.
Litigation
The Company is a party to legal proceedings and claims that arise during the ordinary course of business. Certain proceedings are considered possible obligations. Based on the plaintiffs’ claims, as of December 31, 2021 and 2020, these possible contingencies amount to a total of Ps.163 million and Ps.125 million respectively.

26.  Operating segments
The Company is managed as a single business unit that provides air transportation services. The Company has two geographic segments identified below:

	    	2021	    	2020	    	2019	
Operating revenues:	 		  	 		  	 		  	
Domestic (Mexico)		Ps.	33,754,354		Ps.	16,572,198		Ps.	24,594,797	
International:		 			 	  		 	  	
United States of America, Central America and South America (1)		 	11,342,307		 	5,998,615		 	10,230,824	
Non-derivative financial instruments			(434,522)			(411,222)			(72,949)	
Total operating revenues		Ps.	44,662,139		Ps.	22,159,591		Ps.	34,752,672	

(1)	For the year ended December 31, 2021, the total revenue from international customers increased of Ps.5,343,692 compared to the year ended December 31, 2020.	

Revenues are allocated by geographic segments based upon the origin of each flight. The Company does not have material non-current assets located in foreign countries.

27.  Subsequent events
Subsequent to December 31, 2021 and through April 26, 2022:

a.	Conflict between Russia and Ukraine	

Following the recent geopolitical crisis in Eastern Europe, as of February 21st, 2022, the Russian Federation recognized the independence of the Ukrainian separatist regions of Donetsk and Luhansk in the Donbas region. On the day after, the Federal Council of Russia authorized use of military force abroad, which triggered an invasion of Ukraine by the Russian Armed Forces on February 24th, 2022.
The invasion was widely condemned internationally with several sanctions being imposed against Russia and Belarus. As a result, the global markets reacted negatively, with the fuel prices touching the highest price since 2008, amid global concerns on the commodity supply.

The airline industry has been impacted by the price and availability of fuel. However, the airline industry and the Company are implementing strategies to mitigate these effects.

F-88

Table of Contents

b.	On April 1st, 2022, the Company entered into an agreement with JSA International U.S. Holdings, LLC, which provides financing for pre-delivery payments in connection with our purchase of four A320 family aircraft.	

c.	At April 26, 2022, the Company has obtained financing for the pre-delivery payments with certain lessors in respect of 18 aircraft (including the four aircraft referenced in b) above) to be delivered in the years 2023 and 2024.	

F-89

Exhibit 8.1
Subsidiaries of Controladora Vuela Compañía de Aviación, S.A.B. de C.V.
The following chart lists each of our subsidiaries which we owned, directly or indirectly, as of December 31, 2021, and April 26, 2022:

	1.	Concesionaria Vuela Compañía de Aviación, S.A.P.I. de C.V., a variable capital investment promotion stock corporation organized under the laws of Mexico	

	2.	Comercializadora Volaris, S.A. de C.V., a variable capital stock corporation organized under the laws of Mexico	

	3.	Servicios Corporativos Volaris, S.A. de C.V., a variable capital stock corporation organized under the laws of Mexico	

	4.	Vuela, S.A., a corporation organized under the laws of Guatemala	

	5.	Servicios Earhart, S.A., a corporation organized under the laws of Guatemala	

	6.	Vuela Aviación, S.A., a corporation organized under the laws of Costa Rica	

	7.	Comercializadora V. Frecuenta, S.A. de C.V., a variable capital stock corporation organized under the laws of Mexico	

	8.	Viajes Vuela, S.A. de C.V., a variable capital stock corporation organized under the laws of Mexico	

	9.	Vuela El Salvador, S.A. de C.V., a corporation organized under the laws of El Salvador	

	10.	Guatemala Dispatch Service, S.A., a corporation organized under the laws of Guatemala	

Exhibit 12.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Enrique Beltranena, certify that:

1.	I have reviewed this annual report on Form 20-F of Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (the “Company”);	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;	

4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:	

	a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

	b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

	c.	evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

	d.	disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and	

5.	The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):	

	a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and	

	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.	

Date: April 26, 2022

	By:	/s/ Enrique Beltranena	
		Enrique Beltranena	
		President and Chief Executive Officer	

Exhibit 12.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jaime E. Pous, certify that:

1.	I have reviewed this annual report on Form 20-F of Controladora Vuela Compaiiia de Aviaci6n, S.A.B. de C.V. (the "Company");	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;	

4.	The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internalcontrol over financial reporting {as defined in Exchange Act Rules 13a-15{f) and 15d-15{f)) for the Company and have:	

	a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

	b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

	c.	evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

	d.	disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and	

5.	The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors {or persons performing the equivalent functions):	

	a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and	

	b.	any fraud, whether or not material, that involves management or other employees who have asignificant role in the Company's internal control over financial reporting.	

Date: April 26, 2022

	By:	/s/ Jaime E.Pous	
		Jaime E.Pous	
		Senior Vice President and Chief Financial Officer	

Exhibit 13.1
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002
Pursuant to 18 U .S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Controladora Vuela Compaftia de Aviaci6n, S.A.B. de C.V., a sociedad anonima bursatil de capital variable under the laws of Mexico (the "Company"), does hereby certify that, to the best of such officer's knowledge:

	1.	The accompanying Report of the Company on Form 20-F for the year ended December 31, 2021 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of l934; and	

	2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

Date:April 26, 2022

	By:	/s/ Enrique Beltranena	
		Enrique Beltranena	
		President and Chief Executive Officer	

	By:	/s/ Jaime E. Pous	
		Jaime E. Pous	
		Senior Vice President and Chief Financial Officer	

A signed original of this written statement required by Section 906 has been provided to Controladora Vuela Compafiia de Aviaci6n, S.A.B. de C.V. and will be retained by Controladora Vuela Compaiiia de Aviaci6n, S.A.B . de C.V.and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 15.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the registration statement (No. 333-249370) on Form F-3 of our reports dated April 26, 2022, with respect to the consolidated financial statements of Controladora Vuela Compañía de Aviación, S.A.B. de C.V. and the effectiveness of internal control over financial reporting.
/s/ KPMG Cardenas Dosal S.C.
Mexico City, Mexico
April 26, 2022

Exhibit 15.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use of our reports dated April 29, 2021, incorporated by reference in the Annual Report on Form 20-F of Controladora Vuela Compañía de Aviación, S.A.B. de C.V. for the year ended December 31, 2021, with respect to the consolidated financial statements of Controladora Vuela Compañía de Aviación, S.A.B. de C.V., and the effectiveness of internal control over financial reporting of Controladora Vuela Compañía de Aviación, S.A.B. de C.V. incorporated by reference in this Form 20-F.
/s/ Mancera, S.C.
A member practice of
Ernst & Young Global Limited
Mexico City, Mexico
April 26, 2022