April 20, 2018 / 10:56 PM / 3 months ago

Mexico's Volaris shares make hard landing on competition fears

MEXICO CITY (Reuters) - Mexican low-cost airline Volaris (VOLARA.MX) reported first-quarter results far below market expectations on Friday, sending its shares down by almost a fifth, and analysts said the company faces intense price competition and higher fuel costs.

FILE PHOTO: Passengers walk past the logo of Mexican low-cost air carrier Volaris at Benito Juarez International Airport in Mexico City, Mexico January 10, 2018. REUTERS/Daniel Becerril

Volaris shares slid 18.5 percent to 13.14 pesos per share, the worse decline since it went public.

Despite higher passenger traffic, Volaris posted an operating loss of 906 million pesos ($49.5 million) for the first three months of 2018, in what may presage a tough year for the company and the Mexican airline sector.

The stock fell to its lowest level since the end of February 2015.

“We can see a challenging panorama for the airlines because of high fuel costs and a lot of price competition,” Intercam analyst Erick Medina said.

The stiff competition is in part a result of a 2017 open skies agreement between Mexico and the United States that increased the number of flights from rivals, company executives said on an analyst call on Friday.

U.S. airlines such as Delta Air Lines Inc (DAL.N), United Continental Holdings Inc (UAL.N) and American Airlines Group Inc (AAL.O) are fierce competition for their Mexican counterparts for international traffic in and out of the country.

Analysts at Banorte also said exchange rate uncertainty was a risk for Volaris - given that its airplane lease and fuel costs are dollar-denominated - as Mexico renegotiates the North American Free Trade Agreement with Canada and the United States and faces elections on July 1 with a leftist candidate ahead in the polls.

Volaris said it was starting to buy currency hedges to guard against swings in its fuel costs.

Writing by Christine Murray; editing by Christian Plumb and Dan Grebler

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